Marketing of Fresh Trading Ltd - Essay Example

Innocent Smoothies and Fresh Trading Ltd Fresh Trading Ltd is a new entrant to the juice market in UK. They are targeting a niche market on a particular segment of the market – the smoothies segment. This segment is described as pure juice but not produced from concentrate derivatives. The management team of the new company is confident that their products, Innocent Smoothies, have the competencies and the competitive advantage to enter the market, compete with existing players, and sustain growth. Distinctive Competencies The Fresh Trading Ltd is created by three young and aggressive entrepreneurs. The founders are Adam Balon, John Wright and Richard Reed. They also serve as the management team with specific roles and responsibilities. Adam Balon, 26, handles the sales functions of the company. He graduated with a degree in Economics and earned a place in Harvard MBA. He has worked as a marketing manager for Virgin Cola UK. His competencies include developing brand strategies, budget management and extensive experience in dealing with impulse and grocery multiples to drive listings. He has previous positions as brand manager, logistics and production planning in Virgin Cola. He has worked as a business analyst in the financial services and grocery retailing. John Wright, 25, manages the operations of the company. He graduated with a Masters in Manufacturing Engineering. He worked as a consultant at Bain & Company. His competencies include developing start up plans setting up new ventures, business cases with negotiating strategies to invest/dispose business units and heavy involvement in IT and recruitment operations. He has worked across different industries in manufacturing, financial services and media. Richard Reed runs the marketing functions of the company. He graduated with a degree in Geography. He has 4 years experience in the advertising industry. He served as an account director on BMP DDB Needham Marketing agency that handles the Volkswagen business account. His competencies include devising and implementing new marketing strategies to double the market share. He has intensive knowledge in macro-planning and retail communications that would exploit new services and new revenue streams to the agency. He has previously served as business director for BMP’s interactive marketing consultancy as well as director for new business. The core competency of Fresh Trading Ltd is centred on marketing and business strategy as derived from the experiences of the management team. Core competency is defined as the collective learning in the organisation. It is the thing that the company does well. It involves coordinating diverse operational skills and integrating multiple streams of technology. Core competence includes communication, involvement and a deep commitment to working across organisational boundaries. (Prahalad & Hamel, 1990) The core product of the company is Innocent Smoothies, a pure juice derived from fresh fruits and not from fruit concentrates. Smoothies are fruit drinks that are thicker than normal juices because of their high crushed and pulped fruit content. The growing popularity of outsourcing drives a company to identify its core competence. When companies were able to outsource almost any processes in their business, they need to know the sacred core of activities that only they could carry out. These activities are impossible for them to hand over to a third party. (Goddard, 1997) Fresh Trading outsources their business processes that are not their expertise and beyond their capability as a start up company. They outsource the company’s manufacturing and distribution operations in the first few years of their venture. Sustainable Competitive Advantage Creating competitive advantage will allow Innocent Smoothies to get ahead of competition and create a market position. Competitive advantage is defined as function of providing better buyer value more efficiently than competitors or performing activities at comparable cost but in innovative ways that command a premium price and create more buyer value. A firm gains competitive advantage when it is able to create value for its customers that surpass the cost of creating the merchandise. (Porter, Competitive Advantage, 1985, p. 3) Business firms progress and grow by being cheaper or by being different from industry competitors. There are two basic types of competitive advantage that a firm can centre its business strategy. These types are cost leadership and differentiation. Cost leadership strategy sets the objective of the company as the low-cost producer in the industry it operates. Differentiation strategy makes the firm unique and distinctive in its industry. It selects one or more attributes that buyers perceive as important and positions its products to meet those needs. Differentiation rewards the firm with a premium price. Innocent Smoothies can gain competitive advantage through a differentiation strategy. Fresh Trading Ltd can differentiate its product from competitors by being unique at something that is valuable to the consumers beyond offering a lower price. It is important that the company create uniqueness in its smoothies in order to charge a premium price and create brand recognition. It will allow the company to sell more of its smoothies at a given price and gain greater customer loyalty. Differentiation would lead to a superior product if the price premium will exceed the added costs of being distinctive. There are several sources where Fresh Trading Ltd must focus in order to gain sustainable competitive