Yorkshire Teas Strategic Choices - Case Study Example

Yorkshire Tea’s Strategic Choices Contents Introduction 3 Identify the major strategic options facing Yorkshire Tea 4 Evaluate the major strategic options facing the organization  11 Recommendation 15 Conclusion 16 References 18 Introduction Yorkshire tea is produced by Taylors of Halifax and Bettys and is a black tea blend. They are one of the few coffee and tea merchants in the United Kingdom. The company was founded by Charles Taylor who was a Yorkshire tea merchant in the year 1886. The company uses different flavors of tea that is grown in Kenya, Assam and Sri Lanka, and is blended to form five different varieties of tea. The five varieties of products of the company are original Yorkshire tea, Yorkshire Seasonal, Yorkshire for hard water, Yorkshire Gold with Luxury blend and Decaffeinated. The brand is currently working towards expanding its product line by including fruit loaves, biscuits, cakes that are regarded as complimentary products to tea. The company even launched a new TV campaign in the year 2007 that stated “Try It, You’ll see”. There is only a few bushes of tea that is grown in Harrogate in such a condition the company follows a balancing strategy by acquiring thirty special tea from the world’s best regions for tea growing that is India, Africa and Sri Lanka. The company has a team of tea buyers who visits various regions across the world and visits the tea gardens during the peak time. In today’s scenario the competition in any kind of business is very intense. As in this case Tea Company is facing a tough competition from a wide variety of brands and even there is not much of product differentiation that can be used by the company. In such a situation it becomes very much important for the company to adopt some strategies that increases the sustainability of the company in the market place. The strategic business decisions are taken by the company on the basis of some frameworks and models. Ansoff matrix is the most common strategic tool that is adopted by the organizations in order to decide which kind of strategies would be the most suitable depending on the market and the product line. Often when the company targets an existing market then it focuses on developing a new product line or opts for product differentiation. When the competition in the market space is very fierce the organization adopts various kinds of market penetration strategy. In a scenario where the company obtains limited profit margins from an existing market in such a condition the company often sets out strategies for market expansion either with the same product line or with an extended product line. The various strategies are then evaluated using a SFA framework that stands for sustainability, feasibility and acceptability. The report includes the strategic choices of the Yorkshire Tea company along with the method and the strategic directions that can be adopted by the company so as to maximize its returns. Identify the major strategic options facing Yorkshire Tea In the last 5 years there has been a decline in the sales of the tea industry as their availability of plenty of options to the customers. People nowadays are more prone towards drinking coffee then tea and this has resulted into growth of the coffee industry which is more dynamic by nature. The market is more driven by the café trend that focuses on the coffee and not on tea. The black tea as a sector is declining by 4% every year. On the contrary the fruit tea sector is booming. The private label has been declining and it has got low percentage of share in tea. There is a lot of competition facing the industry in the form of climate change, competition for agricultural water and land, and the population growth. Many players of the tea industry have come together to form a group in order to change tea which is a standard commodity into a hero crop. This initiative would not only benefit the large numbers of workers who are a part of the industry but also benefit the wider economy and environment (Aaker, 2001, pp. 56-57). This strategy would benefit in three different areas, firstly, sustainable production which would benefit the communities and the environment in which tea is cultivated. Secondly, are the market mechanisms in which all the players in the supply chain are delivered greater value. Thirdly, is to engage consumers so that the consumer demand is inclined towards sustainable tea and even reduce the impact that is associated with tea consumption. The tea industry has its main operations in the some of the poorest countries in the world that are subjected to climate change and thus making the industry faces many challenges. There are some major challenges that would impact the tea industry to a great degree in terms of cultivation, marketing and distribution of tea in the coming years. The challenges are resource constraints, demographic changes, competition for productivity and land, climate change, power balance throughout the supply chain, availability of mechanization and labor, evolution of new models for business, emerging economies and the leadership sustainability in these economies, consumer behavior and attitude towards the food value, and improvement in the labor welfare and in the wages in the supply chain (Allen, 2006, pp. 93-94). The most popular beverage of the world is tea after water and approximately three billion cups of tea are consumed every day. There is a great scope for the industry if consumer attitude towards the tea consumption is changed by the companies