Marit Loewer

Otto Beisheim School of Management

It was a Friday morning in May 2008 when Andreas

Welsch, General Manager of the German department
of Henkel Adhesives Technologies for Consumers
and Craftsmen, arrived early at the Henkel site in
Diisseldorf-Holthausen, Germany (see Exhibit 1).

Tlie chimneys at the enormous production site were

already bellowing smoke, even at this early hour. As
Welsch walked to the impressive glass building where
his office was located, he thought about his upcoming
meeting with company marketing executives. A

Exhibit 1 Henkel site in Dusseldorf-Holthausen

Henkel Headquarters
Dusseldorf-Holthausen

Marit Loewer prepared this case under the supervision of Professors Lutz Kaufmann and Matthias Koch t o provide material for class discussion. The.authors do
not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying
information to protect confidentiality.
Copyright O 2009 by WHU. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by
any means-electronic, mechanical, photocopying, recording, or otherwise-v~ithout the permission of the supervising author. We continuously want to improve
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gloomy forecast awaited him in the latest consumer

report: Gasoline prices kept rising and further looming
price increases caused German consumers to worry
about their purchasing power. Concerns about price
stability and uncertainty resulting from the financial
crisis and the flagging U.S. economy fueled economic
fears among German consumers. This news would
certainly influence Henkel's business and increase the
imp0rtanc.e of today's meeting.
Upon his arrival at the conference room, he spoke to
his marketing managers:

W e are facing a challenging situation. As we already

know, the growth of our markets has slowed down in
recent years and the raw material price increase puts
pressure on our margins. But even worse now, one of
our competitors in the adhesives business is just about
to enter one of our core categories with very low prices.
This will certainly. affect
our sales numbers. The time
-has come where we have to develop a long-term strategy
in order to escape the constant war for market share
with our competitors. Competing for an ever smaller
market is not a solution. This new strategy is of utmost
importance for the adhesives business, if we want to
stayput as market leaders in the long run. It has to be
developed quickly as senior management expects it in
two days!

Company Profile: Henkel AG &

Co. KGaA
Based in Diisseldorf, Germany, Henkel AG & Co. KGaA
was an international group with worldwide presence
and listed on the London Stock Exchange. Its sales
were 13,074 million (see Exhibit 2) and employed
approximately 53,000 people in the fiscal year 2007.
Henkel was among the most internationally aligned
German-based companies in the global marketplace.
Consumers in approximately 125 countries around
the world trusted in brands and technologies that
originated on the Henkel production line. The company
was organized into three operational business sectors:
Laundry & Home Care, Cosmetics/Toiletries, and
Adhesives Technologies (see Exhibit 3). It was the
umbrella company for well-known brands such as Persil,
Schwarzkopf, Pritt, and Pattex.

History of Henkel
Founded in 1876 as Henkel & Cie in Aachen by 28-yearold merchant Fritz Henkel (see Exhibit 4), the company's
first successful product was a washing powder based
on water-glass. In contrast to all similar products, which
were at that time sold loose, this heavy-duty detergent

Exhibit 2 Key Financial Data of Henkel AG & Co. KGaA for 2006-2007

Key Financials
Fiaures in mill. euros

2006

Change

2007

F " ' '7

Sales
Operating profit (EBIT)
in %

Return on sales (EBIT)

Net earnings

13,074

+2.6%

1,298

1,344

+3.5%

10.2

+0.1 pp

87 1

Earnings after minority interests

Earnings per preferred share

('I

Return on capltal employed (ROCE)

Capital expenditures

855 '

(1:3)of June 18, 2007

+7.7%

921

1.99

+7.5'/0

in %

14.5

+0.9 pp

on property, plant, and equipment

Employees (annual average)

+8.0%

in euros

Research and development expenses

('1 basis: share split

12,740

431

--

340
number

51,716

470

+9.0%

350

+2.9%

52,303

+1.1%

p p = percentage points
CHer*I12009

8%
?

