UP Business Development 1 Running head: UP BUSINESS DEVELOPMENT

UP Business Development 1

Running head: UP BUSINESS DEVELOPMENT

UP Business Development Strategy during Wayward Economy

Richard J. Cantril

Makenzie Carlson

Nathan Feather

Tami Kaschke

Kelsey Maynard

Jason Plouzek

Marketing Project for Union Pacific MRKT 480

University of Nebraska-Lincoln

October 7, 2009


TABLE OF CONTENTS

EXECUTIVE SUMMARY .........................................................................................................3

Introduction .................................................................................................................................4

Business Development Spanning Industries ..............................................................................4

Union Bank & Trust (UBT) ......................................................................................4

General Electric .........................................................................................................4

Enterprise Rent-A-Car (Enterprise) .......................................................................4

United Parcel Servic (UPS) .......................................................................................5

Burlington Northern Santa Fe (BNSF) ...................................................................5

Pacer International....................................................................................................5

Recommendation .........................................................................................................................6

Inferior Goods Rationale ..........................................................................................6

Five Inferior Goods Categories ..................................................................................................7

Food Products ............................................................................................................7

Seed Products .............................................................................................................7

Beverages ....................................................................................................................7

Pharmaceutical Products ..........................................................................................7

Tobacco Products ......................................................................................................8

Conclusion ...................................................................................................................................8

References ...................................................................................................................................9

Appendix ......................................................................................................................................A1

Figure 1 .......................................................................................................................A1

Figure 2 .......................................................................................................................A1

Figure 3 .......................................................................................................................A2

Figure 4 .......................................................................................................................A2

Figure 5 .......................................................................................................................A3

Figure 6 .......................................................................................................................A3

Figure 7 .......................................................................................................................A4


EXECUTIVE SUMMARY

Purpose

This analysis has two objectives. First, the analysis presents business development practices

implemented by several companies from a diverse mix of industries. The six-company sample

selected for this analysis contains the following businesses: Union Bank & Trust, General

Electric, Enterprise Rent-A-Car, United Parcel Service (UPS), Burlington Northern Santa Fe

(BNSF), and Pacer International. Evaluation of the sample utilized both primary and secondary

research. UPS company records and interviews with leaders from the other five companies

identified key business development strategies for each respective company.

Second, this analysis provides UP with a recommended business development approach to

accomplish UP’s objective of achieving short-term increases in carloads. Extensive research

from economic authorities—including both the Bureau of Business and Economic Research and

the Bureau of Economic Analysis—represents the foundation for the recommended strategy.

Additionally, the analysis identifies the geographic locations where opportunities will be the

most readily available (see Figures 1-7).

Findings

Each of the two sections of this analysis produced significant research findings. In the first

section, several common business development strategies emerged. Employee training programs,

mergers/acquisitions, and technology represent strategies shared by most of the sample.

However, the nearly universal focus on at least basic components of CRM suggests a glaring

trend among companies from a diverse range of industries.

In the second section, research yielded a market opportunity unique to poor economic conditions.

While most sectors of the economy have faced considerable declines in demand, inferior goods

companies have actually flourished. Three unique characteristics of the inferior goods market

collectively signal potential opportunity: First, the decline in personal income has increased

demand for inferior goods. Second, a looming market correction could prolong the recession.

Finally, high demand for inferior goods naturally balances with the demand for normal goods as

recovery occurs.

Recommendation

This analysis recommends a business development strategy to increase clientele from inferior

goods industries. From the economic data collected, five major categories of inferior goods are

experiencing the greatest increases in demand: food products, seed products, beverages,

pharmaceutical products, and tobacco products. When the geographic locations of UP rail are

superimposed over areas of market traffic for the five categories, two distinct “hot regions”

appear. Therefore, UP should target both the California region and the Mississippi River region

when looking for successful, short-term clients to increase carloads.


Introduction

Rough economic conditions contaminate the general business environment so significantly that

achieving effective business development strategies seems to be a nebulous venture at best.

Constant fluctuations in the stock market keep even the financial savants guessing as to which

strategies companies should adopt (Stepek, 2009). For this analysis project, the Union Pacific

Railroad (UP) has a clear and concise objective for business development: identify a strategy to

increase carloads in the short term (Tingey, 2009). The purpose of this analysis is to identify an

evidenced-based solution (EBS) to achieve UP’s objective.