advantage through differentiation. One source is the procurement of raw materials. Raw materials greatly affect the market performance of the end product. The company should pay attention to the quality and purity of the ingredients and fruits for the smoothies. They can use a single type of fruit species that has excellent taste. Another source of differentiation is in their manufacturing activities. These activities can lay emphasis on product appearance and packaging, consistency of taste, and conformance to health standards. Fresh Trading Ltd can reinforce its differentiation of Innocent Smoothies by carefully choosing and controlling the sewing and blending conditions. The distribution system can be a source of competitive advantage by structuring the speed and consistency of deliveries. This can be achieved through unique vehicle scheduling, an efficient distribution system software, and special purpose vehicle for deliveries. Selective distribution through well-chosen outlets can bolster the Innocent Smoothies brand by creating status quo and importance. The sales and marketing activities have a great impact on differentiation. This will be made possible through a superior market and media research, high advertising quality, and smart sales force coverage. Personalised relationships with distributors, channels and buyers are effective methods of differentiation. Most extensive credit to channels or distributors can create business to business customer loyalty. Product quality, service quality and image quality provides a unique source of differentiation advantage. (Kim & Mauborgne, 2005) Innocent Smoothies must create all three areas of quality in order for it to demand a premium price from customers without a jeopardising the demand. One source of competitive advantage is in product brand or company reputation advantage. The brand name provides potential benefits to some of the customer. (Best, 1997, p. 97) It adds social status which is an intangible benefit and of great importance to some customers. The company must build a successful brand reputation to attract target customers. Image-sensitive consumers, who are less price-sensitive, are charmed and pleased with company’s reputation and status. With a great brand, every smoothies served to customers will create an invitation to have another. Consumer goods like Innocent Smoothies rely mostly on the brand image to attract customers. The relative impact of the brand or company reputation is greater than the impact of product quality in terms of commanding a premium price. Even in business to business markets, an advantage in brand or company reputation helps in supporting the price and margins. (Best, 1997, p. 160) The competitive market is greatly influenced by the status of the brand name or the assurance of a company. Inevitably, a strong brand enhances the product’s positive evaluation of quality, awareness, consistency. Target Market Analysis A business must create a strong market orientation. It must seek to understand customer needs and develop marketing strategies in response to those needs. The strategies should aim at attracting, satisfying and retaining target customers. (Best, 1997, p. 115) Fresh Trading Ltd can dominate the market through leadership in distribution, sales coverage, and marketing communications. They can control market access by creating marketing expertise. The company needs to develop a customized value proposition and positioning strategy to create and deliver value to customers in the market. If the target is the older people group, the value proposition would be the health benefits. If the targets are young adults, the value proposition would be the exceptional taste of the products. If the target is the high income group, the value proposition would be the high quality of the product using fresh, pure and quality ingredients. As part of their core competencies, the company can achieve market dominance in time. The target markets of Innocent Smoothies are urbanites at 22–45 years of age. These people are the ABC market where their earning is more than E 20,000. This segment accounted for 17% (966,000) of the Greater London population, and 12% (5.5 million) of the UK population. Their market entry location is London because of higher demand and viable demographics. AC Nielsen Retail Audit reported that the segmentation of the total market relevant to the Fresh Trading Ltd is as follows. Juice, water, sugar mixed 15% Pure juice from concentrate 38% Pure juice, not from concentrate 35% Pure juice, freshly squeezed 12% 100% The Innocent Smoothies would play a major part in the pure juice, not from concentrate market segment. The 1997 grocers sales of juice products in the UK were £92 million, of which London accounted for almost 37%. Overall, grocers accounted for approximately 45% of the juice market. These segments had grown at 20% for the past two years, and this growth would continue in the near future, driven by consumer concerns over healthy eating, the emergence of juice bars, and continuing innovation within the sector The smoothies segment is unique because it majors against more than three needs. It is indulgent but also has health benefits. It can provide energy or satisfy hunger but be non-fattening. The goal of market segmentation is to build around customer needs, unique lifestyles and use behaviours. The degree that a business can understand customer needs and can translate such needs into strategic action plans will dictate the degree that the business will succeed in attracting, satisfying and retaining customers. (Best, 1997, p. 