<
$
E

Exhibit 3 Henkel Business Sectors

Three Areas of Competence

was marketed in handy packets. It was a huge success,

and, two years later, Henkel relocated his company to
Diisseldorf by the Rhine to take advantage of logistics
and better sales opportunities. In the years to come,
many innovations were developed at Henkel. In 1907,

Persil, the first self-acting laundry detergent, became

the pillar for the company's growth and helped radically
simplify the laborious and time-consuming household
chore ofdoing laundry. However, Fritz Henkel did more
than revolutionize laundry care. He was also a pioneer

Exhibit 4 The Founder of the company

Company Founder Fritz Henkel

d
J

Pioneer of brand-name products

Honorary cltlzen of Vohl and Wallau in Hesse.
Rengsdorf tn the Westerwald, and Dusseldorf
(Germany)
The descendants of h ~ three
s
children, Fr~tzJr.
(below left), Hugo, and Emmy, still hold the
major~tyof the ord~naryshares of Renkel XGaA
March 20. 1848 March 1,1930

- v.

of modern brand management. He systematically raised

awareness about Persil in the general public by means of
innovative and sensational advertising campaigns. Ever
since then, the combination of outstanding product
quality and intelligent brand management has been the
cornerstone of Henkel's success. In 1922, the product
range was extended to adhesives, and, in 1950, Henkel
entered the cosmetics markets with the acquisition of
TheraChemie (hair colorants). The Henkel brand grew
very quickly as a result of international expansion.
Henkel's diverse product range and strengths that
ranged from modern consumer products for everyday
use to complex chemical and technical system solutions
for industrial consumers influenced the company to concentrate on its corporate identity. Branded products and
technologies were identified as strategic pillars for the
future, and four business sectors were defined: Laundry
and Home Care, Cosmetics/Toiletries, Consumer and
Craftsmen Adhesives, and Henkel Technolgies (industrial and engineering adhesives, sealants, and surface
treatments). The slogan "A Brand Like a Friend" was
introduced to convince consumers to embrace the broad
variety of Henkel products and facilitate the perception of
Henkel as a brand, not a corporation. Henkel's intention
was to suggest proximity to the customer and foster their
trust in Henkel quality.
The latest major acquisition was completed in March
2008: Henkel took over the Adhesives and Electronic
Materials business from Akzo Nobel, previously owned

by National Starch. Following- the integration,

Henkel's
Adhesive Technologies business sector was expected to
increase to around 7.5 billion in annualized sales in
2008. By completing this acquisition, Henkel further
strengthened its leading position in the global adhesives
markets, particularly in the industrial segment.

Adhesive Technologies
Business Sector
Effective April 1, 2007, the previously separately
nianaged business sectors of "Consumer and Craftsmen
Adhesives" and "Henkel Technologies" were merged to
form the Adhesive Technologies sector. This enabled
the adoption of a unified market approach with better
utilization of core competencies of both businesses.
The Adhesive Technologies business sector offered
adhesives, sealants, and surface treatment products for
use in household and office applications for the doit-yourself populace, professional craftsmen, and for
industrial and engineering applications. The new sector
was the world leader in its segment, with about 5,711
million in sales in 2007, accounting for 43 percent of
Henkel revenues overall (see Exhibit 5). In view of the
heavily fragmented competitor landscape with over
1,500 vendors and a relatively small number of global
players offering a comparable product portfolio, the
business sector saw itself as market leader in each

Exhibit 5 Sales and EBIT by Business Sector

1
..

rj
i2
f

Sales and EBlT by business sector 2007

E BIT: 1,344 mill. euros
Sales: 13,074 mill. euros
..n,

L 70

E Laundry & Home Care

Cosmtics/'roiletries

BIT bus ness sectors

E BIT Corporate

1.452 mill euros

-108 m~lleuros

EBIT percentages excluding Cowrate

Adhesives Technologies
1Corporate

5 ,

2
G

9
L

1I

(11
I

'I
I

1
I

11

'I
1

I/
1I

I
I

'
$

ct categories. The variety of markets for

adhesives was unmatched: the packaging industry, auto
manufacturers, aircraft building, power plants, steelmills, tin-can producers, and powerhouses were all
customers of Henkel adhesives. Different competitors
existed in each of these markets, and often each
competitor only served a special niche and sector. Only
very few companies were active in as many segments as
Henkel, and this was the reason that Henkel was almost
triple the size of its next best competitor.