The following analysis is separated into two sections. The first section presents summaries of

business development strategies implemented by a sample of six companies representing a range

of industries. The second section provides UP with a summary of research supporting a targeted

program to address the shift in demand toward inferior goods. This analysis recommends a

business development strategy to increase clientele from inferior goods industries.

Business Development Spanning Industries

Union Bank & Trust (UBT)

UBT operates thirty-two banking branches throughout Nebraska and Kansas. According to Jason

Lauritsen, Vice President and Director of Human Resources, UBT’s business development plans

constantly evolve based on the bank’s goals and economic situation. Several years ago, the

company made a concentrated effort to expand into some additional markets by opening new

branches in Kansas. Currently, UBT focuses on growing business by developing better

relationships with current customers. Also, UBT has devised improved methods to cross-sell

products. For example, the loan department used to focus primarily on increasing high-quality

loans. Today, the loan officers also encourage customers to both open new checking accounts

and visit the trust department (Lauritsen, 2009).

General Electric (GE)

The GE brand represents a vast array of products and services, and therefore, no single answer

exists for this conglomerate’s business development strategy. Every division creates its own

goals according to the strengths and weaknesses seen in the division’s respective industry. Sarah

Baker, GE Global Risk Process Leader, firmly supports her division’s focus on developing long-

term strategic partnerships that support GE in capitalizing on market-specific opportunities.

However, the most common business development strategies used by all GE divisions are

mergers and acquisitions. GE does not want to “reinvent the wheel,” but instead, the company

aims to acquire partners who both complement GE’s current offerings and can be easily

integrated into the GE corporate culture (Baker, 2009).

Enterprise Rent-A-Car (Enterprise)

Enterprise trains all employees to identify areas to grow business. Management creates

specialized training programs in order to allow all employees to play a role in business


development brainstorming. Jared Balf, Branch Manager, also notes that Enterprise’s current

focus in business development is developing better relationships with each account. Within

existing customer accounts, the company may do “fact-finding” in order to both spot patterns

among customers as well as learn how customers can be better served. Additionally, Enterprise

uses mergers and acquisitions as evidenced by the company’s recent purchase of industry giant

Alamo National (Balf, 2009).

United Parcel Service (UPS)

UPS is currently coping with the challenges created by the economic downturn. Through the

implementation of information technology, customer relationship management (CRM) strategies,

and employee training, UPS has developed methods to reduce costs, improve customer

satisfaction, and grow business. The foundation of the company’s business development

strategies rests on “company experts” who represent various areas of the company. These experts

have cross-functional job duties that allow each expert to view a broader view of the

organization. Subsequently, the experts play a crucial role in identifying potential areas for

development (UPS Business Solutions, 2009).

Burlington Northern Santa Fe Railroad (BNSF)

In general, BNSF seeks long-term strategies for expansion, and the company works to position

itself as the low-cost transportation option. Steve Dodd, BNSF Economic Development

Manager, all outlines two additional BNSF approaches to business development. First, BNSF has

attempted to contact both former and existing customers in order to bolster relationships during

this tough economic period. Second, BNSF wants to capture the market for transporting wind

turbine parts. Transportation of the turbine parts has increased lately (Dodd, 2009)

Pacer International (Pacer)

Pacer, a major intermodal transportation company, represents a company of special interest. In

fact, Pacer shared the title of being one of UP’s top-two accounts with General Motors (GM)

before the economy crippled GM (Van Hattem, 2006). As David Hoppins, Pacer’s Vice

President of Marketing, concludes, Pacer’s role as a customer is now much greater with a

floundering GM. Furthermore, UP is actively negotiating—with several other railroad

companies—for increased business with Pacer.

In the current economic climate, Pacer has three main business development strategies. First, the

company places great emphasis on CRM. As Hoppins explains, “CRM is absolutely the key

when the market is down, but some companies do not realize how customers show greater

loyalty to companies with good CRM in poor economic situations.” Second, the company has

developed an “Intermodal 101” package to help potential customers understand the cost savings

realized through intermodal transportation. Last, Pacer practices customer segmentation to

determine both the customers who are hurting and the customers who are seeing increased

business. Specifically with the latter customer segment, Pacer has observed a trend of rising

transportation in the pharmaceutical, food products, and beverages industries (Hoppins, 2009).


