A game of two halves: premium vs value equipment

Three of the GCC’s biggest equipment suppliers explain how they are adapting to an increasingly segmented market

The GCC's equipment has become increasingly segmented along the lines of 'premium' and 'value' products.
The GCC's equipment has become increasingly segmented along the lines of 'premium' and 'value' products.

This is an interesting time for the GCC’s construction community. In the wake of the financial crisis, local contractors have adopted an altogether more cautious approach to equipment acquisition.

In turn, the sectors of plant, machinery, and commercial vehicles have become segmented along the lines of ‘premium’ and ‘value’ manufacturers.

When extrapolated to a broader context, this is nothing new. No matter what the market – be it construction, automotive, aviation, hospitality, or any other you’d care to mention – the battle between high-end brands and their no-frills competitors is a well-worn industry trope.

The example of the Gulf’s equipment sector is particularly interesting, however, because of the myriad strategies that suppliers have adopted to maximise their market shares. Industry innovation is by no means limited to manufacturers’ research and development (R&D) laboratories. If you want to find novel ideas, then look no further than the business development departments of the GCC’s dealers and distributors.

Broadly speaking, there are two schools of thought on this subject. On the one hand, there are the dealers that have opted to stick with premium manufacturers, extolling the long-term benefits that stem from total cost of ownership (TCO). On the other, there are the suppliers that have embraced the value segment, choosing to spend their time strengthening brand confidence and talking about initial outlays.

FAMCO is a company that falls firmly within the former category. The UAE-headquartered distributor represents a diverse selection of equipment manufacturers across the GCC, and boasts an enviable portfolio of principals renowned for offering top-quality products.

One such brand is German materials handling specialist, Linde. As general manager of FAMCO’s Storage Handling Solutions Division, David Dronfield is acutely aware of the challenges involved in convincing customers to pay for the firm’s premium products. Nevertheless, he and his colleagues have formulated an evidence-based tool – built around the Linde H30D forklift truck [page 80] – that enables buyers to calculate long-term savings for themselves.

“It took FAMCO six months to put this multimedia sales tool together,” he told PMV.

“We tested the presentation on different people using a variety of angles. We collected their feedback and took into account any objections. We addressed these methodically, detailing the forklift’s advantages and associated financial benefits,” added Dronfield.

The end result of this process is a bespoke sales tool capable of calculating the exact savings that end users can achieve with the Linde H30D. The tool uses customers’ own estimates to take them through the model’s TCO.

“A Linde H30D costs approximately AED115,000 ($31,000), whereas comparable models from our competitors are around the AED100,000 ($27,000) mark,” said Dronfield.

“Based on average usage in the UAE this price difference will be earned back in around five months. After that, the customer is making money, compared to if he had chosen a different brand. What’s more, this will remain the case for the entire lifetime of the machine,” he said.

GENSERV, meanwhile, is a dealer that has welcomed the value segment with open arms. Two years ago, the company became the authorised representative of Chinese manufacturer, SDLG, in Oman.

“SDLG entered the Omani market in 2013, and we struggled to sell the first 25 units,” explained Ahmed Rashed, general manager for GENSERV.

“Our customers simply didn’t appreciate the level of aftersales service that we were able to offer in conjunction with SDLG. We didn’t make any money during the first year, but this period was necessary in order to build the brand’s reputation in Oman,” he said.

In conjunction with its principal, GENSERV adopted a try-before-you-buy strategy to convince customers of the quality of SDLG equipment; an approach that has paid dividends.

“In 2014, we began to harvest the rewards of our hard work from the previous year; we sold 75 units last year,” revealed Rashed.

The dealer’s 2014 sales figures represent 200% year-on-year growth from the 25 sales achieved during 2013. Encouragingly for GENSERV, Rashed is confident that recent product additions will drive his 2015 SDLG sales to 150 units.

“[During] the first two months of 2015, we closed deals for 23 units,” said Rashed.

“It’s a good start, and this is only with a single model – the wheel loader. We are in the process of introducing SDLG graders, backhoes, and excavators to Oman,” he told PMV.

The respective successes of FAMCO and GENSERV demonstrate that both premium-focused and value-driven marketing strategies can work in the GCC’s equipment sector, providing that they are handled in an appropriate manner. Indeed, Dubai-headquartered dealer, GENAVCO, is attempting to capture both markets by simultaneously supplying Liebherr and Shantui earthmoving products to contractors across the Emirates.

“GENAVCO became the authorised UAE dealer for Liebherr at the end of last year,” explained Asif Sayeed Khan, division manager of the firm’s Equipment Business Unit.

“We have represented China’s Shantui in the Emirates for just over two years. With these two brands, we can cover both ends of the market: the high end and the lower end. For customers who can afford a premium brand, and who are looking for premium-quality equipment with top-notch sales support, we have Liebherr.

“Equally, those who just want to finish one job, perhaps offload the machine, and move forward, can buy Shantui. These are effective products that can deliver full returns on investment over just one or two projects,” he said.

Of course, there exists no set rule concerning whether a contractor would be best opting for premium or value equipment; the appropriate decision will always depend on individual circumstances. Even so, GCC suppliers aren’t simply leaving this matter to chance. On the contrary, they are doing all that they can to maximise their potential audiences.

“Rental and leasing within the UAE’s materials handling market is extremely low,” said Dronfield. “Nevertheless, FAMCO has been pushing rental and leasing for some time, not only within materials handling but across the board. For every presentation we do, our salespeople must offer rental, leasing, and finance.

“Leasing is another way for us to prove that Linde machines offer genuine savings through lower running costs and increased productivity. It’s a numbers game, and we’re demonstrating it at every step of the process,” he added.

Similarly, GENAVCO is going to great lengths to demonstrate the legitimacy of its sales claims, and to offer increased flexibility to customers.

“Two years ago, when some of our customers were not confident enough to purchase Shantui machines outright, we encouraged them to try the units for six-month periods. If they liked the products, they could buy them,” said Khan.

“For both Shantui and Liebherr, we offer long-term rental, short-term rental, and rent-to-own options. We are opening additional avenues for customers,” he concluded.

The GCC’s equipment sector may have segmented, but suppliers like FAMCO, GENSERV, and GENAVCO are thriving in this environment. Moreover, the premium-value dichotomy appears to have resulted in greater choice for end users across the region.

Starter for six

Although it only became the authorised UAE dealer for Liebherr earthmovers at the start of 2015, GENAVCO has already received orders for six heavy-duty excavators.

So far, the firm has received orders for two 100-tonne Liebherr excavators and four 40-tonne excavators, and says that it has also facilitated the sale of several Liebherr cranes.

These figures are particularly impressive when one considers the fact that the UAE-headquartered dealer has yet to take delivery of its first stock consignment.

“Things are going extremely positively; we had not expected to do so much business in such a short space of time,” said Asif Sayeed Khan, division manager of GENAVCO’s Equipment Business Unit.

Since becoming Liebherr’s UAE dealer, GENAVCO has assumed responsibility for three of the manufacturer’s lines: excavators (both crawler and wheeled), wheel loaders, and bulldozers. However, as Khan explained, his team has also been given the scope to branch into other areas when appropriate.

“Although our primary responsibility is to sell and support Liebherr’s earthmoving equipment, the doors are open for us to sell other products,” he explained.

“In cooperation with our principal, for example, we can sell cranes, should the opportunity present itself. In fact, we have already sold cranes,” added Khan.

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