Using the Blue Ocean Strategic Model - Essay Example

Strategic Marketing and Planning Table of Contents Table of Contents 2 Executive Summary 3 Introduction 4 Background 4 Methodology 7 Findings 8 Blue Ocean Strategic Model 11 Blue Ocean Fundamentals 12 Why Blue Ocean 13 Recommendation 17 Conclusion 17 Bibliography 19 Executive Summary The frozen yoghurt industry was a fast-growing industry during the last two decades of the twentieth century. However, the industry experienced slow growth during the late 1990s due to market saturation. This paper seeks to determine whether the industry is market oriented, as well as determine the viability of a frozen yogurt company in Saudi Arabia. According to the findings of the report, the industry is marketing oriented, and Saudi Arabia is a potential market for the company. Based on the findings of the report and the desert climate of Saudi Arabia, the frozen yogurt business may succeed. The strategy targets families with children between three years and twenty years, thus this is the target market for the company. Ideally, the company may bait them by offering punch cards and coupons upon a given number of purchases. Today, the most appropriate method of reaching the teenagers and youths is the social media. The company could attract customers to the company by offering coupons and other promotional gifts through their social media such as Twitter and Facebook. This will attract a loyal customer base as well create awareness on the company’s products and prices (Willy et al., 2011:150). In all stages of the strategy, the idea is to create value innovation and differentiation from the existing industry. The paper proposes a blue ocean-based campaign labeled “Froyo Goes Green”. The main objective of the campaign is to attract customer to the company through offering environmentally friendly products and services, including biodegradable consumables such as spoons, cups, and containers. Moreover, the company will provide unique flavors and toppings that are not available in other competing stores. Introduction Every business, regardless of the industry of operation, has a chance to fail or succeed. As with all other business ventures, a frozen yogurt business can prove profitable if run properly. Indeed, we live in an informed generation where people are conscious about their diet and health, thus constantly looking for healthier alternatives to their favorite foods and drinks. Conceptually, the traditional ice-cream corn is a favorite for many people, thus initiating a frozen yogurt venture at any time is essentially right. Nonetheless, a business owner must undertake a comprehensive research of the target market to ensure that their business ideas are viable. Depending on the marketing and organizational framework, a frozen yogurt may be either market oriented or sales oriented. This paper seeks to determine the orientation of the frozen yogurt industry in Saudi Arabia using illustrations to back the orientation. Additionally, the paper explores the strategies to improve the effectiveness of the company, with emphasis on improving the strategic planning process using the Blue Ocean Strategic model (Kim and Mauborgne, 2005:23). Background Saudi Arabia is among the fast-growing economies in the world. A significant portion of the country’s GDP comes from oil and gas, and the growing private sector. The climate in the country is desert-like, with average temperatures of 45o and highs of 50o. This climate creates a potential market for frozen desserts in the market. The company may tap this opportunity and provide the Saudi Arabians with healthy frozen yogurts to cool off their day. More than 50% of the Saudi Arabians earn incomes above $50,000, thus majority will afford a frozen yogurt dessert worth between $3 and $5. Saudi Arabia provides a promising business environment for organizations that focus on customer needs and demands, as well as those that observe the health regulation of the kingdom. The frozen yogurt market is not a new venture in Saudi Arabia: the industry has close to two decades history. Indeed, the industry recorded annual growth rate of 7% compounded between 2004 and 2009 (Weihirich and Cannice, 2010:125). Moreover, the industry is getting popular, particularly with the introduction of new flavors and toppings into the market. In the era of technological advancement and accessible media, the general population of the world is more aware of their diet and health, though they still poses a sweet tooth. Majority of people love the traditional ice cream dessert, but the latter is an unhealthy option. Frozen yogurt, a hybrid product of the healthier yogurt based product and traditional ice cream dessert, is a healthy and innovative way to ensure that customers have their cake, and enjoy it too. Despite the poor performance of the frozen yogurt industry in the late 1990s, it is making a comeback with new features, including different store setting, toppings, and flavors (Kootz, 2010:115). Subsequently, the industry is experiencing a blossoming frozen yogurt franchises that are far from the freezing point. The 1980s marked the initial first wave of success in the frozen yogurt industry. Over the subsequent decade, thousands of frozen yogurt franchises sprung literary in every mall plaza and street corner in America and other countries, dominating the frozen dessert market. After a decade of enormous success and frozen yogurt madness, however, the dominant frozen yogurt franchises like TCYB began loosing ground to competing coffee