Mount Franklin Overview - Case Study Example

Marketing Plan – Mount Franklin Time Table: Corporate Profile…………………………………………………………………….2 Profile…………………………………………………………………….3 Product Profile………………………………………………………………………3 Market Profile……………………………………………………………………….4 Segment Profile……………………………………………………………………...6 Situation Analysis……………………………………………………………………6 External Market Analysis……………………………………………………………6 Pest Analysis…………………………………………………………………………8 External and Internal: Competitor Analysis………………………………………….9 SWOT Analysis……………………………………………………………………..12 Strategic Objectives and Issues………………………………………………….…..13 Strategic Objectives………………………………………………………………….14 Issues…………………………………………………………………………………14 Competitive Marketing Strategy………………………..……………………………15 Marketing Mix Tactics……………………………………………………………….15 Marketing Budget……………………………………………………………………..18 Implementation and Control Guidelines………………………………………………20 Implementation of Communication Tactics…………………………………………..21 Controlling and Monitoring Marketing Performance…………………………………22 Reviewing Financial Performance……………………………………………………23 Appendices……………………………………………………………………………25 Bibliography…………………………………………………………………………..28 Corporate Profile Coca Cola Amatil (CCA) is the major Coca Cola licensee in Australia. It is an established soft drink manufacturing company that produces many types of soft drinks in Australia. Coca Cola Amatil (CCA) has captured the 35% market of Water along with other products like Juice 1%, Sports 50% and CSD’s 60%. CCA has been running its production units of non-alcoholic beverages in other countries like New Zealand, Papua New Guinea, Fiji, South Korea and Indonesia. Its products’ list includes Coca Cola, Vanilla Coke, Diet coke, Sprite, Fanta, Lift, Powerade, Neverfail, Pump, Deep and Mount Franklin that has been in market since 1991. The company has been able to achieve a net profit of $145.4 million for the first half of the current year ending 30 June 2006. It is an increase of $0.2 million or 0.1% for the 1st half of the year. In Australia, the company faced price competition of high intensity due to overgrowing consumer demand for its product Coca Cola Zero. The company recorded an increase in beverage revenue of 8.3% on per unit case basis, which happened due to increase in price as well as growth in business. It is strengthening its beverage portfolio by improving in product packaging, supported by weighted marketing programs. Customer Profile Most of the customers of Mount Franklin are women. About one third of all bottled water is consumed by females between the ages of 12 and 29 years. The number of children, drinking bottled water is also increasing as carrying a bottle is easy and Mount Franklin is generally available in many stores such as convenience stores, food court, take away outlets, supermarkets and vending machines and places that are in easy reach of people whenever they feel thirsty. Children consume maximum water when participating in an activity followed by at work or at school and when taking meals. Females of 12 to 29 years of age group are more health conscious and prefer bottle water to sugary drinks. As brand Mount Franklin is a major selling brand out of the top five brands that have captured 80% of bottled water market, it is consumed in bulk quantities. Product Profile Mount Franklin is pure spring water, taken from below the ground from three different resources namely Mount Franklin, the Central Coast (NSW) and Perth in Western Australia. Mount Franklin – the company’s “sleeping giant” is premium spring water in the wide category of “Non-alcoholic Beverages & Brewed Soft Drinks”. It is available in Lightly Sparkling water and Mount Franklin still water in all sizes, from 600ml to 1 ltr family pack and 2 ltr. Picnic pack. Off late, Mount Franklin has been presented in slimmer PET designer bottles, which are easy to hold. Earlier, it was sold in a generic bottle. Mount Franklin is facing stiff competition not only from other bottled water manufacturing companies but other non-alcoholic beverages as well. But this has not hampered its pace of growth in any way due to some positive market features like ever-increasing demand in bottled water, prohibiting other players’ entry in this segment, suppliers’ weak position vis-à-vis CCA in price determination, customers’ choice and preference to bottled water over other beverages. Market Profile Bottled water market in Australia is huge. There are 1,000 brands – among them the top ones like Coca Cola Amatil and Schweppes have control on