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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
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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
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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.
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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
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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).
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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
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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
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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.
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References
Alcohol Policies Project. (2007) Beer consumption in America. Retrieved October 2, 2009, from
http://www.beersoaksamerica.org/consumption.htm
Altria. (2009). 2009 Altria annual shareholders meeting. Retrieved October 2, 2009, from
http://www.altria.com/investors/2_7_1_annualmeeting.asp
Anheuser-Busch. (2009). Anheuser-Busch launches bud light golden wheat nationwide.
Retrieved October 1, 2009, from http://www.anheuser-busch.com/
Baker, S. (2009, September 25). Telephone interview. Global Risk Process Leader at General
Electric.
Balf, J. (2009, September 28). Personal interview. Branch Manager at Enterprise Rent-A-Car.
Beat, S. (2009, September 23). Why the market could make a major correction in October.
Retrieved October 1, 2009, from iStockAnalyst Web site:
http://www.istockanalyst.com/article/ viewarticle/articleid/3501363
Bureau of Business and Economic Research. (2009, March 25). Per capita personal income by
state. Retrieved October 1, 2009, from http://bber.unm.edu/econ/us-pci.htm
Bureau of Economic Analysis. (2009, October 1). Personal income and outlays: August 2009.
Retrieved October 1, 2009, from http://www.bea.gov/newsreleases/national/pi/2009/pdf
/pi0809.pdf
Bureau of Labor Statistics. (2009). Inflation calculator. Retrieved October 1, 2009, from
http://data.bls.gov/cgi-bin/cpicalc.pl
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http://www.cardinal.com/
CNBC. (2008, June 11). U.S. tobacco farming is bigger than ever. Retrieved October 2, 2009,
from http://www.msnbc.msn.com/id/25049471/
Coca-Cola. (2009). The coca-cola company. Retrieved October 2, 2009, from http://www.
thecoca-colacompany.com/
Cott Beverages. (2009). RC cola. Retrieved October 1, 2009, from http://www.
rccolainternational.com/
Dodd, S. (2009, September 30). Telephone interview. Economic Development Manager at
Burlington Northern Railroad.
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Higgins, A. (2009, June 15). Demand for vegetable seeds is rooted in recession. Retrieved
September 28, 2009, from http://www.washingtonpost.com/wp-dyn/content/article/
2009/06/14/AR2009061402741.html
Hoppins, D. (2009, September 29). Telephone interview. Vice President of Marketing at Pacer
International.
Hormel Foods. (2009, August 10). Hormel foods raises outlook for fiscal year 2009. Retrieved
September 30, 2009, from http://www.hormelfoods.com/newsroom/press/20090810.aspx
Horovitz, B. (2009, February 20). Recession grows interest in seeds, vegetable gardening.
Retrieved October 1, 2009, from http://www.usatoday.com/money/industries/food/2009-
02-19-recession-vegetable-seeds_N.htm
Hurley, B. (2009, January 28). What industries or businesses do well during recession. Retrieved
September 28, 2009, from http://purplejunction.com/2009/01/28/what-industries-or-
businesses-do-well-during-recession/
IBIS World. (2009, May 27). Tobacco farming. Retrieved October 2, 2009, from
http://www.ibisworld.com/industry/retail.aspx?indid=36&chid=1
Janjigian, V. (2009, May 6). Hormel foods benefiting from recession; is Swine Flu a risk?.
Retrieved September 30, 2009, from http://seekingalpha.com/article/134987-hormel-
foods-benefiting-from-recession-is-swine-flu-a-risk
Lauritsen, J. (2009, September 28). Personal interview. Vice President and Director of Human
Resources at Union Bank and Trust Company.
Learning Markets. (2009). Hormel sees profit surge as packaged foods excel; HRL, KFT, TSN,
FLO. Retrieved October 2, 2009, from http://www.learningmarkets.com/index.php/
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excel-hrl-kft-tsn-flo.html
McConnell, C., & Brue, S. (2008). Microeconomics: Principles, problems, and policies,
Seventeenth Edition. New York: McGraw-Hill/Irwin, pp. 48-50.
PR Newswire. (2009, June 12). DuPont North America agricultural seed sales volume up
significantly. Retrieved October 1, 2009, from
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Tingey, B. (2009, September 23). Class presentation. Industrial Products Team Member at Union
Pacific.
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Appendix
Figure 1. Union Pacific Rail
Figure 2. Food Products and Seeds
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Figure 3. Beverages
Figure 4. Pharmaceutical Products
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Figure 5. Tobacco Products
Figure 6. Wal-Mart
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Figure 7. Combined Map