Business Plan for Bouncing Babies, a Baby Food Brand in the UK - Case Study Example

Business Plan for “Bouncing Babies”, a Baby Food Brand in the UK 2009 Introduction The baby food market consists mainly of baby cereals, baby snacks, bottled and canned baby food and others. The leading suppliers of baby food in the United Kingdom are global players, H.J Heinz and Company, Royal Numico and Hipp (researchandmarkets.com, 2006). In order to enter this market that is controlled by large global players, a new player needs to understand the macro and micro environment of the business carefully and design its marketing strategy accordingly. In this paper, I will design such a market entry strategy for Bouncing Babies, a brand of baby food to be launched by Freez-Wiz, a small but established manufacturer of frozen foods in the UK. As the company already has distribution channels through retailers like Co-op, Kwik-Save and Aldi, they can use the same retailers or tie-up with other supermarket chains. The product After a market survey, Freez-Wiz has decided to launch the brand, “Bouncing Babies”, an organic frozen baby food packed in 250 gm micro-safe, tamper-proof trays. There will be two ranges of the product – 1) for babies aged 4-10 months, 2) toddlers above 10 months. The product will be entirely natural, with no artificial ingredient. Besides, all products will be Halal in order to cater to the immigrant Muslim community. The packs will be divided in two counters so that the entire amount does not need to be heated at one go. To enter a new market and thereby evolve a winning strategy, the company needs to innovate a product. The diffusion of innovation was first theorized by Rogers (1962). He defined innovation as a product, service or idea perceived as new by the customer. The innovation is adopted on the basis of relative advantage, compatibility, observability, trialability and complexity. Bouncing Babies is an innovative product that incorporates organic and Halal qualities. These criteria provides relative advantage to the Asian Muslim consumers, compatibility to the dietary characteristics, observable in the convenience, trialiable on account of the cheap price and least complex as the product has a limited range. The Unique Selling Proposition (USP) of Bouncing Babies is the organic nature of the product that is produced without the use of pesticides. Since infants consume much more food per unit of weight than adults do, the presence of pesticides becomes a concern more for babies since it leads to a larger amount of toxic intake. A baby food manufacturer has to recognize the fact that it cannot reap profits by increasing volumes of sales, as a result of the unavoidable fact of birth rate decline, hence it has to focus on quality and product differentiation. It is estimated that the baby food market worldwide, including that in Britain, will remain stagnant over the next few years because the birth rate is on the decline yet there is a shift from processed to organic baby food. Although organic baby food in general is about 69 percent higher in costs, organic baby food sales increased globally by 60 percent over 2000 to 2005 (brandchannel, 2008). In 2007, organic food sales worldwide grew by 16 percent to $268 million while overall baby food sales grew by 3 percent to $3.7 billion (Nutrition Business Journal, 2008). The demand for organic food has been boosted by health consciousness of people and mothers want to give their babies natural and healthy food. This is the main attraction of the Bouncing Babies product. The UK organic baby food market is not as competitive as that in the US. The main players in this segment of baby food are Germany’s Hipp and UK’s Organix, Cow and Gate besides the other smaller UK players like Fresh Daisy, So Baby and Truuuly Scrumptuous (Branchannel, 2008, ethicalconsumer). Other baby food producers also have one or few organic products in their range. The other attraction of Bouncing Babies is its Halal range, targeted at Asian Muslim communities. Many Asian Muslim mothers avoid purchasing prepared baby food because of the lack of Halal products. Bouncing Babies has filled this gap. The government drive to delay solid food intake to above six months of age as breastfeeding till then is found to be a healthier option, Bouncing Babies products are offered to older infants. The macro Environment The PESTLE analysis provides a framework for studying the external business that is relevant to Freeze-Wiz. Political: This includes political stability of the country, the openness of the regulatory framework, freedom provided to business to take decisions and the government’s role in terms of bureaucratic hurdles, the influence of government policies on the demand and supply factors of the relevant industry. On the whole, UK has a favorable political environment for business. The UK government has a targeted health and anti-obesity program for children. The government has initiated an awareness program to educate people on healthy and natural diet (Greenway, 2008). Economic: This includes the rate of growth of the economy in absolute percentages as well as in relationship to world growth, the trade relations, income distribution, consumer spending, investments and infrastructure availability. The global economic recession has affected the UK economy and consumer spending has come down. This has had an adverse short term effect on consumer products like Bouncing Babies. Social: