Growth of the Fast Moving Consumer Goods due to the Enterprise Development Strategies - Essay Example

Enterprise Development Enterprise development Introduction to fast moving consumer goods Fast moving consumer goods are a category of goods that are processed and sold within a short period for a relatively low price. A number of commodities are categorized as fast moving consumer goods including soft drinks manufactured by coca cola and Pepsi, toiletries, packed and processed goods and specific over the counter drugs that are franchised to different subsidiaries across the globe. As compared to other products, retailers of fast moving consumer goods make relatively lower price as compared to the producers and other product manufacturers. Electronics are also classified as fast moving consumer goods and these include the low level products such as the audio player, mobile phones and new generation still cameras. Fast consumer moving goods have short self life and should be replaced from the shelves within a short period of time depending on the nature and use of the products. The perishability of fast moving consumer goods is also affected by the nature, use and method of manufacture of the products (Sharma & Ramjit, 2012). For example, products such as meat, fruits, vegetables and other dairy products have a short half-life and must be replaced within a short period of time and preserved in a cool and dry place. However, other category such as soft and alcoholic drinks, electronic products, toiletries and printed materials has a much longer shelf life. Fast moving consumer goods have specific characteristics that differentiate from other products within the retail stores and the markets. As compared to other products, FMCGs are purchased frequently and the process of purchasing does not involve much effort from the buyers and the consumers alike. The prices are also low while the market volume and presence is relatively high, a fact the makes them common goods before the consumers. Due to the frequent usage, fast moving consumer goods have developed a large and extensive distribution network with high stock turnover for the companies involved to make significant profit (Diehl & Spinler, 2013). Enterprise development strategy for FMCG The success of FMCG’s is influenced by the strategies developed and the ability of an organization to reach out to a larger market base as compared to other products. As a result, the development of a strategy that guides the development of the fast moving consumer goods is essential for the success of any organization (Lee & Evans, 2012). The development of a multiband strategy has enabled these organizations to capture a larger market share through increase in the presence of their products. Unilever has different varieties of products that target consumers from different parts of the world including food, detergents among other products. As a result, the company has used the multibrand strategy to continue entering new markets and increasing the competitive edge as compared to other companies in the industry. Distributors have limited shelf space due to the increase in the industry players and the adoption of the multibrand strategy has enabled them to increase their control of the distributor shelf space. By increasing their shelf presence through the development of major products, fast consumer goods manufacturers have ensured that competition is minimal (Diehl & Spinler, 2013). Apart from the development of multibrand strategy, other fast moving consumer goods have adopted the product flanking strategy that include the introduction of different combination of products with varying prices. For example, toiletries manufacturers package their products differently to reach a wide range of consumers with varying financial capabilities. Tissues and sanitary towels among other fast moving consumer goods are packaged in varying sizes based on the product flanking strategy and this has enabled companies like Unilever and P&G to reach to consumers of varying financial capabilities (Sharma & Ramjit, 2012). Brand extension and product diversification is the third strategy that has also been widely adopted by different fast moving consumer goods manufacturers to increase their market presence. Through the process of extending the product, companies gain product respect and brand recognition, which is essential for the process of entering the market and exerting influence (Lee & Evans, 2012). FMCG industry analysis The fast moving consumer goods industry is characterized by a number of factors due to the nature of the goods and the slight return margin that the industry players enjoy. As a result, competition and external forces influences the ability of the industry players to make significant sales and returns. The analysis of the external forces within the industry can be done using a number of tools including the use of the PEST and PESTLE analysis and the porter five forces analysis (Bilgen & Günther, 2010). Pestle is a tool that is developed to evaluate the external environment that a business operates in including the examination of the opportunities and threats that such a business faces from the operations of competitors and new entrants into the market. Facts such as political, economic, socio-cultural and legal legislations affect the successful operations of a business and determine the returns made (Sharma & Ramjit, 2012). The growth of fast moving consumer goods is influenced to a larger extent by the political stability of a region and a country. A highly stable political environment enables business to easily move their products from different locations and within the supply chain to the consumers. As a result, the ease of movement of products from the manufacturing points to the retail stores is influenced by the political environment and the stability of a country (Diehl & Spinler, 2013). Fast moving consumer goods rely on locally produced raw materials for the manufacture of their products and such materials can only be adequately produced in an environment that is devoid of political anarchy and disturbances. The nature of the goods and the prices makes them vulnerable to tax changes and a slight increase may results into a situation where the products sales is significantly affected. Apart from government policies such as taxation, other policies also affect the success of a business and these are characterized under the general government interventions that may include plans to spur economic development or reduce credit availability. All these affect the ability of fast moving consumer goods to develop an effective marketing strategy in the face of the stiff competition. Government may also introduce subsidies that are meant to spur the growth of small and medium enterprises and this may increase the number of new entrants into the industry