The Most Effective Tools of Performing the Industry - Assignment Example

?Introduction Strategic management as a process requires a holistic approach underlying the overall organizational context within which organization works. The external as well as internal environment of the organization not only affects the organization but also directs the overall outcome of the actions taken by an organization over the period of time. A careful analysis of the internal as well as external environment of an organization is therefore considered as of strategic importance in order to ensure that firm develops the required resources and competencies to withstand the challenges posed by the environment. Smirnoff is a brand of Vodka used in UK and is own and operated by British Company Diageo however, it has its roots in Moscow Russia. Smirnoff is now distributed in well over 130 countries with a network which is expanding and catering to the needs of different customers all over the world. Being an alcoholic drink, the overall external environment for this brand is relatively challenging considering the fact that many countries have banner alcoholic drinking. Issues like the underage selling, drunk driving and other strategic issues are considered as of significant importance. This is because these issues can actually affect the overall demand of the product. This report will look into the target market, value given by the company to its target market, a closer analysis of the internal as well as external environment including analysis of the industry as well as competition. This report will also look into the SWOT analysis of the firm to unearth strategic issues faced by the firm and what strategic options could be exercised to correct the situation. Company Background Smirnoff is a brand name managed by a British Company with the name of Diageo. It is however, important to note that Smirnoff as a brand has its historical roots in Russia when during 19th Century, Smirnoff as a vodka brand was started by Pytor Aresenievich Smrinoff. (Diageo Inc) Over the period of time, brand gained recognition and is now considered as the leading vodka brand in the world. What is also important to understand that Smirnoff was the only vodka available outside the communist countries after the Second World War? This therefore has given an edge to the brand to dominate the European and North American market and become the leading selling brand in the world. The company owning and operating this brand is also selling other brands which are also maintained as the strategic brands. These strategic brands therefore serve as the primary source of growth for the firm across all the markets it operates. Some of the leading brands of Diageo include Johnnie Walker, Crown Royal, J&B etc. Smirnoff is also one of the strategic brands for the firm generating the required growth for the firm in the Spirit market.1 It is important to note that Smirnoff exists as a separate strategic business unit for the firm and it is sold through different channels. Delivery of the product through online market of the firm is also one of the ways firm manages sales for this brand. Target Market of the Company Diageo is considered as the premium drink company offering high worth brands to the individuals all over the world. As such the geographical distribution of the company’s target market is across the whole world with concentration in the European and North American market. It is critical to note that the drink market continuously evolve due to the market innovation and changing preferences of the customers. (ASIMOV, 2005). Though Diageo is a well diversified company with many brands serving different niches in the drink market, however, Smirnoff caters to a different niche of the market. Though Vodka is famous for its uniqueness as a drink however, firm has been able to introduce new flavored drinks in order to cater to the needs of varying degree. The essential market for the drink comprises of those individual customers looking for ready to drink market with variety offered according to the Season of the year. This is because of the fact that spirits are more suited for drinking in the summer rather than in the winter season. Another important aspect of the market is based on the fact that Smirnoff is targeted as younger but style conscious population of adult age. Since Smirnoff is a premium drink therefore overall value offered by the drink include the sense of specialness and style. Customers purchase from the company owing to this fact that drinking Smirnoff vodka offers them the chance to feel that sense of specialness. (Kapferer, 2004) Macro-environment analysis In order to perform the macro-environment analysis, PESTLE is considered as an effective tool. The core trends identified in the PESTLE analysis are: Changing Health Consciousness It is critical to note that with the increasing awareness about the health related issues, consumers are becoming more aware of the damaging use of drinking on their general health. Drinking has been associated with many diseases some of them could also be life threatening. Most common disease associated with the drinking is the malfunction of the liver which happens mostly due to constant drinking. 