Innocent Drinks Evaluation - Case Study Example

Name Class Unit Contents PORTER 5 forces Analysis 4 Market Rivalry 4 Swot Analysis 5 Strengths 5 Weakness 5 Political 6 Technology 7 Environment 8 Legal 8 Strategic reasons for Coca Cola to take finally control of 'Innocent Drinks.’ and key influences on decision-making processes by Coca-Cola. 10 Conclusion 11 References 12 Introduction Innocent Drinks was started by three friends in 1999. The company organisation structure from the start was flat to enhance innovation. This involves having management and staff in open office setting and reducing hierarchies. The company made creativity and innovation to be central part of their culture. Since their humble beginnings in 1999, the company have grown to be a market leader. In 1999, the company offered Coca-Cola a minority stake (Fernandes & Stokes, 2009). Since then, the company continued expanding. In 2013, Coca-Cola took over the business with over 90% stake. The company is now under the control of Coca-Cola (The Guardian, 2013). Reasons for the growth of Innocent Drinks up to 2005 1.Creativity and innovation- since inception in 1999, the company focused on innovation. The company used cross-functional teams and meetings to enhance innovation model (Birkinshaw & Duke, 2013). The company used the following ways to enhance innovation (Innocent drinks, 2015). Employing entrepreneurs. Empowering employees Encouraging employees to give their ideas. 2. Innocent drinks ventured into the market through blue ocean strategy (Roth, 2014). This is through venturing into the healthy drink market that had few competitors. This enabled the company to thrive during early years. 3. Enhanced engagement with consumers the company used detailed and transparent communication (Innocent drinks, 2015). They shared with the employees the company status through meetings and encouraged feedback. This made it possible for the deep involvement of the employees. 4. Flat organisation structure- Innocent drinks utilised a flat organisation structure that enabled ease of interactions. The open floor plan made it possible to mix everyone including the management. Through this, employees became more innovative and gained deeper understanding of their roles (Innocent drinks, 2015). 5. The company utilised low cost and viral marketing techniques such as the use of the Jazz concerts (Innocent drinks, 2015). During this period, innocent drink grew at a fast pace. PORTER 5 forces Analysis Threats of New Entrants The threat of new entrants is moderate based on the country. The industry requires large capital investment and depends on economies of scale (Drinks, 2011). For new entrants they lack well-established distribution network. Another barrier is brand identification. New entrants require a lot of capital to market and advertise their brand. Market Rivalry There is a high intensity of rivalry. The industry is dominated by large industries making it hard for new entrants to compete and gain a market share. The companies in the industry are looking for differentiation technique to expand their share. Innocent drinks use non-price based strategy to compete (Drinks, 2011). Bargaining powers of the suppliers There is a high bargaining power of the suppliers. The market has few suppliers which affect the price of the supplies. Threat of substitutes Substitutes are a big threat to the industry. There are many companies manufacturing alternative drinks such as juice and fruit concentrates. To survive the threat, Innocent drinks products are differentiated and branded as high quality and healthy drinks (Drinks, 2011). Buyer’s powers There is high number of consumers in the healthy drink market. This has an impact on setting of the products prices. Most of the companies set prices based on existing demand and level of competition (Drinks, 2011). Swot Analysis Strengths The company is promoting a healthy lifestyle and uses natural product. This is a major strength due to the growing consumer awareness of healthy lifestyles. Innocent drinks have the major market share in UK. This gives them control of a large market segment. The company have been able to create a strong brand image in the healthy drink market. Through acquisition by Coca-Cola, the company have been able to increase their international market share (The Guardian, 2013). Weakness The company products have a short shelf life compared to substitutes such as juice and concentrates. Innocent Drinks products are positioned as premium. This makes them unaffordable to low income earners. The company move to sell the stake to Coca-Cola has received a lot of criticism (Fernandes & Stokes, 2009). This is due to the perception that the company will lose their principal values. Opportunities With Coca-Cola taking control, the company have higher chances of expanding to the global market. Innocent drinks can utilise Coca-Cola investment in advertising and distribution infrastructure to expand