Kitchen Made Pies - Case Study Example

Case study: Kitchen Made Pies Executive summary Kitchen Made Pies operates in high dynamic environment which requires continuous optimization of aproduct mix and new ways to attract customers. Price competition, backed by improved efficiency, is the main feature of this industry today. Pies retailers fight for survival in markets faced with over-capacity. Within rapidly changing environment, this kind of development ensures that long-term survivors are those firms who are more competitive and are better able to satisfy consumer needs and adapt to the new competitive environment. Kitchen Made Pies obtains a strong brand image in the industry proposing high quality products. Nevertheless, the weakness is high price of high quality products and low buying potential of the customers. The current company's situation is marked by financial problems and high competition in the industry. Financial problems were caused by low profitability level and decrease in sales, which made it impossible to cover the bank loan in a short period of time. Another problem is limited storage facilities, which do not allow to produce more than 3,500 pies for day. Recession period and strikes are also have a very negative impact on sales. High unemployment rates is another problem which cannot be solved by one company only. Slow payment by some customers and impossibility to refinance the loan are the major current problems of Kitchen Made Pies. To overcome the difficult situation, Kitchen Made Pies has to implement new marketing plan which include: aggressive advertising campaign, improvement of transportation facilities, buying several freezers and opening of a store. When product life cycles are short (or consumers demands are changed) technological improvement becomes an essential requirement of company strategy. The implementation will requires additional spending, but they are essential for the company, because without these facilities it will not be able to compete on the market and increase its sales rate. Organizational Assessment Mission The mission of Kitchen Made Pies is to produce and market high-quality fresh and frozen pies to institutional customers and restaurants. The original mission had made it clear that it was in the relatively unexploited sector that Kitchen Made Pies saw its clearest opportunity for innovation. Kitchen Made Pies set out to create a range of high-quality products that were distinctive in type, and especially appealing to people who had acquired a taste for pies. A wholesome, appetizing and, at same time, slightly exotic taste experience is what Kitchen Made Pies wanted to offer. Goals The main goal of the company is to get and keep a customer. Also, Kitchen Made Pies is aimed to achieve competitive advantage and sustainable competitive creating value for their customers, select markets where they can excel and present a moving target to their competitors by continually improving their position. Three of the most important factors are innovation, quality and inventory reduction. In order to improve logistics, the company is aimed to concentrate on doing business with drop-shippers which allow to involve larger orders. A continuum of resource sustainability is to compose resources and capabilities characterized by their durability and imitability. Financial goal is to increase sales and liquidity of business. Policies Marketing policies Be in one of the most highly rated industries for stability and success, Kitchen Made Pies offers a high quality pies to everyone who wants an excellent taste. It is advantage is that Kitchen Made Pies can meet the requirement of wide audience marketing fresh and frozen pies. The high quality ingredients is the main criterion for Kitchen Made Pies. It does not want to reduce costs of production as it can worsen quality of their products. Recent years, sales of the company has failed. According the present day situation: "the current product mix, sales of approximately $35,000 per week which is $1,829,000 per year". PR personnel also play a key role in responding to unflattering media reports or controversies that arise because of company activities in different parts of country. The basic tools of public relations include news releases, newsletters, media kits, press conferences, tours of plants and other company facilities. Financial policies Financial situation of the company suggest that it needs additional costs to cover all the expenses. According to Financial data, the net profit sales is "- 10,91%", total assets is " - 44,9%" and equity is "- 65,4%". In general, these are very low figures for the company like Kitchen Made Pies. The other problem is that the bank note is due, and Kitchen Made Pies has to pay it. Refinancing the loan is the major concern of the company. Another negative situation is low liquidity which can have a great impact on the future financial situation of Kitchen Made Pies. Also, the major problem is Dean Distributing which has a poor payment record. High production costs is concern of the company. Production operations The production is based on Kitchen Made Pies's assembly