Marketing in Bord na Móna
By C. B. Murphy, Sales Manager
Taken from Irish Engineers Journal Supplement, 1970, p40-46.
BORD NA MÓNA has a fairly large range of products-all of them derived from peat but processed and sold in various forms for different uses and markets.
Sod machine turf is used for electricity generation. It is also used as a domestic fuel and in handfired boiler installations. Crushed machine turf is used by factories and institutions equipped with mechanical stoking plant. Baled and loose briquettes are both sold for domestic use but to a large extent through different trade channels. Peat Brickeens are produced for use in mechanised boiler systems.
Milled peat is used for electricity generation and as a raw material for peat briquettes. Small quantities are sold commercially for other specialised purposes. Moss peat has a variety of uses mainly associated with horticulture. UCEE Compost and "Shamrock" substrate are propagating and growing media based on moss peat. Both moss peat and its subsidiary products are mainly exported.
The largest single outlet for turf fuel is the E.S.B. which operates seven turf-fired power stations linked directly with Bord na Móna bogs. Government policy requires that a degree of priority be given to the use of turf for electricity generation and at present more than one third of our electricity supply is obtained from turf fuel. The quantities of turf to be supplied to the E.S.B. are fixed annually by arrangement between the two bodies and are generally related to the designed capacity and load factors of the turf-fired stations. At present the E.S.B. intake accounts for roughly 75% of the milled peat and 60% of the machine turf produced by Bord na Mona. To the extent to which this preferential policy operates the Board enjoys an assured market and a stable source of revenue which is of considerable value to it. Of its gross turnover, now in the region of £11 million a year, something over £6 million is derived from E.S.B. sales.
The Board's marketing operations - in the sense in which this term is normally used -are primarily concerned with that part of its production which is sold on the commercial market and whose gross value is presently of the order of £4¾ million. Many people who are familiar with Bord na Móna merely in its capacity as a supplier of turf for electricity production are surprised to learn that almost 45% of its income is obtained from non E.S.B. sources. As time goes on this percentage should increase rather than otherwise and it is a trend which the Board is anxious to encourage both in its own interests and that of the economy generally. No reduction in the amount of turf used for electricity production is, however, envisaged in this process.
The Board's main trading activity is in the sale of fuel in the form of machine turf and peat briquettes. Total sales of these products to the commercial market are in the region of 700,000 tons a year and are expected to remain at around this level in the immediate future. It also does a considerable trade in moss peat and its subsidiary products and this section of the Board's business, at present valued at £1½ million gross, is growing rapidly.
Exploitation of local Market
Bord na Móna's production network includes thirteen machine turf works, three briquette factories and two moss peat factories. Milled peat is produced at seven bogs but this material is not sold commercially to any extent. Most of the Board's production is centred in the midlands where the major bog areas are located. This large concentration of production units in a single geographical area is, of course, unavoidable but it does not make for easy or economic marketing. Turf fuel is relatively bulky and expensive to move so that transport costs enter largely into the final cost to the consumer and can be critical in defining the extent of the market within which turf can be economically sold.
Machine turf, for example, has twice the bulk and half the heat content of average quality coal so that at every stage of distribution four times the volume must be handled and moved for an equivalent heat output. The relationship between turf and coal prices is constantly fluctuating but at present machine turf is not regarded as readily saleable beyond 50 miles or so from the point of production. Peat briquettes are a relatively high grade fuel with a bulk density equal to coal and two thirds of its heat value. Greater density and heat content make for cheaper transport costs and this has enabled briquettes to achieve almost a complete countrywide distribution. It is, however, a fundamental principle of turf marketing that the product should be burned as near as possible to the centre of production and marketing policy has always aimed at exploiting the areas in closest proximity to the bogs where turf fuel can be sold on the most competitive terms.
