Small Business Appraisal: Innocent Smoothies - Term Paper Example

Small Business Appraisal: Innocent Smoothies Introduction Most of the modern business transactions today are very competitive and complex by nature. Aside from the importance of being able to purchase low-cost raw materials, investment on high-technology machineries, and the HR’s ability to hire competitive human resources; continuous trading and marketing of services and finish products throughout the world market have become a commonly accepted business practices that enables a small and medium size enterprises (SMEs) to increase its competitiveness over its competitors. The establishment of a small and medium size enterprise(s) is a good start in terms of increasing a small firm’s business growth potential and its ability to employ a large number of competitive individuals. (Karmel and Bryon 1) In line with the significance of establishing a small and medium size enterpreises in the UK market, the Department for Business Enterpise and Regulatory Reform reported that the existence of small and medium size enterprises accounted for as much as 99.9% of all enterprises throughout the entire United Kingdom as of July 2008 (BERR). The study will focus on discussing the important entrepreneural and marketing strategy that made Innocent Drinks Smoothies able to transform from a small and medium size enterprise into a seious competitor of Pete & Johnny Smoothies, The Feel Good Drinks Co., Odwalla (owned by Coca-Cola), and Naked Juice – owned by PepsiCo (Laurent; PR Newswire). To give the readers a better understanding with the subject matter, the background of Innocent Drinks Smoothies including the internal and external influences that significantly affect the development of the business will be tackled in details. It is very impressive how the three young entrepreneurs started the business with only £500 worth of initial investment approximately ten years ago was able to sell as much as £27.3m as of September 2008 (Bokaie; Hickman; Innocent a; Money Week). To give the readers an idea on how the company managed to make the business successful within a short span of nine (9) years, the company’s market segmentation and positioning strategy including the ability of the young entrepreneurs to develop a strong brand name will be analyzed and discussed. Brief Background of the Business The story of Innocent Smoothies started back in 1999 when Adam Balon, Richard Reed and Jon Wright decided to purchase some fruits worth £500. (Hickman; Innocent a; Money Week) After combining the fruits into smoothies; the young and promising entrepreneurs started selling the drinks at £1.80 each from a stall in a festival in London (Hickman). With the continuous use of unique marketing strategies combined with the owners’ ability to actively and timely deliver what the customers wants and the owners’ entrepreneurial skills, Innocent Smoothies managed to become successful in the UK market. Although there was a 3% decrease in the market shares between the years 2007 and 2008, Innocent Smoothies was able to reach as high as 72% of the total domestic market share back in 2007 (Bokaie; Hickman; MySpace News). (See Chart I – Differences in the Market Share between Yr. 2007 & 2008 below) Small Business Sector Started as a member of the small business sector, Innocent smoothies offer products that are made of 100% combined pure fruits with no sugar, additives nor concentrates. Even though the business model used by Innocent Smoothies requires a “high cost of content, low cost of overheads, and low margin” (Real Business), the formula and process used in making the product made the company instantly gain its own identity from other similar products. Because of the company’s unique marketing strategy, the London-based drinks company was able to double its profit annually (BBC News). Despite the high market price of Innocent drinks, the fact that Innocent Smoothies provide a 100% high quality health product makes the company able to withstand the pressure and allows the company over take some of the biggest and most stable multinational companies within the industry. Entrepreneurship It is clear that Adam Balon, Richard Reed and Jon Wright have some of the most important entrepreneur traits that enabled them to make Innocent Smoothies as successful as it is today. Aside from being able to develop a unique product, the owners of Innocent Smoothies had the courage to implement an e-petition which aims to decrease the Value Added Tax (VAT) that was placed on fruit juices and smoothies down from the usual 17.5% to 5% (Fleming). This strategy was effective in terms of encouraging more people to purchase fruit products. Therefore, the annually expected sales of Innocent Smoothies gradually increased over the years. Among the three young entrepreneurs, Richard handles the company’s marketing department. His creativity and ability to create effective ‘media savvy’ is one of the major factors that made them win the loyalty of their target consumers. (Real Business) Growth of the Small Business Innocent Smoothies managed to grow from a small business into one of the biggest fruit beverages manufacturer in the United Kingdom. As of January 2007, Richard Reed revealed that the company has a total workforce of 187 with a turnover of roughly £100m (Reed, GB Magazine). Based on the European Commission’s definition of a small and medium size enterprise back in 2003, firms that has a total employees of between 0 to 49 and 50 to 249 are classified as a small- and medium firms respectively (SMEs: Overview). Based