136) Customer evaluation of the product is a function of personal involvement in the delivery and consumption process. Customers tend to evaluate service quality through personal comparison with what they expect against what they perceive and experience. Customers may acquire their expectations through explicit and implicit service promises, promotions and advertising, word of mouth or from their past experiences. (Zeithaml, Berry, & Parasuraman, 1993) Customer evaluations of the product mostly occur after the consumption process. The evaluations serve as a means of learning about the product, building experience and creating knowledge. The product is evaluated on the basis of fulfilment of pre-determined needs and the satisfaction of customer’s expectations. (Fleming & Asplund, 2007) Innocent Smoothies is made from fresh fruits. It would look and taste homemade to build customer appeal and bank on customer experience. The product would be positioned in the market as 100% good for the drinker. Innocent Smoothies brand would establish the product as pure and unadulterated. The quality of the closest competing product is not as good as consumers would make at home, nor as good as the smoothies one can buy in the USA. The product has a potential to compete as a new entrant in the market segment. Competitive Strategies Organisations have goals they wanted to achieve. Organisations develop strategies and employ implementing structures and organisational plans aimed at assuring that the company’s preferred means of achieving goals are in fact carried out and practiced. Developing a competitive strategy is developing a broad formula for how business operates and how it is going to compete. (Porter, 1980, p. xxvi) The management team must scan the environment to understand changes that may affect the organization’s strategy of market entry and the market demand. This is necessary to prepare the company from unwarranted problems and also grab potential opportunities. Capitalizing on this change and creating a business structure that is flexible that can respond to change and to entrepreneurial efforts is essential to the achievement of goals and remain competitive. (Abell & Hammond, 1979) Evaluation and pursuance of investments, innovations and opportunities should be given priority such as market investments and innovations. The management team should benchmark other organizations to learn the effective ways to manage sourcing, manufacturing, distribution and sales. Product Development Businesses with more products to sell have more ways to attract and satisfy customers. It can also create more selling opportunities for the sales force and channel partners. On the other hand, a business with few products will tend to be more market focused in order to be cost effective. As a new entrant in the smoothies market segment, Fresh Trading Ltd must remain cost effective. As an entry strategy, the company will consider focusing on a narrow line of products. Developments of new products are critical to the survival and growth of an entrepreneurial business. The long-run survival of a business is in many ways linked to the success of the product development effort. In order to grow, a company needs to develop new sources of cash flow which can be derived from sales of new products. (Best, 1997, p. 188) There are two approaches of product development – product-specific and process-specific. Product-specific approach involves specific questions regarding the merchandise and its characteristics that might be included in customer interviews. Process-specific approach focuses on the process the customer goes through before, during and after use of the product. (Best, 1997, p. 189) The development of Innocent Smoothies was done using the product-specific approach and underwent critical cross-functional interrelationships which ensure the product to meet customer demands as well as to create value that is superior to competing products. Inputs were gathered from customers, sales, marketing, distribution and competitors. The production of Smoothies will be outsourced on the first two years of operations where emphasis on quality, consistency and taste is controlled. Succeeding years will be produced in-house through a dedicated facility when the company has gained economies of scale and profitable market share. Branding Strategy The brand is considered as the DNA of the company. It defines who the company are and what makes it unique. It’s more than just the way the people behind the company behave and the way they communicate. The brand defines what the company stands for. (Sinha, 2007, p. 34) The company name Fresh Trading is derived from key benefits sought by target customers. The word “fresh” is a requirement of customers for their perishable consumer goods. The word “trading” entails that the company’s business function is in its trade. “Fresh Trading” are words that communicates to the consumers that the company is in the business of quality products and freshness. Words that guarantees consumer recall and loyalty. (Kotler, 1993) Fresh Trading also focuses the energy of the people in the company that freshness matters in the organisation. It helps the people work together and make decision-making clearer as the company’s name itself spells the core strategy. (Kotler, 1993) The brand name Innocent Smoothies is developed from a particular characteristic of the product. The word “innocent” demands purity and unadulterated product. The competitiveness of the product is based on its freshness, quality and purity. Innocent Smoothies communicates to the consumers