Carry out a strategic analysis and evaluation of a company of your choice, with
ID: 433849 • Letter: C
Question
Carry out a strategic analysis and evaluation of a company of your choice, with its strategic position in its global market. Use appendices to provide detailed supporting evidence and make sure that you integrate key points from the appendices into your answers. Your analysis should include as a minimum: i. The product market mission of the company. ii. The basis of competition (Porter’s generic and/or Bowman as a minimum). iii. Strategic Group Analysis. iv. The activities and resources of the company (Value Chain and the Resource Based View). v. The culture of the company (Cultural Web). vi. The stakeholders of the company (Stakeholder Analysis: power/interest matrix). Note: Any of these models may also be used to analyse and evaluate the company’s strategies: TOWS matrix, Ansoff’s matrix, BCG Matrix, Market Attractiveness matrix, FSA/CSA matrix, Porter’s Diamond framework, Hofstede’s Cultural Dimensions, etc. No appendixes attached.
Explanation / Answer
Introduction
The organization chosen here is Fonterra which is a large player in dairy and similar products. It was founded in 2001 and is the largest company in New Zealand with catering to almost 30% of world’s dairy production. Fonterra generates revenue of around $17.2 billion annually. Fonterra started off as a dairy co-operative and collaborates with almost 10,500 New Zealand farmers. Fonterra is ahead of its competitors because of its high investment in customer centric technology developments. Fonterra focuses on continuous improvement in distribution and manufacturing process which help it to reduce the operating cost and to reach out to more customers (Kim, 2015). Fonterra has forayed into new technology based innovations and serves the premium category customers. It had to struggle initially to scale up its operations for premium customers. However, with right set of targeting and proper distribution network, Fonterra has made its presence all over the world. Fonterra had started in a small region with a vision to provide sustainability and livelihood to the local New Zealand farmers. Slowly with the success if its operations, it was able to scale to other regions of New Zealand as well. Fonterra has also improved its tracking mechanism with the introduction of RFID technology. Fonterra offers product solutions for all categories of dairy products. It has different product offerings for the various age groups and purpose. Fonterra is ahead of its competitors in terms of trends and innovation. It always puts the latest dairy product innovations in its stores and ensures on time delivery to its customers. Fonterra has significantly impacted the dairy industry around the globe and shares the large market share in terms of product volume and profits. Its marketing, manufacturing and distribution strategies help it to stand strong among its competitors.
Product/Service description
Fonterra has provided a complete dairy product solution for its customers. It has a range of product categories which can cater to the daily needs of its customers. Fonterra not only offers variety in taste and quality but also offers a huge variety in occasional consumption (HU, 2009). Along with this variety, Fonterra has also ventured into several derived products of dairy such as cheese and butter, which can demand a premium. Most of the products at Fonterra are unique and are not repetitive easily at other stores which increase the uniqueness and craze of Fonterra products among its customers. At the same time Fonterra also has products for kids of any age. Fonterra offers a complete package for dairy product requirement of its customers. Its quality and taste combinations are so unique and elegant which attract premium customers. Customers happily pay premium prices for its products.
Fonterra has also marked its online presence where millions of customers can easily reach out to Fonterra online stores and can select products of their choice. Fonterra has improved its delivery system with the introduction of RFID technology where customers can track their delivery on real time basis. Online stores of Fonterra are very much efficient and are serving a good number of customers. Fonterra also offers customer services like exchange of products, size consultancy and returning of products in case of size or quality mismatch. Fonterra offers best services in the industry, it’s in store services, customer solutions and distribution network helped it to grab the market share from the competitors.
Objectives of Fonterra
The main purpose of Fonterra is to provide customers the dairy products they want and that too in an efficient as well as fast manner. They have been the pioneers in the dairy products industry wherein it has been able to provide products similar to premium brands but at a much cheaper price. It has been possible because of their short and simple supply chain, which enables them to turn around their products and designs in an optimised manner. Fonterra has been able to set up operations which are quite perfect in several fronts such as value proposition, trends, designs, and supply chain. These aspects of their business have emerged as their core competencies which have enabled them to reach out to their loyal customers with a wide variety of product offerings. Therefore, the organizational objectives of Fonterra can be summed up in short to provide customized products of choice to their customers while providing them at a fast pace so that no other competitor players can reach them in that amount of time.