line. It consists of several steps such as: one person operated the dough machine; nest the dough machine is passed to a second person who placed it into the pan After the crust is filled with ingredients, it is molded onto the aides of the pie pan (Case study). Another type of production involves cream pies which are filled by hand. Then, pies are baked, and packed. The problem is frequent conversions required for new flavor and size of the pies. Research development Reduction of raw material inventory allows the company to buy ingredients for 2 weeks only instead of 6 month quantities. Also, R&D is aimed to modenise the production line and introduce assembly for cream pies in near future. New logistics facilities have been found to avoid additional spending on transportation. Strategic planning is the major innovation introduced by Mr. Dubicki. Human resources and organizational systems Kitchen Made Pie organizational culture is the pattern of values, norms, beliefs, attitudes and assumptions that may not have been articulated but shape the ways in which people behave and things get done. So, the main trends are high standards and technological development. The management style can be characterized as charismatic. It helps Mr. Dubicki to create a strong personal image which has a great influence on employees commitment. "Unionized and paid wages are comparable to other area firms of the comparable size" (Case study). Internal Environmental Assessment In general, Kitchen Made Pies is well-positioned to take on the leadership role. It has the resources and certainly has the technological capability. Kitchen Made Pie is an expert and leader in baking. Its marketing challenge is to position service offerings as the high quality, high value-add alternative. Customers loyalty is a strength of the company. Kitchen Made Pie are "tasted better than competitors products and customers recognize the difference"(case study). By diversifying into other areas of retailing (using the same medium), the company increased the effect customer that loyalty played in attaining investment credibility. The expectation that the company would be self-sustaining by the time the market corrected itself proved to be optimistic (Peter, Olson, 1990). Stable prices are another strength of the company. Another important feature of Kitchen Made Pies is the non-price competition which takes form of branding, advertising, promotion, and additional services to customers and product innovation. In some industries, competitive rivalry is fierce, whereas in others it is less intense or even genteel. Perhaps the most important thing to bear in mind is the inverse relationship between profit margins or returns and the intensity of competition: as the intensity of competition goes up, margins and returns are driven down. This can require changes in competitive strategy to remain in an industry and, under some circumstances, it can occasion the decision to exit a business or an industry (Cravens, 1992). On the other hand, weaknesses create a negative environment that prevent Kitchen Made Pies from rapid growth. The main weakness of Kitchen Made Pies is lack of full storage capacity. According to the case study, Kitchen Made Pies "had only enough capacity to store 3,500 pies ay one time, and frozen pies sales cannot exceed this volumes" (Case study). Technological forces generate problem-solving inventions. High price of the product is the weak point of the company. In spite of exceptionally high-quality of pies, customers are more concerned with price. Kitchen Made Pies employs resource-based view to gain competitive advantage by developing resources, which add unique value, which can't be adopted by another company. Human capital adds value to the company and it cannot be imitated. The added value that people can contribute to an organization is emphasized by human capital theory. High transportation costs are the weakness of the industry in general. Nevertheless, Mr. Dubicki has decided to concentrate on drop-shipments which involve lager order. On the one hand, the own delivery truck helps the company to deliver rush orders, on the other hand, absence of own transportation facilities limits orders and potential sales rate. (Johnson, Scholes, 1998). Financial analysis The financial situation suggests that Kitchen Made Pies needs additional loan to be taken to cover bake note and interest rate. If the loan is refinanced, it will allow the company to overcome current problems and receive higher revenue. In addition, it will be possible to invest in new production facilities (open new assembly lines, and buy new delivery trucks). Sensitivity analysis. The appraisal of almost any investment project in the real world will involve the making of a great number of estimates. To achieve the objectives, the Kitchen Made Pies is needed to invest 24, 000 dollars approximately. According to the calculations, NPV is positive and the appraisal is in favour of acceptance. But, in terms of down-side risk, the decision maker is also interested in how sensitive the advice is to changes in the estimates made about the project. The advice to