houses and ice cream shops. Statistics from the Agricultural Marketing Resource Center shows that retail sales for frozen yogurt experienced significant decline between 1998 and 2003, while the sales for ice cream grew by over 25%. Nevertheless, the introduction of new franchises such as the Fuzzy Peach, Pinkberry, Yogirtini, and Yogurtland blending innovative varieties of toppings and flavors, the industry is seemingly back on track and even more popular than the early days. The new breed of frozen yogurt franchises focuses on providing its diet-conscious customers with delicious yet diet-friendly products, providing more tart, lighter, and tangier frozen yogurt products. Contrary to the old franchises whose primary intention was to offer ice cream mimicry products, the current hybrid seek to go beyond the ordinary ice cream flavors. The franchises offer creative and innovative products such as green tea yogurts and cranny-raspberry (Willy et al., 2011:34). The trend is even affecting ice cream franchises such as Baskin-Robbins and Cold Stone Creamery, both of which are beginning to incorporate the concept of frozen yogurt into their business strategies. Today, customers do not merely focus on buying frozen yogurt, but also consider the “chill” store settings of these franchises. Drifting away from the traditional ice cream parlor setting, contemporary frozen yogurt stores incorporate live music performance, Wi-Fi, high-end furniture, and flat screen televisions. According to businesspeople in the industry, creating a meeting place, a point of relaxation and ambience appeals to the larger customer segment. Moreover, such an environment is an attraction spot for college students and teenagers, as well as business professionals seeking a casual atmosphere to converse with their clients. The best part is that the franchise owners may raise the prices of serving the yogurt and extra charges on toppings in such environments without affecting the rate of customer return. When considering opening a frozen yogurt franchise, there are plenty of varieties and treats for both customers and franchisees. Some specialize in soft-serve yogurt only, while others offer a variety of virtually everything (Weihirich and Cannice, 2010:109). Essentially, four types of frozen yogurt flavors that an entrepreneur may consider before determining the most suitable for their location, including soft-serve, hand-scooped, smoothies, and cakes and pies. Soft-serve yogurt is among the favorite flavors in the innovative and creative frozen yogurt product portfolio. These products are plainer and tarter than the hand-scooped flavors, allowing customers to enjoy them with various toppings without the overwhelming sweetness of yogurt. Hand-scooped yogurts are ideally a healthier alternative to the original ice cream concept, presenting the customer with an opportunity to sample the creative frozen yogurt varieties such as the strawberry colada cheesecake (Niciejewska and Dimitrov, 2009:36). The pies and cakes flavor is particularly suitable for customers who cannot decide between frozen yogurt and cake. The product is typically frozen yogurt with pies and cakes. This product suits holiday and birthday celebrations. Lastly, the smoothies are a response to the current health awareness among customers. The smoothies typically contain soft-serve yogurt with a blend of fresh juice and fruit. Methodology This research uses secondary data collection. A comprehensive analysis of previous research and literature on the industry is the foundation of the research. From the above analysis of the frozen yogurt flavors, the most significant advantage of the frozen desert industry is the room for innovation and versatility. Indeed, a customer may enjoy a unique experience every time they visit a frozen yogurt franchise. For instance, a frozen yogurt fanatic was part of the “Yogurtland Experiment” that tasted over 100 flavors of the 100 million possible combinations of the toppings and flavors from the company. The other advantage of the industry is that majority adapt the self-serve strategy, which reduces labor costs as compared to other real food businesses. Despite recent downward trend of the industry, the performance of the leading brands in the frozen yogurt industry shows that there is potential for long-term expansion. For example, the frozen yogurt Red Mango realized a $12 million profits and plan on expanding their stores to 550 new locations within five years. Moreover, Yogen Fruz, a Canadian franchise, recently diversified into several international markets, including Switzerland, Brazil, and Vietnam. According to experts in the industry, the frozen yogurt trend will most likely be long-term, without a possibility of new flavors and varieties fading out (Gilligan and Wilson, 2009:552). A report from the NRN shows a steady increase in the interest on probiotics, the microorganisms in yogurt that improve the digestive health and immune systems. In a 2009 report, the International Franchising Organization estimated that over 10,000 establishments would close shop that year. However, the industry would record a few percentage growth, which was a notable financial performance considering the financial crisis of 2009. The frozen yogurt market is highly saturated, but the industry still offers many opportunities for expansion to other less condensed locations or initiate new strategies that may appeal to a larger customer base. Indeed, numerous locations around the world are yet to discover the current frozen yogurt concept. However, the