The marketing objectives of Fonterra are in line with its overall corporate objectives. It wants to cater to its customers in the most cost optimized manner while not compromising on the choices and needs of their loyal consumers. The positioning of the brand has been done in a similar manner in order to communicate the salient features of the brand to its target consumers. The different aspect of the dairy products that is adopted by Fonterra is communicated to its loyal customers through the various elements of marketing mix. Fonterra follows a well organised and integrated marketing mix wherein it is able to position itself as one of the aspirational brands but still keeping the costs at lower range. Therefore, the marketing objective of Fonterra is completely focused in conveying these aspects of the dairy retail through its innovative and targeted marketing campaigns (Gligor, 2016). One of the biggest value propositions of Fonterra is that it is able to change its designs and trends within a short span of time, which is expressed in its marketing campaign in a shuttle and suave manner. As a result, it is justified to say that Fonterra has a well-integrated corporate and marketing objective which goes hand in hand in order to fulfil the needs of its customers.
Target Market
For any business to flourish and make profits it is necessary to identify the right set of consumers and how to make the product offerings worthwhile for those customers. As a result, segmentation, targeting, and position of products is one of the most crucial aspects of any dairy business. Fonterra has been able to differentiate itself from the competitive brands very easily. It has been able to establish itself as the pioneers in the dairy products industry in New Zealand with an eye for efficient supply chain. The target market for Fonterra includes young generation population who want to have dairy products which are innovative as well as relevant to the changing needs of the society. This is the very crux of innovative dairy products which is immaculately captured by each and every creation of Fonterra. The target population of Fonterra is also aware of these unique offerings of Fonterra and that makes them loyal customers. Fonterra has been able to differentiate itself on the premise of aspirational new products as well as efficient supply chain. As a result, the young and dynamic generation who are agile and flexible look forward to the offerings of Fonterra. The quality and service offered by Fonterra also makes them their loyal customers. Therefore, it is justified to say that Fonterra has a well defined loyal set of consumers whose philosophy is in line with the company objectives because of which it has been able to establish a sustainable business in a high fragmented and competitive industry.
External Environment Analysis
Dairy industry is not like any other industry. Products and trends do not change frequently which needs to be incorporated in production as well as in promotions. Customers expect the company to be very innovative along with the quality products. Earlier the dairy industry was not organized and was fragmented locally, but now it has been progressed as an organized sector. Forecasting of internal or external market for a company which works internationally is very difficult because of frequent and sudden changes in these environments. There can be large number of factors which affect health of an organization. PESTEL analysis of the organization provides an overview of all such factors.
Political Factors: Policies by the governments affect the business severely. Policies in favour or against can make or break the organization. Managers need to invest their time to figure out what upcoming policies might help them or can make profit for their company. Dairy industry is heavily dependent on local suppliers and distributors. Therefore, company might need to deal with lot of local and federal policies. Fonterra has its own separate department to interpret and change the strategies based on political environment (Fung, 2014). This department helps the company to withstand the changes in political environment and to stabilize its business. Political decisions directly impact the economic and social environment which ultimately affects the market conditions. Some policies might trigger the technical developments or some might change the labour laws. At the same time, impact of political policies is not same everywhere, it might differ regionally and should be handled properly. Some developing countries might have corruption as a big hurdle in business, while some developed countries might not allow development of new factories. Fonterra is a big brand name and is the child company of Inditex which is another big player in industry. It helps the company to interpret the policies in its own favour. Some government policies might be beneficial or some might be against the business. For example, stringent labour laws, trade control, employment laws, bureaucracy, tax policies, property laws, tariffs and consumer protection laws are some of the factors which affect the organization most. These factors directly affect the economy of country and thus affect the industries and organizations in it.