Another factor which adds to the complications of turf marketing is that the magnitude of the production unit is usually determined by the area of bog available or by other technical considerations rather than by reference to the local market potential. Some of the smaller units have an output as low as 10,000 tons whereas it can be as high as 200,000 tons in the larger bog groups. For this, if for no other reason, the level of sales penetration can vary very much regionally. It is difficult to design marketing zones to correspond closely in capacity with this uneven pattern of production so as to avoid overlapping and local distortions in supply; indeed this has not been accomplished with any degree of precision. Recently the output of one machine turf works had to be cut back and the bog diverted in part to a different form of production in the absence of a sufficient local market for this particular product.
Producer or Distributor?
Bord na Móna products are normally sold on an ex Works basis and the responsibility for collection and delivery rests with the customer. Moss peat, which is supplied ex Works or delivered at the buyer's option, is an exception to this general rule. Much of this highly bulky material is transported by rail - particularly over long distances - and both of the Board's moss peat factories have direct railhead connections. Road vehicles are used exclusively for delivery of machine turf and briquettes as this has proved to be the most convenient and economical method of transport.
In carrying out its responsibility for the development of the turf industry and the supply of turf fuel the Board sees its basic role as that of a producer rather than of a distributor and its selling and pricing systems have been arranged on this basis. In theory some advantages could probably have been gained from a direct involvement by the Board in the distributive function. It might possibly have led to a more single-minded and effective approach to sales promotion. By marrying long and short haul costs it might also have made possible the establishment of a uniform national price structure at consumer level and thus make it easier to build up a full national coverage for turf products. However, it would have necessitated a massive capital investment in equipment and premises which could only be justified if private enterprise, operating within or without the established fuel trade, had failed to provide an adequate distributive system.
Though the Board is not itself engaged in turf distribution much attention is paid to developing and maintaining efficient distributive machinery. Turf fuel is stocked and sold by most regular fuel merchants but they also deal in competitive fuels and have no special commitment to turf which is generally supplied only in response to consumer demand. The Board, for its part, accepts responsibility for creating and fostering this demand and much money and effort is devoted to this object. However, it is equally convinced that a satisfactory supply service calls for the utilisation of non-traditional fuel outlets. In accordance with this policy the sale of packaged fuel through hardware and grocery stores as well as through supermarkets and filling stations was pioneered by the Board and baled briquettes are now carried as a regular line by many thousands of these stockists. It is also conscious of the importance of bringing into the turf distributive trade a body of operators with a genuine interest in promoting turf sales. Working closely in association with most Bord na Móna bogs there has developed a pool of local dealers wholly or partly engaged in turf distribution and equipped to give an efficient supply service. Exclusive or restricted selling arrangements are not favoured by the Board and any merchant wishing to enter the turf trade is free to do so. Mainly as a result of this policy there has evolved over the years a broadly based distributive organisation adequate to the needs of the industry and with more than a casual interest in its progress and welfare.
Indigenous Fuel v. Oil
The fuel market is divided into two broad sectors, domestic and non-domestic, and Bord na Móna operates in both. In recent years oil has replaced solid fuel to a large extent in industry and the amount of turf used for industrial heating and steam raising is now relatively small. Considerable quantities are, however, supplied to institutional markets such as hospitals and public buildings. Official policy favours the use of native fuel by public authorities and state organisations to the fullest practicable extent. This policy has undoubtedly been of considerable help to the Board but it must be remembered that turf does not enjoy any exclusive rights in this market and is, in fact, exposed to strong competition from other native fuels.
For some years past home produced turf and coal have compared unfavourably in cost with low priced imported oil and the preferential treatment granted to native fuel in the public sector has evoked some unfavourable criticism on economic grounds. The policy of supporting basic native industries such as fuel with some form of protection is, however, an accepted international practice. In Britain, for example, coal imports are totally prohibited and even in the United States, the prime exponent of free market economics, oil imports are tightly restricted. In those and other countries where a measure of preference is accorded to indigenous fuels as a matter of public policy, it is justified on grounds of national security, the beneficial effect on the balance of payments and the high employment value of the industry itself. The same considerations are equally relevant and equally valid here.
