Summer Internship Project Report

On
Industry Overview of Iron Ore
&
A STUDY OF CUSTOMER BASED VALUE PRICING
Submitted towards the Partial Fulfillment
of
Post-Graduate Diploma in Management
Indian Institute of Management Tiruchirappalli
ACADEMIC SESSION
2011-2013

Under the kind guidance of

Mr. Vikas Tulshan
AGM, Sales and Marketing
Xindia Steels Pvt. Ltd.

Submitted by
Karande Akshay
1101017
IIM,Trichy
Date: 20th June 2012

Student Declaration
I, Karande Akshay to the best of my knowledge & belief, hereby declare that the project
report entitled: Industry overview of Iron Ore & a study of customer based-value
pricing method is the result of my own work in the fulfillment of academic
requirement. The training is done in Xindia Steels Pvt. Ltd. Koppal Karnataka for a
period of 8 Weeks commencing from 19.03.2012 to 13.05..2012. This project work is
submitted to Xindia Steels Pvt. Ltd. Koppal Karnataka It is not to be used copied or
edited by any person. Written order has to be taken from appropriate authority for that.

Karande Akshay
PGDM
1101017
Indian Institute of Management, Tiruchirappalli

Acknowledgement
Its a privilege to be associated with Xindia Steels Pvt. Ltd. This
acknowledgement is not only the means of formality, but to me, it is a way by which I
am getting the opportunity to show the deep sense of gratitude and obligation to all the
people who have provided me with inspiration, guidance and help during the
preparation of the project. At the very outset, I would like to express my gratitude from
bottom of my heart to Mr. Alex, CEO, Xindia Steels Pvt. Ld. for giving me the
opportunity to do my Summer Internship Project in this esteemed organization.
I articulate my sincere gratitude to my project guide Mr.Vikas Tulshan, AGM,
Sales and Marketing , who has spent his valuable time and guided me throughout the
training process in spite his busy schedule, in shaping of my project. I would also like to
thank Mr. John Hendez and Mr. Chen Junke, Head of Operations department
following people for providing me all the info needed.
Its my honor to get guidance from my internal faculty Mr. Prafulla Agnihotri and
Mr. Apalak Khatua for this internship.
But last not the least I am thankful to my parents, friends and all well-wishers for
blessing me for my success.
Karande Akshay
PGDM
1101017
IIM Trichy

Executive Summary
This project describes about the industry overview of Iron Ore in India and customer
based value pricing method. In India around 20 % of companies go for customer value based
pricing method. Research shows that this is one of the most effective methods to increase the
profitability of organization.
As said by Monroe the profit potential for having a value oriented pricing
strategy that works is far greater than with any other pricing approach.
The increasing endorsement of customer value-based strategies among academics and
practitioners is based on a general recognition that the keys to sustained profitability lie in the
essential features of customer value-based pricing, including understanding the sources of value
for customers; designing products, services, and solutions that meet customers needs; setting
prices as a function of value; and implementing consistent pricing policies.

About Company Product: Iron Ore Pallets (Courtesy: Xindia Steels Pvt. Ltd.)
With gradual depletion of high Iron Ore reserves, the
Iron and Steel sector world over has been looking at
alternatives to utilize the low grade iron ore fines for
iron making so that there is optimal utilization of the
available iron ore resources. Growth of Steel Industry,
especially in China over the years despite the depletion
of high grade Iron Ore has taken place on the strength
of technologies of Beneficiation, Sintering and
Pelletisation of Iron Ore Fines, which enhances the
productivity of the blast furnaces in Steel making and
hence lowering the cost of steel production.
In the Indian context, by the year 2020, Indias production of steel is expected to touch 110
Million Tons from the current level of approximately 45-50 Million tons. It is imperative that the
fines generated in the mining of iron ore be utilized for the production of steel. The Indian steel
industry which predominantly uses expensive lump ore is gradually moving towards usage of
sintered ore and pellets. It is in this context that Xindia Steels Limited has commissioned its
Pellet plant, to produce Iron Ore pellets of consistent quality, which results in substantially
higher efficiencies, both in production of DRI (Sponge Iron) and also in blast furnaces for
production of iron.
Xinxings pelletizing technology (up to 3.0 MTPA) is considered among the best in the world, as
it results in superior quality of pellets at lower costs of production. The pellets produced by
Xindia will cater, both to the domestic iron and steel industry and also to burgeoning export
markets in China, Japan, Korea, which are largely dependent on imported Iron Ore to feed their
blast furnaces and DRI (Sponge Iron) kilns.
Pelletisation is a major process of agglomeration where micro fines, either in the form of
beneficiated concentrate or without beneficiation are rolled into green balls (9-16 mm) before
subjecting them to high temperature for heat hardening. The other major route of agglomeration
is sintering.
The fundamental difference between sintering and Pelletisation is that while the coarser spectrum
of fines of the order of 'mm' are gainfully utilized in sintering process, the micro fines or the so
called ultra-fines of the order of 'micron' which otherwise is unsuitable for production of sinter,
are utilized in Pelletisation.
There are two major processes dominating the world Pelletisation scenario. While Travelling
Grate (TG) process, developed by Outokumpu formerly Lurgi, Germany accounts for about 56%