Economic Factors: Economic factors are related to economic growth, exchange rates, bank policies and other business settings in a country. Dairy industry is largely affected by these changes. Target market for dairy industry lies in most of the developing or growing economies. Development of infrastructure, product and service supplies, manufacturing firms help these economies to grow. These growing economies are largely populated which provides economy of scale benefit to manufacturing firm. Fonterra produces more than the demand which results in more availability of products in the market and thus more sales. Customers end up buying more clothes given more choices in the stores (Martínez Barreiro, 2008). However, economic factors like inflation, per person capita etc. impact the buying capacity of the customers. Fonterra targets premium customers who prefer to buy for dairy products for healthy consumption and not for need. This makes the Fonterra branded dairy products to be a premium product in the market which is largely affected by the inflation and per person income. Customers’ buying behaviour suddenly drops during inflation. They prefer to spend on more important items than buying Fonterra clothes. Elasticity in prices is not very high for dairy industry. Dairy or textile companies offer large employment opportunities for the company which is beneficial for economic growth of a country. Government prefers to deploy more liberal policies and resources for dairy industry. Revers also stands true. Growing GDP of a country will definitely increase the sales in that country. Customers tend to visit more stores on increment in their earnings. Currency fluctuations, interest rates also affect the dairy products manufacturing and distribution, if the organization is raw material is imported from other countries.
Social Factors: Customers like to anticipate the social status of the money they spend. Specially, dairy industry is deeply impacted by the social norms and culture. Fonterra being a premium segment brand do not target the poor people who buy dairy products out of necessity. Fonterra products are symbol of status and income level in the society. People who visit Fonterra stores like to associate themselves with big brand and upper social status. They pay on dairies because of their high income level (Flynn, 2016). Apart from that, dairy trends in a country are affected by the social culture of that country. Rich people tend to buy on every new occasion, therefore number of social festivals and social events will increase the sales in festive season. Cultural factors also include social behaviour, social norms lifestyle and demographics of people. Fonterra targets all type of customers and offers dairy products solution for all cultural and society types. There might be variation in production unites depending on the strengths of a particular group. Style may change with time, so Fonterra spends on unique innovative dairy innovations at the same time. For example, younger generation might like tight fitting such as skinny jeans, whereas older generation generally like loose fitting of larger size clothes (Menon, 2014).
Technical Factors: Technological factors play a crucial role in growth and development of any industry. They might be invisible on front end but they are the backbone of an industry. Dairy industry requires continuous supply of resources to manufacture the clothes. It also needs continuous innovations in designing otherwise it would not survive in the market. Fonterra clothes stands very unique in the market because of their uniqueness. Company focuses on technical developments to utilize the resources in most efficient ways. Raw material scarcity forces the dairy products retailers to sell substitutes of leather products. Pricing of clothes depends on availability of resources and therefore to reduce the effective prices, cost efficient manufacturing is required. They also need to sell more units to balance out the manufacturing cost by implementing economies of scale factor. All the advancements require technical development at back end. Along with technical developments on manufacturing front, Fonterra also invests in technical developments for distribution. As the time taken in distribution might affect the changing trends in the industry, therefore it is required to provide the products in the market as soon as possible. Fonterra is developing automatic techniques which will reduce its labour cost up to a significant level. Automation of manufacturing and distribution will reduce the cost as well as product delivery time.
Legal Factors: Legal factors seem to be hidden; however, they affect the business establishment and its continuity. Dairy industry needs to deal with issues of child labour, contract labours, worker unions and environmental laws. Union workers try to impact the managerial decisions through their union powers which affect the production capacity of the company. Sometimes, strikes can also delay the product delivery which is harmful for company brand image. All regulatory laws affect business. Fonterra has good terms with government in almost all countries. It adheres to their rules and provide support in improvement of the situation. Partnerships, alliances and tie-ups with suppliers and partner companies have vital legal aspects in the dairy industry. An organization need to deal with legal implications at every level of business. It not only made the company to change its internal policies but also impacts the brand image of the company (Önören, 2017).
Porter’s Five Forces Analysis
Fonterra is performing very well in international market. It has survived for a long duration and is still growing. There are various strategies which help its strategic growth. These strategies can be analysed by the porter’s five force analysis where company’s relationship with suppliers, buyers and competitors is explained.
