From commodity status to brand equity
and profit leader

Background

• Declining profits in a highly undifferentiated category (argon, helium, hydrogen, oxygen, etc.) with relatively low barriers to entry.
  
  
• Increasing competition in a stagnant market where price had become the primary basis of competition. Customers and the sales force increasingly regarded the product as a commodity.
  
  
• A major management consulting firm recommended that Air Products restructure the business model or sell the business unit.

Diagnosis

• The gas market appeared schizophrenic: perceptually it looked like a commodity; behaviorally, it was clearly branded. Buyers had a good relationship with their suppliers and were not switching wantonly in search
  of better prices.
  
  
• Indeed, price was not as important as was previously thought—buyers were looking for services and promises that go beyond cost per cubic feet.
  
  
• The “perceptual commoditization” was a direct result of the homogenous strategies employed by Air Products and its competitors for decades.

Strategic Research

• Led by Jim Guill, Director of Marketing Services, Air Products undertook a study of a national cross-section of industrial gas decisionmakers in companies that purchased more than $25,000 of “air products” annually.
  
  
• This work assessed the needs, problems, and motivations of each group, as well as their perceptions of different brands. It also identified the most profitable segments and, for each, the most compelling sales
  message.
  
  
• This was followed by concept engineering and marketing plan modeling to uncover the most profitable service configurations and marketing plans.

Strategic Options

• The management consultant’s option—since AP was producing returns below the cost of capital, restructure the business model or sell the business unit.
  
  
• Continue to take the costs out of the business through downsizing and other measures in order to eek out higher margins.
  
  
• Introduce a new transformational strategy which positions the brand as a provider of high end industrial gas solutions and services, and not as a manufacturer of a commodity.

Strategic Choice

• Air Products and Copernicus developed and pilot tested a new, nationwide targeting, positioning, product, pricing and Go-To-Market strategy called “Project Platinum.”
  
  
• The strategy addressed what decision makers said they wanted: a partner who could help them run their plants, factories, hospitals, etc., more efficiently, more safely, and more professionally.
  
  
• Very importantly, the strategy called for a tight integration of marketing and the sales force; a foreign concept at most American companies.

Performance Results

• Within 18-months, Air Products began to transform itself from a company selling products to one marketing professional services.
  
  
• Customer and prospect reaction to the new services exceeded expectations.
  
  
• Brand equity jumped as buyers increasingly perceived
  Air Products as a partner rather than a vendor.
  
  
• Two years later, because of the strategy and general price increases, merchant gases became the most profitable division in the company and division executives were regarded as corporate heroes.
  
  
• The value of Air Products stock went up 300%