management is that the decision given by the NPV calculations insensitive to changes in most of the estimated variables. However, if the revenues were the fall by 10% of their estimated value the original decision advice would turn out to be incorrect. External Environment Competition/market condition The intensity of rivalry between competitors in an industry depends on the structure of competition. Rivalry is fierce because there are a lot of small firms operating on the same market. Degree of differentiation is not large. Kitchen Made Pies represents a market where competitors cannot differentiate their products and that is why have more rivalry. Kitchen Made Pies market is very fragmented in terms of supply, with a large number of smaller operators being characteristic. The majority of businesses offer products to a relatively small geographical area, particularly in the retail segment. Consolidation is an ongoing process in the sector. A frequent complaint is marketing's preoccupation with short- term thinking, and an almost total lack of 'strategic thinking', or considering the longer-term implications of external and internal influences on the organization. Strengths of the company include knowledge, relationship selling and history. Kitchen Made Pies gets to know its customers one by one in order to compete. The strength of Kitchen Made Pies is absence of direct competitors located in the Peoria area. Kitchen Made Pies target is on average as dependent on reliable information technology as any other businesses. They care more about reliable service and confidence than about the lowest price. They don't want to rely solely on their own expertise, so they choose instead to deal with us with our promise of service and support when needed (Leppard, McDonald 1987). Economic/financial Financial objectives, while being essential measures of the desired performance of a company, are of scant practical help, since they say nothing about how the results are to be achieved. The same applies to sales forecasts and budgets, which are not marketing objectives and strategies. Basing Kitchen Made Pies plans on a combination of forecasting and budgeting systems can only work if the future is going to be the same as the present or the past. Inflation rate does not have a great influence on the price level and companies profitability. Legal/political The opportunity of the company is closely connected with legislation and government regulations. Government policies are favorable for retailers like Kitchen Made Pies creating supportive legal environment to compete. There is no strict regulations which can prevent competition in this market segment. Nevertheless, the threat is activity of unions aimed to force small companies like Kitchen Made Pies to increase salaries rate and medical insurance policies. Recession period (1980) and strikes are also have a very negative impact on sales. Social/demographic Unemployment rate is high in this region: approximately 7,4%. During the period of recession unemployment rate was doubled reducing buying capacity of potential market. Another determinant of the market shortage is demographic condition. The nation getting older and more and more families are not able to buy high priced products. Their target market is not validated that creates the main problems for the company. The changes in the environment are changed the demand, but they do not have a significant influence on customers' purchasing power. The threat is population shift which has a great impact on sales. Technology/research and development Innovation in production technologies and computerized system of supply chain is the main opportunity for Kitchen Made Pies. It needs innovative assembly lines and freezes in order to increase volumes of sales, and storage capacity. Internet is another toll which can help Kitchen Made Pies to reach its potential buyers without additional spending on promotion and advertising. The threat is that investment in new technologies requires additional finance that Kitchen Made Pies does not have. Even if investment is made, it will not guarantee immediate success and return of investments. Constituents/Resources The likely decision process of the target market is the design that appeals to the consumers' minds with offerings. Positioning of the company can be characterized by establishing trustworthiness, confidence, and competence for customers. This strategy is supported by the buying process and the pricing, and as the most important this positioning strategy helps the customers to have product within their minds. The bargaining power of suppliers plays the crucial role for Kitchen Made Pies. If the price level for energy or taxation rate increase the company will not be able to sustain its market position and have to increase the price level, which can have a negative impact on sales (Evans et al, 2004) Future Goals and Strategies Future goals To increase sales, behavior segmentation will focus on whether or not people buy and use a product, as well as how often, and how much they use or consume. Consumers can be categorized in terms of usage rates-for