Buyers’ Power: Buyers’ power is more influential factor for any business. Company’s strategies revolve around customers to please them by offering best quality products. Customers have large bargaining power in any market; they can choose be to loyal customers of the company or can easily switch to other companies (Day, 2011). Price and quality are the two main factors for customers which affect their buying decision. Dairy industry keeps changing and buyers’ power affects its trends and business. Customers might not directly negotiate at the company stores but they can migrate to other brands. Larger buyers can bargain for the price of the products. Customers have many lucrative offers from different dairy stores which provide them a lot of products to choose from. Customers prioritize their shopping based on dairy trend and price. They do not have any incentive to stick to a particular retails store. Fonterra attracts the customers through its better in-store services and different discount offers. However, similar brands also offer same facilities for customers. Therefore, it can be said that buyers’ power is very high in dairy industry and company always need to put efforts to retain their customers for longer durations.
Suppliers’ Power: Dairy industry has lots of suppliers form across the world. Company prefers to install their manufacturing plants where they can easily get resources. They can also export the material from other countries which are cheaper of better than current supplies. Most of the suppliers in dairy industry are poor farmers who easily get ready to provide raw materials at very cheaper rates. Suppliers get only marginal price of their raw material. Even though they might switch to other manufacturing plants, but their poor conditions do not provide them a lot of offers. Most of the suppliers prefer to stick to a single company for continuous and confirmed sale of their products. All these situations lower down their bargaining power in the industry. They do not have much control over the dairy industry. This makes input prices to be very low for the dairy industry. Fonterra also imports raw material for other neighbouring countries form where it can get the material at cheaper prices.
Competitive Rivalry: Dairy industry is very competitive and there are lots of big players in the market. Although, Fonterra is one of the top brands in the industry, there are numerous other brands which hold the same position. There are various companies which offer products for the same customer segment at very competitive prices and with same quality. Branding is very strong concept as people prefer to be identified with a brand. They like to buy products form a specific brand; however, it is not fixed always (Reimann, 2017). Customers easily visit other stores if they find good products there. Dairy industry is highly saturated as there are no scopes for big innovations or dairy repeats. This industry is becoming a race to bottom and it is really difficult to survive in the industry for any brand. Companies need to try very hard to remain in the market. Fonterra is at top position as of now and it is continuously investing large amount in innovations and technical developments to attract and retain the customer base. However it can be said that competitive rivalry is very high in this industry.
Threats of New Entries: As already stated, this industry is highly saturated and there is nothing left to offer to customers to attract them. Although entry cost is not very high, but new entrants will not mark any significant change in the industry (Bhaduri, 2017). Promoting in effective and new ways can be done by the new small players which might attract customers for a short duration. Companies can get more customer base though heavy promotions and marketing of the products which will require a large investment. Fonterra is already holding a strong position and therefore is not afraid of any small entrants in the market. Threat of new entrant is low in the industry.
Threat of Substitution: Threat of substitution does not affect the industry as dairy products cannot be replaced by any other substitute. However, material might be changed but that will not change the DNA of the industry completely. Synthetic material is not preferred by most of the customers. This makes threat of substitution to be very low. Summarizing all this, dairy industry is very exciting as well as challenging to dive into. Porter’s five forces analysis clarified that there is little bargaining power of suppliers and few threats. Industry is at its saturation state and only buyers have high bargaining power which is a big influential factor.
Marketing Strategies
Marketing of any product increase its sales many fold. Marketing can make or break any product. Quality is important for any product but way of presenting helps the customer to choose your product over its competitors’. Company creates a product which target a specific set of customers and prices it in a way that meets customer expectations. Generally a lot of hard work goes into finding out the requirements of the customer, and to produce something which attracts the customer, eventually requires marketing. Customer buys a product not only to fulfil his or her needs; he buys an aspiration related with the product, and associates his feelings with it. Product quality, its value for money or price, place for selling and most importantly its promotion defines a product for the customer. Product quality, its value for money or price, place for selling and most importantly its promotion defines a product for the customer.
