The Major Strategic Options Facing Yorkshire Tea - Case Study Example

Managing Organisational Strategy Contents Contents 2 Introduction 3 Identify the major strategic options facing Yorkshire Tea 4 PEST Analysis 4 Porter’s five forces analysis 7 Evaluate the major strategic options facing the organisation 10  Porters generic strategies 10 Perception Map 11 Ansoff Matrix 12 The Bowman’s strategy clock 14 Recommendation on the direction and method of strategic development 15 SAF Model 15 Conclusion 17 References 20 Introduction The Yorkshire Tea company was found in Yorkshire, England by two brothers Charles Edward Taylor and Llewellyn Edward Taylor. The company is one of the few companies in UK which operate on the unique selling proposition of British cultural heritage. Yorkshire Tea is a family tea and coffee manufacturing company in the country. It is a black tea blend that has been produced by the Bettys and Taylors family in Harrogate. The Yorkshire Tea uses a number of varieties of tea cultivated in Kenya, Sri Lanka and Assam. The tea grown in these regions are sourced and blended to create the different varieties of Yorkshire Tea. The major varieties of Yorkshire Tea are Original Yorkshire Tea, Yorkshire Gold which is the luxury blend of the company, Yorkshire Tea Hard Water, Yorkshire Seasonal and Decaffeinated Yorkshire Tea. The company has diversified the business by manufacturing different other products in the food and beverages sector like cakes, fruit loves and biscuits which are sold as complementary eating products along with the varieties of tea sold by the company. The heritage of Yorkshire Tea dates back to the early 1800s when Yorkshire Tea was set up as a tea importing company. The business was immensely successful in England and encouraged the owner Charles Edward Taylor to set up tea rooms in the spa towns in Harrogate and in Yorkshire dales. Betty’s tea rooms were the main competitors of Yorkshire Tea till 1962 when the chairman of Betty’s acquired Taylor’s tea rooms to create the new business of Betty’s and Taylor’s in Harrogate. Betty’s had the name in the tea rooms whereas the Taylor’s name was distinct in the beverages segment of the business. The success of Yorkshire Tea can be accredited to the talent of Charles Taylor in blending teas which he had acquired from his experience of work in a famous tea company in London. Charles Taylor used his expertise to blend tea to suit different regions which still remains as one of the critical success factors of Yorkshire Tea. Yorkshire tea was developed as the creation of a new blend to suit the water type of the regions in and around Yorkshire. The surroundings of Yorkshire inspired the blends and taste of Yorkshire Tea and the image of the company as well. The sourcing of tea from the main tea producing regions of the world and the assurance of a high quality are the major reasons behind the continued legacy and success of Yorkshire Tea. Yorkshire Tea has continued to be one of the best-selling heritage blends of tea in England competing effectively with major brands like Tetley and PG Tips. Also, the company has successfully expanded in some other countries outside the United Kingdom offering the taste of Yorkshire tea to almost 30 countries across the world. Identify the major strategic options facing Yorkshire Tea The identification of the strategic options and choice of the future strategic direction of the business requires an extensive level of strategic analysis and planning encompassing the analysis of the internal and external environments for the business. Therefore, in order to identify the major strategic options available to Yorkshire Tea, it is essential to analyse the external and internal environment of the organization, the key resources and capabilities available to the organization, the influence and expectations of the stakeholders, the assumptions and beliefs implemented and followed by the organization and an overall consideration and analysis of all the revenant factors affecting the strategic position and strategic decisions of the organization (Mintzberg, 1994, pp.22-30). PEST Analysis The external environment of the business can be analysed with the use of the PEST analysis to understand the political, environmental, technological and social forces affecting the business of Yorkshire Tea. Political factors: The political environment of UK is characterised by stability and stringent rules and regulations applicable to the beverages industry. The government of United Kingdom supports the commitment for fair trade activities for the foreign producers as well as the local consumers. This can be observed in the necessity of labelling the products with stamps of Fair-trade for the reference of the consumers. The observations of Fair-trade policies act as a major political aspect impacting the tea companies like Yorkshire tea operating in UK. The tea break law is a major law that has established the importance of tea as a beverage in the country. The importance of tea as main beverage in the UK has initiated the tea giving procedure in which tea is provided free of cost to the British people with the aim of motivating them to go to Millennium dome. Tea giving events are also used to increase cohesion among the British people during any political or social disruption in the country. The UK government focuses on encouraging and protecting the local producers in the tea industry. Thus the political environment is much suitable for the operations of Yorkshire Tea due to the encouragement of the government to promote tea as a healthy beverage. Economic Factors: The prices of tea bags in the market of UK have decreased considerably. The prices of tea bags are affected by a wide variety of factors ranging