An Evolving Model
Dow Corning’s Xiameter Sets New Trends
Dow Corning jumped into unchartered waters back in 2002 with the launch of its Xiameter brand. Designed as an affordable way for the company's customers to buy standard silicones online, the business model was the first of its kind in the chemical industry. In 2009, the company revamped the model to offer more services to cater to more customer needs - making it something of an Amazon.com) for silicones.
Now that all Xiameter products can only be purchased via the website, many of the company's customers have to rethink the way they do business. Brandi Schuster spoke with European President and Xiameter Commercial Director Europe Klaus Hoffmann at the recent Handelsblatt Chemie 2010 conference about the relaunch and the kind of adaptations necessary for both the company and its customers.
CHEManager Europe: What exactly is the difference now between the 2002 model and the relaunch that happened in 2009?
K. Hoffmann: To put it simply, the 2002 Xiameter model didn't have a strong link to the Dow Corning brand, and it was focused on high volume and customers for whom a deciding factor was price - we call them price seekers. Plus, all of the products we offered were available both under the Xiameter and Dow Corning brands.
In our new model, we have taken other customer segments into consideration -the security seekers, who want to have the assurance of supply and/or price stability; the convenience seekers, who appreciate the ease of doing business and getting services. And not only have we increased our number of Xiameter products from 400 to over 2,000, but it is also now possible for our distribution channel to buy via Xiameter.
If I am looking to buy commodities through Dow Corning, that means I have to make my purchase via the Xiameter website?
K. Hoffmann: Yes. Something else that has changed is the volumes. Before we were only selling in full truck loads - one product, full truck. While we still have minimum order quantities, they are much, much lower - all the way down to one pallet of product. As a consequence of not offering standard products under both brands anymore, we are now facing the challenge that our big customers now have to order from both Dow Corning and Xiameter.
You say "challenge." How are your large customers who order both commodities and specialty products adapting?
K. Hoffmann: It's really like any new business model lifecycle. We have some customers who got on with it right away and had absolutely no problems. Of course, we have also seen customers who were less convinced about the new model; those discussions are difficult, because we really have to separate the two business models from each other.
And as a supplier, we do try to leverage our supplier base and position, and of course our customers try to do the same thing. But as we differentiate between the Dow Corning brand, which is focused on innovation and solutions; and the Xiameter brand, which is essentially focused on efficiency, then it is essential that we separate the two and the activities within each business model
What kinds of companies are reluctant to go with this two-channel system?
K. Hoffmann: Well, there are the ones who see a mismatch within their own business models; they may have tried to run via an electronic data interchange in order to reduce their effort on that end. There are also customers who try to force their suppliers to use their business model - by this I mean the typical kinds of things, like vendor-managed inventory, consignment stock, etc. These are the companies who are now seeing the major challenge in changing their strategy in order to link it with the Xiameter model.
And how successful have you been in convincing some of these reluctant companies to take over the Xiameter model?
K. Hoffmann: We have been pretty successful overall, especially because of the option we now offer with our distribution channel. In the end, if a customer wants to order a Xiameter product the way he or she did in the past - via telephone, for example - it can be done, via distribution or they can do it via directly via Xiameter with a surcharge.
Of course, the most efficient option is that the customer places the order themselves, which is what the Xiameter model is designed for. In the case of customers who don't want to do the ordering themselves online and don't want to pay a fee for it, they are now able to order through a distributor. That way, they are using one of our distribution partners to order, which is similar to the way many customers are used to.
How is it possible to cater to the different needs of the three types of customers you've mentioned - price seekers, security seekers and convenience seekers - through Xiameter?
K. Hoffmann: We have built a couple of choices into the model for the convenience seekers, such as the distribution channel. As far as the security seekers and price seekers are concerned, orders can be placed up to 90 days in advance. Beyond that, we offer standard supply contracts or supply agreements, which are very simplified. We've managed to get it down to a little more than one page.
However, there are many customers who don't just fit into one of these three types. Depending on the product or manufacturing site, someone could be a price, security and convenience seeker all at once.
What happens if a server is down and the Xiameter site cannot be accessed?
K. Hoffmann: That is, as any web-based model, definitely a crisis scenario. Of course, in the case of such emergencies, customers can still place their orders on the phone. It should be said that this kind of vulnerability is really omnipresent nowadays. From manufacturing facilities all the way to our government economy, we are so dependent on IT that it is next to impossible for things to work without it. This is a fact of the world in which we live in
In many emerging markets, customers value personal contact. How are you planning to integrate Xiameter into these countries?
K. Hoffmann: Yes, personal contact is definitely needed to build business, which is why we have put more resources in those regions, relatively speaking, than we have in our mature economies. Interestingly enough, it's amazing from which countries we are getting inquiries via the web. We're up to over 100 countries, and many of those inquiries are coming from emerging and developing economies.
For us this means a change in mindset - just because a country is developing doesn't mean they used less IT facilities than countries with more mature economies. In fact, it is probably just the opposite.
So these are sorts of countries where Xiameter can take off?
K. Hoffmann: Right. If you go to the Middle East, Central and Eastern Europe, India, China, Southeast Asia, etc., they all fall in the same kind of pattern.
One of the challenges we are going to have in future in terms of sustainability and innovation are question of how we can reach those markets, finding out what they need and how we innovate so that they can really benefit.
The needs in those countries are very different from those in the Western world. Most people can hardly imagine what needs people in those countries have. For example, while it's normal for us in Europe to have a washing machine, 85% of the world's population still washes by hand. This means they don't need tabs, but rather completely different types of washing powders. This shows us how important it is to cater to the needs of customers in different regions of the world.
Xiameter has been around since 2002, but it is still being referred to as the new business model.
K. Hoffmann: Well, I think that the reason why we refer to it as a new business model is simply because we revamped it completely last year. We basically took what we learned over those seven years, built that into the new model and improved it significantly.
When we started Xiameter in 2002, we started a journey, jumping into unknown space. We were excited about the idea we had, but we didn't have a feel for how the market would react. It has been a success story, which we started at a moderate pace and now have accelerated incredibly.
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