of the world capacity, GrateKiln (GK) process, developed by Metso Minerals (Formerly
Boliden-Allis / Allis Chalmers, USA), accounts for about 33 % . Both TG and GK process have
flexibility of operation using various type of iron are like Magnetite , Hematite magnetite/
Hematite etc. with capacity varying from small scale to very large scale.
GrateKiln(GK)Process

The unit comprises three equipment viz grate, rotary kiln and circular cooler.
The green balls are first dried and preheated on the straight grate by gases discharged from the
rotary klin followed by hardening in a counter flow manner in the rotary kiln and air cooling in
an annular circular cooler.
The grate has two or more wind boxes to provide for the gas draught. The heat for drying and
preheating is supplied by the gases discharged from the rotary kiln, and
hot air from the cooler is utilized in the rotary kiln.
What is Pelletisation?

The process of Pelletisation helps converting Iron Ore Fines into Uniform Size Iron Ore Pellets
that can be fed in the blast furnaces or in the DRI kiln (DRI).
Why Pelletisation?

Pelletisation is the only answer to a major question of preserving our precious iron ore and using
it wisely.
Advantages of Pellets

Pellets are uniformly sized, with purity of 63%- 68% contributing to faster reduction and high
metallization rates.
Pellets with their high, uniform mechanical strength and high abrasive strength increase
production of sponge iron by 25% to 30% with same amount of fuel.
Standardization - Uniform size range, generally within a range of 9-16 mm.
Purity - 63% to 68 % iron, mainly (Fe2O3).
Cost-effectiveness - There is no loss of handling iron ore, as pellets will not break during
transport or handling. Reduces coal consumption in sponge iron making with lower fines
generation. Maintenance cost is low as there is no need for crushing and screening of iron ore
lumps.
Strength - High and uniform mechanical strength even under thermal stress.
Productivity

A wholesome 20-25% increases in sponge iron making. A perceptible improvement in

productivity of iron making through blast furnace route due to the uniformity of pellets which
results in better permeability.
Process
The Grate Kiln technology

Proven and time tested technology of Pelletisation with adoption of completely automated

processes and equipment to ensure end product quality.

PELLET SPECIFICATION
Courtesy: Xindia Steels Pvt. Ltd.
Typical Specification of Pellet
Chemical Composition (On Dry Basis)

Grade Percent (%)

Fe

63

FeO

0.5

SiO2

4.25

Al2O3

3.64

Sulphur

0.009

CaO

0.061

Phosphorus

0.053

Physical Properties

Value

Bulk Density

2.2 T/m3

Tumbler Index

93.47%

Abrasion Index

3.27%

Cold Crushing Strength (Avg)

200 Kg/P

Size Analysis
5 - 16 mm

90%

-5 mm

5%

+20 mm

5%

Metallurgical Properties
Porosity

18%

Reducibility

60%

Iron Ore Industry in India in graphical way:

2%

Grade-Wise distribution
19%

28%
High (Fe +65 )
Medium (Fe 62-65%)
Low (Fe -62%)
Others

51%

Hematite Resources in India

16
0.7
0.7

14

1.7

12
Others
Goa
Karnataka

0.7
0.6
10
8

Chhatisgarh
Jharkhand
Orissa

1.1

2.7

2.1

6
4

4
3

2
3.8

4.8

As on April 2000

As on April 2005

Source: Indian Bureau of Mines, Nagpur

Indias Ore export and domestic consumption

Domestic Consumption
140
120
100
In Metric Tonnes

80
60

Metric tonnes

40
20
0
Metric tonnes

2000

2005

2010

46

72

120

In India it is observed that CAGR in Iron Ore industry domestic consumption is +10%.

