Karen Lock Organic Hampers - Essay Example

Karen Lock Organic Hampers UK market analysis Over the last one decade, there has been a general increase in demand for organic food and skin care products in the UK. The increase in demand for organic food and skin care products in the UK is advocated to the growing concern among UK consumers on the effect of the chemicals that are always used in manufacturing non-organic food and skin care products. Another factor that led to the rapid growth in the UK market is the fact that there was a general increase in the availability of organic products making it easier for customers to access the products. Consumers were particularly worried about the possible health effects of parabens, petrochemicals, and sulphates in personal care products that were very common in the UK market prior to the introduction and popularization of the organic ones. Organic food retailers and health food shops have experienced a significant growth in sales volumes of organic product over the last one decade. Much of this growth is advocated to the Food Supplements Directive in the UK, which asserted that Organic food retailers and health food shops have to reduce their vitamins & food supplement ranges in order to create space for natural personal care products. The natural products also found their way to the shelves of department stores, chemists, spas, beauty shops, and hair salons. Hair care and skin care are the most popular of all the organic personal care products in the UK. In each of the two categories there are more than 50 brands, making the market in the UK highly congested and competitive. Organic oral care products have also been observed to be highly popular in the UK, with many people starting to prefer them over those with chemical products. Despite the fact that organic cosmetics have not shared the same level of success with organic oral products, they are projected to experience the highest rate of increase in demand over the next five years. Previously, there were very few players in the organic personal care industry in the UK. However, as the popularity of these products continued to grow, the demand grew too. As a result, many investors saw the industry as a promising one, thus invested in it. At the moment it can be said that the industry is highly congested due to the fact that there are many investors who have opted to invest in this industry. This can easily mean that there are high levels of competition in the industry. As a result, there is an increase in the consumer bargaining power in the UK. Apart from preferences that might result from difference in product qualities, most consumers usually go for the most affordable alternative in the market. The high levels of competition have forced players in this industry has triggered price wars, with the brands with most appropriate pricing strategies winning the wars. However, it should also be noticed that the brands with extensive resources have a higher capability of winning the price wars due to capability to produce at a lower cost. There has been a significant growth of the number of people seeking organic products in the UK. Most of the producers of these products are concentrated in the urban areas with more focus being on women. Looking as the segmentation of the UK market, it can be easily noticed that a majority of the people who consume organic products. Over the years women have always been more concerned about the health effects of products that they are consuming as compared to men. As years go by the organic products have been growing in popularity with many people preferring them to those that have chemical compounds. Initially, these products were seen as products that could only be consumed by the affluent. This is because at the early stages of their entry into the UK market they were highly expensive. Many people would ignore them for the chemical one with the simple reason that they were expensive. Much of the reason why the products were highly expensive then was because of the few organisations that were producing them and the high cost of production that they were associated with at that time. However, things have changed and the organic products are becoming more popular and demanded. However, they are still more expensive as compared to the less organic products. This implies that they might fail to be attractive to certain segments of the UK governments. Since there have been the increase in the popularity of food and skin care products, there have been an increase in cases of counterfeit products. Much of this is advocated to the fact that it is never easy to differentiate the counterfeit products from the original ones. Many consumers in the UK market have fallen prey to unscrupulous trader who wants to extort unsuspecting consumers by convincing them that the products that they are buying are completely organic. However, this trend has been changing in the recent with the public being highly sensitized about the existence of non-organic product being marketed as organic products. As a result of this development, the UK consumers of organic food and skin care products have developed the attitude of sticking to the well-known brands so that they can avoid buying products that are not completely organic. This is a development that has made it very hard for new entrants to the organic food and skin care products markets. New products in these markets are always treated suspiciously. This is a simple implication that it will always take a period of time a serious strategic marketing for a new brand to be introduced to the market. However, there is no much government restriction to new entrants apart from the requirement to produce completely organic products. The Food Supplements Directive in the UK has also made it easier for the organic food and skin care products to compete with the non-organic ones by making sure that traders avail them to the customer, something that most traders were unwilling to do at first. Strategic Plan of Karen’s business From every organisation to succeed, strategic planning is crucial. This is because it helps the organisation in setting up the priorities, focusing on the organisational energy and resources as well as strengthening operations within. Once these factors are put