that the product they are drinking has high concentration of crushed and pulp fruit content with less sugar and water as additives. It entails that the drink is healthy and not harmful, as a child’s innocence. Innocent Smoothies help the customers differentiate the products from the competitors. The product is positioned in the market as fresh, pure and healthy. It is ready to drink, refreshing and thirst quenching. It is non-fattening, an added requirement from health conscious consumers. Pricing Strategy As a market entry price, Innocent Smoothies are priced at par as the leading competitor, PJ, price their merchandise in the market. However, the cost of differentiation would demand a premium price in order to achieve the target gross margin of 40%. This is made possible by using 250ml bottles instead of 330ml bottles which are utilised by PJ. The quality and excellent taste of the product would create a positive reaction from consumers without creating bias on the quantity of the drink. Sales and Distribution Strategy Fresh Trading believed that there are different distribution channels available to market the product. These channels include the core retail sector and other non-traditional channels. The company aims to exploit the lack of focus on areas that are non-traditional. The core retail sector includes the grocers, impulse retail, cafes/sandwich bars. The non-traditional areas where competition is not visible include leisure outlets such as gyms and cinemas. The company can also exploit contract catering, hotels, bars and restaurants. Distribution operations will be outsourced to wholesalers. Inviting third party logistics and distribution would allow management to focus and concentrate on developing and sustaining customer and channel partner relationships. Initial sales strategy is to establish a depth in a narrow base to gain impactful brand presence. This strategy will build the brand and develop a loyal customer base. Channels where competitors such as PJ have stocks will be avoided in order to prevent a negative competitive reaction. The launching of the product would involve independent distribution channels such sandwich cafes, workplace, restaurants, gyms and bars. The target region for the launch is London. Initial sales force during the launch will be the three founders. Own van sales and small wholesalers will be utilised. After the successful launching of the product, the company will utilise the expertise of large wholesalers and distribution channels within two years of operation. Human Resource Initial manpower that required during the start up would be the three founders doing different jobs. Succeeding months would require additional manpower such that the company would employ an additional of two employees at the end of the year and eight employees at the end of two years. The target human resource for the company in order to operate effectively and efficiently is twenty-three people including the management team at the end of five years. Each of the three founders will hold equal interest and control over the company. Adam Balon will serve as Commercial and Financial Director and would manage twelve people. Richard Reed will serve as Marketing Director and would manage three people. John Wright will hold the position as Operations Director and would manage three people before the development of a dedicated production facility. Office personnel will include an executive assistant and a receptionist. Raising Capital The start up capital for Fresh Trading and the production of Innocent Smoothies will be raised from owner’s equity and an angel syndicate. The owner’s equity that would total to £45,000 will be used for the first four months of operation and launching of the product. A 1st round of equity will be utilised from an angel syndicate with an initial draft of £235,000. The angel syndicate is an active private investor who finances start-ups and buy-outs. Although the founders of Fresh Trading are young and inexperienced, the market research and the business plan are impressive and intellectual. The core competencies of the management team and the attractiveness of the market are the strengths of the company. After one year of operation, a 2nd round of equity and an overdraft will be employed for the sustainability of the operations. The 2nd round of equity plus a £100,000 overdraft will realise £400,000 funds necessary for growth and market expansion. When the company achieves profitability and liquidity, the management plans to develop a dedicated facility for production of Innocent Smoothies. This is forecasted after three years of operations. Funds will be raised through loans from a venture capitalist. The base case revenue for the sustainable operations of the Fresh Trading is £7,500,000 for the first five years forecasted. Maximum operating cash requirement is £580,000. The payback period will be 18 months. The base case scenario assumes that 10 bottles per outlet per day will be sold in 2,700 outlets serving 200,000 customers in a span of five years. The total volume will reach 9,625,000 bottles or 3,150,000 litres of Innocent Smoothies produced. The forecasted gross profit in five years is £2,890,000 achieving the 40% gross margin target, with an operating profit of £815,000. The expected net profit will be £555,000. The cumulative profit from year 1 to year 5 will be expected at £965,000. References Abell, D., & Hammond, J. (1979). Strategic Market Planning. New Jersey: Prentice Hall, Inc. Albright, C. S., Winston, W. L., & Zappe, C. (2006). 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