The non-domestic sector absorbs something under one-third of all turf fuel sold commercially by Bord na Móna. The Board realises that it has a responsibility for ensuring that turf is burned with maximum efficiency particularly in those establishments where its use may be influenced largely by policy considerations. With the cooperation of the boiler equipment manufacturers a range of turf burning appliances, including stokers and handling plant, has been developed to efficiency standards comparable with those obtained from any other fuel. The Board also provides a number of free advisory services and facilities in connection with the design and operation of turf burning systems under the following headings:
- Selection of suitable boiler plant and design of boilerhouse layouts.
- Selection of mechanical stokers and other fuelburning equipment.
- Adaptation of existing plant to turf-firing.
- Design of mechanical handling equipment, including preparation of designs, drawings and specifications for complete handling plants.
- Training of boilerhouse staff.
- Inspection and/or testing of turf-burning plants with a view to increased efficiency.
- Fabrication, installation, commissioning and after sales service of specialised turf combustion units and ancillary equipment.
These services are frequently availed of by consulting engineers, architects and heating specialists and with their assistance a high level of operating efficiency has been achieved in turf-fired boiler installations throughout the country.
Successful Sales In marketing terms Bord na Móna's major achievement in the past decade has been in expanding and consolidating domestic turf sales despite intense competition and occasional supply difficulties. In the cooker market there is a long and well established trend towards the convenience fuels such as gas and electricity. In the area of domestic heating also the dominant position held by solid fuels has come under heavy pressure from oil and electricity particularly with the growth of central heating. Despite this mounting competition, the Board's products have succeeded in securing a substantial share of the domestic fuel trade. The domestic fuel market naturally breaks down into two sub-sectors, urban and rural, each with distinct characteristics. In urban centres nowadays solid fuel usage is largely limited to space heating and in type, quality and presentation the fuel sold must be acceptable by urban living standards. In rural homes, on the other hand, solid fuel cooking is still widely practised and the cooking and heating function is performed by a single appliance. With rural consumers too the choice of fuel is influenced more by considerations of value and price rather than factors such as convenience and presentation. Bord na Móna in its marketing policy endeavours to cater for the varying requirements and standards or urban and rural consumers.
Peat Briquettes are the Board's most highly developed fuel designed and promoted primarily for urban sale. They rate highly as a convenience fuel because of their special characteristics - rapid ignition, attractive finish and ease of handling and storage - and for this reason they have maximum appeal for urban users. Machine turf is a good allpurpose fuel, but bulkier and less uniform in quality than briquettes and requiring more storage space. These disadvantages, however, are not critical with the general run of rural fuel users who show a strong predilection for Machine Turf because of its economy and low cost.
The difference in attitudes and preferences between the urban and rural markets is also reflected in the pattern of distribution. Briquettes are sold through a multiplicity of food and other retail outlets where they are readily accessible to the urban user who tends to buy fuel frequently and in small amounts. Rural households, on the other hand, favour bulk buying and to a large extent Machine Turf sales consist of lorry or tractor loads delivered direct from bog to consumer at a very economical cost. It would, of course, be a mistake to think that Bord na Móna sales and product policy maintains a rigid line of demarcation between urban and rural markets. The fact is that Peat Briquettes are dominant in one and Machine Turf in the other but there is, of course, much overlapping.
The turf supply difficulties arising from the crop failures of 1964 and 1965 caused a serious setback to the Board's domestic trade. Prior commitments to industrial and institutional customers forced a drastic cutback in supplies to the domestic market resulting in a heavy loss of business as well as of trade confidence. The recovery of this market has required a massive selling effort which has only now reached full fruition. This success was due, at least in part, to an improvement in the competitive position of turf fuel brought about by the Board’s ability to hold down prices at a time when the price of imported coal was rising progressively. New selling techniques introduced to strengthen and supplement traditional promotional methods played an important part in the recovery process.
One such innovation was in the field of incentive marketing and it sought to apply to the problem of turf selling types of promotion commonly used for food products and certain other consumer goods.
The organisation of stockist display competitions, for example, has done much to stimulate trade interest and support and to demonstrate the value of good shop display in furthering briquette sales. Equally satisfactory results were produced at a different level through consumer competitions designed to promote greater utilization of briquettes through a clearer understanding and fuller acceptance of their unique product benefits. Promotions of this kind were particularly effective in generating off-season sales.
