Hansgrohe AG

A Strategic Case Study Analysis

Examiner Prof. Dr. Jutta Wollersheim
Supervisor Birgit Daxböck, M.Sc.
Date of submission 1st July 2015

Name Matriculation number Study program

Wiktoria Bulka 198107 International Business and Economics
Gulnur Mamayeva 202516 International Business and Economics
Nigar Mammadli 201644 International Business and Economics
Carina Sauter 196917 Management and Economics
Zamig Guluyev 198495 Management and Economics
Sebastian Schiller 196781 Management and Economics
Table of contents

1. Introduction ...................................................................................................................... 1

2. Case Data Analysis............................................................................................................ 2

2.1. Hansgrohe AG .............................................................................................................. 2

2.1.1. Ownership Structure ............................................................................................. 2
2.1.2. Production and Product Portfolio ......................................................................... 2
2.1.3. Current Corporate Strategy...................................................................................... 3
2.2. SWOT Analysis ........................................................................................................... 4
2.2.1. Strengths ............................................................................................................... 4
2.2.2. Weaknesses ........................................................................................................... 4
2.2.3. Opportunities and Threats..................................................................................... 5
3. Strategic Alternatives ....................................................................................................... 6

4. Conclusion ......................................................................................................................... 9

References................................................................................................................................ 10

II
1. Introduction
Hansgrohe AG is a German medium-sized hidden champion in the sanitary fittings
industry. We begin our analysis of the company and its strategy by using information
provided in an underlying case study to perform a SWOT analysis. We find that while
Hansgrohe has been very successful internationally in high and medium-price segments,
it has not established itself in the low-price segment like other competitors. We also find
that it needs additional strategies to sustain its competitive advantage through
differentiation. How could Hansgrohe compete in low-price segments and what options
are possible for further differentiation? Based on our findings, we discuss two
alternative strategies for Hansgrohe to sustain its international competitiveness in
emerging markets. Firstly, Hansgrohe could shift its focus to arid countries. Following
its differentiation strategy, it could use its innovative technologies to market its brand as
an exceptionally resource-saving alternative to competitors. Especially emerging
countries should provide a sufficient demand for innovative premium brands. Secondly,
Hansgrohe could establish a new low-cost brand to enter the Do-It-Yourself market.
Following a strategy of cost leadership, the company could follow competitors into
other markets and extend its growth options.

1
2. Case Data Analysis

In order to gain a better understanding of the company at hand, and to have a sound
basis for our analysis, we will now briefly review the most important facts about
Hansgrohe AG. Afterwards, we will analyze part of the company’s internal and external
environment with the help of a SWOT analysis. This compilation is mainly based on the
information provided in the underlying case study, which uses data from 2009 and
2010.1 Information stemming from other sources is quoted accordingly.

2.1. Hansgrohe AG

2.1.1. Ownership Structure

Hansgrohe AG is a German medium-sized hidden champion specialized in sanitary

fittings and had the legal form of a German stock corporation at the time of the case
study. Its majority shareholder is the American Masco Corporation, which specializes in
home improvement and construction. Masco is an investment trust, which acquires
firms in the sanitary fittings markets with above average growth and operating profit
margins of at least 15%. These target companies are usually leaders in their particular
market or technology. Its shares in Hansgrohe amount to 68%, while the remaining
shares are held by the family of Klaus Grohe. In order to serve customers in its home
market of Germany more effectively, the Hansgrohe Deutschland Vertriebs GmbH was
separated from the rest of the company in 2003.2

2.1.2. Production and Product Portfolio

Generally, Hansgrohe has not followed the industry trend of moving production
facilities abroad. Instead, its production is concentrated in Germany and it mainly
invests nationally as well. The company maintains ten manufacturing plants worldwide.
A combined six of these are located in Germany, while the remaining four are located in
France, the Netherlands, the United States, and China, respectively. Consequently, two
thirds of Hansgrohe’s employees are working in Germany, while only one third is

1
See Hildebrand (2011), pp. 170-190.
2
See Hansgrohe (2015c).

2
employed abroad. As a result, about 80% of the company’s output is produced
nationally. Furthermore, the manufacturing process is characterized by a high degree of
vertical integration.

Hansgrohe offers its customers four major brands, which differ with respect to design
and the type of products that they are selling. The major brand “Hansgrohe” mainly
offers taps, mixers, and showers for kitchens and bathrooms. 3 These products have a
plainer, more functional look, while the brand “Axor” is the company’s designer brand.
Apart from taps, mixers (which also come sensor controlled), and showers, this brand
also produces wash basins, bath tubs, and other accessories for bathrooms.4 In addition,
the company offers its customers customized products with special finishes, size
adjustments, and engravings. 5 It also owns “Pharo”, a brand for wellness facilities, and
“Pontos”, which implements water recycling technologies in other products.