bottled water market along with boutique “rain farms” also in the line. The major players involved in this industry are Coca-Cola Amatil Limited (CCA), Cadbury Schweppes Australia Limited, Berri Limited and Golden Circle Limited. There has been volume growth of 3.4% with solid revenue growth of 6.4%, triggered by the successful launch of Coca-Cola Zero, Powerade Isotonic and the continued growth of water brands Mount Franklin and Pump. Figure 1: Market definition of beverage market in Australia Strong Taste Fruit Flavor Bitter taste Sweet taste Segment profile The market segment, Mount Franklin competes, is in 400 ml. - the smallest pack suitable for kids, 600 ml. – the most popular size available in many stores, 10* 600 ml. – the fridge pack, 1 ltr - for the whole family and 1.5 & 2 litres – for picnic, family meals etc. In bottled water segment, CCA possesses 14 manufacturing plants, 37 production lines, 14 warehouses, 75 Cross Dock Locations, approximately 390 Stock Keeping Units and work-force strength of 3408 employees. In bottled water segment, Mount Franklin along with Pump, has increased the company revenue by 15% Situation Analyses Coca-Cola Amatil (CCA) has delivered a net profit after tax for the first half-year of $145.4 million, representing an increase of $0.2 million or 0.1% on the comparative half-year. The a period of commodity driven cost increases, deteriorating economic conditions in Indonesia and EBIT decline was primarily driven by the performance of the Indonesian business. External: Market Analyses Porter’s Five Forces Analysis Rivalry among existing firms Major existing firms have captured more than 80% of the market share -- CCA being one of them. Basically, the industry is oligopoly, where many companies are trying hard to strengthen their position vis-à-vis local and multinational companies. Therefore, competition is very high. Barrier to entry Although there is no regulation that prevents a company from entering soft drink industry, barrier to entry remains significant. Brand awareness is crucial because there are little differences between each product in the market segment. It will be costly for new entrants to build brand awareness and product recognition that are necessary for survival in the industry. This will deter many potential entrants to the industry. Threat of substitute products Substitute products can threaten the consumer demand for the actual product. Although there are many substitutes available of bottled water but due to health reasons and latest trend, people prefer bottled water to soft drinks and other allied drinks. Bargaining power of buyers The main buyers of bottled water are supermarkets and convenience stores, which account for 56% and 34% of bottled water sold in 2003 respectively. The bargaining power of buyers is good in supermarkets like Coles and Woolwor and demand better prices but convenience stores, being small in size, lack bargaining power. Therefore, CCA could earn higher margin from sales to convenience stores. Bargaining power of suppliers Because of the simple reason that Mount Franklin uses the natural resources of spring water, suppliers’ bargaining power is minimal. Another important raw material used by Mount Franklin is plastic bottle. Since Coca-Cola Amatil Ltd. is the largest company in Australian soft drink industry; it has significant bargaining power over its suppliers. PEST Analysis Political/Legal All types of bottled water are required to meet the minimum standard set by the Food Standards Australia New Zealand (FSANZ) and Australasian Bottled Water Institute (Australasian Bottled Water Institute, 2004b). However, this should not pose a problem to Coca-Cola Amatil Ltd. given its expertise in manufacturing bottled drinks worldwide. Economic The Australian economy has been performing steadily in comparison to many developed countries. There is no scope of a downward trend in Australian economy in near future. Water being a necessity, its demand is relatively inelastic and unlikely to change significantly in the event of an economic downturn. Social/Cultural As more consumers are becoming aware of health issues, they prefer bottled water to sugary soft drinks. This increases the demand for bottled water, which grew by 20% in 2003 (Coca-Cola Amatil Ltd, 18 Feb 2004). Technological Australia has high quality water treatment plants and as a result, the tap water is safe for drinking. Many consumers choose to drink tap water instead of bottled water, unlike some countries where consumers drink