Direct house to house canvassing, rarely used except for selling specialized goods with high profit margins, has been successfully applied to the sale of Machine Turf in urban centres. Commando teams of specially trained bog workers, working under the supervision of experienced sales staff, are employed on this operation outside the normal turf production season and it is planned to cover some 50,000 households over a period of two years. Increases of up to 100% in sales have been recorded in the towns already canvassed. Collective canvassing at creameries and other suitable assembly points has made it possible to extend this method of selling to rural areas with equally satisfactory results.
The organisation of special local publicity campaigns, featuring selected Bord na Mona Works, has provided a very useful selling medium, particularly in relation to Machine Turf where it is necessary to extract maximum value out of a confined local market. In essence, these campaigns are an exercise in local public relations with a strong selling bias and their effectiveness is founded on the belief .that awareness of the value of a local industry and greater community involvement in its progress can have a powerful influence on sales. Many elements including editorial and advertising coverage in the local press, local dealers' incentive schemes, supporting action by local organisations and special publicity material giving the product a strong local brand identity, are moulded together to give maximum impact to the campaign. These
and other new forms of promotion, though they have contributed greatly to the total selling effort, are not regarded by Bord na Mona as a substitute but rather as an extension of its normal selling methods and organisation.
Moss Peat differs from the Board's fuel products in that it is produced mainly for export. It is also the section of the Board's activities registering the most rapid growth in recent years. Total sales have doubled in the past four years and have expanded fivefold in the last decade. Factory production is measured in cubic metres and at present it amounts to about 750,000 c.m. a year. Market research points to a continuing growth in demand and current production planning is based on expected sales of the order of 1,200,000 c.m. by 1975/6.
At one time Moss Peat was used principally for animal litter but this market has dwindled and the main outlet nowadays is in horticulture, particularly for glasshouse crops and in mushroom production. Commercial horticulture in Ireland, though expanding, is still on a comparatively small scale and while gardening interest and activity is widespread, expenditure on gardening materials is low. Since the capacity of the home market is limited and offers no great potential for immediate expansion the Moss Peat industry is dependent on export sales for 80% of its output.
Moss Peat, because of its spongy, porous structure, has a very high bulk to weight ratio and though normally sold compressed to less than half its loose volume it is extremely costly to transport. Indeed for long distance markets freight may account for as much as two-thirds of the delivered cost. This poor load factor is a major handicap in the promotion of export sales and it has only been overcome by concentrating on a high grade product which can command a premium price internationally. To the extent to which Irish Moss Peat has established itself successfully in export markets it clearly demonstrates the value of selling quality. It may not be generally realised that this success has been achieved in the face of intense international competition. Vast quantities of horticultural peat are produced in Continental Europe, in Canada and the United States. Even in Britain, which is the main market for Irish Moss Peat, there is a sizeable and well established native peat industry capable of providing stiff competition.
Another problem constantly encountered in the development of Moss Peat exports is inadequate shipping facilities. The Board exports to upwards of a dozen countries including the east and west coasts of the U.S.A., the Canary Islands', Australia and the Mediterranean area. Ireland has no direct shipping services to a number of these destinations and it is necessary to tranship at British or European ports at considerable extra expense. Even where direct cargo services are available carriers are reluctant to handle a low freight value commodity such as Moss Peat and sufficient shipping space is often unobtainable. The difficulty of developing a satisfactory export trade under these conditions has forced the Board to examine the possibility of packaging Moss Peat at a high compression ratio so as to improve its transportability. This new form of manufacture is at present being test marketed.
In most of the overseas markets in which it operates, the Board sells to local importers with established trade connections and with their own promotional and distributive arrangements. In Britain, its main export market absorbing two-thirds of its total production, the Board has found it necessary to set up its own direct sales organisation administered from its Bristol headquarters. A comprehensive distributive network has been developed closely linked with all sections of the horticultural industry and considerable expenditure has been incurred in promoting "Shamrock" peat as a high quality product and in establishing brand recognition. It now dominates the selective and quality conscious commercial grower market and enjoys an increasing share of the amateur garden trade. Progress in containerization and the development of unit load shipping has been of great assistance in servicing the U. K. market efficiently. The Board is one of the largest users of cross Channel unit load services, providing a traffic which is now in the region of 60,000 tons a year.