$
-

Adhesive Technologies for Consumers and

Professionals in Germany
The market catering to consumers and professionals for
adhesive technology in Germany was also complex, with
many different segments and sub-segments. Henkel was
exceptional in that it offered so many different products
under one corporate umbrella (see Exhibit 6).
Products were available for different customer
segments. Consumers were divided into the two
subgroups of householdsloffices, which were offered
products for repair jobs and handcrafts, and "doit-yourself' customers with products for renovation and
repairing. On the other hand, there were professionals
to whom Henkel offered products for construction and
intensive usage, such as External Thermal Insulation
Composite Systems. Sales channels for the customer
segments were very different: products for consumers
were sold in do-it-yourself (DIY) stores, specialist

shops, drugstores, and food retailing shops. Driven by

the ever-growing discount channel, price had become a
key parameter in all trade negotiations and even in the
colnmunicatioll of the trade itself.
The products for professionals were sold in specialist
stores, and producers had t o follow a completely different
approach in this channel. Sales representatives would
contact the relevant craftsmen-painters, tilers, floorers,
and so on-individually, as each one of them chose
the products they would use and had to be convinced
about the advantages of new products. The craftsmen
were a rather conservative group who mostly trusted
in products they already knew and worked with for a
long time. Thus, they were difficult to convince about
the advantages of new products, and it took the sales
representatives about five t o six visits per person to gain
a new customer. Therefore, the quantity and quality of
sales representatives were, understandably, key factors
in how well a product sold. Professionals tended to stick
with products with which they were familiar in order
to avoid customer complaints. Craftsmen faced several
challenges in earning new customers, including their
high hourly wages and the challenge of showing, in
advance, that their work was superior to that of others
in the field and, as such, worthy of a higher salary.
The most common way for customers to make their
choice was through looking at ads for craftsmen in the
Yellow Pages. No ranking system of any kind existed
for craftsmen, and customers were often very hesitant

ji

IJ

Exhibit 6 Sub-brands under the Henkel Brand

to order such professional services because they were

unsure of the quality they would receive in return.
Henkel offered its customers (the do-it-yourself
category and professionals) high-quality products (see
Exhibit 7), as this was traditionally the way to differentiate the firm's products from the competition. Many
customers were not familiar with Henkel brands, but
instead knew the sub-brands, as Henkel did r~otinvest in
the overall Henkel name. The Henkel organization was
built on these sub-brands because product managers for
each sub-unit developed their own marketing strategy
for the products of their sub-brand. Therefore, customer
confidence had to be established for each sub-brand, and
only some were already well known. Brands like Pritt,
Pattex, and Ponal were the most popular brands in the
DIY segment.
Adding new features to improve their products was
anothermethodHenkelusedtooutperformitscompetitors.
Their product range was constantly expanding and
different products had been developed for every possible
area of application. However, in the DIY segment,
this complexity did not make the task of choosing the
"right" product easy for consumers. Information about
renovation products in the DIY stores was not always
sufficient, and qualified store personnel were sometimes
difficult to find. Also, other supplementary information
sources were rare. Customers could not access sufficient
information about the proper application of a product,
the required quantity for a certain renovation job, or