from the levels of import, exports to the fluctuations in currency values. However the demand for tea remains high in all seasons in United Kingdom which has made it possible for companies operating in the premium segment like Yorkshire Tea to maintain their high prices accredited to the superior quality of the tea bags and tea blends. The economy of United Kingdom is recovering quickly from the effects of the financial crisis of 2008 and the economy is expected to become stronger in the coming years. The gross domestic product of United Kingdom is expected to increase as is the purchasing power, domestic consumption levels and the disposable income of the people in the country. Social Factors: Tea is the second most popular beverage across the globe after water. The global consumption of tea is 800 million cups in a single day. Since the per capita share of United Kingdom on a daily basis is highest in the world, it can be estimated that the tea market in United Kingdom is one of the most valued in the world. The tea market in United Kingdom has a value of more than half a billion and the everyday consumption of tea is 160 million cups in this market alone. Tea drinking is perceived as a representation of the British culture and also as a way of deriving health benefits which makes the demand and consumption levels of tea very high in United Kingdom. The country maintains a culture of café society which makes the tea rooms and different blends of tea highly demanded. The growth of the tea market in the country is on an average more than 7% per year. Therefore, the social factors of United Kingdom are much favourable for the business of Yorkshire Tea. Technological factors: The agricultural production in United Kingdom encompasses the use of highly atomized and efficient technological standards and processes. United Kingdom is an economy that maintains the agricultural production level despite its shift towards the industrial and service based sectors. However tea is not one of the major agricultural outputs in the country because tea is majorly sourced from other main tea producing countries, especially from the Asian region. But the companies are able to reproduce tea in different varieties and textures in the United Kingdom market. The production and sale of tea blends are supported by the technological advancements and the production efficiency available in the developed market of the country. United Kingdom is the one of the leading countries in the world which use technically advanced equipment in the agricultural sector which helps in the production of safe and high quality harvests. The use of high end technological equipment is a major factor that influences the growth and success of the tea blend companies in the country (Bowonder, Dambal, Kumar and Shirodkar, 2010, pp.19-20). Therefore, Yorkshire Tea has been able to use technically efficient production methods and standards to produce superior quality blends for the British customers. Porter’s five forces analysis Porters’ five forces model is another important model that is used to understand the strategic position and the competitive position of Yorkshire Tea in the UK market and the global market as well. Bargaining power of buyers: The bargaining power of buyers in the UK market with respect to Yorkshire Tea is medium. This is because the consumers in UK are much inclined to prefer Yorkshire Tea blends over other companies due to the wide variety of tea blends and the promised quality of the tea blends produced by Yorkshire Tea. The effective sourcing of the tea from other tea cultivating countries in Asia makes the image of the company stronger in terms of quality and standard. The buyers in the UK market would prefer to buy Yorkshire tea blends because of the cultural factors associated with the company and because of the long term positive brand image established by the company. Also, the buyers have few options to buy authentic tea blend sin the country. Yorkshire Tea is the easy choice in this respect because the company is one of the few traditional the companies in the market and is run by the reputed family of Taylors in Harrogate (Kapferer, 2008, p.150). The domestic feel of the company acts as a major influencer for the buyers who want the British taste in their tea blends. Bargaining power of suppliers: The bargaining power of suppliers for Yorkshire tea is low to medium. This is because the company is an old business which has already established a secured network of suppliers in major tea producing countries like Kenya, India and Rwanda. The company pays special attention to maintain a robust base of suppliers by creating supplier satisfaction. Also, Yorkshire Tea focuses on corporate social responsibility activities which make the company a highly reputed and reliable business which the suppliers prefer to work with. The socially responsible activities like protection of rain forests in the tea producing regions make Yorkshire Tea a preferred and popular company among the suppliers of tea from different regions of the world. Few companies’ source tea in such large volumes from the tea producing countries and the sourcing of tea is an important financial contributor to the suppliers in this country. This makes the barraging power of the suppliers low for Yorkshire Tea. Threat of new entrants: The threat of new entrants in the tea market is low. This is because there are some major players in the market which have captured the chunk of market shares in the country. Most established tea companies, especially the heritage tea companies have their loyal base of customers who are not likely to switch brands easily. Also, establishing a business in the already concentrated British tea market would be difficult