bottled water because the tap water is considered unsuitable for consumption. External and Internal: Competitor Analysis The Australian bottled water industry has players of all ranks --the two big brands CCA and Peats Ridge Springs Parit Pty Ltd hold the industry with vast product portfolios covering most of the bottled water range. CCA is a market leader with 15% share of total off-trade volume sale in 2002, which was better than 2001, recording an increase in off-trade volume by 1.6% points. Internal Competitors Mount Franklin faces competition from its own allies – Deep Spring and Pump – CCA products. Deep Spring performed better by coming on number third position in 2002 from fourth position in 2001, leaving behind its competitor, Schweppes by 0.3% in 2002. Pump – a new brand of still water – was launched in 2000. It comes with a pop-top – good for drinking while running. Both Mount Franklin and Pump have shown volume growth around 15% in May 2006 with the launch of Powerade Isotonic recording volume growth of 28%. External Competitors There are three main external rivals namely Peats Ridge Springs, Cadbury Schweppes, and Frantelle. Peats Ridge Springs is the strongest external competitors of Mount Franklin, achieving second position among all the brands of bottled water. Schweppes is the second in line competitor of Mount Franklin. Cadbury Schweppes’ key brand -- Schweppes bottled water grew slowly between 2001 and 2002 reaching a volume share of 8.4% by 2002, but has bounced back and is in the sway. Frantelle was having top five highest volume shares in 2002 with 7.1% in Frantelle still bottled water. CCA has been in a strong position from 2005 to 2006. Table: 1 Financial Reporting by Business and Geographic Segments Beverage business Australia 30 June 2006 $M 1 July 2005 $M 30 June 2006 $M 1 July 2005 $M 30 June 2006 $M 1 July 2005 $M Beverage business Australia 1,105.8 1,039.3 9.0 6.8 1,114.8 1,046.1 Total CCA group 2,055.8 1,889.6 32.9 61.3 2,088.7 1,950.9 Earnings before interest,- -Tax and significant items Significant - -Items 3 Segment Result- -Earning before interest and tax Beverage business Australia 218.2 217.8 -- -- 218.2 217.8 Total beverage 245.3 267.5 (31.1) -- 214.2 267.5 Total CCA Group 251.2 267.4 (31.1) -- 220.1 267.4 Assets Liabilities Net Assets Beverage business Australia 1,901.9 1,868.8 320.5 328.1 1,581.4 1,540.7 Total beverage 3,753.4 3,606.3 624.2 639.9 3,129.2 2,966.4 Total CCA Group 5,384.6 4,768.4 3,957.9 3,496.0 1,426.7 1,272.4 SWOT Analysis Strengths Wide variety of packaging options e.g. new PET water packaging Ability to take advantage of economies of scale through existing soft-drink business Well known brand in Australia, good image and reputation Premium purification quality Customer orientation focus Quality processes and procedures Growing market share Promotion effectiveness Strong financial performance Strong distribution system Weaknesses (must be related with previous analysis) High standard regulation - Australasian Bottled Water Institute (ABWI) and The Food Standards Australia New Zealand (FSANZ) Export restriction e.g. high transport cost Growing competitive pressures Concern over cannibalizing other products owned by CCA Opportunities Acquiring overseas companies with attractive local brand power Launching new brand and flavor Enhancing its product differentiation such as flavored water and medical water (with healthy ingredients) New niche market of vitamin-enhanced water Increasing advertising to capitalize on concern over fitness and health Threats Increasing intensity of competition among industry rivals Pollution (environment) – which will require more investment on purifying systems and higher operating costs Slowdown in market growth – reaching a maturity level Many new entrants Consumers could switch from bottled water to flavored fruit juices or other sport drinks Strategic Objectives and Issues Given the degree of competition in the industry and the importance of Mount Franklin to the company’s performance, strategic objectives need to be first identified. Strategies and tactics can then be implemented to achieve the stated objectives. Strategic Objectives Increase and maintain customer retention Obtain leadership in all segments of bottled water market in term of demographic, lifestyle, and behavior usage Develop leading beverage brand with very strong value-added ties with consumers Maintain and enhance the brand image Expand to new market segment Improve the customer awareness of health benefits Position