This includes the demographic patterns, consumption spending and saving habits in relation to the relevant industry. The UK demographic pattern is considered to be benign, with a fertility rate 1.7 to 1.8 percent since the 1970s and population growth not expected to reduce drastically because of continued immigration (Pierson and Castle, 2006). However, the population is ageing, with a median age of 42, which means that birth rate is low in comparison to population growth. Besides, teen pregnancy rate is higher than in the European Union, implying that there is a large dependence on welfare and low health consciousness. Technological: The level of technological growth in the relevant industry, the ease of acquisition of new technologies, innovations, research and development capabilities. UK has sufficient technological capabilities for producing and packaging frozen foods through mechanical and cryogenic methods, and for product safety and testing. Traditional areas of freezing include fruits and vegetables, meat, poultry, fish and shellfish for meals, snacks, cereals and bakery (Mallet, 1992). Legal: The speed of disposal of legal cases, ease of opening new industries, exit barriers, tax regime. The legal environment to new businesses is conducive in the UK. Ethical: Relevant codes of conduct with regard to production, supply promotions, research and development, use of inputs, effect on the environment. Since the 1990s, there has been a lot of criticism about supermarket in the UK, the main retailers of packaged food, regarding their pricing and competition strategy, particularly in regard to their relationship with the suppliers. Consumers’ Association claim that manufacturers’ products got a disadvantage in shelf display in the supermarkets in comparison to the latter’s own-label products; an OFT research paper found that the retail market in the United Kingdom lacked competition not only because of selling power of large producers but also because of the buying powers (Competition Commission,2000). The micro Environment According to Porter’s (1980) theory, a company has to decide on its winning strategies on the basis of the external macro environment and competition in the industry as defined by the five forces: 1) the threat of entry of new competitors (new entrants), 2) the threat of substitutes, 3) the bargaining power of buyers, 4) the bargaining power of suppliers and 5) the degree of rivalry between existing competitors. The business environment depends on the level of industry competition and the intensity of rivalry, which in turn depend on the threat of new entrants into the business and that of substitutes as well as how well the company can manage its buyers and suppliers. The intensity of rivalry between players also depends on the number and size of players, cost structure of the industry, level of product differentiation, customer-switching costs, level of aggression exhibited by players and exit barriers. The threat of new entrants raises the level of competition in the industry. The intensity of competition to a large extent depends on the threat of substitutes. The number of buyers for the product increases the opportunities for the company while its competitiveness vis-à-vis the suppliers of products determine the margins. In the baby food market in the UK, competition is intense as it is controlled by large global players. Entry barriers are high since existing players have entrenched distribution channels and large marketing budgets. These large players also have exclusive tie-ups with farmers and also import from low-cost centers overseas hence they can manufacture at lower costs. Therefore, Freez-Wiz has decided to target a niche customer base in order to drive revenues. The 3C’s model proposed by the Japanese marketing guru, Kenichi Ohmae, is based on the strategic triangle composed of the 3 C’s – 1) the corporation, 2) the customer and 3) the competition. In a customer-based strategy, the customer rather than shareholders is the main interest. In a corporation-based strategy, the focus is on the managerial organization through cost and operations efficiency. In a competition-based strategy, the main focus is on out-bidding the competition (Value-based Management). In terms of this model, Freeze-Wiz has adopted a customer-based strategy since it is a small company and needs to evolve a niche market targeting a segmented customer group rather than trying to meet the competition or evolving a large-scale operation-based approach. Proposed target customers The customer segments that will be targeted for Bouncing Babies are Asian working mothers in the age group of 20-30, with rising income levels and who are concerned with purchasing healthy food for their babies. A decade ago one in eight babies born in the UK was of a foreign-born mother, now the figure is one in four. The number of babies born to foreign-born mothers has increased by 64,000 over the 10 year, marking a 77 percent rise, the number of babies born to British mothers is down by 44,000. As a result, the overall birth rate is 26 percent. The high birth rate is the highest among the Indian community (a rise of 11,000) followed by African (8,000 more in 10 years) (Easton, 2008). Increasing number of Asian immigrant women are joining the workforce in the UK, reflecting cultural and social mobility (Rana et al, 1998). Place Consumer products reach the customer through distribution channels that may be of varied