and therefore double the competition faced by the company. Demographic changes within the industry also affect the sales and production of fast moving consumer goods as their sales are directly influenced by the behavior of the people. The changes in race, age, gender and religion may have implication on the enterprise development strategies adopted by an organization due to the change in the characteristics of the primary focus group. Apart from the demographic changes, the changes of the income of the consumers may also affect their purchasing power and therefore the mobility of the products in the market (Rajendran, 2014). Changes in technological approaches of production also affect the ability of the industry players to maintain their competitive edge in the market. The development of new technologies provides room for the development of economical methods of production that are relatively cheap. This enables a business to introduce relatively cheaper goods into the market as compared to other companies that are using old technologies. The advances in technology also increase the competitive advantage of organizations and enable them to reach out to new consumers with products that manufactured through modern day methods (Diehl & Spinler, 2013). Environmental regulations and ecological laws introduced by the government also have massive implications on the ability of an industry player to remain competitive in this kind of market. Due to the labor intensive nature of the sector, the introduction of employment laws also influences the ability of an organization to remain profitable while maintaining a happy and satisfied workforce. Some of the legal regulations are industry specific and may affect the nature of operations within the fast moving consumer goods sector alone as compared to other industries (Leahy, 2011). The five force porter analysis can be used to determine the nature of competitive forces within the fast moving consumer goods industry. As an industry that deals in fast moving and short shelf life consumer products, competition has remained high and the enterprise development strategies has been considered as the only way to enhance the ability of the industry players to weather the competition. The time and cost of entry is minimal and this acts as incentive for small and medium enterprises to enter the sector and create significant competition to the current dominant players. For example, the production of detergents and consumer cooking oil requires little technology as compared to the research and development of consumer electronics. As a result, new entrants into this sector begin their operations through the development of such products before diversifying into other products within the same category (Rajendran, 2014). The low specialist knowledge and the little barriers on entry thus increase the number of players in this sector, further increasing the competition and the number of substitute products in the market. The competitive rivalry in the sector is also relatively high and this acts to the benefits of the consumer due to the presence of a variety of substitute products and low cost of sale (Rahman, 2012). Quality differences is also assured as different industry players struggle to increase their market presence through the development of products that are superior to others in terms of technological quality and low cost. Due to the presence of a large number of market players, customer loyalty is not guaranteed as the decision to buy a product is determined by its availability, cost and quality as opposed to the loyalty witnessed with electronic consumer products (Bilgen & Günther, 2010). Suppliers in the sector do not have high power when compared to others due to the large number of suppliers within and beyond the borders of a country. Fast moving and short shelf life consumer products such as cooking oils and detergents are produced from raw materials that are readily available and no supplier has complete monopoly over their production. This enables manufacturers to bargain for the lowest price possible for the raw materials and the same is transferred to the final products through a lowered price. However, the threat of substitution is the main factor that determines the success of fast moving consumer goods market players and organizations (Vieceli & Shaw, 2010). Due to the high number of market players across the globe, competition is based on the development of the best substitute that meets the needs of the consumers. This has been aptly used by rival business to beat competition and increase their market control in different parts of the globe. According to the buyer power option, the large number of consumer distributed evenly enables the competing firms to have a share of the market and grow despite the competition (Leahy, 2011). However, the consumers have a high power and control the behaviors of the industry players in a number of ways. Consumers in the fast moving consumer goods industry respond to price sensitivity and switch to substitute products if need be. The ability to substitute and the low cost of changing products affects the success of one brand against the other and creates a situation where the prices are relatively uniform (Rahman, 2012). SWOT analysis The New Zealand food and grocery council was developing to spearhead the development of the fast moving consumer goods and ensure that the sector develops through healthy competition. As a result, a number of companies and organizations have entered the market and the continue to increase in their influence and competitive abilities. Currently, the fast moving consumer goods sector in the country is estimated to rake in over $28 billion for domestic and over $26 billion in exports to overseas markets like Australia and Asian markets (Bilgen & Günther, 2010). Based on the number of people employed on the sector, the fast moving consumer goods sector in the country is highly developed with fair share of competition and market entry challenges. Among the many companies with massive market control in New Zealand and beyond is the griffins foods limited, a major manufacturer in snacks, confectionaries among other short shelf life products. In this section, the internal strengths, weaknesses, opportunities and threats faced by Griffins foods limited will be discussed as a model of other fast moving consumer good companies in the country (Vieceli & Shaw, 2010). One of the major strengths of the fast moving consumer goods is the low operational cost that enables business of varying capitalization and market strength to operate. The distribution network of the products in this sector is also well developed and this provides an opportunity for organizations to move their products within the supply chain with ease. As a result, urban and rural areas are easily accessed with such