globally (Fernandes & Stokes, 2009). The global trend towards healthy lifestyle provides the company with an avenue to gain a larger market share. The company products are healthy and have a good reputation. The company can introduce more products into their line of healthy drinks. Threats The industry is becoming competitive with the entrant of new companies. Competitors have been selling their products at lower prices that are a major threat to the company whose products are position as premium. With the Coca-Cola taking control of the company, innocent drinks have been criticised by their loyal consumers. Consumers are not confident that Coca-Cola will maintain the brand healthy and ethical standards that may lead them to switch to competitors (Fernandes & Stokes, 2009). The Economic crisis may lead to a reduction in company sales. PESTEL Analysis Political Innocent drink operates in different countries. This exposes the company to different political systems. The company have to be observant on the political development in their areas of operation. Different governments have their rules and regulation that a business has to follow. The company have operations in European Union and have to be affected by their laws. With Coca-Cola buying a large stake in the company, Innocent drinks will expand to countries where they have no presence. This will lead to interaction with different government policies. Economic Global economy acts as a major determiner of the company performance. With the global economy, there is a reduction in sales by the company. The 2008 financial crisis led to a reduction of innocent drinks revenue. The company products are positioned as premium brands. This implies that they are only affordable to those in middle and upper classes in the economy. With the economy downturn, the consumer disposable income reduces. This makes consumers with lower incomes to switch to substitutes while the rest reduce spending. Social There has been an increase of consumer awareness on a healthy lifestyle. Customers are more willing to spend on healthy products. This has led to companies engaging in health food products to gain good reputation and more consumers. The society is more attracted to ethical companies with a proven track record of sustainable practices. Innocent Drinks has been engaging in a social campaign aimed at promoting health and helping the aged (Innocent drinks, 2015). Technology Innocent drinks have been utilising technology to manufacture their products. The company also uses technology to prove the content of their products. Through their website, the company enhance consumer relationship and promote their products (Innocent drinks, 2015). The internet has become an important channel for marketing and creating brand equity. Through internet, it is possible for a company to engage in e commerce and e business. Environment There has been an increase in concern for environment globally. Global warming and the pressure on organisations to reduce their carbon footprint have been raised worldwide. Innocent Drinks will have to face more pressure on the environment as they expand. The company have always been in the frontline to address the environmental issue. This is evidenced by their packaging that is made from recyclable material (Innocent drinks, 2015). The company have been working with fruit suppliers who are signatory to International Labour organisation. Legal The legal environment is dynamic. The company have to operate in a legal environment. This requires Innocent Drinks following set laws in the country of operation. Legal disputes are costly and lead to loss of revenue. There have been passing laws on taxation that have a great impact on business profits. How business strategy of the company changed from 2006 to the present day From 2006, the company changed their business strategies as competition increased. The company started a cause based campaign known as SuperGran which was based on Charity Age Concern. The campaign was able to generate a lot of revenue for the charity and help the organisation in enhancing their brand (Brown & Grayson, 2008). This was a major change from traditional marketing. In 2006, the campaign involved highlighting the plight of the old people through providing blankets, hot meals and room thermometers. The results of the camping were a high rise in the company sales. The campaign was a major contributor to the company brand equity and storytelling. Through the campaign, Innocent Drinks were able to benefit from enhanced brand awareness (Drinks, 2011). The company intensified their commitment to sustainability and responsible businesses. Innocent started the summer jazz festivals that were later replaced in 2007 by the by innocent Village fete. Through low-cost marketing events, Innocent drinks were able to gain media and public attention. The company engaged in new media to market and promoted their products (Fill, 2005). By 2008, the company marketing strategies had enabled it to sell two million Smoothies weekly. The company carried out trials to partner with McDonalds which was received with criticism (Drinks, 2011). The partnership with McDonalds was perceived by the consumers to erode the company values. The company was the first to use 100% recyclable packaging in 2007. In 2009, the company sold 20% equity stake to Coca-Cola. The complete takeover by Coca-Cola was concluded in 2013. At present, the company is fully controlled by Coca-Cola (The Guardian, 2013). Strategic reasons for Coca Cola to take finally control of 'Innocent Drinks.’ and key influences on decision-making processes by Coca-Cola. The strategy by Coca-Cola to finally take over is a great step for the company towards healthy drinks market. Coca-Cola has been under a lot of pressure to reduce sugar in their drinks (Harris, 2015). They have been accused of unhealthy soft drinks and have been facing a lot of criticism (Fernandes & Stokes, 2009). Acquisition of innocent drink is a major step towards making Coca-Cola more desirable in the health food market. The healthy drinks market has been growing at a fast rate which presents Coca-Cola with a great opportunity. The decision will give Coca-Cola access to the innocent Drink market share and an opportunity to expand it globally. The health trends in the developed market have been expanding to the developing countries market that provides a large opportunity for the company. Consumers are more concerned about the benefits of drinks. Innocent drinks have already created an image as a quality healthy drink (Innocent drinks, 2013). The decision by Innocent Drink founders to sell a stake to Coca-Cola is a positive move as it will allow the company to expand. Innocent Drink will benefit from the established distribution network by Coca-Cola (Innocent drinks, 2015). The company is set to benefit from Coca-Cola investment infrastructure. This is a strategic move that will enable innocent Drink products to enter into new markets. This presents the company with a great opportunity to expand their operations and product lines. Innocent drinks are set to benefit from economies of scale which may lead to a reduction in prices. Coca-Cola has the capability to increase company production leading to economies of scale (Rae, 2009). The first deal with Coca-Cola had been a major success making it possible for the founders to agree to the second sale of the stake. Coca-Cola has been a major supporter for Innocent Drink (Fernandes & Stokes, 2009). Conclusion The health drinks market has been expanding at a very fast rate. This is due to consumer trends towards healthy lifestyles. Innocent Drinks have a great future in the health drink industry. The takeover by Coca-Cola is a major turning point that will enable the company to expand their market reach globally. The company will benefit from Coca-Cola investment in marketing and distribution system. Innocent drinks have a strong brand equity that will have to be maintained. Coca-Cola will have to maintain the company reputation on quality healthy drinks. With Coca-Cola taking control of the companies, it is expected that economies of scale will make it possible to lower prices. The new business strategies will enable the company to expand its market share and retain their core values. References Birkinshaw, J., & Duke, L. 2013, “Employee‐Led Innovation.” Business Strategy Review, Vol.24, no.2, p.46-51. Brown, R., & Grayson, D. 2008, “innocent: Values and Value.” Journal of Business Ethics Education, Vol.5, no.1, p.171-192. Drinks, I. 2011, “Success Design Story of Innocent Drinks.” Design, Vol.2, p.31. Fernandes, K., & Stokes, C. 2009, “If Innocent Drinks sells a stake to Coca-Cola, will it harm the brand.” Marketing, Vol.253650, no.3, p.18. Fill, C. 2005, Marketing communications; engagement, strategies and practice. Harlow: Financial Times Prentice Hall. Harris, L. 2015, “Sugar consumption must be reduced throughout life.” British dental journal, Vol.218, no.4, p.215-215. Innocent drinks, 2015, Innocent -Smoothie makers, Innocent Drinks, Viewed 22nd April 2015 from, http://portal.ukwon.eu/innocent-smoothie-makers Innocent drinks, 2013, some news about our investors, innocent Drinks, Viewed 22nd April 2015 from, http://www.innocentdrinks.co.uk/us/our-investor Rae, D. 2009, “Entrepreneurship: too risky to let loose in a stormy climate?.” The International Journal of Entrepreneurship and Innovation, Vol.10, no.2, p.137- 147. Roth, S. 2014, “Booties, bounties, business models: a map to the next red oceans. International Journal of Entrepreneurship and Small Business,” Vol.22, no.4, p.439-448. Ruxton, C. H. S. 2008, “Smoothies: one portion or two?.” Nutrition Bulletin, Vol.33, no.2, p.129-132. The Guardian, 2013, Coca-Cola takes full control of Innocent, Viewed 21st April 2015 from, http://www.theguardian.com/business/2013/feb/22/coca-cola-full-control- innocent Read More