because the market penetration would take a lot of time and effort. The threat of new entrants is also low for Yorkshire Tea because the blends of Yorkshire Tea are produced based on knowledge and expertise that runs as a legacy in the business and is difficult to replicate by new companies. Threat of substitutes: The threat of substitutes is low to medium for Yorkshire Tea. This is because till date there are very less products that can be considered as the substitute products of tea. Most people are in the habit of drinking tea as a part of their daily routine. Also, the weather conditions in UK are very much favourable for tea drinking. Tea drinking is observed as a custom among the British people and therefore, tea is used as the most common drink in the households of UK. However, other beverages like coffee, hot chocolate and cold drinks can act as a substitute product for tea to a minor extent. Threat of competitive rivalry: The threat of competitive rivalry for Yorkshire Tea is medium. This is because Yorkshire Tea is in the high value- high price gradient of the tea market. Very few tea merchants can compete with Yorkshire Tea in this segment. Though the threat of rivalry in the general tea market in high, yet the exact competition for Yorkshire the is low because only a handful of companies like Elm stock Tea, Twinning’s Tea and Madura Tea operate on the high quality-high price market gradient of the tea industry United kingdom. Therefore, it can be identified that Yorkshire Tea operates in a successful strategic and competitive position in the current situation. The company has successfully moved into few other countries and also diversified their product portfolio into other categories of goods like collectibles and eatable items. Therefore the company may consider expanding the business into new and potential markets in order to improve the profitability and market share of Yorkshire Tea (Steinhilber, 2013, pp.512-514). Also, the company may choose to diversify the business into other categories of items like other beverages and food items. However, an excessive level of diversification may lead to the dilution of the brand perception among the minds of the consumers. So in order to increase the profitability of the business while maintaining the authentic and heritage image of the brand, the expansion of the business would be a much preferred choice as compared to diversification of the product portfolio. Evaluate the major strategic options facing the organisation  Porters generic strategies (Source: Cole, 2003, p.178). The porter’s generic strategies can be used to evaluate the strategic options available to Yorkshire Tea. The Porter’s generic strategies are cost leadership strategy, differentiation strategy and focus strategy. The cost leadership strategy is used by companies to win customers by appealing to the price sensitive segment of the market. The differentiation strategy is used by companies who have an identifiable unique selling proposition. This strategy is applicable in markets which are saturated and competitive and where the customers have specific need towards the products offered by the company (Sadler, 2003, p.60). The focus strategy is used by segregating the market into different segments and focusing on a specific target group to market the products. Yorkshire Tea uses the differentiation strategy in the business (Engel, Warshaw and Kinnera, 2000, pp.212). This is because the tea consuming customers in the United Kingdom show much preference towards an authentic British blend of tea. Yorkshire Tea differentiates its blends form other competing companies on the basis of the local feel and taste of the tea blends and the British image of the company which appeal to the British people to a high extent. Tea drinking is an essential custom and part of the British culture (Stephenson and Bradley, 2009, p.14). Yorkshire Tea focuses on differentiation of the brand on the basis of this mental perception of the customers in England and sells the tea blends and other associated products like fruit loves, biscuits, cakes and a wide variety of traditional collectable like tea pots and tea cushions by capitalizing on the traditional eel of the brand and the orientation of the customers towards a heritage company. Yorkshire seems to know the tastes and preferences of the British consumers’ very well which is reflected in the tea blends as well as the traditional styles of promotion that appeals to the cultural factors among the consumers of Yorkshire Tea products. Perception Map (Source: Morden, 2007, p.512) The Yorkshire Tea blend is positioned at the high quality and high price position of the perceptual map (Czinkot and Ronakainen, 2007, p.56). The company is unique in terms of maintaining the British heritage of tea drinking and in sourcing tea from different tea producing regions across the world. Yorkshire Tea is one of the few companies in UK which are run by authentic British companies. This makes Yorkshire Tea a favourite among the British people who like to have the regional authentic British style of tea. Thus, the company is positioned as a premium quality product in UK. The main differentiation of Yorkshire Tea from the competing companies in the industry like Tetley, Lipton, Twinning’s and Elm stock is that the tea flavours of these companies may appeal to customers in all regions of the world due to their customization but the tea blends of Yorkshire tea are unique and true British heritage oriented (Proctor, 2014, p.35). Ansoff Matrix (Source: Bradley, 1999, p.116) The Ansoff matrix can be used to evaluate the current strategic position of Yorkshire Tea and to identify the future strategic direction and options available for the business. The Ansoff