example, heavy, medium, light, and non-user. Kitchen Made Pies can segment consumers according to brand loyalty: potential users, non-users, ex-users, regulars, first-timers, and users of competitors' products Specification in Kitchen Made Pies should be determined as a result of an organization's policy, which in turn resulted from decisions on its market policy, which in turn resulted from its consideration of the market or customer needs, requirements, and the activities of competitors. This is the process of designing quality into the service. Sales strategy should be on a one-to-one basis. Because the market has moved on, there can be a gap between the skills required to compete in the market and those possessed by the firms. In these situation Kitchen Made Pies will be faced with four distinct options: to build up the resources required to compete in the market by closing the gap between the firm's competencies and the assets required to compete. To reach publicity, the company can should implement aggressive advertising campaign. Advertisements should be placed in the local Press and radio, and consumers will be encouraged to order directly by telephoning. The Choice of Press issues should be based on readership. It refers to the total number of people who probably will read the publication. The new strategy should be implement because the current one limits the target markets, and promotion mix does not meet the target market in its full potential. The company can open its own store in order to attract local people to buy directly from Kitchen Made Pies. New store will help to increase awareness and will be a good brand advertising method. Another goal is to own transportation facilities to deliver products to the buyers. On the one hand, it will help to save money on transportation, and allows the company to improve delivery service. Future strategic Plan In order to improve situation, Kitchen Made Pies should accept a new marketing tactic taking into account: benefits, consumption patterns of a particular target group, demographics (including income and size of local population), and psychographics (values, attitudes, and lifestyles) (McDonald, 2002). The objectives for Kitchen Made Pies is to initiate co-operative marketing with restaurants and big retailers in the big cities around the country, to hire sales staff both currently identified and unidentified to implement sales lead follow-up strategy, to increase market share, to expand regionally with both media and sales personnel, to constantly achieve cost benefit through an expanding provider network. The plan will include the following steps: 1) aggressive adverting campaign aimed to popularize the brand and attract new high-income customers; 2) buying three freezers; 3) opening of a store; 4) buying three trucks in order to improve transportation facilities. To be profitable, Kitchen Made Pies needs to double the amount of customers. This will be possible only if they focus on middle size retailers and expensive restaurants proposing more expensive products. As the price for pies are comparatively high, Kitchen Made Pies should reach high income target market who is interested in high quality products and willing to pay for them. The potential target market for Kitchen Made Pies is high income families. Most low-income families are not able to buy pies and prefer to cook themselves. If Kitchen Made Pies attracts high-income customer group, there will be no need for additional discounts and loans. Nevertheless, Kitchen Made Pies can create a separate low cost offer for low-income families based on their purchasing potential (McDonald, Christopher, 2003). Alternative plan Alternative plan can be based on increasing productivity level through continuous optimization of product mix, and reducing the price level in order to attract new customers and compete on the price basis. To implement this plan, Kitchen Made Pies will need to invest about $50, 000 in new assembly lines, and substantially increase the number of employees and workers. Taking into account the current situation, this can lead to great financial problems for Kitchen Made Pies, because they have no free assets and money to invest in production facilities. Current financial situation does not allow the company to compete on the price basis, because it will threaten the business in general. Price competition is possible only if the company will obtain strong market position and will have more or less stable sales growth rate. Kitchen Made Pies has several options for addressing the problem of price. The choices are dictated in part by product and market competition. Today, consumers have a wide choice of pies by comparatively low prices, nevertheless companies are not able to propose high quality pies on low price basis. These influences can have a particular impact on Kitchen Made Pies and its pricing strategy. On the one hand, it should develop a luxurious group for those who want "unique and delicious pies". Evaluation and Integration Only precise market analysis, including the needs and expectation of the customers as well as market potential, can help the company to