Recommendation

Based on Pacer’s customer segmentation strategy and general comments/ideas obtained from the

other five companies, this analysis recommends targeting companies that need to transport

inferior goods primarily within two critical geographic areas (see Figure 7 for the yellow

highlighted areas). The first area includes California and the surrounding region, and the second

area covers the Mississippi River region. Both of these areas contain UP track. Due to the

properties of inferior goods, gaining customers who need to transport inferior goods will increase

UP’s carloads in the short term because demand for inferior goods has continued to increase

during the current economy. As the economy gradually recovers, customers that need to

transport inferior goods will naturally decline and allow for the return of former customers who

were hurt by the recession. Five inferior goods categories will provide the greatest opportunity

for UP: food products, seed products, beverages, pharmaceutical products, and tobacco products.

The Appendix contains all figures referenced in this section.

Inferior Goods Rationale

The term inferior goods comes from economics and represents a conceptual category of goods

that vary inversely with consumer income. For example, consumers tend to purchase more

canned foods when personal income is low and purchase fewer canned foods when personal

income is high. By contrast, normal (or superior) goods vary directly with consumer income.

Normal and inferior goods tend to have a substitution relationship, meaning one replaces the

other as income changes. For example, consumers buy more ground beef when income is low,

but as income increases, those consumers begin to buy less ground beef and more products like

steak (McConnell & Brue, 2008). Because of the substitution relationship, UP can target inferior

goods transportation in the short term in order to increase carload. Then as the economic

situation becomes more favorable, the regular customers transporting normal goods will

naturally replace inferior goods transporters.

The volatility of the economy and the poor economic environment provide the best support for

targeting inferior goods. Leading economists do not agree on the amount of time needed before

consumers will see improvement. In fact, many economists do not believe this recession is U-

shaped; instead, these economists argue that the recession will actually be W-shaped.

Consequently, the market may begin another corrective cycle (downturn) by as early as the

middle of October (Beat, 2009). Regardless of the exact timing of the beginning of recovery, any

effective business development strategy for UP must recognize the increasing transportation

needs for a particular category of goods—inferior goods.

One of the negative effects of the poor economy is declining personal income; however, this

decline generally signals rising demand for inferior goods. Therefore, a current declining income

trend supports the need to target inferior goods. By using economic formulas, one can derive the

change in U.S. per capita income from 2007 to 2008 as a 0.8657% decrease (Bureau of Business

and Economic Research, 2009). Using the same economic formulas, the change from 2008 to

2009 is a massive 11.12% decrease (Bureau of Economic Analysis, 2009). Years leading to the

current recession should an increasing trend; consequently, decreasing trends for the past two


years is statistically significant. All other things equal, demand for inferior goods will remain

higher until personal income increases to pre-recession levels.

The Five Inferior Goods Categories

Food Products

Foodstuffs titan Hormel has outperformed major competitors, including Kraft, and has continued

to see growth during the recession. Minnesota-based Hormel has seen growth as consumers

forego eating at restaurants and increasingly eat meals at home. Hormel has a reputation of

providing high quality food at budget-friendly prices (Hormel Foods, 2009) and has seen more

growth than expected throughout the first three quarters of 2009. Hormel offers many frozen

foods and canned goods, which are now more appealing to customers because of longer shelf-

lives. Hormel has also seen increases in packaged food sales, realizing a 49% increase in profits

for the third quarter of 2008 (Learning Markets, 2009). Sales in 2009 far outpaced other industry

giants with a 9.1% increase (Janjigian, 2009). In addition to Hormel, Jennie-O Turkey was also

identified as major player in the Food Products category (see Figure 3).

Seed Products

Seed sales have increased as much as 75% in stores (Tuttle, 2009). People are cutting costs and

growing food at home. National Gardening Association research director, Bruce Butterfield,

commented on this trend, "As the economy goes down, food gardening goes up. We haven't seen

this kind of spike in 30 years.” The world's largest seed producer has seen seed sales jump over

25% (Horovitz, 2009). Major seed producers based in the United States include both

DuPont/Pioneer and Monsanto (See Figure 3 for Monsanto only). These industry leaders have

also seen tremendous growth in the seed market recently. DuPont forecasts significant increases

in three of its major seed categories, and this—combined with double-digit price increases—

prove that the seed industry can not only grow, but flourish in tough economic times (PR

Newswire, 2009).