on this particular definition, Innocent Smoothies can be classified as a medium size enterprise. Effective on the 1st of January 2005, the definition of small and medium size enterprises was changed such that firms that has less than 250 employees with less than €50 million turnover are considered as medium sized businesses (SMEs: Overview). Since the turnover of Innocent Smoothies was as high as £100m or €112.4m, the company can no longer be considered a medium size enterprise even though the company has only a total of 187 employees. In other words, Innocent Smoothies managed to increase its growth from a small and medium enterprise into a much bigger business. Marketing of Innocent Smoothies In order to effectively identify a target market, it is necessary to divide Innocent Drinks’ consumers into different subgroups (Rogers15). Therefore, the marketing manager Innocent Smoothies should establish a target market by identifying specific market segmentation including the demographic, psychographic, behavioural, and geographic factors (Kotler 8, 263). Demographic Segmentation Since Innocent Drinks Smoothies are made of 100% natural fruits, a marketing manager may conclude that a person’s age, gender, income, size of the family, occupation, educational attainment, religion, race, nationality or social class does not matter at all. On the contrary, Grocer revealed that most consumers that patronize the products of Innocent Drinks have a busy lifestyle schedule such as the hardworking students and professionals (Grocer). Therefore, the company adopted the use of attractive recyclable packaging materials for each consumer. (YouthXchange; Reed). For example: The Innocent Smoothies should be available in 250 ml PET bottle for one-time individual consumption whereas the use of 1 litre and 1.5 litre cartons can be promoted for family consumption. To satisfy the specific needs of school children, Innocent Drinks developed new packaging designs which contains less than 200 ml (Real Business). Psychographic Segmentation When it comes to psychographic segmentation, most of the people who purchase Innocent Drinks smoothies are either health conscious individuals, environmental or social frindly individuals (Michael on Speed Reading). Since the personality and values of Innocent Drinks consumers give importance to health and family relationship, the company should continuously sponsor family events like ‘Our London Fete’ as a marketing and advertising strategy (The Innocent Village Fete). Behavioural Segmentation Because of the health benefits the product offers to its target consumers, majority of the frequent buyers are those individuals with an on-the-go lifestyle. However, the high costs of Innocent Smoothies significantly affect the buying behaviour of its target consumers. For instance: When the economy is good, there is a higher chance that the loyal consumers would purchase more products as compared to a situation wherein the unemployment rate is high. Demographic Segmentation Innocent Smoothies targets the urban and suburban regions of Belgium, Denmark, France, Germany, Netherlands and Sweden. Regardless of the metro size, Innocent Drinks smoothies are distributed throughout the grocery stores in different state and regions of its target countries. Aside from selling Innocent smoothies in more than 7,000 coffee shops, retail food outlets, department stores and in the schools (Answers.com), Innocent Drinks has recently tried to expand its market by entering into a partnership contract with McDonald’s (Reed). Even though the said marketing strategy resulted to a debate in terms of the appropriateness of selling a Innocent nutritious drink in McDonald’s fast food restaurants, the research findings of the company shows that 72% of its regular drinkers are stronly supportive and 17% do not mind making the drinks readily available in McDonald’s fast food restaurant outlets as compared to 9% who are against such arrangements. (See Chart II – Survey Result on Partnership Contract between Innocent Smoothies and McDonald’s on page 7) Constantly Producing New Recipes as part of the Life-Product-Cycle Strategy Innocent Drinks has been producing Innocent smoothies made from fine recipe for all ages. Among the common smoothie flavours includes the combination of: cranberries and raspberries; strawberries and bananas; blackberries, raspberries and boysenberries; oranges, bananas and pineapples; mangoes and passion fruit; and pineapples, bananas and coconuts (Innocent b). Between 1999 to 2007, Innocent Drinks developed from 3 to 39 different receipes (Innocent c). This is the business’ way of maintaining its product-life-cycle. Considering the tighy competition within the fruit beverages industry, it is necessary for Innocent Drinks to introduce new flavours regularly to allow the company to maintain and capture a bigger share in the local market even before the company reaches the maturity stage (Kotler 303 – 313). Unique Advertising Techniques Instead of using the traditional expensive television advertisement, Innocent Smoothies managed to develop their own advertising techniques which are effective in terms of capturing the attention and interests of its target market. Aside from its attractive packaging, Innocent Smoothies have been running its modified vehicles around the community area. Since the driver of the modified vehicles were assigned to personally transport the drinks to its target consumers every day, the driver themselves were able to develop a good business relationship with Innocent’s loyal consumers. These vehicles