products and this increases the sales and overall profitability. The brands within the sector especially in New Zealand are also well known and this eases the process of marketing and market sensitization across the board (Julian & Robin, 2010). However, the low scope in investing technology has affected the growth of the sector as the economies of scale have remained relatively lower within small and medium enterprise sector in the country. The export levels of fast moving consumer goods are also influenced by the nature of the organization and the economies of scale. As a result, low export has remained dominant in the sector and the development of ‘me-too’ or substitute products has affected the growth of new entrants and the internationalization of smaller organizations especially in New Zealand. Despite the weaknesses within the sector, opportunities exist that can be explored by organizations to increase their competitive advantage and market capitalization (Rahman, 2012). The untapped rural market in the sector especially within the rural areas in the country presents an opportunity for new entrants and existing organizations to explore. The rising per capita income in the country is also a demonstration of an increase in the purchasing power of the market, a fact that has the potential to increase the performance of the sector. The large domestic market due to population increase and the export potential of the industry to other parts of Asia and Europe presents an opportunity for the sector to grow (Bower, 2012). Threats also exist within the sector and this explains the fear of market entry by small and medium sized enterprises. For example, continued increase in imports affects the growth of domestic industries and ability to expand beyond the regional market. Tax and regulatory structures within the country also affects the ability of the industry to advance and enter new markets (Julian & Robin, 2010). Recommendation The growth of the fast moving consumer goods will be influenced by the enterprise development strategies adopted by the organizations in the industry. To remain competitive and profitable, players in the industry must develop diversification and brand recognition strategy in order to differentiate their products from other players in the industry. New Zealand has a potential for the sector to grow due to a number of factors such an increase in per capita income, population and the development of government policies that restricts the important of FMCG into the country. As a result, players must remain strategic and utilize the already established supply chains to reach out to other consumers across the globe (Bower, 2012). Part 2 To remain competitive in the international arena, fast moving consumer goods manufacturers must adopt a number of strategies due to the high competition and ease of new entrants. As highlighted in the other sections of the paper, a number of strategies exist for the domestic markets and the same must be applied to the international market. The success of multinationals in foreign markets is influenced by a number of factors, with some beyond an organisations control and influence. However, the success of any organization in a foreign environment is influenced by strategic decisions and the ability to respond to the needs and the dynamic nature of the market. Fast moving consumer goods have witnessed significant growth in different parts of the world but the results posted in Europe, specifically the United Kingdom has posted a contrasting image of the success of the two organisations (Julian & Robin, 2010). Different FMCG have launched their products in New Zealand and the response posted by the market for the products differed significantly. Advances in fast moving consumer goods has made it possible for such organisations to market their products in these markets with ease and also introduce new products that meet the needs of the consumers. As a result, a number of multinationals are currently operating subsidiary units in other countries where they have posted massive successes or even failures. The ability to succeed in a foreign market is influenced by a number of markets, political, technological and cultural factors that affects the multinationals. Competition has reached a level where the ability of any organization to attract and attract customers depends on the approach that the organization adopts in both its advertising and customer handling approaches (Bower, 2012). To make forays into overseas markets like the United States, India and china, fast moving consumer goods manufacturers in new Zealand should develop merger and acquisition strategy with existing firms. Due to the nature of the products in the sector, there is a higher possibility that the competition in the sector is high and the performance of new entrants will be determined by the strategies adopted. Through mergers and acquisition, new Zealand based FMCG companies will be able to increase their presence in the foreign markets and better their chances of beating the tough competition. Marketing theories describes various approaches adopted by organizations to attract and retain their consumers despite the massive market competition and complexity. Customer centrality is one of the most currently adopted marketing approaches by a number of organisations across the globe. Customer centrality is the development of an approach that views the customer’s needs, wants and predispositions as the starting point and baseline of all decisions made by an organization. According to this theory, the customers remain at the centre of all activities undertaken by a given organization. All questions concerning marketing handled by the company thus begins with the customers and ends with the customers at all times. References Bilgen, B. B., & Günther, H. O. (2010). Integrated production and distribution planning in the fast moving consumer goods industry: a block planning application. OR Spectrum, 32(4), 927-955. Doi: 10.1007/s00291-009-0177-4 Bower, P. (2012). Forecasting New Products in Consumer Goods. Journal of Business Forecasting, 31(4), 4-30. Diehl, D., & Spinler, S. (2013). Defining a common ground for supply chain risk management – a case study in the fast-moving consumer goods industry. International Journal of Logistics: Research & Applications, 16(4), 311-327. doi:10.1080/13675567.2013.813443 Julian, V. & Robin, S. (2010). Brand salience for fast-moving consumer goods: An empirically based model. Journal of Marketing Management, 26 (14), 1218-1238. Leahy, R. (2011). Relationships in fast moving consumer goods market the consumers perspective. European Journal of Marketing, 45(4), 651-672. Doi: 10.1108/03090561111111370 Lee, Y., & Evans, D. (2012). What Drives Organizations to Employ Design-Driven Approaches? 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