2.1.3. Current Corporate Strategy

Hansgrohe various brands allow it to target different customer groups and to position
itself in different markets. With respect to its products, Hansgrohe focuses on high-
quality materials, award-winning innovative design, and diverse products to serve
different customer needs. Since most of its production is taking place inside Germany.
The seal “Made in Germany” allows the company to further differentiate itself from its
competitors through quality, to boost its brand image, and to demand a higher price for
its products. Moreover, the company is dedicated to saving water through
environmentally friendly technologies. Whereas other German sanitary manufacturers
are focusing on the national market, Hansgrohe uses its differentiated products to
compete internationally, resulting in an international turnover share of 77% compared to
an industry average of only 37%. A network of more than 30 subsidiaries, founded in
cooperation with local partners, allow the company direct access to its markets and to
inform wholesalers and consumers about its products. Plumbers, wholesalers, architects,
and planners are its main commercial customers. Low-value channels like the Do-It-
Yourself market and home improvement retailers, on the other hand, are not targeted.

3
See Hansgrohe (2015e).
4
See Hansgrohe (2015d).
5
See Hansgrohe (2015a).

3
 2.2. SWOT Analysis

2.2.1. Strengths

Hansgrohe’s main strength lies in its ability to differentiate itself from international
competitors through its focus on German quality and design. In addition, a high degree
of vertical integration enables the company to exert full control over its main activities.
On the flip side, outsourcing could potentially save the company some costs. However,
Hansgrohe is able to recoup these costs by creating customer value and positioning
itself in premium and mid-price segments. Moreover, it does not have to rely on one
target group only. Its Axor brand can serve more premium customers, while Hansgrohe
stands for simpler design and functionality. Due to its large production capabilities,
Hansgrohe is able to produce a large number of extremely diverse products and to fulfill
special customer requests. The company is also facing a trade-off between cheap
production abroad and more expensive production in its home market. Choosing the
latter and focusing on high-quality materials and manufacturing is, however, consistent
with its strategy of differentiation through quality. Furthermore, Hansgrohe has been
able to increase labor productivity at its manufacturing sites and, thus, lower personnel
expenditures. Together with its capabilities for innovate and environmentally friendly
technologies through extensive research and development, this has contributed to
Hansgrohe’s international success. It is one of the highest-ranked firms in the sanitary
industry and its outstanding quality is signaled to consumers through generous
guarantee conditions.6

2.2.2. Weaknesses

With respect to turnover, Hansgrohe is among the top companies in Germany.7 It

differentiation strategy seems to be paying off, as the brand is perceived as modern and
exclusive by customers.8 As a result of its higher prices, however, the company fails to
attract customers in low-price segments. Due to its strategy of differentiation, for
example, it has so far chosen not to enter the Do-It-Yourself market unlike other
German competitors. This is especially crucial, as this market appears to be gaining

6
See Hansgrohe (2015b).
7
See Schütte (2012), p. 6.
8
See Schütte (2012), p. 6.

4
importance in Germany. In this case, its premium brands limit the company’s growth
opportunities in different market segments and other competitors gain first-mover
advantages. Brand marketing appears to be another issue. Company management is
aware that Hansgrohe needs to increase brand awareness and communicate the brand’s
values and emotions associated with it more clearly.9

2.2.3. Opportunities and Threats

Hansegrohe’s main growth opportunities are to be found in arid countries with low rates
of water resources per capita. In these markets, the company can use its innovative and
efficient water-recycling products to gain a competitive advantage. One such fast
growing market is China, in which Hansgrohe has already successfully established a
subsidiary with high turnover growth. The worsening climate change might further
increase these water shortages in the future. Furthermore, a growing middle class in
Asia and other emerging economies may lead to an increasing demand in the housing
sector and, consequently, for sanitary fittings. Overall, the market is growing and
bathrooms and kitchens are increasingly being used as living spaces. 10 Hansgrohe could
benefit from its experiences in the Chinese market with its growing middle class to
successfully establish itself in other countries.11

Apart from the repercussions associated with the economic crisis, Hansgrohe is facing
issues of plagiarism. This product piracy can lead to a loss in reputation and could
potentially threaten Hansgrohe’s image as a high quality water-saving manufacturer. A
convergence of tastes in Europe might make it easier for companies to advertise
globally, but at the same time takes away opportunities in niche markets.