reach its target audience, obtain competitive position and remain profitable. The proposed marketing plan meets the current needs and facilities of Kitchen Made Pies. Taking into account the elements, it is possible to say that Kitchen Made Pies has to meet the main element of the marketing mix: offer, logistics, and communication, on the one hand, and segmentation, targeting and positioning on the other hand. Advertising and promotion Aggressive advertising campaign resulted in high response. To get the message, different types of media should be used in accordance with particulate audience. New communication provided by Kitchen Made Pies will be able to create long-term relationship with customers through company's products. Advertising in a local paper is an effective technique, but it is not enough reach diverse target audience. Direct mail (inserts) is very effective method to attract new customers. Based market analysis and data about potential buyers, Kitchen Made Pies can send them a special offer including product sample and flexible price reduction. Logistics Transportation facilities is the weak point of the industry in general, doe this reason to improve its deliver service is the major strategic element for Kitchen Made Pies. Service quality is another way to compete on the market. If Kitchen Made Pies delivers its product faster than other companies it will be able to attract new buyers and sustain strong brand image. The core strategy is to deliver customer satisfaction and gaining customers loyalty. Brand loyalty will also be important factor in increasing the costs for customers of switching the products of new competitors. Recognition of the significant link between customer retention and profitability will lead to new and better strategies for strengthening customer satisfaction. Using differentiation strategy Kitchen Made Pies tries to achieved unique product attributes and effective marketing communications. Product differentiation and brand loyalty are the main criteria for pies. The company has to invest $7,000 in renting the trucks. Renting trucks is the most appropriate form to improve transportation facilities. In a year, the company will be able to buy its own trucks, but currently its has no financial facilities to do this. Renting the trucks and hiring new drivers allow Kitchen Made Pies to plan flexible delivery schedule and meet the needs of the buyers. New freezers will require $10,000, but, taking into account the current situation, they also can be rented. It will have to increase production facilities producing more pies per day, but allow to avoid additional spending on new freezers. Rent can cost approximately 1,000 per year. New store The core strategy is to maintain a friendly, fair, and creative environment, which respects the customers. However, more than ever, people need tasty and delicious ready made the rich and famous or simple people who simply need to look their best in their favorite outfit. New store is the current need for the company. On the one hand, it will have to reduce transportation costs, but on the it will be the best advertising strategy. Consumers can taste pies in the store and ordered the desired quantity. In any case, this needs additional spending, but it can be located in the building of the company and takes one room premise only. The financial data for the first years of store operations follows: P&L account for the 1st year. $, a year Sales 80,000 Cost of sales 48,000 Gross profit 32,000 Net Operating Expenses 14,290 Profit on ordinary activities before taxation 5,710 Taxation 1,941 Profit for the financial year 3,769 Even if the company invest $5, 000 in store, this project will be profitable, and in two month the investment will return. To conclude, new strategy of Kitchen Made Pies should include market analysis based on companies needs and future goals. The marketing strategy should take place on a non-price basis to compete on the local market. While the company cannot obtain strong financial position and cannot invest money in innovations it will not be able reduce their costs of production and produce high quality pies at the same pies. Brand image and loyalty of customers is the main criteria for the company currently. This strategy will help to stay on top nationally and sustain competitive position as an high quality ready made pies. References 1. Case study: Kitchen Made Pies.. 2. Cravens, D. W., (1992), Strategic Marketing, Homewood, Irwin. 3. Evans, Martin, O'Malley, L., and Patterson, M., (2004), Exploring Direct & Customer Relationship Marketing, 2nd edition, London: Thomson. 4. Johnson, G., Scholes, K. (1998). Exploring Corporate Strategy. Hemel Hempstead: Prentice Hall. 5. Leppard, J, McDonald M., (1987), A reappraisal of the role of marketing planning. Journal of Marketing management, 3 (2) 6. McDonald M. (2002). Marketing Plans: How to Prepare Them - How to Use Them, 5th edn, Butterworth-Heinemann, Oxford. 7. McDonald M., Christopher M. (2003), Marketing: A complete Guide. Palgrave Macmillan. 8. Peter, J., Olson, J. (1990) Customer behaviour and Marketing Strategy, Homewood, Illinois Irwin. Read More