The broad objective of the Board's price policy is to bring in sufficient revenue to cover its total costs. Within this policy framework a number of relevant factors have to be taken into account. A considerable proportion of the Board's production is sold under competitive conditions at home and abroad and the closest price relationship as is economically possible must be maintained with competing products. Since the degree of competitive pressure is not uniform all round a certain amount of flexibility is necessary in price fixing. Not all products are priced at a fully economic level but the aim is rather to maintain a profitable balance over the product range as a whole. In certain circumstances immediate profit must be treated as secondary to market development.
Certain limited differentials between the prices charged to domestic and non-domestic users are common throughout the fuel industry and similar differentials exist between the commercial and garden sections of the horticultural industry. The Board's pricing system follows the recognised trade patterns in this respect. Export prices for the Board's products vary considerably between one country and another but are usually higher than those operating in the home market. Turf supplied to the E.S.B. is charged at a somewhat lower price than that ruling commercially.
Bord na Móna's selling prices are national prices in so far as they are the same for all production centres. This system has the advantage of being administratively simple and while, in theory, some form of regional pricing might be more satisfactory the present arrangement has not been found to be a deterrent to sales. The ex works price of Machine Turf and Briquettes, which is the only item of cost that lies within the Board's control, has remained virtually unchanged for more than three years. Two particularly good turf harvests in succession have made it possible to maintain this satisfactory degree of price stability.
The retail prices charged for its products are naturally of great concern to the Board and it fully realizes that the future prospects of the turf industry depend on its success in keeping consumer prices at an acceptable level. The application of a standard retail price structure to the country at large raises insuperable practical difficulties having regard to the geography of the Board's production centres and the great variations in transport costs. Moreover, the practice in the solid fuel trade has always favoured a system of local prices based on local costs and operating conditions rather than a uniform national price structure. In general it is the Board's experience that retail turf prices can be adequately controlled by providing full scope for the free play of competition through expanding and streamlining the distribution network. By and large, this policy has worked well though it involves close surveillance of price movements. In marketing Moss Peat or its associated products the Board follows the established custom in the horticultural trade which tends to operate on the basis of fixed margins and recommended retail prices.
The Board's main development programme, certainly so far as fuel products are concerned, is approaching its peak so that it cannot rely to any extent on expanding production to counter the effects of inflation. Rising prices and costs can be held in check only by greater efficiency in production methods and on this account the turf industry, more than most enterprises, can be said to have an in-built incentive to higher productivity. The problem of keeping turf competitive in a market which is going through a period of revolutionary change poses a major challenge to all employed in the industry and in particular to the Board's engineering and research staff. To start with, it is essential that ways and means be found to prevent any further prolonged breakdown in turf supplies since this would be disastrous in marketing terms. Much can also be done in the field of product development. Peat cannot be altered in its basic characteristics but it can be improved and upgraded and made more acceptable commercially. Indeed, several such developments are in hand. Machine Turf for example is now on sale for the first time in convenient polythene wrapped consumer packs and the new 12 inch sod, easier to handle, less wasteful and better suited for closed appliances, has recently been successfully test marketed. The substitution of polypropylene for baling wire, now undergoing trial, should greatly enhance the saleability of Briquettes. Improved methods of quality control are being applied to the production of Moss Peat to ensure that its reputation as the world's finest horticultural peat is fully maintained. In the field of customer service increased use of palletization in loading and handling briquettes has done much to speed up the turn-round of lorries.
These and many similar innovations provide a formula for immediate action. As to the longer term prospects, the present sales situation is buoyant and progressive and there is no evidence of a downturn in demand for the Board's products. Though the long range forecasts may not be in favour of solid fuel there is still more than three million tons of turf and coal used annually in Ireland and this market is unlikely to disappear overnight.