Mount Franklin as an alternative to drinking tap water Issues Several issues need to be considered carefully when deciding on the strategies and tactics to be used to achieve the stated objectives. They are the following: Cannibalization The company needs to be careful not to cannibalize other product lines. That is when growing the sales of Mount Franklin; it has to ensure that sales of other beverages are not adversely affected. A particular area of concern is the consumer preference for bottled water over soft drinks. Since Coca-Cola is one of the company’s major sources of revenues, careful attention needs to be paid to protect Coca-Cola brand while promoting Mount Franklin. Effect of negative publicity from overseas The negative publicity from Coca-Cola’s bottled water sold overseas could affect the sales of Mount Franklin in Australia. Consumers need to be assured that the water sources of Mount Franklin are natural, unlike bottled water sold in UK that is manufactured by purifying tap water with chemicals before filling it into bottles. (Wright, G., 2004) Competitive Marketing Strategy In order to achieve the mentioned objectives, the company needs to engage in both offensive and defensive marketing strategies. Offensive marketing strategies would be used to grow market share, customer purchases and market demand while defensive marketing strategies will be employed to protect Mount Franklin’s market leader position. Marketing Mix Tactics Product Tactics Product Quality The most important tactic, which CCA can use to satisfy its customers, is the product’s quality. As tap water is also used for drinking, and there is a rival product such as H2Go, CCA needs to concentrate on the quality of its product – Mount Franklin. The benefit of Mount Franklin, which CCA provides to customers, is the quality of still water. It means that customer can get healthy, full of life, fresh, clean water, which is Mount Franklin. Packaging Mount Franklin water is sealed in a recycled plastic bottle. Every bottle has a label that concisely displays the nutrition information, and expiry date. Mount Franklin is available in many sizes from 400 ml to 2-liter bottles. CCA uses its packaging tactic to impress upon the customers on the quality of water as if it is the Holy Grail provided in sealed bottles. Different sizes facilitate customers to purchase water according to their requirement. Design Quality alone is not sufficient enough to attract customers. Especially in a soft drink market, it is hard to identify the difference in quality of bottle water of each brand (SMH, 3 Jan 2004). They might choose a product, which belongs to a brand they are familiar with. Therefore, design of a bottle plays substantial role in winning customers’ loyalty that they attach to a familiar brand. That’s why CCA concentrates on the design because it promotes the image of the brand. Therefore, slim PET package with ripples across the surface and slim waistline is designed to present fashionable image of Mount Franklin. Pricing Tactics Value pricing CCA being the largest beverage company in Australia, its reputation in product’s quality can be used in pricing its product by applying value-pricing strategy. It means customers still want to buy the product even though it is more expensive than other brands in the market because they value quality. Quantity discount CCA offers discount to customers when they buy Mount Franklin in large volumes such as 10*600ml fridge pack. By following this strategy, CCA can get a larger sale volume. Distribution Tactics The key distribution tactics are as followed: Direct channel The company tries to find out such public places where it can put more vending machines and people find it easy to reach when they feel thirsty or whenever they want to drink water. Indirect channel Mount Franklin is available on the shelves in many stores such as supermarket, convenience stores and take away outlets. Mount Franklin has been made available in more retail outlets to get more customers. For example, Mount Franklin was released in the new lightly sparkling water exclusively for restaurants, cafes and hotels. Communication Tactics There are three integrated marketing communications strategies that Mount Franklin can use to communicate with customers, which are “Mass communication, In-Store communications and Word-of-mouth-influence.” Marketing Budget Forecast Sales Table 2: Market share forecast 2000 2001 2002 2003 2004 2005E 2006E 2007E Market share 10.40% 13.40% 15% 17.25% 19.84% 