were intentionally designed with horns, eyelashes, udders, tail in order to attract the attention of its loyal and potential consumers. (Stallard) Effective Market Segmentation Strategy Innocent Smoothies managed to position its product as convenient natural food which is important part for the health of people with busy lifestyle. (Scott, 2007) Since the company uses mainly different kinds of fruits as their main ingredients, the company manages to promote the consumption of their different product lines as 24-hour food and drinks for breakfast, lunch, snacks and dinner. Likewise, the company continuously promote other product lines under the classification of ‘superfoods’. This particular product line is positioned either as a natural detox for the human body (Innocent d), a natural vitamin C supplement (Innocent e); and as a natural slow-releasing energy drink (Innocent f). Recommendation To enable Innocent Smoothies maintain its current market share, the company should remain honest to their valued customers, continuously search for new and hippest advertising strategy related to the use of eco-friendly packaging materials, promote social and familial events, and innovate new smoothie flavours. It is also highly recommended that Innocent Smoothies should start planning on going global before the company will be able to saturate the local market. Since the company has already positioned Innocent Smoothies as a well-known producer of 100% natural fruit-made smoothies, the company should remain honest to their valued customers in terms of giving them 100% pure ingredients. Basically, maintaining the Innocent’s honestly to its loyal consumers will enable the company to maintain a long-term business relationship with its existing customer-base. By trying to modify the publicly accepted recipe, the reputation of Innocent Smoothies can be badly damanged. It is advisable on the part of Innocent Smoothies to continuously search and develop other advertising techniques and the use of eco-friendly packaging materials in order to attract more people to patronage the product. Continuously searching for qualified packaging supplier will make the company able to find other cheaper 100% recyclable packaging materials. In most cases, a company that is publicly known to cause harm to the environment could increase the risk of developing a group that will convince the local consumers to boycott purchasing the different product lines that Innocent Drinks is selling. The company should also continously innovate new flavours as a way of increasing the curiousity of the local consumers to try a variety of natural fruit-made smoothies. The ability of the company to maintain the product-life-cycle of Innocent smoothies is one of the major keys to its success. By strengthening the company’s ‘Our Smoothie of the Month’ or ‘Seasonal Smoothie’, Innocent Smoothies will be able to maintain and capture a bigger portion of the market share even before the company reaches the maturity stage (Kotler 303 - 313). The company should exert an effort in promoting and financially support the familial and social affairs or gatherings related to the older generation, the global fruit planters, and other forms of charity work like educational grants and housing privilege for the poor. Rather than paying a large sum of money for expensive advertisements, the company should make use of similar marketing tactics such as their yearly campaign for Big Knits and the Innocent Village Fete. These two marketing techniques are no doubt more effective in terms of building a stronger emotional attachment with its consumers. Summary Successfully establishing a small and medium size enterprise can grow into one of the biggest players within the beverage industry in UK. By strengthening the company’s product innovation combined with the use of effective marketing strategy, it will be easier on the part of the young entrepreneurs to develop a business plan which is essential for the growth management of the business. Innocent Drinks was able to successfully position Innocent smoothies as 100% natural fruit drink designed for the specific needs of consumers with a very busy lifestyle. In general, knowing the preferences aside from the specific needs and wants of the company’s target consumers will increase the annual sales and profitability of the business. To learn more about the preferenecs of Innocent’s target market, the marketing manager should critically consider and analyze Innocent Drinks’ demographic, psychographic, behavioral and demographic segmentation. Knowing these information will allow the marketing managers to develop a more effective marketing strategy which will enable the business people to grab a bigger market share and profits on behalf of the company. Aside from strengthening the marketing communication of the Innocent Smooties, considering the need for business expansion is necessary to allow the young entrepreneurs to attain the maximum business growth. However, precaution should always be taken in order to avoid hurting the financial status of Innocent Smoothies. To prevent saturating the UK market, the company should carefully study strategic ways on how the business could expand globally. This particular business strategy will empower Innocent Smooties from increasing the risk of becoming stagnant in the near future. *** End *** References: "Answers.com." 2009. Innocent Products. 17 January 2009 . "BBC News." 2 January 2007. Richard Reed, Innocent Drinks. 16 January 2009 . "BERR." 30 July 2008. 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