new product information. Most women avoided DIY

stores completely because the brand image and product
descriptions were very technical. Traditionally, it was a
man's task to maintain the house, and although many
women were doing craftwork to decorate their homes,
they felt less comfortable with renovation work. In
addition, women preferred models and concrete samples
of how a house would look after renovation so as to get
some inspiration, but these samples were hard to come
by. Even in the professional segment, the broad product
range was not appreciated by all customers: some
preferred to have a "universal" product for a certain task,
since, from their point of view, many new products did
not offer additional value.
Overall, it was difficult for Henkel to increase the
number of products sold as its products had already
achieved solid market positions. On the other hand, it
was difficult to meaningfully influence the size of different markets in that each market was affected by trends
associated with primary materials, such as tiles and wallpaper, as well as individuals' overall inclination to build
and renovate.
The entire market had undergone a drastic downturn over the past 10 years. The reunion of East and
West Germany in 1989 led to several years of strong
growth. First, the population of East Germany entered
the market and added another 13 million consumers.
Second, East Germany was under-served by distribution
channels for renovation products and many new DIY

Exhibit 7 Products of Henkel Adhesives Technologies

Adhesives Technologies
Product Portfolio
L@Fr'Z

:\

wallpaper pastes
ceiling, wall covering
and tile adhesives
home decoration
products
sealants
polyurethane foam fillers
cyanoacrylates
contact adhesives
w o o d glues
assembly adhesives

technomelt

QL]

Adlesi". Rfn

PVC pipe adhesives

flooring adhesives
waterproofing
products
thermal insulation
products
coatings
roofing products
glue sticks
glue rollers
correction products

-[3m
wchb,

Sirto

adhesive tapes
industrial adhesives
and sealants
surface treatment
products
industrial cleaning
agents
resins
soldering pastes
lubricants
preformed parts

b'

9
g

z2

IT-

Y
a,

r
+

0
a

Henkel's products, oil prices directly influenced Henkel's

stores had to be set up. Third, the foundations of most
profit margins. Employee salaries were also continuhouses in East Germany were very old and in need of
ously rising. Henkel was a member of the IG Chemie,
renovation. Moreover, many new buildings were erected
the industrial union for chemical companies that was
after the reunion, sponsored by the government through
tax incentives. All these factors caused a boom in the
very successful in negotiating higher wages.
In the long run, consumer markets were projected
industry that lasted until the late 1990s. There were few
to stagnate. Low birth rates in Germany would lead
new competitors because of the entry barriers created by
to a lower population and a higher average age in the
the need for significant capital investments to enter the
future. The typical age limit for doing DIY work was just
industry. During the boom, many existing competitors
50 years, and this demographic development would lead
built new:capacities to be able to respond quickly and
to a shrinking target customer group.
adequately to the high demand.
After 10 years of prosperity in the industry, the
German DIY market became saturated with the 3,300
The Business Situation for
DIY stores that were built over the years and saw a
decrease in public building licenses, which in turn
the Adhesives Technologies
reduced the demand for renovation material. Also, the
Department
percentage of homeowners in Germany was one of the
The overall adhesives market influenced the business sitlowest in Europe. Eventually the market began to shrink
uation of Henkel's Adhesives Technologies department.
and competition intensified to secure and gain larger
Even if it was able to hold profits at the same level as the
shares of a declining market.
The competition in the adhesives market for conprevious year, its profitability would be below expectations. In addition to the impact ofhigh raw material costs
sumers and craftsmen was diversified among different
and increasing salaries negotiated by the IG Chemie, it
product segments and target groups. In the adhesives
also had to compete successfully against its competitors
segment for households and offices, UHU was the largest competitor in Germany. The company was part of
in each business segment.
the Bolton Group, a privately owned Italian business.
For example, in the tiler segment, the company
PCI-a subsidiary of BASF-held a 28 percent market
UHU's product range was comparable to Henkel's in
share and was the market leader, while Henkel's marthis segment. But UHU had one specific advantageket share was at single digits. Even though PC1 was the
their adhesive "Alleskleber" was well known to every
major player, it was not the most aggressive on price.
German since childhood and nearly synonymous with
These international companies entered the local marhousehold adhesives. It was widely available and sold in
ket from outside Germany because Germany was still
supermarkets as well as stationery shops and malls, and,
attractive: Requirements for quality standards for renotherefore, had the largest market share.
vation work were comparably high. Local professional
For the professional craftsmen target group, it was
craftsmen appreciated high-quality products and prodimportant to offer direct contact between the producer
uct innovations offered by these international compaand client for support and product enhancements,
nies, as compared to other countries, in order to avoid
technical advice, addressing complaints, and warranty
customer complaints.
support. Product innovations were another factor that
Italian producer Mapei entered the German market
companies used to attract customers. Henkel saw itself
in 2006. It was number one internationally in the tiler
as an innovator in the industry and built its strategy
segment with 1.3 billion turnover. It acquired several
around innovation. This positioned Henkel in the
companies, including Soppro, which were already active
premium segment, but the strategy often deployed
in the German market and had local knowledge. These
by competitors was to battle over price-the tighter
companies then received orders at such low prices that
the market, the fiercer the price war. This hurt every
none of the local producers could compete with them.
competitor. Henkel was very proud of its broad product
For these projects, they then assigned sub-contracts to
range, which accentuated its unique image in the
tilers who had to use Mapei's products for their work.
competitive landscape. Often, other companies tried to
Henkel's strategy was different. It tried to gain market
emulate Henkel's advantage by expanding their product
share by developing superior products. Henkel tried to
portfolio to capture a share of the shrinlung market, so
convince tilers of the quality of its products with increas to reduce the factor of differentiation in competition.
mental product innovations. Henkel's developers had
Besides shrinking markets, increasing energy prices
produced a "low dust" tile adhesive, which was healthier
also cut into profitability. Henkel was highly dependent
for tilers to work with. Another innovation was a "lighton energy prices in terms of product manufacturing
weight" tile adhesive. The product usage results of 25 kg
and transportation. Since oil was the base for many of