The identification of target market and geographical diversity is very crucial for the success of any product and same is the case here as well. The target market has to be identified within the University of Florida campus since the greatest demand for the product can be generated internally (Tidström, 2012). The target market for the product has been identified as the college students since they are the section of the population which would be most inclined to accept or try out the product. The balance between male and female is quite proportionate in the college student section of the population with the maximum age range being in the age group 22-24 years. The geographical diversity is moderate but it can be made up for by other attributes. The age distribution being on the lower side with an increasing trend of such population can create windfall gains for the business. There are four attributes of marketing which will affect the sale of product most.
Product - Product defines all the features and quality of the product. Any industry changes rapidly, so product attributes matters a lot here. Product as defined earlier is not only to fulfil a customer’s need. A lot of things are related to a single product. Different companies are selling same product with different value associated with it. Increasing the customer expectations and product value by properly marketing comes under this section. It is necessary to understand what customer wants and what he is seeking. Along with all the basic features of the product, product should look attractive to the customer. Company should not sell repetitive products to all customers; otherwise customers will stop visiting the stores. Dairy products are a segment, where innovation is required the most. Company should invest good resources to keep producing innovative products according to changing needs of dairy industry.
If company wants to tap a new market like University of Florida, then it will have to focus on these attributes. Presenting a best product is always effective and provides long term benefits to the company. Customers can be influenced by marketing and promotion, but at the end they buy a product because of its quality and reliability.
Price - Price is the amount at which the product is perceived by the customer or the price he or she is ready to pay for the product. If price outweighs this perceived value of the product, then customer will not buy it and will switch to competitors’ brand. However, if the perceived value is higher than the amount customer is paying, then customer will automatically buy the product. Difference in actual value and perceived value can be increased by the manufacturing company by properly placing the product in consumers’ mind. Since the target market has been defined as the college students in the University of Florida, it must be observed that such section of the population might be price sensitive.
Place - Place is the location of product where customer can purchase it easily. Distribution channel is the part of this strategy. Physical stores, online market place, malls and supermarkets are famous places to distribute one’s products. How the company contact its customers is important to increase its business (Asad, 2012). This is very crucial as it provides the facility to buy the product. Location of the product should be convenient for the customer from where he/she can easily buy the item. Stores at main market location can help to increase visibility of the company products and customer footfall.
Promotion - This is the communication of the company with its customers to inform about the attributes discussed above. Developing a product and selling in best way is not possible until a company properly communicates about this to its customers (Twedt, 2012). Company will have to increase awareness of the product by promotional programs. Promotion consists of several initiatives which include advertising, sales promotion, public relations, and personal selling. Promotion is presenting the product in a nicely bundled set. Promotion defines how the company reaches to its customers. It can use TV advertisements, billboards, radio or can personally contact the customers. Promotional campaigns of the competitors can affect your advertising. A special set of customers can be targeted through a specific marketing campaign. Deciding all these campaigns and marketing strategies should be based on market research which includes customer behaviour and their requirements.
Promotion becomes more important if the company is entering a new market. No one would be aware of a new entrant and therefore customers will not take much interest in visiting your company and trying out your products. Without that customers will not know about the company. There is only one way which can attract the customers is proper promotion of brand and its products. Company should place hoardings and billboards at every central location of the country. It should use TV and radio for directly communicating the message to its customers. These four product attributes are most influential in deciding a product’s sales in any market. But there are three other factors also which affect positively the company image in a new market. These three remaining Ps are People, Process and physical evidences.
Conclusions
This paper makes an attempt to look into the various aspects of an organization ranging from its external environment to the core competencies which drive the growth and development of the company. The company that had been chosen for discussion is Fonterra which has established itself as one of the pioneers in the dairy industry. The different aspects of the organization staring from its corporate objective to the core competencies have discussed in detail throughout this paper. The various resources and capabilities that have been used by Fonterra to stay ahead of competition have been discussed in a systematic manner. The learning that can be drawn from this analysis is that it has designs and trends are not the only drivers in the dairy industry. There are other functional capabilities as well which leads to the success of a brand such as supply chain. An integrated and optimized supply chain goes a long way in improving the turnaround time for a dairy brand and thereby, helps it achieve its financial goals. These capabilities and skills can again be communicated in the marketing campaigns which lead to customer loyalty and sustainability of the business. Therefore, these are some of the managerial and business aspects that can be learnt about Fonterra and business as a whole from the above analysis.