and it should be regarded as a sustainable product that would help in storing carbon from the environment in the form of large tea estates. Yorkshire Tea Company is similarly facing a lot of challenges as per the condition of the industry and from the other players of the industry such as Unilever, James Finlay and Tata Global Beverages. The strategies for the company would be designed with the help of two strategic tools such as the Ansoff matrix and the Strategy Clock (Andersen, 2006, pp. 75-77). These two tools will help to highlight the strategic choices that the company can implement in its business operation so as to gain larger market share and attain sustainability in the competitive market place. Igor Ansoff formulated the matrix which is known as the Ansoff matrix and it comprises of the potential and the current products and the consumer markets. There are four possible combinations of the product and market that is formulated by the matrix in terms of new and existing markets and also new and existing products. There are four different growth strategies according to the matrix. (Assael, 2005, p. 66) Firstly is the market penetration strategy in which the firm achieves growth in the current market and with the existing product line so as to increase their share of the market. Secondly is the market development strategy in which the firm achieves growth by promoting their existing product line to a brand new consumer market segment. Thirdly is the product development strategy in which the firm develops new products or apply product differentiation for its existing consumer market. Lastly is the strategy of diversification in which the firm achieves growth by adopting some new business in the form of new product range and for a brand new market segment. The four product market strategy has certain conditions on the basis of which a strategy is selected by a company. The strategy of market penetration is less risky as the firm explores its existing capabilities and resources. In a market that is booming it’s easy to achieve growth simply by maintaining the market share and if a situation where the competitor’s capacity becomes limited it becomes easier for the company to expand its market share. The limitation of the strategy is that once the market reaches the saturation point it becomes very essential for a company to adopt some new strategy so as to sustain in the market and to achieve growth. The market development strategy is very much beneficial for a company that possesses core competencies that are aligned with its existing product range rather than with a new market segment (Batey, 2012, pp. 113-114). In this strategy since the company aims to expand into a completely new market so it is considered to be more risky in nature in comparison to the market penetration strategy. The strategy of product development can be adopted by a company if the competitive advantage of the company is related to specific consumers rather than to individual product range. Through this strategy a company can incorporate changes in its products or develop a new product for its existing customer base. In comparison to the market development strategy product development also encompasses a high risk factor as it involves developing new products. The strategy of diversification is the most risky of all the strategies as it involves development of market as well as products, and this could turn out to be more risky for the firm if the core competencies are not aligned with the development strategy. This strategy can be reasonable if the company analyzes the returns to be high in comparison to the risks. The strategy is beneficial in the terms that it gives a chance to the company to expand in some attractive industry and reduces the overall risk of the business portfolio (Cole, 2003, pp. 94-95). On the basis of the Ansoff matrix there are three choices that are available to the Yorkshire to implement in its business operations. Most important strategy would be the market penetration strategy in a competitive market and this strategy can be implemented by offering some attractive discounts in its products in order to attract more of the market segment. The competitive price of the product that the company will offer would enable the company to sustain in the competitive market place. Secondly is the strategy of diversification that can be adopted by Yorkshire. This strategy can be implemented by the company by expanding its product line such as including other products like cakes, fruit loaves and biscuits under the same brand. The complimentary product would not only initiate revenue but would also increase the sales of the original product that is tea. The markets to be covered would be kids and the younger generation, which would be a different market segment for the company (Donaldson and Toole, 2007, pp. 108-109). This is a risky strategy but the firm has got the competency to adopt such a strategy and can be facilitated by its market presence from so many years. The company can even collaborate with some of the hotels and restaurants in different places so as to make the consumers have a flavor of their product. The third strategy that can be implemented is that of product development and this would be doing some changes in its products and offer it to its existing market. The changes could be in the form of flavors, fragrance or even the packaging of the product. There can be tea bags manufactured by the company in order to establish product differentiation (Heath, 1997, pp. 201-202). These are some of the