.-

(55 Ib) were comparative to jobs done with 80 kg (176 lb)

of a conventional tile adhesive.
Nevertheless, Henkel's product innovations were
not systematically based on current customer needs,
but rather o n technical feasibility. Market research
completed by other departments recognized new trends
in consumer behavior, such as the preference for wellness
and health products and the awareness for eco-friendly
goods. However, these trends were not incorporated
during d e ~ e l o ~ m e noft new adhesives products.
Research and development was laboratory-driven rather
than customer-driven. Therefore, products became
increasingly specialized and equipped with new features
that would allow them to be used with all possible
materials and situations. The product range that served
the same purpose widened.
In all, products became increasingly comparable
throughout the industry. In the long run, incremental improvements would not assure business success
because of the saturated market for adhesives. A further
specialization in adhesives would not increase demand,
but would only take away some market share from an
existing product. It was a spiraling race with competitors
trying to gain some temporary market share.
As a response to this development, Henkel's strategy was two-fold. First, Henkel strived to be better than

its competition. It aimed to gain market share through

innovation, POS excellence, distribution expansion, and
better marketing concepts. Second, profitability was to
G
be secured by cost-saving projects, simplification of
processes, and improvements in the organization.
9
Andreas Welsch's introductory speech to his
marketing executives included a presentation on the
2
current business situation and the latest consumer report.
It caused a lively discussion in the room about how e
to develop a long-term strategy for the department of
$
Adhesives Technologies for Consumers and Craftsmen.
Different possibilities were debated, which led to the
conclusion that in thelong run, the competition could not
be beaten by incremental improvements of the existing
products. A promising alternative would be to expand
the existing market by creating new and uncontested
market space where competition would be irrelevant.
New target groups would expand the customer pool and
alleviate the pressure of fighting with the competitors
over the same customers.
Welsch was pleased with the direction the discussion
was talung and announced that this meeting should be
the luckoff for a Blue Ocean Strategy implementation.
A creative but structured process to develop ideas for.
new markets and customer groups had to be startedand there was no time to lose.
\ ,