Porter's Generic Competitive Strategies - Case Study Example

 Porter's Generic Competitive Strategies Wine is widely regarded as a social drink that symbolizes leisure and recreation and it is one industry that has been growing in Australia over the years. However, the forces of globalization, technological innovations as well as the emergence of competition in the industry have heralded a new era in the otherwise steadily growing industry. Therefore, this paper seeks to critically analyse the performance of one firm called Yellow Tail with regards to the emerging factors that are mainly external and how they have impacted on its operations. Basically, the company has witnessed a steady growth in the Australian Wine Industry and is one of the leading export industries especially to the United States. The main issues affecting Yellow Tail in this case are: New market- the customers’ tastes are constantly changing hence the need for the organisation to be innovative. Changing demography-women used to dominate the foreign markets of the wine industry in US where 52 % of them consumed about 57% of the wine produced in the country. However, the tastes are changing. Competition-There is growing competition in the market particularly from Black Swan Australian Wine Industry which sells cheap wine for about $3. 2. Yellow Tail operates in an environment where there are also competitors who offer the same products and in this case, a SWOT analysis is more appropriate for this task of analysing the environmental factors that affect the organisation’s operations. It defines the relationship between the internal and external environmental factors that can affect an organisation in a bid to deal with its strategic analysis (Robinson 1997). Basically, SWOT stands for strengths, weaknesses which represent the internal environment of the firm while opportunities and threats are external environmental factors. The major strengths of the company include the following: The name is unique and interesting, the packaging depicts the famous kangaroo and the pricing is low among other factors. The company is able to offer satisfactory products to its customers abroad as well. Its weaknesses are; it heavily relies on export market, it has limited brands and cannot continue attracting customers over a long period and the fact that it uses limited advertisements is another major weakness which can negatively impact on the organisation. There are different opportunities for the company. The distribution pattern in global markets is a very big opportunity for the company compared to other locally based players in the industry. Using new technology in brewing wine is another opportunity for the company. The other opportunity is the need for adoption of new information and communication technology tools such as the internet to effectively market its products. It can utilize the internet to reach the customers who are beyond the local markets. Through specially designed websites, it can also be possible to market other products that are not found in the local stores. However, one notable threat to Yellow Tail is the existence of competitors in the market such as Black Swan Australian Wine Industry. Whether small or big, a competitor poses a threat to the viability of any business since the essence of operating a business is to make profits. According to an article entitled, ‘Five competitive forces –Porter’(n.d), the five forces model of Porter is, “an outside business strategy tool that is used to make an analysis of how attractive an industry is.” This is often regarded as a reliable business tool in most cases that aims to diagnose the external factors that affect the operations of the organisation such as competition (McCarthy J.E & Perreault W. D. 1996). The competitive environment of Yellow Tail is explained below using Porter’s five forces model which comprises of the following factors: Entry of competitors, threat of substitute, bargaining powers of buyers, bargaining powers of suppliers and rivalry among the existing players. The factors are explained in detail in the table below. Entry of competitors-The entry of new competitors may pose a new challenge to the operations of Yellow Tail Wine industries. As noted, the major competitor is Black Swan Australian Wine Industry. The nature of the competition is based at national level and is characterised by local players also penetrating the industry. Threat of substitute- The probability of a substitute overtaking the products already in the market in terms of cost may affect the competitive advantage of Yellow Tail Wine. Though enjoying the competitive advantage, low cost products can impact on the viability of the organisation. For instance, there are many consumers who are now drinking cheaper wine brands in the $3.00 range and this can affect the operations of Yellow Tail since customers may be forced to switch to lower priced substitutes. Bargaining powers of buyers- Bargaining powers of buyers depends on the spending capacities of buyers on certain products. In this case focus is on the company’s ability to capture the market and sustain its dominance over other competitors. Yellow Tail must ensure that the buyers readily get what they want such that they can spend freely on the products of their choice without any hindrance. The financial crisis in US can affect the sales since it is the largest export industry. Bargaining powers of suppliers- The bargaining powers of suppliers depend on how strong the sellers are. Yellow Tail has many suppliers that are meant to keep pace with the growing demand of wine products. Rivalry among the existing players-Yellow Tail is regarded as Australia’s largest exporter of wine to the US but it somehow faces domestic competition from local competitors who also produce low cost wine which is comparatively cheaper. Black Swan Australian Wine is the major competitor in the wine industry in Australia. Rivalry among the existing players is a major challenge that can affect the organisation. Source http://www.12manage.com/methods_porter_five_forces.html Basically, it can be noted that Yellow Tail does not exist in isolation but in an industry that is characterised by competition. Though it mainly specializes in exporting wine to the US markets, there are also local competitors at national level such as Black Swan Australian Wine Industry which sell low cost wine to the domestic market. However, the growth of Casella Wines' Yellow Tail has been one of the greatest successes of the wine industry and of branding as a result of many factors. It thrives on positioning of its products in the global market and makes every effort that its products conform to quality expected standards. Technological innovation has also been at the fore front of Yellow Tail’s production process which has given it the competitive advantage it enjoys over other rival competitors. Yellow Tail may however be vulnerable to the competition in local markets hence the need to strive to capture the market by trying to identify the needs of the local people then try to satisfy them. An organisation should not only enjoy growth of business internationally but should also try to satisfy the needs of local people in which the company will be operating. 