9
See Hansgrohe (2014), p. 23.
10
See Hansgrohe (2014), p. 24.
11
See McKinsey (2013).

5
3. Strategic Alternatives

Hansgrohe has been very successful with its strategy of differentiation. Investments in
design and innovation will help the brand to stay ahead of the competition in the future.
Business partnerships with reputable first-class design companies would lead to even
stronger product differentiation and customer retention in existing markets. As we saw
earlier, the company has not yet entered lower-price segments. Using their established
brands to enter these segments would destroy their competitive advantage and confuse
consumers about the brands’ attributes. We, therefore, distinguish between two major
strategic alternatives for competing in emerging economies.

Firstly, we identified arid countries as potential future growth markets. As climate

change impedes access to sufficient water resources, demand for water-saving and
water-recycling sanitary products should increase. Ideally, Hansgrohe could then select
such economies based on additional criteria such as a growing housing and construction
market and a growing upper and middle class. Emerging economies with limited water
resources should satisfy at least parts of these criteria. As can be seen in Figure 1, for
instance, the number of flats of residential buildings completed in China have been
gradually rising over the last few years.

Figure 1: Flats of Residential Buildings completed in China

Total Number of Flats of Residential Buildings

completed in China
7.500.000
7.000.000
6.500.000
6.000.000
5.500.000
5.000.000
4.500.000
4.000.000
3.500.000
2005 2006 2007 2008 2009 2010 2011

Source: National Bureau of Statistics of China. Adopted from http://www.stats.gov.

cn/tjsj/ndsj/2014/zk/html/Z1513E.htm [accessed on 27.06.2015].

6
At the same time, people have become richer. Similar economies would be able to
afford newer water-saving technologies and also have a growing demand for medium-
priced and premium sanitary products. Hansgrohe’s EcoSmart technology allows for
water savings of 6 to 9 liters per minute by mixing air into the water coming out of
shower heads and mixers.12 These attributes and benefits need to be communicated to
customers through an appropriate marketing campaign that takes into account local
tastes and customs. This would allow the company to differentiate itself from
competitors in two distinct ways: environmentally friendly innovation and premium
design. Since arid countries are mostly poor or emerging economies, Hansgrohe’s
marketing strategy should be accompanied by sufficient investments in research and
development to be at the forefront of the industry and to drive down costs of existing
technologies.

Other potential arid countries include India, Malaysia, the Republic of Korea, and
Thailand.13 In Thailand, for instance, Hansgrohe could decide to focus on luxury hotels
as commercial customers for its premium brands. Moreover, the existing production
facility in China could be used as a bridge to enter new Asian markets. Supplying these
regions through this facility could also save transportation costs. However, the company
needs to do everything to prevent plagiarism and to produce at Chinese costs without
compromising German quality.14 If environmental conditions worsen and water
becomes scarce, governments in arid countries might also be forced to tighten product
regulations with respect to energy and water saving features. This could drive low-
quality competitors out of the market and increase barriers to entry for new entrants,
while increasing Hansgrohe’s competitive position. In order to gain a sustainable
competitive advantage, it is important that all the company’s activities are direct
towards the company’s goals and that all activities of the value chain are optimized to
serve a common purpose.15

As we saw earlier, Hansgrohe has not yet entered the Do-It-Yourself market. A possible
proposal would be a strategy of cost leadership. In this approach, a firm tries to become

12
See Hansgrohe (2011).
13
See Hildebrand (2011), p. 180.
14
See WirtschaftsWoche (2012).
15
See Porter (1996), p. 19.

7
pioneer in its industry as low-cost producer.16 The sources of cost advantage may,
among other factors, include economies of scale or preferential access to raw
materials.17 Since Hansgrohe’s existing brands are perceived as medium-priced and
premium brands, the company would have to establish or acquire a new low cost brand.
This brand would have to be completely separated from the others in order to preserve
the existing brand image. In this case, the company would not have to focus as much on
aspects of quality and design and could cut production cost by shifting production to
low-wage countries.

However, in order to have a sustainable competitive advantage, it is not enough to cut

costs. A capability gap only exists if only the producer in question can perform in a way
that is unmatched by competitors.18 This could be achieved by a superior delivery
system through investments in new logistic channels. As the economic and political
situations in poor and emerging economies with the newly established low-cost brand
improve, Hansgrohe could then also enter these now familiar markets with its existing
premium brands. It is, however, questionable whether cost leadership is an appropriate
strategy for emerging markets. Often, there is no feasible way for firms to compete with
the more efficient product piracy industry.19 We also need to consider that low-cost
products have not been one of Hansgrohe’s core competencies. The company needs to
assess whether the cheaper Do-It-Yourself market has enough potential in order to
decide whether it can afford to leave these market segments to competitors. If it does
not, it may be preferable for Hansgrohe to stick to its successful core competency and
compete through new ways of differentiation.