matrix will be used here to evaluate the risks of the strategic options for the company with respect to the different market gradients and positions. There may be four strategic options available for a company to grow the business. These include market development and market penetration with respect to market oriented strategic decision and product development and diversification with respect to product based strategic decisions (Doole and Lowe, 2001, pp.168-170). Market development is done in new markets with existing products, market penetration is done for existing market existing products, diversification is done in new markets with new products and product devolvement is done in existing markets with new products. Clearly market development would be the best choice for Yorkshire Tea for the strategic growth of the company. Since the product portfolio of Yorkshire Tea is a premium established product range, a modification in the product categories may cause dilution of the product based image of the company. Therefore product development strategy would not be suitable for the growth of Yorkshire Tea. Similarly market penetration by Yorkshire tea is not a feasible strategic option. This is because Yorkshire Tea is an old company which has already established the brand in the UK market to the highest possible extent. The company has already penetrated the existing market with its range of products and has established an enviable base of customers in the tea market. The tea blends of Yorkshire are the unique selling propositions for the company. Therefore, the diversification of the product range in the new markets would not be a feasible option for the company as well. However, market development can be identified as a suitable option for the strategic growth of Yorkshire Tea. The company can enter new markets with its existing range of products. There are many countries in e world where the new blends of tea with the feel of British heritage will be eagerly accepted by the consumers. The positioning of the wide range of tea blends produced by the expertise of the company may be done in a favorable manner for Yorkshire Tea which will help it to gain access to new developing markets as well as increase the profitability, market share and customer base for the business. The Bowman’s strategy clock (Source: Carlopio, 2010, p.70) The Bowman’s Strategy clock can be used to further evaluate the strategic options available to Yorkshire Tea. Similar to the strategy identified in the Porter’s Generic framework, Yorkshire Tea should use the differentiation strategy which it has been using in the business. The differentiation of the products is a major driver of the success of Yorkshire Tea. The unique tea blends and the medium to high prices of the tea blends give the customers the feel and taste of high value tea that can be associated with the British heritage and legacy. The main appeal of Yorkshire Tea blends lie in the unique composition of the blends, the use of effective sourcing of high quality tea from the main tea producing countries and the heritage brand image which represents the British culture effectively (Cateora and Graham, 2004, p.180). Therefore, the customers who want to savor a truly British drink find Yorkshire Tea the most suitable choice. Lowering the prices of the tea blends is not a feasible option for Yorkshire Tea because the premium value attached to the tea blends is a unique proposition for the company. The brand image of Yorkshire tea is such that reducing the prices may have a boomerang effect on the company as the customers may feel that the authenticity and quality of the tea blends have been compromised with. The Yorkshire Tea is in the differentiation position according to the Bowman’s Strategy clock and the company should continue in the same strategic direction for maintaining the success of the business in new markets as well (Croslin, 2010, p.88). Recommendation on the direction and method of strategic development SAF Model The Suitability, Acceptability and Feasibility model of Johnson and Scholes is used to analyse the success of the future strategic directions of Yorkshire tea. It can be identified from the external and internal analysis of Yorkshire Tea that the expansion of the business into new regions and markets is a suitable and feasible choice for Yorkshire tea. Not only does the company have an established business image but also the company has a high legacy factor and resource availability to move into new countries where the demand for British tea can be found. The suitability of the strategic choice of entering into new potential markets is based on the fact that the demand levels are maintained at a high level and are expected to increase in different countries (Schuster and Copekand, 2002, p.90). The recognized health benefits of tea, the habits of drinking tea as a main beverage and the inclination of tea drinkers towards new blends and flee of tea are major factors that indicate at the suitability of the strategic choice of Yorkshire tea of moving into new markets. Market development is the most feasible option for Yorkshire tea as the company should not ideally modify its products range or diversify extensively. Instead the company can taste success through market development in which it will enter new potential regions for capturing tea drinkers and tea buyers through the launch of their existing unique and wide range of tea blends in these potential regions. The acceptability of the strategic choice of Yorkshire Tea to create market development by eyeing new countries with the existing product portfolio of tea blends can be support for the financial as well as stakeholder perspectives of the business (Hennessey, 2004, p.54). The