in place, then it is possible for all employees and other stakeholders in the organisation work towards a common goal. In his publication, Simerson (2011) noted that strategic planning in an organisation helps in articulation of not only where the organisation is headed to and the activities necessary to realize this, but also knowing whether or not it is successful. The onset of bringing forth strategic planning is helping the management to realize some key elements that are key in realising organisational goals and objectives. These include evaluation of the organisation’s strengths and weaknesses, evaluation of personal values of the powerful persons in an organisation, understanding the opportunities and threats that are in the specific industry, and evaluating the organisation’s societal prospects (Simerson, 2011). As a comprehensive collection of all activities that are in progress, the process involves several frameworks and methodologies to realize. Further still, the process involves several analytical tools and techniques that help the process to be successful as presented below. SWOT analysis SWOT analysis could otherwise be referred to as internal-external conditions analysis. The internals of the business are weighed for consideration and the businesses strengths and weaknesses evaluated. The external conditions involve analysis of both the market and the competitors; in essence, factors that are beyond the control of the business. Factors considered in the evaluation of the internals of the business include the businesses’ strengths and its weaknesses. Factors evaluated as externals of the business include the opportunities prevalent in the market and the threats the business faces in the carrying out of its activities. 1. Strengths The strength of the business is essentially in the nature of its products. The products being organic in nature, and the level of awareness and the effects of inorganic products, especially on the health of consumers gives an edge to the company at least for the meantime. Medical research has unearthed the detrimental effects of inorganic substances on external and internal organs of the body and this has engendered the government in formulating policies that serve to favor the organic products (Canavari & Olson 2007, p. 156). The other strength the company enjoys is the relative size of the company. The small size of the company facilitates quick decision making considering little management procedures involved. 2. Weaknesses The majority of the weaknesses faced by the company arises out of its size. The market is flooded with major companies that enjoy financial strength and the considerable resources that can be channelled into marketing and expansion. The size of the company (consisting two employees and the owner) means that specialization is limited. Instead of concentrating on management and organisational procedures, the owner has to partake in activities that should otherwise have served better were they assigned to employees. Further, a major weakness faced by the company is the inability to attract highly qualified employees. In order to attract highly qualified staff attractive incentives are needed. Due to financial constraints spurred by the company’s size, the company is forced to make do with the little finances. The limited resources also mean inefficiencies in transportation and advertisement. 3. Opportunities Men's skin awareness is dramatically increasing, to the point where it is estimated that the men's cosmetics market has tripled over the 1990s, with younger, more fashionable and trend-conscious consumers leading the way. a) Eco-label as a source of differentiation The business is better off perceiving environmental friendly products as a trump card to penetrating the industry. The eco-label being a very well-known and very well reputed trademark can be used by the business to stand out in the market. Eco-labelling is a simple and cost-effective way for the business to pass its message of strictness in the production of environmentally friendly products. Environmental issues are complex. Since it can take a long time and extensive resources to gain an understanding of a specific area, eco-labelling facilitates this process and so the business should be able to take advantage of this. Eco-label not only covers environmental issues, but also quality requirements, since environmental and quality concerns often go together. It means that an Eco-label license can also be seen as a mark of quality thereby enabling the business market itself. b) The packaging is the key to stand out Packaging is an important strategy in making a statement in the market and also a key way of differentiating a product from the competition and enhancing brand identity. Research has shown that some consumers even choose products to match their bathroom's colour scheme. In consequence, manufacturers are very innovative and they quickly respond to consumer preferences. Some trends point to reduction of package size or introduction of a new smaller volume line within a range; use of smaller packs, lighter or refillable packaging; and redesign of packaging to better convey environmental information. c) Communication strategy beyond advertising Sponsorship of activities, campaigns, local awareness campaigns can serve as avenues to create awareness and gather public opinion. Being a growing business, this can be a better way of spreading information concerning the business’ activities besides using the expensive means of advertisement. Furthermore, being a small business, the overheads of organizing such events could be small vis-à-vis the big businesses (Dayan & Kromidas 2011, p. 234). 