2 Apart from this, there is a continuous effort from different health related organizations and groups advocating against the harmful use of drinking. Rehabilitation and post rehabilitation of the alcoholic and drunk individuals cost society a lot therefore there is an increased focus on ensuring that individuals either curtail the use of alcohol entirely or use the same in moderation. This trend is also significant owing to the fact that Smirnoff’s market is focused on youth and as such there is an increasing drive to ensure that the youth do not plunge into the habit of heavy drinking. Increasing dependence on drinking therefore not only creates significant social issues but also increase the cost of healthcare. Online Retailing Probably one of the strongest trends which have emerged in the industry during the recent past is the consistent increase in the online retailing of the products. Technology therefore can play an important role in determining the market leadership. The increase in the online presence and the increasing use of internet by the consumers to purchase goods or services therefore outline that the companies are willing to serve their customers through online presence. Many alcohol companies have their online presence including Smirnoff. The advent of the smart phones such as Apple Iphone has allowed the consumers to actually use the small software or apps to match the drink with their meal. Such flexibility as well as choice offered by the technology to the consumers therefore serves as one of the strongest motivational factors for the consumers to increasingly use this platform to buy. Organizations which are good at developing better supply chains therefore are able to take advantage of the opportunities offered by internet market and may continue to do so in the future also. (Wilson, 2009) Regulatory environment There is a strong probability that most of the governments in developed world may put further restrictions on the selling of alcohol to the consumers of certain age. This may be done in order to ensure that overall cost of health care is reduced as well as to curtail other social evils. Since drinking is also associated with criminal activities therefore controlling the sell of alcohol use may be one of the emerging trends in the market affecting the entire industry. It is also important to note that many countries have officially banned the use of alcohol due to religious or other reasons therefore the overall growth of the firms in the industry may only be limited up to North America and European market. Driving Forces The above discussion suggests that the firms operating in this industry are facing the stiff challenge of meeting the changing needs of the consumers. Due to increased health consciousness, consumers prefer alternative drinks such as green tea and other herbal based drinks rather than to consumer alcohol or other related products. Over the period of time, industry therefore has to ensure that they continue to satisfy this fear of the consumers in order to continue to generate sales. Failure to do so may therefore witness a reduction in the market share for such firms as other alternatives may be preferred by the consumers. It is also important to note that the ease of delivery combined with online selling channels is also serving one of the key driving forces. Consumers between the age group of 18 to 24 as well as over 45 years old are finding it relatively easier to order the drinks online. Specially in case of older customers, it may become a leading trend because older consumers may find it difficult to carry the heavy and large cases of wine and vodka purchased from any Super Store. Industry Analysis One of the most effective tools of performing the industry analysis is to use Porter’s Five Forces framework. This framework is an effective tool to assess the overall competitiveness of the industry and the firm’s position in the industry in order to compete effectively. Porter’s Five Forces Analysis Bargaining Power of Buyers This industry is quite fragmented in the sense that overall base of customers is quite diversified. Vodka industry is effectively based on the unique taste of the consumers therefore the consumers use to stick to particular brands over long run. This addiction to any particular brand therefore reduces the bargaining power of the buyers and allows firms to dominate the pricing as well as volume decisions. Though switching cost is low however, buyers still have very little bargaining power to exercise. Bargaining Power of Suppliers One of the key features of this industry is the ability of the firms to engage into backward integration thus making it more difficult for the suppliers to dominate the industry. Though the suppliers can develop the forward integration capability however, due to strong brand names, suppliers are unable to dominate the market. The lack of presence of organized suppliers is also one of the key reasons as to why suppliers are unable to exert high bargaining power. Threats of new entrants Though the overall cost of entry into the market is low however, due to unique preferences of the consumers and long established brand names make it more difficult for the new entrants to dominate the market. Though the threat persists all the time however, the overall intensity of such threat may be low considering the fact that older firms have been able to develop their own unique consumer base by following particular tastes and preferences of the consumers. Threats of substitute products The overall threat of substitute products is relatively higher because beverage industry can also compete as potential competitor for the firms in the industry. It is also important to note that other industries such as herbal tea, coffee can also serve as strong competitors for the firms in this industry. As discussed above that the customers are relatively becoming more health conscious therefore the success of products like herbal tea can pose serious challenge to the firms in this industry to maintain their dominance. Further, the low cost of production can also entice other firms to introduce same kind of brands and thus making competition relatively more difficult. Rivalry in Industry The above discussion suggests that though entry and exit in the industry is relatively easy and new entrants can enter the market however, older players tend to have an upper edge