Exports
120
100
80
In Metric Tonnes

60
In Metric Tonnes

40
20
0
In Metric Tonnes

2000

2005

2010

35

90

101

Year

CAGR of Export is calculated as +11%.

Few things about Iron Ore industry in India:

Indian Iron Ore industry is 5th largest in the world.

Over the period of 25 years the iron ore resources have gone up by about 7.7 billion tons
after producing about 1.7 billion tons.
Cutoff grade is always taken as 55%.
There is hardly any Greenfield exploration post liberalization era.
Most of the magnetite deposits are not explored - even the explorations made are also
shallow depth of 50-60 meters.
Brownfield explorations are multifold.
Iron ore resources are increased by 100 fold in last 40 years.
Small countries are spending more than India in iron ore industry.
Greenfield exploration investment in Australia is more than $500 million.
Indias Investment is $5 million and that too mostly in COAL industry.

Future Iron Ore Resources in India will last longer.

*Equivalent Fe grade for low the low grade material

**Assumptions: constant steel production level of 200 million tons per year from 2020;
160 tons of iron ore per 100 tons of steel.

Indias per capita investment in iron ore industry is` 0.21 while in Australia it is `1400.

@Source SESA Analysis team report

Part II
Customer Based Value Pricing Method:
Pricing has huge impact on profitability. Pricing strategy vary considerably across industries,
countries and customers. Nevertheless, researchers generally concur that pricing strategies can be
categorized into 3 groups.
1. Cost-based pricing
2. Competition-based pricing
3. Customer value-based pricing
Of the, customer based value based pricing is increasingly recognized in the literature as superior
to all other pricing strategies. Cannon and Morgan (in 1990) recommend value pricing if profit
maximization is the main objective, and doctors et al. (2004) refer to value-based pricing as one
of the Best pricing methods.
In real life some companies adopted customer value-based pricing strategies. They are successful
in adopting those methods in their scenarios. Companies like BMW in automobile industry,
Lufthansa in airlines, wireless internet service providers such as Australian company Xone, IT
companies such as SAP and Vendavo. In pharmaceuticals such as Sanofi-Aventis adopted this
method successfully.
Customer value-based pricing is always endorsed by academics and practitioners on general
recognition that the keys to sustained profitability lie in the essential features of customer valuebased pricing, inclusive of understanding the sources of value for customers; designing products,
services, and solutions that meet customers need; setting prices as a function of values; and
implementing consistent pricing policies.
Though there are lots of benefits in customer value-based approaches to pricing, a review of
literature shows that it plays very minor role in the real world of pricing.it is found that so many
obstacles are there while going through this strategy.in this paper we will see those obstacles and
some guidelines to overcome those obstacles.

Wide array of pricing strategies

Cost-based pricing derives from data from cost accounting. Competition-based pricing
uses anticipated or observed price levels of competitors as primary source for setting prices and
customer value-based pricing uses the value that a product or service delivers to a segment of
customers as the main factor for setting prices.
Alternative approaches
to pricing

Cost-based pricing

Competition-based
pricing

Customer value-based
pricing

Definition

Cost based-pricing
approaches determine
prices primarily with
data from cost
accounting

Examples

Cost-plus pricing,
mark-up pricing, target
return pricing

Competition based
pricing approaches use
anticipated or observed
price levels of
competitors as primary
source for setting
prices
Parallel pricing,
umbrella pricing,
penetration/skin
pricing, pricing
according to average
market prices

Customer value-based
pricing approaches use
the value a product or
service delivers to a
predefined segment of
customers as the main
factor for setting prices
Perceived value
pricing,
Mperformance pricing

Main strength

Data readily available

Data readily available

Does take customer

perspective into
account

Main weaknesses

Does not take

competition into
account
Does not take
customers and their
willingness to pay into
account

Does not take

customers and their
willingness to pay into
account

Overall evaluation

Overall weakest
approach

Sub-optimal approach
for setting prices;
appropriate for
commodities

Data is difficult to
obtain and to interpret
Customer value-driven
pricing approach may
lead to relatively high
prices-need to take
long tern profitability
into account
Customer value is not
a given, but need to be
communicated
Overall best approach,
direct link to customer
need