Beverages

Beverage sales have been rising since 2007, and economics have viewed this trend as a strong

indicator of recession. The off-brand named sodas have especially experienced increased demand

since these beverages cost less than name brands such as Coke or Pepsi (Coca-Cola, 2009; Cott

Beverages, 2009). However, soda is not the only type of beverage to do well in the current

economy. Alcohol consumption is also higher than historical levels. Beer sales have performed

the best with a total 85.8% of all alcohol consumed this year being beer (Alcohol Policies

Project, 2009; Anheuser-Busch, 2009). Beverage sales have increased as a whole and should

continue to rise or remain steady during the recession (See Figure 4).

Pharmaceutical Products

During a recession, demand can change for better or worse for about any product. However there

is on industry that is usually recession proof: pharmaceuticals. In fact, three different sections of


health care including home health care, medical labs, and medical supplies manufacturing have

all seen a growth of 12-15% in the past year (Hurley, 2009). The “Big Three” corporations in

pharmaceutical distribution (AmerisourceBergen, Cardinal Health, and McKesson) have not felt

the stress of the recession (See Figure 5) . All three of these companies specialize in getting

medicine and medical products to pharmacies, hospitals, and clinics. The “Big Three” have all

seen growth over the past year. For example, Cardinal Health is expecting to grow about three to

six billion dollars in revenue next year (Cardinalhealth.com, 2009).

Tobacco Products

Over the past few years, the tobacco industry has been increasing revenues, and farmers have

made note of this. Farmers in the southeastern portion of the U.S. believe now is the best time to

grow and harvest tobacco. Over the past two years, tobacco production has increased by more

than 20%. Most of the farmers in this region raise burley tobacco which is then transported to an

Altria facility located in either North Carolina or Virginia to produce Marlboro cigarettes. The

demand for tobacco in 2008 was 45 million smokers, and these numbers have only increased.

The main incentive for farmers to begin planting tobacco is merely profit-based. Farmers in this

region could earn somewhere around $100 for an acre of corn, yet they can earn about $1,500

per acre of tobacco (CNBC, 2009). Overall, the tobacco industry has seen positive numbers. In

2008, the tobacco industry experienced a 9.3% increase in revenue representing approximately

$1,511.9 million (IBISWorld, 2009). More specifically, Altria Group Inc, one of the world’s

largest tobacco corporations, has seen positive growth. Overall, their net revenues increased by

3.7% in 2008. Cigars have also experienced tremendous increases. Cigars have enabled Altria to

have over 100% revenue growth to about $387 million in the cigar segment (Altria, 2008).

Conclusion

After analyzing both the primary and secondary research collected for this project, the nearly

universal focus on at least basic components of CRM suggests a glaring trend among companies

from a diverse sample of industries. However, CRM falls well beyond the scope of UP’s

objectives for this project. By its very tenets, CRM strategies require a long-term orientation to

solving problems; furthermore, UP wants a short-term method of increasing carloads during a

difficult economy.

The market for transporting inferior goods almost perfectly resolves UP’s problem. Personal

income has seen statistically significant marginal decreases. The economy may be heading for

more correction. And most importantly, products conventionally considered to be inferior goods

have in fact realized significant increases in demand. Furthermore, the properties of inferior

goods allow UP to transition back to historically stronger customers as those customers begin to

recover. By focusing on the two inferior goods regions identified in Figure 7, UP will achieve

increased carloads.


References

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http://www.beersoaksamerica.org/consumption.htm

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Anheuser-Busch. (2009). Anheuser-Busch launches bud light golden wheat nationwide.

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Baker, S. (2009, September 25). Telephone interview. Global Risk Process Leader at General

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excel-hrl-kft-tsn-flo.html

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UP Business Development A1

Appendix

Figure 1. Union Pacific Rail

Figure 2. Food Products and Seeds


Figure 3. Beverages

Figure 4. Pharmaceutical Products


Figure 5. Tobacco Products

Figure 6. Wal-Mart


Figure 7. Combined Map

UP Business Development 1 Running head: UP BUSINESS DEVELOPMENT

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