Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/eBack Matter Video Cases © The McGraw−Hill
Companies, 2002698 Video Cases
Marketing in the Hardwood
Industry*Logs cut from hardwood forests are an important raw mate-
rial used by many domestic and foreign producers. Unlike pine
and other softwoods, which are used mostly for general con-
struction, the demand for oak, black walnut, black cherry,
white ash, maple, and other hardwoods derives from consumer
demand for high-value products such as hardwood furniture,
cabinets, flooring, millwork, and moldings. When properly fin-
ished, hardwoods offer a finish that is both durable and
beautiful. The wood is also very strong, so even pieces that do
not have a perfect appearance are well suited for making
frames of chairs, sofas, and other furniture that are covered
with various upholstery materials.
Hardwood forests cover many of the rural areas of the east-
ern United States—areas where there is often little other
industry. Thus, the forest products industry is important to
economic development and to the employment and quality of
life of people who live and work in these areas.
Unfortunately, that potential for economic development is
not always achieved. A key reason for this is that many of the
firms that harvest logs do not focus on any particular target
market or specific customers. Rather, they just see the market
opportunity in terms of the products they have always pro-
duced: hardwood logs or perhaps “green” roughsawn lumber
cut from the logs. As a result, they sell a commodity product to
distant customers who view logs from one supplier as like all of
the others on the market and simply purchase logs at the low-
est price.
Under this production-oriented, commodity approach, the
hardwood produced in rural regions of the U.S. has usually been
shipped to other regions—including foreign countries—before
the wood is processed into intermediate and finished products.
But when the wood is sold and shipped out of the region as an
unfinished commodity, the profit opportunities—and associ-
ated employment—relevant to the secondary processing are
exported as well.
Historically, in this commodity-market environment, suc-
cessful producers were those who could operate with the
lowest total cost. The major cost areas are raw material (lum-
ber), labor, any processing that is done, transportation, and, of
course, any marketing-related expenses. Small- and medium-
sized producers are at an inherent disadvantage in this
competitive, cost-oriented environment. They cannot
achieve economies of scale because they can’t spread their
overhead expenses over a large number of units produced. As
a result, there is little way for them to obtain a competitive ad-
vantage in production or distribution.
Some hardwood producers, including some smaller ones,
were able to improve sales and profits—in both the U.S. and
international markets—by differentiating their offerings with
higher-quality products and service. For example, firms that
worked to keep lumber dry and clean were better able to
meet the needs of some customers. Further, some customers
1appreciated supplier firms that did a good job of sorting and
grading different types of woods. And some suppliers focused
on supplying species of wood that were desirable but less-
readily available.
In spite of such efforts, in the past most hardwood from
U.S. producers was just sold as a commodity in a very compet-
itive market. However, some people in the hardwood industry
are applying marketing concepts to help change this situation.
They are focusing attention on ways to expand the market for
existing hardwood products and also trying to identify markets
with specific needs so that they can increase the value added
to the hardwood lumber—by producing finished or semi-
processed products—before it is shipped out of the region
where the trees are cut.
These efforts are having an effect. For example, some com-
panies have found markets for hardwood-based composite
materials for use as beams, columns, or rafters in building con-
struction. Traditional materials for structural framing include
softwood lumber and nonrenewable resources such as steel and
aluminum. These structural hardwood composites are manu-
factured by breaking lower quality hardwood logs into small
pieces such as strands, flakes, or thin sheets of wood (veneer)
and reforming the pieces into large members with names like
“parallel-strand lumber” or “laminated veneer lumber” for the
construction market. By finding market opportunities for
structural hardwood composites, companies add value by using
small or poorly formed logs, less desirable hardwood species,
and sometimes even the hardwood waste from other industrial
processes. Development of value-added markets for structural
hardwood composites also has resulted in job creation and
economic development in rural, forested areas.
However, producing structural hardwood composites is just
one way to meet customer needs that were not previously be-
ing satisfied. An increasing number of customers want to buy
kiln-dried boards rather than green lumber that isn’t immedi-
ately ready to use for their own production purposes. So, many
firms that cut and sell hardwood are taking the step of adding
value to their product by doing the kiln-drying process. But
numerous other opportunities to add value still exist. To un-
cover them, U.S. hardwood suppliers are asking basic
questions like: What are the needs of different customers in
the broad product-market for hardwood? Who are these cus-
tomers and where are they located? What kind of hardwood
products—beyond the commodity lumber we’ve sold in the
past—do they want? What are the opportunities to differenti-
ate what we sell and add more value to our product through
additional processing that meets the needs of specific target
segments? How do we go about finding the answers to these
questions?
One opportunity for expanding both the market and value-
added product opportunities lies in the area of international
exports. Prior to 1980, many firms that supplied hardwood ig-
nored the export market. Domestic demand was sufficiently
large to sustain growth and profitability. However, as domestic
demand softened and competition grew more intense, U.S.
suppliers began to rethink entry into the international mar-
ketplace. In the last decade, efforts to market hardwood
products to foreign markets have expanded significantly,
and the value of exported hardwood products has increased
substantially.*This case and the script for the accompanying video were
prepared by Thomas G. Ponzurick and James P. Armstrong.