strategic choice of Yorkshire Tea is not majorly influenced by the shareholders as it is a family run business. Therefore, any choice of strategic direction made by the company would undoubtedly have the acceptance of the owners of the business because they are the main decision makers for the company. The financial and operational perspectives of Yorkshire Tea are good as the company is a long established business with a fair share of the tea market and an existing base of customers in the market of United Kingdom. Yorkshire Tea has continued to exist in the UK market with aplomb and profitability while maintaining a highly renowned brand image. Even in case the company does not succeed in market development in other countries for any reason, it would already have the home market business to rely onto. However, the successful market development plans carried our earlier by Yorkshire Tea in few other countries indicate that it is most likely for Yorkshire Tea to succeed in future market development plans as well. But the company should carefully implement a strategic plan to implement the chosen strategic options in the practical scenario of business. Yorkshire Tea should try to maintain the uniqueness of its tea blends and the efficient and reliable sourcing of high quality tea from other countries to continue offering their tea blends to the existing markets in United Kingdom as well as to other markets in which it enters into. The strategic planning should involve the evaluation of all the possible advantages and disadvantages of the strategic decision of entering new countries (Carter, 2003, pp.80). Also, the most suitable regions should be chosen to ensure the success of Yorkshire Tea in its market development process. The packaging, promotion and the product offerings of Yorkshire Tea appeals to the idealistic feel of England for the consumers. The old country feel of the brand and product offerings is the main success factor and unique selling proposition for Yorkshire Tea. Therefore, Yorkshire Tea should continue to maintain this feel of the tea products and collectibles to continue appealing to the old country and cultural feel of the customers (Johnston and Bate, 2003, p.114). The taste and feel of British heritage and old country is likely to continue appealing to the customers and can also be useful in entering into new regions by capitalizing on the same factor. Conclusion Yorkshire Tea is an already established name in the tea market of United Kingdom. The company has successfully penetrated the UK tea market and established a strong base of loyal customers in the country. The established success of the company can be accredited to the local British feel of the company, the effective sourcing abilities, the maintenance of high quality in the sourcing and blending of tea as well as to the appeal of the cultural factor guiding customer behaviour and the choice of customers for tea drinking. Apart from these factors, the socially responsible images of the company and the effective marketing and promotional campaigns used by the company have contributed to the strategic and competitive growth of Yorkshire Tea. The tea of Yorkshire gives a familiar and comforting feeling to the customers that are critical for tapping in the emotional aspects of the consumers who miss the old country and homes of England. The main differentiation of Yorkshire Tea lies in the maintenance of its down to earth image and the integration of the homely feeling and cultural aspects in their tea blends and collectible products. Also, the fact that Yorkshire Tea is run by one of the oldest families in Yorkshire has created assurance and reliability for the brand in the minds of the consumers. The customers attach reliability and heritage with Yorkshire Tea which may help to drive the success and sales of the Yorkshire Tea blends in other countries also. The customers in other countries, who would like to drink authentic British Tea with the old country feel, especially the British people residing there would be much interested to try out Yorkshire Tea would comprise the main market for Yorkshire Tea blends. Yorkshire Tea has been established as a brand for the tea drinkers in England. It may also capture the attention of the tea drinkers across other countries of the world. Yorkshire Tea is a grounded, down to earth brand and is associated the British authenticity and English tea. This is a major differentiation of the brand which has enabled it to have a competitive position over other companies like Elm stock, Twinning’s, Lipton and Tetley in the UK market. This factor would help the company to compete effectively and create a unique position for itself in other countries as well. The catch line of the company “Let’s have a proper brew” mirrors the objective of Yorkshire Tea to provide a good tea brew for the people of England and other countries as well. Yorkshire Tea has remained true to its origin and creates learning for every heritage based company in both the development of concepts and the execution of these concepts in the business practices. The vision of the owner of Yorkshire Tea, Charles Edward Taylor was to bring the authentic taste of the countryside of Yorkshire to the rest of the people in United Kingdom. The vision of the entrepreneur has been completely attained. Now the company may continue to extend this vision by bringing the taste of Yorkshire to the rest of the countries in the globe as well. References Bowonder, B., Dambal, A., Kumar, S. & Shirodkar, A. 2010. Innovation Strategies for Creating Competitive Advantage. Research Technology Management. Vol. 14(1), pp. 19-20. Bradley, F. 1999. International Marketing Strategy, 3rd Ed. 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