strategic choices that are available to Yorkshire on the basis of one strategic tool. Cliff Bownar and David Faulkner in 1996 invented the Strategy Clock which has extended the three strategic position of Porter into eight. The Strategy Clock highlights the combination of cost and the perceived value that is used by many companies and even describes the success of each strategy. The diagram below represents the Strategy Clock in which the eight different strategies are identified by varying levels of value and price. (Henry, 2011, p. 110) The first position is of low price and low value in which the company offers inferior products but at the most attractive price so as to convince the customers to try the product at least once. In this approach the company does not gain any customer loyalty but it helps the company to sustain in the market. The second position is of low price in which the company is a low cost leader and reduces the prices to a bare minimum and tries to enhance the volume of purchase. This approach is beneficial for the company if it can pose some strategic reason to reduce the price and increase the volume for capturing more of market share. The third position is that of hybrid in which the companies offer products with a high perceived value at a low cost (Hill and Jones, 2012, pp. 96-97). In this approach product with good value is offered to the customers at a reasonable price. The fourth position is that of differentiation in which products are such designed that they are perceived by the customers to have high value. In this approach the price is made high so as to achieve higher margins or the prices are lowered in order to sustain in the market and gain more of market share. The most important tool for differentiation strategy is branding. The fifth position is of focused differentiation in which the product prices are set high by the firm with a high perceived value. Even though the products may not have real value but the perception of the product is high so premium price is charged for the product (Ulwick, 2005, pp. 146-147). The position six is of increased price and standard product in which the company simply increases the price of the product without any change in the product value. This approach can have two sides one is that the high price would be accepted by the market and the company would gain high profit margins and second is that it would be regarded as an unnecessary price premium by the competitive market. The strategy is suitable for short term but not for long term goal. The seventh position is of high price and low value and is regarded as a monopoly pricing strategy and is applicable only to that market where only one company is operating to satisfy the consumer demand (Hooley, Piercy and Nicoulaud, 2012, pp. 45-46). In a market where there is only one player than the company can set high prices and do not be much bothered about the value of the product if the consumer demands is high. The eight position is of low value and standard price in which there is more of market share loss as a product that have low value cannot be sold at standard prices. On the basis of the Strategy Clock the position six, seven and eight is not at all suitable in a competitive market place (Webster, 1995, pp. 165-166). The competitors can offer products with reasonable value and at standard prices in comparison to Yorkshire. Hence the most suitable strategic options for the company would be hybrid and differentiation strategy. As in the hybrid position Yorkshire can attempt to offer value based product that too at a reasonable price. The price and quality factor would help the company to sustain in the competitive industry as well as acquire customer loyalty (Jean-Pierre, 2001, pp. 69-70). The differentiation position is suitable choice as the company can change the branding of its product and offer lower prices to the customers. The branding can be effectively changed through new ad campaigns, packaging, or linking the product with some sports or any other form of entertainment in order to increase the perceive value of the product by the consumer. Hence these are five strategic choices that are available for Yorkshire Tea so as to gain a competitive advantage at the market place. Evaluate the major strategic options facing the organization  There can be a wide range of the strategic options that can be possessed by a company. Which of the options is the most appropriate for the company can be only determined through an evaluation tool and such a tool is the SAF framework, which stands for suitability, feasibility and acceptability of the strategic options. The suitability factor of the framework helps in determining whether the strategic option fits into situation and if it can lead to further growth opportunities for the company. There are three main questions that are addressed using this factor such as – whether in the strategic analysis the key issues are addressed by the strategy or not, whether the strategy is consistent with the analysis, and whether the strategy makes economic and business sense (Lau, 2011, pp. 101-103). The feasibility factor is concerned with the implementation of the strategy and evaluation of its success as per the current availability of resources. This factor deals with more of practicalities and comprises of certain questions such as – whether the strategy can work, whether there are required funds to support the strategy, and whether there is technology available to be exploited by the strategy. The acceptability factor of the framework evaluates