4. Threats a) Brand identity The major stakeholders in the market have control of the major brands in their respective market sectors, coupled with financial and marketing resources to fight off the ever rising threat of competition. These manufacturers also tend to have families of products, not necessarily of the same sector, but under a general brand of identity. b) Market Penetration In the market, personal care products are mostly in the mature stage of the product life cycle, with the result being that brands can grow only by capturing sales from competing brands, thereby resulting in a spiral of high marketing costs. Such scenarios make it difficult for incoming businesses to penetrate the market. Successful penetration may ultimately lead to merging or in the worst case acquisition of the established companies. This has been prevalent in the industry, and discourages businesses in the latent stages from growing independently. c) Market share vs. Profitability With the increase of both domestic and global competition, the company has to deal with these factors and it also has to combine two conflicting elements in marketing strategy i.e. profitability and market share. To achieve a greater market share involves higher marketing costs and lower profitability. Thereby, the ability to juggle these two factors is the best way to obtain better results in the market. Cost leadership is a strategy that firms adopt to attempt to become a low-cost supplier in the industry. The sources of cost leadership may vary but they may include factors such as pursuit of economies of scale, use of proprietary technology, preferential access to raw materials and other inputs, and awareness of the specific needs and requirements of customers (Fairley 2007, p. 187). To pursue a cost leadership strategy the firm must seek out the different sources of cost advantage while at the same time they it has to formulate a product, which can be comparable to those of rival firms. d) Imports Importation of goods in the industry from other producers in other countries makes it difficult for the company to establish a strong hold in the UK market. The UK is the largest importer of goods in this industry compared to other nations. Therefore, incoming goods pose a greater threat to the survival of local industries. Importation makes it expensive for the local industry to thrive because of two major reasons. It raises the cost of advertising the product and also reduces the market share of the local industries. Pestle analysis 1. Political factors In every economy, politics play a critical. In many cases, the influence the processes of production hence in the long run influencing the demand and supply of products. Just as it is with other goods and services, political factors have been very influential in the organic personal products industry. There has been some legislation that has made it easier for the industry to grow rapidly in the UK. A good example of such legislations include the Food Supplements Directive in the UK which asserted that Organic food retailers and health food shops have to reduce their vitamins & food supplement ranges in order to create space for natural personal care products. At the moment there are many global companies whose organic hampers are available in the UK market thanks to the reluctance by the government to restrict foreign companies from making entry into the UK market. This is a simple implication that the government policies have made sure that various organic hampers are available in the market, thus high levels of competition. 2. Economic At the moment the economy of the UK can be said to be on a turn down. There is a high rate of increase inflation and decrease in salaries meaning that people are not in a position to spend in expensive products when there are cheaper alternatives. This is an implication that Karen Lock will have to make sure that the products that are produced by the company are an affordable as possible so that majority of the people in the UK will be able to afford them because of the rate of inflation and hard economic times. 3. Social The preference of customers in the UK has been observed to be highly affected by beliefs. The UK society has widely grown aware of the effects of some of the chemical compounds in the products that they consume. This has led to the growth of a segment of consumers in the UK who wants whatever they consume to be organic. This is a factor that has widely contributed to the growth of organic hamper industry and market in the UK. 4. Technology Organic hampers can be considered to be among the fastest growing markets in the UK. Technology can play a very important part in the improvement of these products.Karen Lock can consider investing in new technologies so that they can raise the level of satisfaction that customers get by using their products. Technological researches have been carried out globally with the aim of finding better ways of producing organic hampers without having to add any chemicals. Porter's Five Forces 1. Suppliers Power For the fresh produce, Karen Lock depends on their local farms. However, the other components of the hampers are sourced from highly connected suppliers through a local wholesaler. The baskets used for the hampers are imported from China at £10 per basket. However, they buy the baskets in bulk so that they can reduce the price. It should be seen that importing buckets from China might be expensive and Karen Lock should consider looking for a local source so that they can cut on the transportation cost. 2. Buyer power Given the fact that there have been an increase in the number of business organisations selling organic products in the UK market there has been a general increase in consumers’ bargaining power. However, Karen Lock can take advantage of the differentiation aspect of their business to counter the effect of the customersbargaining power (Belk 2010, p. 167). A review of production costs and pricing strategies might also be necessary. 3. Threat of Substitution Given the fact that there have been many producers of organic products lately in the UK market there are many substitute to the organic products that are availed by Karen Lock. However, the advantage that the company has comes from the hamper system and their operation strategy that targets specific events thus making them highly marketable during such evens. However, they should also come up with a system that will help them is selling more to individuals independent of the various events. 4. Threat of new entry Given the fact that the governments have been encouraging production of organic products, it can be said that this is one sector that has limited entry barriers. This means thatbusinesses in this sector are more prone to competition from new entrants. However, due to fake organic products and counterfeit products it usually takes long before a new entrant become actual competition. 