Difficulties in Implementing Customer Value-Based Pricing Method

The difficulties associated with reliable assessment of values are reflected in the following
comment from the chief marketing officer of a software company:
The research and development department came up with a new software program to
help large Retailers compare the prices of thousands of competitive products on the Internet in
real time. This Program helps them to adjust their own prices not only on the basis of data from
internal demand, But also on the basis of the prices of competitors, which are usually much
harder to get because Internet-based price comparison engines typically do not list prices for
toothbrushes, pet-food Beer, and so on. We know there is value in this program for such retailers
as Wal Mart, K-Mart, and So on. However, we just do not have the tools to attach a financial
value to our unique software Package.
Respondents from other industry said like if a company only doesnt know the value of their own
product for customer then how will they charge for customer for perceived value.

The survey conducted over few associates in Europe and Asia claims following difficulties in
implementing value based pricing

Survey among associates in US,Europe and Asia

other factors

65%

Top management support

50%

Sales force management

58%

Market segmentation

60%

Value communication

65%

value assesment

79%
0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Survey among associates in US,Europe and Asia

Difficulties with communicating values

A deficit in communication of value was the second most common obstacle to implementing
value-based pricing strategies in the present study. A global marketing manager in the
chemical industry put it this way:
Our new chemical product had some advantages over its direct competitor. Our question
at the time of the launch was whether we should base our marketing campaign around this
advantage or whether we should stress other features in which our company held an advantage.
In the end, we decided to communicate distinctive product features, but we learnt the hard way
that Customers simply did not care. . . So today I am still struggling with regard to the most
effective Way of communicating with customers in ways that matter and are meaningful to
them.
Effective communication of value is especially difficult in environments where customers
are inundated with advertising. The marketing managers in the study reported that it has become
increasingly difficult in the past 10-15 years to get their customers attention. Customers are

inundated with television advertisements, print advertisements, internet spam, and various
other sales tactics and tend to adopt a negative view of marketing. Customers are increasingly
difficult to reach and impress through traditional marketing channels, and they tend not to
respond well to traditional marketing tactics unless these tactics are so creative, unusual, and
impressive that they clearly stand out.
To improve the communication of value to customers, three levels of sophistication need
to be recognized and used appropriately:
1. Communicating product features. The most basic level of communication of value is to
advise customers of product features (for example, cars with a 300hp motor; or chemicals with
95 percent efficacies against a given pest). The problem with this approach is that customers
often do not care about product features.
2. Communicating customer benefits. On a more sophisticated level, communication of
value refers to customer benefits (for example, insulation that reduces noise; or headphones that
are more comfortable). The advantage of this approach is that customers do care about benefits;
the disadvantage is that companies do not always know which benefits really matter to
customers.
3. Communicating benefits in accordance with customer needs. At the most sophisticated
Level of communication, the needs (explicit or implicit) of customers are addressed. In these
cases, the message is received and remembered because needed benefits, rather than features, are
communicated. A good example is the advertising campaign of Michelin tyres, which focused on
the safety of children in cars, thus communicating customer benefits that were in accordance
with customer needs.
Difficulties with market segmentation
A senior product manager of a global company explained the obstacle of market segmentation to
value-based pricing:
We had developed a new yoghurt with health benefits that I planned to launch at a
premium price. However, I was frustrated because I could not get any of my colleagues (in
marketing, sales, or key account management) to support my plan for a higher price. All I kept
hearing was: the customer cares only about price! Purchasing agents for supermarkets
benchmark you against their own in-house labels so forget your premium prices. So I gave
up. We did not launch the product because launching it at parity to competition would not
have allowed us to reach our profitability targets. The irony was that, half a year later, a
competitor launched a similar product to the one we had just dropped at 60 percent
premium!
Market segmentation is difficult. In examining the impact of marketing theory on marketing
Practice, Webster (2005) noted that for the past two decades, the tactical dimension has
dominated. . . Mistakenly, the sum of the four Ps was labeled as marketing strategy, even
though the most important of the marketing variables market segmentation, targeting,
positioning . were not part of this tactical formulation.