whether the strategy that has been chosen is able to meet the expectations of the stakeholders in terms of return and risk (Kahnemana and Tversky, 1986, pp. 251-278). The acceptability factor comprises of the following questions such as whether the outcomes are acceptable and to whom it is acceptable, and whether the return on investment for the strategies is acceptable or not. There five strategic options that Yorkshire has in order to maximize returns in the next 5 years and to attain sustainability in a competitive business environment. The options are of market penetration strategy that would comprise of discounts and offers by offering some complimentary products such as biscuits with Yorkshire tea packets. The next strategy is that of diversification in which a different product range which would be complementary products of tea can be manufactured by the company so as to target a different market segment and promote the products into various other regions and it can be extended through branding and launching various ad campaigns (Peng, 2009, pp. 133-134). The third option is of product development in which new flavors and fragrances can be added to the product along with new packaging of the product so as to position its product at a new edge. The fourth option is of hybrid strategy in which the quality of the product can be improved by adopting quality standards throughout the supply chain and offers the products at a reasonable price in comparison to its competitors (Proctor, 2014, pp. 145-146). The fifth possible option with the company is the diversification strategy that can be implemented through adopting low price strategy or by powerful branding through advertisements and various other brand endorsements using celebrities. The three factors of the SFA framework would be utilized to evaluate the strategic choices of Yorkshire. The suitability factor would comprise of the criteria’s such as brand image utilization, market share growth by 12% in the next 5 years, and optimizes the profitability for further diversification or expansion and new product development (Sadler, 2003, pp. 111-112). The feasibility factor would comprise of criteria’s such as cost within $50M of budget, financial resources currently available are sufficient, and current workforce skills and competencies sufficient (Schnaars, 1998, pp. 79-82). The acceptability factor comprises of criteria’s such as the return on investment (ROI) in less than 4 years, ROCE improved to 30% in the next 5 years, and positive reaction of the stakeholder. The ranking for the five strategic options would be on basis of the criteria’s and the ranking scale would be from 1 to 5 where 5 are the strongest and 1 is the weakest (Simerson, 201, pp. 156-157). Evaluation and ranking table for the strategic options are as follows –     Strategies   Criteria Market Penetration Diversification Product Development Hybrid Branding Suitability Brand image utilization 4 3 3 4 3   Market share growth by 12% in the next 5 years 2 3 2 3 2   optimizes the profitability for expansion and product development 1 2 2 2 1 Feasibility Cost within $50M of budget 3 2 1 4 2   Financial resources currently available are sufficient 2 1 3 4 2   Workforce skills and competencies sufficient 4 3 3 3 2 Acceptability Return on investment (ROI) in less than 4 years 2 1 2 3 1   ROCE improved to 30% in the next 5 years 3 2 3 4 2   Positive reaction of the stakeholder 3 3 4 3 3   Total 24 20 23 30 18 The SFA framework on the basis of the criteria’s clearly evaluates that the strategy of hybrid of moderate price and value based products is the most appropriate strategy for Yorkshire. This strategy would help the company to obtain high returns, increase its market share in the estimated time frame and the financial resources and workforce are sufficient for the implementation of the strategy (Spulber, 2007, pp. 106-107). Another strategy that is also best suited for the company is that of market penetration strategy which has achieved reasonable ranks on the basis of the set criteria’s. The two strategies have the best ranks as the available resources with the company are suitable for the implementation of the strategy (Smith, 2011, pp. 172-173). The strategy of market penetration and hybrid can be easily adaptable as it would be based on the core competency of Yorkshire. On the contrary to develop new products such as cakes and biscuits for a completely new market segment would be very difficult and risky for the company and it would not also guarantee a growth in market share and ROI in the next 5 years (Steers, 2006, pp. 56-57). However amongst the three other strategies product development strategy can be implemented by the company as it involves only some significant changes in the texture of the product of Yorkshire. This can be implemented based on the available financial resources and competencies of the company (Thompson & Martin, 2010, pp. 214-215). However the strategy would comprise of a significant cost and it has the risk that whether the consumer market would accept the new flavor of the product or not. Thus the evaluation ranking table helps in determining which of the strategic choices is beneficial for Yorkshire for a longer run. Recommendation Yorkshire Tea is facing a tough competition from some of the key players in the industry such as Tata and Unilever. The company procures the best of tea leaves from the best tea estates in the world. There is a need for the company to adopt some of the strategies so as to sustain in the market place for the next 5 years. There is a