weather remains the most significant determinant of the most suitable location for establishing, though the first-mover marketing concept may provide an opportunity to acquire a considerable market share (Weihirich and Cannice, 2010:137). Moreover, frozen yogurt franchises perform well in areas near college campuses and health-conscious communities. Findings Considering the focus on consumer needs and market trends, we may conclusively argue that the frozen yogurt venture is marketing oriented. Marketing orientation of a business refers to the focus on customer needs and business need thereafter. Essentially, it is an acknowledgement that the main purpose of an organization is the satisfaction of customer needs, or an outward perspective. Integral to the marketing orientation of a business is the marketing philosophy, which means that the marketing in not just a business function but a way of conducting business. Analyzing the creativity and innovativeness of the contemporary frozen yogurt franchises and the numerous flavors present in the market today shows that the industry is becoming marketing oriented. The introduction of an ambient environment with Wi-Fi, live musical performance, and other catchy elements aims at attracting a larger customer base, as well as meeting the needs of the customer (Kim and Mauborgne, 2005:67). In earlier settings, business professionals did not have the opportunity to meet and discuss business with clients, but contemporary franchises offer such settings. In order to improve the effectiveness of the company, it is important to understand the principles on which to develop further the company as a customer oriented business. The starting point might be creating focus on customers. In other words, the business has to revolve around fulfilling and satisfying the needs of customers. Listening and understanding the customers is a cardinal principle, but most businesses forget this. Another important aspect for improving effectiveness of the company is to manage and measure customer expectations. The company may measure customer expectations through feedback, which depends on two-way communication. However, the measurement of customer expectations requires a good customer care program. In the frozen yogurt industry, the customers determine the quality. In other words, quality does not merely refer to the product, but the entire offer presented to the customer (Gilligan and Wilson, 2009:552). Another important aspect that may enhance the effectiveness of the company is building loyal customer base. However, this long-term strategy requires careful planning and implementation. Besides orientation, the company needs to emphasize of differentiation strategies, including offering a wider variety of flavors and toppings that competitors do not offer. Perhaps adding lynches and dragon fruit to the already existing selection of toppings would attract more customers. Moreover, the company could diversify and offer other products besides frozen yogurt: including sandwiches, donuts, hot dogs, and others. The idea is to try to differentiate the product portfolio of the company such that customers find the offers unique from other competitors. Furthermore, the setting concept is very important. Depending on the target market, the company may strategically decide to renovate the business environment and add other elements that attract customers, including adding a touch of ambience and professionalism to the setting (Willy et al., 2011:127). Consider a location near college campuses. The company may redesign the setting and create an atmosphere that suits college students, like provide free Wi-Fi services and music. Alternatively, the company may introduce delivery services. The idea here is that the business has to go out and get customers. Nice presentation, packaging, and overall ambience may do the trick. Another great idea would be to collaborate with girls clubs or little leagues and providing them with merchandise bearing the name and products offered by the company. Again, the coupon idea is great, but such may deny the business from creating a loyal customer base that purchases on normal prices. As earlier noted, the world is becoming more aware in terms of health and environmental conservation. With this in mind, the company should focus on designing products and other strategies that observe high health standards and conserve the environment. Perhaps practicing green business activities may emphasize the company’s commitment to environmental conservation, including the introduction of biodegradable spoons, napkins, and cups (Kootz, 2010:79). According to past research, the self-service concept by most frozen yogurt franchises tends to be more cost-effective than full service settings. Blue Ocean Strategic Model Alternatively, the company may adapt the Blue Ocean strategic model to improve the strategic planning practices and process of the company (fig1). Blue Ocean Strategy is marketing framework that presents entrepreneurs with a systematic approach to compete in uncontested market spaces and significantly make competition irrelevant. Blue Ocean approach challenges companies to break away from the intense competition in the red ocean by creating an uncontested market segment that makes competition irrelevant. Rather than dividing the shrinking, existing market, the strategy revolves around breaking away from competitors and focusing on the growing demand. According to the authors of the book, the only effective way to beat competition is to stop