16
See Porter (1998), p. 12.
17
See Porter (1998), p. 12.
18
See Coyen (1986) , p. 57.
19
See Back/Boggs (2008), p. 134.

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4. Conclusion
Based on our analysis of Hansgrohe’s internal and external environment, we discussed
two potential strategies for the company to compete in emerging markets. Hansgrohe
could choose to focus on arid countries with little water resources. If these countries are
also emerging markets with a growing population and income, there may be a sufficient
demand for medium-priced and premium products. By marketing itself as a resource-
saving brand, Hansgrohe could further differentiate itself from competitors apart from
its superiority in design and quality. Alternatively, the company could found or acquire
a new low-cost brand. This would finally allow it to compete in the Do-It-Yourself
market. Given product piracy and plagiarism, however, Hansgrohe might find it
difficult to establish a position of sustainable cost leadership.

9
References

Back, D.W., Boggs, D.J. (2008). The difficulties in using a cost leadership strategy in
emerging markets. International Journal of Emerging Markets 3(2), 125-139.

Coyen, K.P. (1986). Sustainable Competitive Advantage. What It Is, What It Isn’t.
Business Horizons 29(1), 54-61.

Hansgrohe (2011). EcoSmart. Retrieved from http://www.hansgrohe.de/assets/global/

ecosmart_de.pdf [accessed on 27.06.2015].

Hansgrohe (2014). Facts & Figures 2014. Successful with Innovations. Retrieved from
http://files.hansgrohe.de/hansgrohe/annual_report/en/page25.html#/0 [accessed
on 26.06.2015].

Hansgrohe (2015a). Die Axor Manufaktur: maßgeschneiderter Service. Retrieved from

http://www.hansgrohe.de/1145.htm [accessed on 25.06.2015].

Hansgrohe (2015b). Guarantee. Retrieved from http://www.hansgrohe.co.uk/1498.htm

[accessed on 26.06.2015].

Hansgrohe (2015c). Hansgrohe in Deutschland. Retrieved from http://www.hansgrohe.

de/1171.htm [accessed on 25.06.2015].

Hansgrohe (2015d). Produkte der Marke Axor. Retrieved from http://www.hans

grohe.de/17686.htm#_ga=1.176387493.1657969093.1435303012 [accessed on
25.06.2015].

Hansgrohe (2015e). Produkte der Marke Hansgrohe. Retrieved from http://www.hans

grohe.de/17687.htm#_ga=1.109671941.1657969093.1435303012 [accessed on
25.06.2015].

Hildebrand, D. (2011). Choosing an International Competitive Strategy: The Case of

Hansgrohe. In: Zentes, J., Swoboda, B., Morschett, D. (Hrsg.) (2011).
Fallstudien zum Internationalen Management. Gabler Verlag: Wiesbaden, 170-
190.

McKinsey (2013). Mapping China’s middle class. Retrieved from http://www.mckinsey.

com/insights/consumer_and_retail/mapping_chinas_middle_class [accessed on
26.06.2015].

Porter, M.E. (1996). Was ist Strategie? In: Harvard Business Manager (Edition 2/2012).
Die Harvard-Klassiker, 6-21.

Porter, M.E. (1998). Competitive Advantage. Creating and sustaining superior

performance. Free Press: New York.

10
Schütte (2012). Der Markt für Sanitärkeramik und Sanitärarmaturen in Deutschland bis
2020. Retrieved from http://www.fjschuette.com/fileadmin/user_upload/Doku
mente/Marktstudie.pdf [accessed on 27.06.2015].

WirtschaftsWoche (2012). Hansgrohe Asien. “Made in Germany” alleine reicht nicht.

Retrieved from http://www.wiwo.de/politik/ausland/hansgrohe-asien-made-in-
germany-alleine-reicht-nicht-/7077066-all.html [accessed on 27.06.2015].

11
Eidesstattliche Erklärung

Hiermit erklären wir, Wiktoria Bulka, Gulnur Mamayeva, Nigar Mammadli, Carina Sauter,
Zamig Guluyev und Sebastian Schiller, dass die vorliegende Arbeit von uns selbstständig und
ohne Benutzung anderer als der angegebenen Quellen und Hilfsmittel angefertigt und alle
Stellen, die wörtlich oder sinngemäß aus veröffentlichten oder unveröffentlichten Schriften
entnommen wurden, als solche kenntlich gemacht sind. Die vorliegende Arbeit wurde nicht,
auch nicht auszugsweise, bereits für eine andere Prüfung angefertigt.

Magdeburg, den 01.07.2015