5. Competitive rivalry Karen lock is likely to face rivalry from some of the players in this sector that has been around longer than it is. This means that most of these competitors have better knowledge of the UK market and even happen to have greater market capital. Some of these competitorsmight even have more resources and superior technologies. This actually mean that Karen Lock will need to have the most appropriate management and marketing strategy in order for the company to do well in the UK market. Position Like any other product in the market, Karen Lock’s hampers will be positioned using the strengths that they have and the advantages that they give the consumers. In this case the greatest health benefit will be the fact that they are chemical free, meaning that users have the ability of living care free without having to worry about the health complications that are always caused by the non-organic products. The company will also use their ability to avail a range of healthy and sustainable product to their advantage. They do not just offer a single product but various ones. Apart from the quality of the products the company should consider making sure that they reduce their production and operational costs so that they can be able to give the most affordable and competitive prices in the market. Given the economic hardships that are faced by consumers in the UK, offering the most affordable prices will mean that they will be able to make their products appealing to a majority of organic products consumers in the UK. The Marketing strategy The first changes that the company opt to make are in the procurement and production departments. There are a number of factors that should be taken with regard to how the two departments are managed. The first factor is making sure that orders are made of the required quantities only. Given the fact that organic products can at times be perishable, it is of high importance for the company to make sure that they order only what they need in order to reduce wastage. Some of the sourced products such as baskets can be bought locally so that the company will cut on the shipping cost. Given the fact that the company has been dealing with just a single wholesaler, it can be said that such relations are very important because they have a source of supply that they can depend on and with whom they can negotiate for better pricesStokes, D& (Wilson 2010, p. 202). The local farmers have been observed to be inconsistent with regard to prices especially during periods of low harvests. The company should try their best to enhance relationships with the farmers so that they can always get the products at reasonableprices even at times when the demand rises due to shortage resulting from poor harvest. The company should also consider increasing the number of employees that they have if in any case they want to serve greater markets. If they will be able to act on their pricing strategies and promotional strategies they will be forced to produce more employees who will be able to take up the extended responsibilities that there will be there. Despite the fact that the nature of the business does not demand much human resource, there will be need for some improvement once there is an increase in demand. There will also be need for better management skills. Karen would benefit by gaining management skills that will be of high contribution to the growth of the company in the next five years. The company might also do better with a little more promotion. Karen should not settle for the number of customers that the company have. For customers to know about the business there should be way through which the company communicates of their values to their potential customers. In this case the use of the internet will be the most effective at the early stages of the business’ growth. The internet is effective because it reaches out to high number of persons at relatively lower cost. Therefore, Karen will not have to worry about overinvesting in promotion. 4P Analysis The 4P analysis as an analytical tool helps the company formulate a clear strategy when entering a specific market. When using this tool, marketing managers can combine with four marketing variables in the most suitable way, in order to make the best reflection of the target market. The marketing mix can be adjusted in the most suitable way to meet the changing needs of the target group and the other variables of the marketing environment (Kurtz & Boone 2011, p. 123). The 4Ps are comprised of: product, price, place and promotion. Product, as commonly used, refers to a tangible good or service, manufactured on a large scale with a specific number of units, and is usually service based. Price refers to the amount a customer pays for the specified product, usually determined by a number of factors including market share, competition, material costs, product identity and perceived value of the product with regard to the customer (Rajagopal 2012, p. 199). If other companies stock the same product, then the business may alter the price (i.e increase or decrease the price). Place, otherwise called the distribution channel; refers to the location where the product can be purchased. Physical and virtual stores both count as place for that matter. Promotion refers to all of the communication a marketer delivers in the market place. It consists of four distinct elements: advertising, word of mouth, public relations and point of sale. Advertising covers any kind of promotion that is paid for: be it print media, cinema, bill boards et cetera. Public relations on the other hand are the communications that are indirectly paid for and include press releases, exhibitions, conferences, seminars, trade fairs and events. Word of mouth refers to any informal communication by individuals, satisfied customers, and any other people specifically engaged in promoting the product through speech. 