trying to outdo the competition. In the red ocean market, industry boundaries are widely accepted and defined, and the rules of competition are largely known (Jain and Haley, 2009:126). In blue oceans, however, competition is literary irrelevant as the rules of competitions are yet to be set. In other words, red oceans companies adapt competition as their benchmark, but blue ocean companies do not: they emphasize on making the competition irrelevant. Fig 1: Blue Ocean Cornerstones. Retrieved on June 2, 2012, from http://designforit.blogspot.com/2009_11_01_archive.html Blue Ocean Fundamentals Blue ocean strategy has four major cornerstones: value innovation, cost savings, buyer values, and over time. According to the book, value innovation seeks to make competition irrelevant by initiating a leap in value for the company and buyers, thus unlocking new and uncontested market spaces. The concept places emphasis on innovation and value. Essentially, value without innovation increases the focus on value creation, which is not sufficient to make the company stand out. On the other hand, innovation without value often become futuristic, market pioneering, or technology-driven, often surpasses what buyers are willing to buy. Therefore, it is important to distinguish between value innovation and technology innovation. In this sense, value innovation is a brand new way of executing and thinking strategy that creates a blue ocean and breaks away from competition. Most importantly, value creation defies value-cost trade-offs, a commonly accepted dogma of red oceans. Conventionally, a company may use higher costs to create greater value to customer or create relatively reasonable value at lower costs (Kim and Mauborgne, 2005:91). The strategy here is making a choice between low cost and differentiation. Contrary, the blue ocean strategy pursues low cost and differentiation at the same time. Table 1: Red versus Blue Ocean Strategy. Retrieved on June 2, 2012, from http://designforit.blogspot.com/2009_11_01_archive.html Why Blue Ocean Blue ocean companies achieve cost-saving measure by reducing and eliminating the industry competing factors (fig2. Consequently, the strategy enhances buyer value by creating and raising elements previously not offered in the industry. Lastly, the superior value generates high sales volumes that introduce the benefits of economies of scales, thus reducing costs and overtime significantly. The blue ocean strategy has six principles: reconstructing market boundaries, reaching beyond the existing demand, getting the strategic sequence right, focusing on the big picture rather than numbers, overcoming major organizational hurdles, and incorporating execution into the strategy. To create a new value curve, a company requires undertaking the four actions framework: reduce, create, increase, and eliminate. The company needs to reduce some factors below the industrial standards, create unique and new products never offered before in the industry, raise some factors above industrial standards, and eliminate some factors taken for granted by the industry. Based on the thinking model of Blue Ocean strategy, a frozen yogurt company in Saudi Arabia needs a unique position to differentiate itself in the market and increase customer loyalty and brand recognition. Therefore, the company needs to develop a “Froyo Goes Green” campaign (Niciejewska and Dimitrov, 2009:54). Fig 2: Value Innovation. Retrieved on June 2, 2012, from http://designforit.blogspot.com/2009_11_01_archive.html This campaign would essentially seek to establish the company as the first environmentally friendly frozen yogurt franchise in Saudi Arabia and still maintain a family-friendly setting for its customers. Generally, Saudi Arabians are conservatives, thus majority are environmentally conscious. This is evident from the strict government regulations concerning organic and locally sourced foods, and other environmental conservation projects around the region. According to a recent research on the industry, new environmentally friendly ventures may gain competitive advantage in the already saturated frozen yogurt industry. This is evident from success stories from other industries around Saudi Arabia that emphasize on promoting eco-friendly and sustainable uses and practices. The strategy recommends the company to target families with children with children between 3 to 20 years and household incomes of more than $50,000 (Willy et al., 2011:154). The target families are essentially family-oriented who enjoy carrying out activities together and environmentally conscious, such as keen in maintaining a low carbon footprint, active in recycling, and making purchasing decisions based on the environmental impacts of the products or services. To present the products of the company as environmentally conscious to the customers, the company may undertake several strategies, including using halogen lights in the company’s store to reduce electrical consumption and replacing serving materials and other consumables with environmentally friendly alternatives such as biodegradable napkins, spoons, and cups. Other strategies include practicing green activities to reduce the impact of the company on the environment, and liaising with other charitable organizations to initiate environment-oriented events. Perhaps the company may also join the environment-oriented charities such as the “One percent for the Planet”, a group of environmentally conscious organizations that donate one percent of their profits to environmental causes. The