variety of strategic options that is available to Yorkshire and these options are derived through various strategic tools. However the best approach is obtained through the SFA framework. On basis of this framework there are two strategic options that are most favorable for the company such as the hybrid strategy and the market penetration strategy. These two strategies are recommended to the company because they have a low risk level and a greater scope for obtaining the return on investment in the next 5 years. The hybrid strategy can be implemented by Yorkshire through setting moderate prices to its product range. This reasonable pricing strategy would help in attracting that consumer market segment that prefers to consume coffee more than tea. The lower prices would enable that market segment to at least try the product of Yorkshire and if the flavor suits the preference of the consumers then it can generate more revenues for the company. The hybrid strategy can be supported by implementing quality gateways in its operation process so that the materials required for Yorkshire’s product can be tested on the basis of the standards set by the gateway and only those materials can be made a specification that have the required quality level. The quality, flavor, and aroma of the product and that too at a reasonable price in comparison to its competitors would favor Yorkshire to sustain its operations for the next 5 years. The next recommended strategy that can be implemented by the company is of market penetration. There are various methods of implementing market penetration strategy such as setting low prices or offering some attractive gifts and discounts to the customers. Yorkshire is recommended to adopt the strategy initially by offering some complementary gifts with its products. According to the Porter’s five forces on the tea industry the bargaining power of the customers is very high since the switching cost is low and there are many options available to the customers. There even is a threat of substitutes in the form of coffee which is a booming industry. If an additional product such as Yorkshire manufactured biscuits is offered along with its tea products it would facilitate the consumers to purchase its products more. Another way of penetrating into the market more would be through doing some changes in the pricing strategies. Yorkshire can set completely a different low price for its product but this would make the consumers feel that the company is compromising on its quality so the best would be to offer some discounts on bulk purchases of the products. These are some of the recommended strategies for Yorkshire that would help it to attain sustainability in the competitive business environment. Conclusion Yorkshire is a renowned tea company in United Kingdom. In the highly competitive tea industry the company faces a lot of competition from the other players. Since the product is not a complex one so there is not much to do with the structural changes of the product and this makes it more difficult for the company operating in the tea industry. On the contrary the tea sector is facing a huge competition from the coffee makers as nowadays the consumer demand trend is more inclined towards coffee than tea and it is even more facilitated by the café concept which supports coffee and not tea. In such a scenario there are few of the strategic choices that can be adopted by Yorkshire and the choices are of market penetration, diversification, product development, and branding and hybrid strategy. These strategic options are identified on the basis of two most strategic tools such as Ansoff matrix and the Strategy clock. However there can be a range of strategic options that can be made available to a company but the feasibility, suitability and acceptability of the options can be done on the basis of the SFA framework. The SFA framework is even applied on the strategic choices of Yorkshire. Each of the factors in the framework has some criteria’s and a ranking scale on the basis of which the best suitable strategic option is recommended to the company. The two highest ranked strategic options are of market penetration and hybrid strategy. These two strategies are appropriate in terms of return, risk, investment, and whether the available resources and skills are suitable for the implementation of the strategies. The other three strategies are not that suitable because the risk is high and there is no such guarantee that the ROI would be obtained in the next 5 years. Diversifications deals with expanding into a new market and with completely a new product range and it involves a major risk factor and high initial investment. Product development also has the same kind of disadvantages. Hence the strategy of moderate price and moderate value and the market penetration strategy is the best in order to obtain competitive advantage. References Aaker, D.A. 2001. Developing Business Strategies. UK : Wiley. Allen, M. 2006. Analysing the Organizational Environment. UK: Select Knowledge Limited. Andersen, T.J. 2006. Perspectives on Strategic Risk Management. USA : Copenhagen Business School Press DK Assael, H. 2005. Consumer Behavior. New Delhi: Dreamtech Press. Batey, M. 2012. Brand Meaning. USA: Psychology Press. Cole, G.A. 2003. Strategic Management. Singapore: Cengage Learning EMEA. Donaldson, B and Toole, T. 2007. Strategic Market Relationships. London: Wiley. Heath, R.L. 1997. Strategic Issues Management: Organizations and Public Policy Challenges. 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