4Ps can influence customer behaviour directly as well. 4P strategy and social-cultural environment interplay with each other. Firms and their suppliers, marketing intermediaries, clients, competitors, and the general public are all participating in the same macro environment that has forces and features that outstandingly alter the available opportunities ib addition to creating threats (Thompson & Martin 2010, p. 211). Therefore, for the business to thrive, the business has to factor in social and cultural factors. Relating to the 4Ps, they could be affected by social and cultural factors in the following ways: 1. Product The manager of the business should provide appropriate products according to the local consumer values and buying behaviours of a certain market (Matsatsinis&Siskos 2003, p. 102). The majority of these values and the behaviours of the customers are influenced by cultural and social factors. The product of the business, being organic and some relating to beauty should also be in tandem with the existing cultural factors. For example, men over the years have been resistant to the notion of beauty especially in the caring for the skin and also anti-aging products have been shunned by the male gender over the years, being considered feminine. Research has shown that this notion has changed and that men have turned to beauty products as well. The business should then see this as an opportunity and invest in the sector, specifically targeting men. The majority of products in the market have been tuned to suit women and so men have been ignored creating a market niche for an interested business. Focusing the products on men will therefore open new opportunities for the business. 2. Price Beauty products in the current market tend to be priced highly with the major manufacturers having established themselves as quality and ostentatious. To cut through the market then, the business has to focus on reducing the price without sacrificing quality. 3. Place As has been discussed, the place of the business refers to any location whether physical or virtual. The business, to succeed in a market that heavily depends on the amount of resources and the liquid money at hand, has therefore to find a means to increase its market penetration while incurring minimal costs. The best way to achieve this is by maintaining a strong online presence, to shift its operations and its services to an online platform since this is cheaper than constructing physical venues for its operations. Shifting the products and the services of the business to an online platform has the advantage of minimizing costs as well as broadcasting the business to a wider audience. 4. Promotion For a small business such as the one in context, promotion of the product should be achieved by the simplest and the least expensive means available. This means; in comparison to the other existing means, word of mouth is the most appropriate means. The business should depend on feedback from its customers and also rely on its satisfied customers to spread the word. Furthermore, advertising through social media platforms should serve as an effective and affordable way to promote the business. To market and advertise itself to the local and regional population, considering its small size, participation in exhibitions can help achieve its ends. Forums and meetings that aim at spreading awareness on the need to shift to organic products should serve as a way to change and educate the ignorant population. Furthermore, considering the amounts of imports in the UK to be the largest in the EU region, the business can partake to lobby for the government to put in place policies that restrain importation of products that can be produced with surpassing quality or as good quality locally (Nieuwenhuizen& Erasmus 2007, p. 177). This seems to be the most important step to achieve a fair competition in a market dominated by large scale manufacturers who enjoy benefits that cannotbe enjoyed by small businesses. Action plans For the herein describe strategy to be effective, the company will have to act on it immediately. The first thing that the organisation will have to do is look into the procurement and production process and look at ways through which they can produce at a less cost. This will be used to determine the pricing strategy that the company will have. After having an appropriate pricing strategy, it will be appropriate for the company to come up with promotion programs and await the response of the public and decide on whether they will increase their production capacities. The income forecast The company will continue paying £100 for the premises that they are currently using for their operations. This will mean that they will need close to £5500 for the whole year. If they will do with extra productionthey will also have to spend more on the products that they buy from the farmers and those that they source from the local wholesaler. Prediction of the exact amount is hard given the fact that this is an industry that is highly affected by seasonality. If the company might be able to get baskets with as low as £8 they will be able to reduce the overall cost. In return the company will be able to attract more customers leading to higher income even if they settle to lower profits per unit. Bibliography Belk, RW 2010, Research in consumer behavior.Vol. 12 Vol. 12, Emerald, Bingley. Canavari, M & Olson, KD 2007, Organic food consumers' choices and farmers' opportunities, Springer Science+Business Media, New York. http://public.eblib.com/choice/publicfullrecord.aspx?p=338037. Dayan, N &Kromidas, L 2011, Formulating, packaging, and marketing of natural cosmetic products, Wiley, Hoboken, N.J. Fairley, J 2007, The ultimate natural beauty book: 100 organic beauty products to make and use easily at home. Universe Pub, New York. Kurtz, DL & Boone, LE 2011, Contemporary business, Wiley, Hoboken, N.J. Matsatsinis, NF &Siskos, Y 2003, Intelligent Support Systems for Marketing Decisions, Springer US, Boston, MA. http://dx.doi.org/10.1007/978-1-4615-1147-2. Nieuwenhuizen, C & Erasmus, B 2007,Business management for entrepreneurs,Juta, Cape Town. Rajagopal 2012, Systems thinking and process dynamics for marketing systems: technologies and applications for decision management, Business Science Reference, Hershey, PA. Simerson, BK. 2011. Strategic planning: a practical guide to strategy formulation and execution. Santa Barbara, Calif, Praeger. Stokes, D & Wilson, N 2010, Small business management and entrepreneurship, Cengage Learning, Andover. Thompson, JL & Martin, F 2010, Strategic management, Cengage Learning, Andover. Read More