company may also develop penguin-specific yogurt flavors, such as the rock-hopper that contains almonds, caramel, vanilla frozen yogurt, and peanuts, and donate one percent of the realized profits to organizations that protect endangered species such as the World Wildlife Fund (Kootz, 2010:115). Before identifying a market for their stores, the company needs to carry out a market research on the frozen yogurt market. The company needs to assess their intended marketplace image, customer attitudes, competitive offerings, pricing strategies, brand positioning, and niche opportunities. Most importantly, the company needs to evaluate what message it wants to communicate to the target market, as well as the marketing strategies for the company. This includes the media of marketing, such as traditional marketing channels like broadcast, outdoor, and print, nontraditional channels like street and viral, and guerilla marketing, social media, online, editorial coverage, discounting, point-of-sale, and sampling. In accordance with blue ocean strategies, value innovation is a determinant of the success of a company. Therefore, the company should emphasize on providing unique products and prices, which will at the same time, provide decent profits (Gilligan and Wilson, 2009:552). Perhaps providing fresh and seasonal flavors and fruits, particularly locally grown fruits, will attract the Saudi Arabians. Moreover, customers will be willing to pay more for such products, thus the rate of customer returns will remain high. Unique fruit toppings not present in the market, including lynch, blood orange, mango, and others may provide the company with the right form of differentiation. Additionally, the company may try other flavored frozen yogurt flavors such as green tea, lavender, avocado, red bean, or rose. Since the business is marketing oriented, the company should strongly emphasize on the customer’s experience to the store. The environmental setting should be creative and fun, not just limited to the taste experience (Kim and Mauborgne, 2005:163). The whole package should reflect on customer needs, including the logo, utensils, containers, the presentation of the shop, and other business elements. The strategy proposes utilization of glass surfaces, crazy mosaic, wavy wall decor, acrylic interiors, and neutral colored terrazzo tiles, to resonate the cultural aspect of Saudi Arabia, as well as provides a backdrop environment with a contemporary and inviting feel (Niciejewska and Dimitrov, 2009:36). Recommendation Saudi Arabia has a desert climate, so the frozen yogurt business may succeed. The strategy targets families with children between three years and twenty years, thus this is the target market for the company. Ideally, the company may bait them by offering punch cards and coupons upon a given number of purchases. Today, the most appropriate method of reaching the teenagers and youths is the social media. The company could attract customers to the company by offering coupons and other promotional gifts through their social media such as Twitter and Facebook. This will attract a loyal customer base as well create awareness on the company’s products and prices (Willy et al., 2011:150). In all stages of the strategy, the idea is to create value innovation and differentiation from the existing industry. Conclusion Saudi Arabia is a warm region and frozen yogurt franchises highly saturate the frozen dessert market. Moreover, the country has a complex mixture of culture, but the majority of the population is Muslims. Many other factors pose as challenges to the establishment of a frozen yogurt company in the country (Jain and Haley, 2009:126). Nonetheless, the company may enter the market strategically and command a considerable market share. Many opportunities exist to establish and expand into the Saudi Arabia market, including introduction of new frozen yogurts flavors and toppings. Drawing from the principles and concepts of blue ocean strategy, the company needs to differentiate its products and services to stand out from the market. The cornerstone of blue ocean strategy is value innovation, the search for both customer value and innovation (Weihirich and Cannice, 2010:231). The major idea of blue ocean strategy is to employ tactics that ensure the company competes in uncontested market spaces, thus making competition insignificant and irrelevant. The paper proposes a blue ocean-based campaign labeled “Froyo Goes Green”. The main objective of the campaign is to attract customer to the company through offering environmentally friendly products and services, including biodegradable consumables such as spoons, cups, and containers. Moreover, the company will provide unique flavors and toppings that are not available in other competing stores. Bibliography Gilligan, C. and Wilson, R., 2009. Strategic Marketing Planning. New York: Elsevier Science. Jain, S. and Haley, G., 2009. Marketing Planning and Strategy. New York: Cengage Learning. Kim, C. and Mauborgne, R., 2005. Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant. Boston, MA: Harvard Business School Press. Kootz, H., 2010. Essential of Management. New Delhi: Tata McGraw Hill. Niciejewska, K. and Dimitrov, D., 2009. Blue Ocean Strategy: INSEAD School. Munich: Grin Verlag. Weihirich, H. and Cannice, M., 2010. Management: A Global and Entrepreneurial Perspective. New Delhi: Tata McGraw Hill. Willy, P. et al., 2011. Risk Navigation Strategies for Major Capital Projects: Beyond the Myth of Predictability. London: Springer. Read More