3. The main issues realized in this case are related to the aspect of giving value to the customer, competition, threats and weaknesses identified as well as global market forces. In business circles, the notion that the customer is king is very important during the contemporary period. Strategy-There is need to embark on measures that are meant to streamline its operations to meet the needs and interests of the consumers and try to satisfy them. Initiative- Market research is very useful as far as far as establishing the needs of the consumers are concerned. It can be noted that the contemporary period is characterised by changing trends in the people’s life styles and their consumption habits of certain products are also likely to change considerably. Yellow Tail has only two different types of brands of its wines and it is imperative for the organisation to embark on a market research in order to identify the new demands of the customers. There is need to segment especially the local market into various categories based on level of income, gender, geographic location as well as other psychological factors. After gathering all the necessary information about the needs of the customers, there will be need to transform that information into action. Strategy-Product development is supposed to be guided by the needs and interests of the customers and the distribution channels of the product should be clearly defined. Initiative- Having mapped out this course of action plan, there will be need to implement it and structures should be put in place to monitor progress with regards to the performance of the new products that would have been introduced to the market. Strategy -In order for Yellow Tail to effectively deal with this issue of maintaining its competitive advantage, it must adopt either one of the following strategies or both and these are: Cost advantage and differentiation. In order to survive in the long term, Porter (1985) has argued that a firm needs to have sustainable competitive advantages. There are two sources of competitive advantage namely; cost advantage and differentiation. Through his generic strategies, a ‘Cost Leadership’ is where a firm seeks to be low-cost producer in its industry whereas ‘Differentiation’ is when a firm seeks to be unique in its industry through features of its products that are highly valued. Porter argued that for a company to ensure long-term profitability, it needs to be clear in its strategic position. Initiative-The cost leadership strategy should be adopted for the local markets and it should be implemented for the benefit of domestic buyers so as to ensure that the company also enjoys economies of scale in its local operations. Low cost produced wines meant for domestic markets should be able to rejuvenate the local markets against competition if properly implemented. Strategy-In a differentiation strategy, Yellow Tail should seek to present itself as unique from other competitors in the industry where it offers products or services that are valued by the customers especially in its overseas market. Initiative- Product development should continue taking place and implemented to satisfy the needs of the consumers in this market. Ultimately, the firm will be rewarded with a handsome price for being unique in the services it provides. This will be one of the main competitive advantages the company will achieve virtue of meeting the needs and wants of its customers. In this case, it will be noble for Yellow Tail to implement both strategies in order to fulfill the needs and interests of both domestic and international markets. It would have the advantage in that they would be able to make a break through if the buying behaviour of the consumers is equal. The consumers may tend to balance their buying habits in the event that everything is equal. It would be advisable for the firm to develop brands which appeal to both low and high income earners as this would balance the equation as far as retailing is concerned. Whilst there would be need to pay particular attention to the needs of targeted loyal consumers, there would also be need to venture into differentiated business as a way of attracting up market shoppers who in the long run can be loyal customers to the firm. Implementing this strategy will be advantageous that, in the event that the economy is stable and the consumers can make their own independent choices, Yellow Tail can immensely benefit both locally and internationally since its products will become popular among different consumers. The other issue is that Yellow Tail should act towards minimizing the impacts of its weaknesses and threats noted. The main weakness is that it has only two brands and there is need to develop other products if the organisation is to successfully compete against other emerging competitors. Whilst these two products may be performing well in the international markets, there is need to fully implement initiatives that are meant to stimulate product development in such a way that there will be variety in the market. This is one good way of dealing with the issue of competition which is a major threat to the operations of the organisation. Over and above, it can be noted that Yellow Tail is regarded as a leading company in the wine export industry in Australia. However, there are quite numerous issues that need attention since they are likely to impact on its operations and these include competition, changing lifestyle trends, threats and weaknesses identified as well as global market forces. It has been noted that there is need to carry out full market research before implementing the ideas suggested in the discussion. References Burgess S.M. (1998), The New Marketing, Zebra Press, SA. Cant M.C. (2000), Marketing Management, 4th Edition Juta and Co Ltd, SA. Five competitive forces ‘Porter’, Retrieved on 20 November 2009, from: http://www.12manage.com/methods_porter_five_forces.html McCarthy J.E & Perreault W. D. (1996), Basic Marketing: A Global Managerial Approach, 12th Edition, Irwin McGraw-Hill, USA. Porter's Generic Competitive Strategies (ways of competing), Retrieved on 20 November 2009, from: http://www.ifm.eng.cam.ac.uk/dstools/paradigm/genstrat.html Robinson W (1997). Strategic Management and Information Systems. 2nd Edition. London. Prentice Hall. Read More