In short, marketing theory has not produced effective guidance for marketing practice on the key
issue of market segmentation. The best approach to market segmentation is one that takes
customer needs as the primary segmentation variable. Such a needs-based market segmentation
enables marketing and pricing strategies to cater to a variety of market segments rather than
being restricted to the segment that is presumed to care only about price. An effective needsbased market segmentation not only identifies the size and composition of the price-driven
market segment (which is never 100 percent of the market), but also delineates the nature and
size of other market segments of customers (for whom product dimensions other than price have
value).
The agrochemical company, Monsanto, used well-defined, needs-based market segmentation for
its Roundup product, the worlds best-selling herbicide. Three market segments were
identified:
1. a price-driven segment of customers (who were offered a generically labeled product);
2. a mainstream segment (who were offered a Roundup branded product); and
3. a technically sophisticated segment (who were offered a product called Roundup
Weather Max, which was marketed as being very effective even under difficult weather
Conditions).
Using this needs-based approach to market segmentation, Monsanto was able to maintain a 60
percent share of the global herbicide market even though the patents expired in 2001 and cheaper
substitutes were readily available. This example shows that a creative needs-based approach to
market segmentation can be an effective marketing strategy even with an apparently boring
product, for which, it might be assumed, price would be the only relevant segmentation variable.
Difficulties related Sales force management
The most common obstacle was difficulties with sales force management. One workshop
participant, from the automotive industry ,put it this way:
We had just launched a new car. The press was excited, and the public loved it.
Journalists put the car on their short lists for the Car of the Year award. Although the price of
the new model was about 3,000 Euros (15 percent) above that of the previous model, we were all
confident that we would be able to sustain this. But then, towards the end of the year, our sales
team felt under pressure. Dealers had excess stock and offered significant cash discounts to
customers. They also put pressure on our sales representatives to increase the annual allowances
and bonuses to dealers. We partly gave in, but partly resisted. A year later we reviewed the actual
net prices for sold cars and realized that our targeted price premium of 3,000 Euros had actually
evaporated to little more than 200 Euros.
As this case shows, value leakage often occurs at the level of sales teams as they attempt to
realise annual volume targets and qualify for annual bonuses by extending discounts to
customers. In many cases, they do so without understanding the long-term consequences of these
discounts. In many cases, they do so without understanding the long-term consequences of these

discounts. Effective sales force management includes the establishment of clear guidelines
regarding sales discounts, including:
1. Level of authority for sales discounts.
Restricting the authority of sales personnel to set prices can enhance profitability
(Stephenson et al., 1979). However, in certain circumstances, sales personnel should be
allowed greater latitude in setting prices to increase profitability; these circumstances
include:
cases in which sales personnel have greater insight into customers willingness to
pay;
cases in which sales staff possess outstanding negotiating skills;
cases in which a willingness to pay varies substantially among customers; and
Cases in which products are complex or perishable.
2. Sales force remuneration systems.
Companies have traditionally rewarded sales personnel on the basis of sales volume,
rather than profit. In contrast, value-based pricing strategies require a system that rewards
sales personnel for profitability, rather than for sales volume or market share.
3. Fixed and variable remuneration systems.
If management wishes to encourage sales personnel to focus on sales volume, a lower
percentage commission should be offered; conversely, if sales personnel are expected to
focus on sales quality (such as developing customer relationships) a higher percentage
commission should be offered.
4. Sales force training and development.
The effective implementation of value-based pricing requires a fundamental shift in the
attitude of sales personnel and therefore entails a significant change in the way sales
personnel are trained and developed. To identify the subtle wishes of customers, sales
personnel must learn to become good listeners; moreover, they must learn to be
comfortable in selling solutions (rather than products or services) to customers.
5. Sales force monitoring.
Value-based pricing requires target prices to be maintained and excessive discounts to be
discouraged. Sales personnel should therefore be monitored to ensure that price
discrepancies are promptly detected; in addition, financial incentives should be offered to
sales personnel to maintain list prices and financial penalties should be imposed for
excessive discounting.
Difficulties with senior management support
50% of the correspondent mentioned that support from senior management is obstacle in
customer value-based pricing. One of the correspondents from industrial service said that:
Senior management claims to wan price premiums and profitability, but then
punishing people for not meeting their volume quota.

Support from senior management can be obtained through various means,

including lobbying, networking and bargaining. If such support is gained, middle-ranking
executives can then implement value-based pricing strategies. Recent research has shown
that C-level executives are now handling pricing projects with increasing frequency.
It is the contention of this study that, once the various obstacles have been overcome
using the suggestions and guidelines presented here, companies will be well-positioned to
implement value-based pricing strategies.

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Study of marketing management, cases and readings
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Indian mines bureau, nagpur
Steelmint.com
Www.Xindiasteels.com/products