22.81% 26.24% 30.17% First of all, it was assumed that market share would increase by 15% from 2004 to 2007 since there was a 28.85% increase in market share from 2000 to 2001 and 11.94% increase from 2001 to 2002. In 2006, the sales of Mount Franklin will increase by 7% due to increased customer services, advertising and launch of new products. The forecast sale of this year will reach 62.24 million. The direct marketing expense will be increased from 30% to 31% of total revenue because of increased advertising expenses. EBITA will be $9.96 million. In 2007, the market share would reach to 30.17% of bottled water market. The forecast sale of the year would be $67.22 million and EBITA would reach to $10.08 million. Direct marketing expenses would increase to 32% of total revenue due to increased competition. The sales of bottled water will continue to grow throughout the forecast period. However, the rates of growth seen over the review period are likely to be lower because bottled water market is reaching its maturity stage and there is strong price competition among leading companies. Table 3: Profit and Loss Projection (2005 – 2007) 　 2005 　 2006 　 2007 million AU$ AU$ % 　 AU$ % 　 AU$ % Net Sales 58.17 100% 62.24 100% 67.22 100% Cost of Goods Sold 21.52 37% 22.41 36% 23.53 35% Selling Price Contribution 36.64 63% 39.83 64% 43.69 65% Direct Marketing Expense 17.45 30% 19.29 31% 21.51 32% Advertising 12.21 21% 13.69 22% 15.12 22.50% Sales Promotion 5.23 9% 5.60 9% 6.39 9.50% Marketing Contribution 19.19 33% 20.54 33% 22.18 33% Administrative 9.31 16% 10.58 17% 12.10 18% EBITA 9.89 17% 　 9.96 16% 　 10.08 15% Implementation and Control Guidelines Action Plan for Implementation Under this section, the focus is on putting the above-mentioned marketing strategies into action in order to achieve the desired objectives of the marketing plan. Mount Franklin needs to exercise care in selecting the means to achieve its goals. The allocation of different job duties and responsibilities and the required budget are showed in table 7. Reviews will be conducted and any necessary adjustments will be made to the action plan at the end of the allocated time frame. Table 4: Detailed Action Plan for a Channel Strategy Number Action Plan Responsibility Budget (A$) Time Frame 1 Product quality control Customer satisfaction Production manager: Pat 100,000 Monthly 2 Marketing Advertising & Events Sponsorship promotion Environmental campaign Brand & Advertising manager: Kirsty Khoo 500,000 3-month 3 New distribution Market segmentation Pricing analysis Marketing manager: Alex Yong 200,000 6-month 4 Customer loyalty & retention program Public Relations manager: Ja 200,000 3-month 5 Research & Development Competitors analysis R&D manager: Keng 400,000 6-month Implementation of Communication Tactics Advertising In order to implement its communication strategy, it is recommended that Mount Franklin utilizes advertisement through media such as television, radio, gazettes, magazines, web advertising, and sponsorships to introduce the healthy and sporty image, and objectives to the masses. Messages should emphasize on quality drinking water for healthier lifestyle. Environmental Campaign Over the past few years, society has become more environmental conscious and is beginning to understand the consequences of environmentally destructive activities. To achieve this end, CCA has maintained and deployed Environmental Management Systems (EMS) across the group. CCA’s EMS is based on an ISO14001 platform, which emphasizes continual improvement. Controlling and Monitoring Marketing Performance A market-based marketing strategy is designed to deliver customer satisfaction, manage customer retention and finally maximize shareholder value, which is the primary objective of Mount Franklin. The degree to which a marketing performance is successful will be first detected by market metrics (external measures) that track customer satisfaction, retention and perceptions of value. Each of market metrics has to reach an effective level of performance before financial metrics can be measured. They provide an early signal as to the progress of the market plan, and provide a signal as to which aspect of the market plan is not working. Marketing performance metrics include both process metrics and end-result metrics. The process market metrics are particularly important because they can detect early adverse changes in customer attitudes and perceptions. Conducting research With the aim of monitoring the present and future