length. In case of direct marketing, there is no distribution channel since the producer targets the customer directly or through word of mouth. On the other hand, indirect distribution channels may have one or more intermediaries between the production and consumption points. A single-point distribution channel has a retailer of the manufacturer. A two-point distribution channel of a manufacturing company would have a wholesaler in addition to retailers and a three-point distribution channel would have a wholesaler, jobbers or brokers and retailers between the producer and the consumer. The choice of the distribution channel depends on a number of factors. The market environment is the most important determining factor for the distribution channel. In case of consumer products that are very specific, the producer may not be aware of the changing need patterns. In addition, it may not also be possible for factory outlets to reach all types of customers. Information regarding customer segmentation, requirement of product specifications reaches manufacturers faster than through direct marketing besides being able to reach a larger number of customers. For products like perishable commodities, for instance, a chain of wholesalers and retailers are essential while brokers may also mediate between the two intermediaries. Distribution channels may be intensive, selective or exclusive. Intensive distribution is used in case of products that are of small value and high turnover, for example baby food. For these products, higher turnover is essential for profit-making hence companies use an intensive distribution channel with numerous wholesalers and innumerable retailers. In most cases, the producer has no knowledge of the number of retailers and interacts only with the wholesalers. Selective distribution is used by producers when a limited number of retailers are used to sell the product and factory outlets supplement the retailers. These are applicable when a selective number of outlets are sufficient to sell the product and customers are prepared to shop around for the product. Examples are branded organic baby food for which customers do not demand doorstep retailers. Exclusive distribution is used by producers as a type of extreme selective distribution in which there is one wholesaler and retailer or distributor in a particular geographical area (referenceforbusiness). Bouncing Babies trays will be sold through a number of direct and indirect distribution channels including the supermarket chains in the UK. Nearly 40 percent of the supermarket competition is made up of the four major chains – Tesco, ASDA, Safeway and Sainsbury (Competition Commission, 2000). Besides, direct different channels of selling have emerged, like home delivery and electronic shopping. Gradually, Bouncing Babies trays will be offered through such channels as well as other in-site and off-site facilities like fish and meat counters, pharmacies and petrol stations. Price A penetration pricing strategy will be used for Bouncing Babies since it is a new product and the product needs to capture a reasonable market share. The price elasticity for organic baby food is high since demand is price sensitive. Although such a strategy will provide the company low margins as the pricing will be at the low end, it will act as an entry barrier for new entrants. The cost of production of a Bouncing Babies tray is 75 pence. The product will be priced at GBP 1.0 per tray giving the company a 25 pence margin. Promotion The main objective is to promote the product as a cheap, healthy and natural baby food product. Since it is being launched by a small, new company, it does not have a large marketing budget. Hence, it will use a judicious marketing mix consisting of online and print ads initially, and television commercial spots a little later. UK has 31 million internet users and is the leader in online advertising. So, with banner ads on health-related websites, particularly the UK ones, is the most cost-effective advertising strategy. Further, rather than advertising directly on the websites, it is planned that the company will join an UK-based advertising network that will place Bouncing Babies ads in niche sites (Guardian, 2007). In the Internet age, technology not only means that for manufacturing but also Information Technology, which is inherently localized in the linguistic, cultural and social idioms. To promote products on the internet, it inevitably involves adapting the marketing content on the websites to the local languages. Hence, an entirely industry of “globalization”, “internationalization” and “localization” has developed on the back of the standardized products (Richins). Internet has become a channel of communication, like television, radio or print advertising, hence the cultural attitude towards Internet consumption greatly affects marketing strategies (Hermeking). Since Bouncing Babies is targeted at niche customer segments, the language of the promotion should incorporate cultural nuances of this group. 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Rana, Baljit et al, British South Asian women managers and professionals: experiences of work and family, Women in Management Review, 1998, http://www.emeraldinsight.com/Insight/viewContentItem.do?contentType=Article&hdAction=lnkhtml&contentId=1412128 Value Based Management, The Strategic Triangle of 3Cs, http://www.valuebasedmanagement.net/methods_3C's.html Read More