market potential and customer preferences, it is recommended that Mount Franklin implements a marketing research plan to measure the satisfaction rate of customers for the purpose of assessing consumer requirements, improving the quality of the product and maintaining the healthy brand image. Some interesting facts have come to the surface after one such research on market trend on certain set of consumers, done by CCA: Reviewing financial performance Financial performance metrics to be used are internal measures of performance such as gains in revenue, cash flow and ROI (Returns On Investment). Marketing expenses could be altered to ensure that the actual performance stays in line with the estimated figures. In addition, Finance Department will boast of an outstanding Sales Department that will take note of the forecasted sales projections and actual sales. This will help them detect the gaps between the forecasted and actual positions, and thus, take appropriate remedial action. Moreover, a review of quarterly sales figures provides an indication of the performance of the marketing plan against its objectives. Variance decomposition can be used to decompose differences between planned and actual performance into variance in market demand, market share, unit cost and marketing expenses. The discovery of negative variances and recognition of less obvious positive variances can enable a business to improve key weaknesses, and thereby improve market performance. As the result, financial performance metrics illustrate how every market strategy affects profits, assets and shareholder value. Therefore, they are also efficient ways to monitor market performance from a different angle. In order to control and monitor marketing performance, a market-based managed business should simultaneously evaluate the action plan set down in the marketing plan. However, Mount Franklin would need to observe and control its activities in order to achieve its mission and objectives. Continuous monitoring and review of the business would be essential to tap the existing and potential opportunities. This can be implemented on a weekly or monthly basis by each of the departments to see if the efforts are headed in the right direction to measure their rate of success. This will enable Mount Franklin to emerge triumphant and achieve the desired position in the Australian bottle water market. In conclusion, using different market and financial performance metrics, and then reviewing and updating the action plan, are the most efficient ways to monitor marketing performance. Appendices Bibliography: Works cited list http://www.ccamatil.com/EnvironmentalPolicy.asp http://www.ccamatil.com/files/1/Water%20Sales%20Soar.pdf http://www.activplant.com/cases_successes/coca_cola_amatil.pdf http://www.ccamatil.com/Australia.asp http://www.ccamatil.com/files/1/final%20Jun2006ASX%204d.pdf Executive Summary Coca Cola Amatil (CCA) is the major Coca Cola licensee in Australia. Out of a long list of non-alcoholic beverages in the bottled water segment, its product “Mount Franklin” is presently marching ahead of other market brands of bottled water but competition from other market brands has threatened its solid base. Current market circumstances have prevailed upon the need to prepare a marketing plan to help Mount Franklin remain in the leading position. Mount Franklin is facing stiff competition not only from other bottled water manufacturing companies but other non-alcoholic beverages as well. But this has not hampered its pace of growth in any way due to some positive market features like ever-increasing demand in bottled water, prohibiting other players’ entry in this segment, suppliers’ weak position vis-à-vis CCA in price determination, customers’ choice and preference to bottled water over other beverages. The implicit motive of this marketing plan is to boost the sales of Mount Franklin bottled water along with establishing and strengthening its brand image over other market competitors. To achieve this end, CCA has to pay attention to certain issues arising, which could block Mount Franklin sale growth chart, such as cannibalization of other CCA produced products and bad performance of company’s products in foreign markets. To achieve its objective of strengthening Mount Franklin bottled water brand image, it needs a marketing plan with a two-fold strategy – offensive as well as defensive. This marketing plan will increase the market share, earnings and EBITA of Mount Franklin bottled water. Read More