on others. This is critically important due to the fact that customers develop their unique tastes and preferences for certain brands. This peculiarity of the customers therefore restricts them to switch to other drinks at least in the short run. It is also critical to understand that the competition between the existing players may be relatively higher. This could be the result of the fact that some large players have established themselves in the market. This dominance of the different market segments by the large players therefore make competition significant more complex as each player tend to dominate the market according to different segments based on tastes and preferences. Key Success Factors Based on the discussion so far, following key success factors emerge: Brand Image and Consumer Preferences One of the key success factors in this segment of the market is the overall brand image and the consumer preferences developed around such brand image. Since Vodka is of particular taste therefore consumers tend to stick to particular brands for long period of time. It is therefore considered as most important that the firms must develop their brands and build equity against them in order to survive in this market and compete successfully. (Datamonitor, 2011). Increased globalization and Expansion The simple fact that Smirnoff is distributed across 130 countries point towards the fact that industry is truly becoming a global industry in nature and firms need to become aware of this fact. In order to succeed and perform better in this market, it is therefore important that firms must expand themselves at the global level. Concentrating on few geographical markets therefore can limit the growth prospects of any firm operating in this industry and hence can make it more difficult for the firms to successfully operate. Firms at international level are also expanding by making acquisitions and these trends are not old as firms tend to combine in order to become more dominant. (HICKS, 1987). Innovation Another important factor to be considered in this regard is the constant innovative activities adapted by many players in the market. Smirnoff has introduced different flavors and tastes to its products in order to offer variety and choice to the customers in order to retain them. By being more innovative, firms can actually take the opportunity to become more successful in this industry. Analysis of Competitors Two of the core competitors of Smirnoff on company wide level are: Beam Global Spirits & Wines Inc Beam is a subsidiary of Fortune Brands and is one of the leading brands in US with many premium brands on offer. The key success factors of this firm include strong and diversified range of brands, strong presence in US as well as innovation and creativity. The core competence of the firm lies in its ability to offer premium brands which are directly sourced from the places where they are made i.e. Beam’s scotch is directly sourced from Scotland as the other brands. The overall business strategy of the firm is also focused towards achieving global growth through offering innovative and creative products. The overall focus is on the development of strong brands which people talk about thus making Beam as a company which is focused on achieving growth through successful brand building. Pernod Ricard SA Pernod Ricard SA is the European Competitor of Smirnoff offering Absolut Vodka- a direct competitor of Smirnoff. The overall focus of this firm is to achieve the required level of growth through organic growth and acquisitions. Its premium selling Vodka brand was also acquired from a Sweden based company. The key successful factors for this firm include its ability to dominate the European market due to local acquisitions of small firms. Further, focus on the development of premium brands of global standards has made the firm one of the leading organizations in the industry. The overall competitive advantage of the firm is driven from strategy to achieve growth through strategic acquisitions. By following this strategy, firm has actually developed a very diversified portfolio of premium global brands thus offering the firm required level of flexibility to manage different segments of the market. Strategic Human Resource Management Diageo- the firm operating the Smirnoff brand is proud to have access to the qualified and skilled base of human resources. The firm is currently not facing any serious human resource issues apart from the fact that its global expansion may present some challenges in terms of managing cultural diversity. It has more than 20,000 employees across the whole world managing its existing portfolio of brands. Paul Walsh is the CEO of the firm whereas the overall supervisory oversight of the firm is in the hands of different committees constituted by the Board of the firm. These facts suggest that the firm is focused on developing its employees to the extent where they become leaders and handle the business of the firm. Employees are hired based on the diversity as the firm believes that hiring employees belonging to different cultures and sub-cultures can offer the firm a unique insight into understanding its own consumers. Such strategy therefore allows the firm to hire those employees who can effectively contribute towards the understanding of its consumers and their unique preferences and tastes. Such strategic nature of HR therefore ensures that firm is managing its HR affairs in appropriate manner. SWOT Analysis Strengths 1. Most important strength of the brand lies in the fact that it has historical legacy and is one of the only few global brands of Vodka having Russian origins. 2. Smirnoff is selling in more than 130 countries thus making it one of the well diversified brands in terms of its geographical spread. 3. This product is aimed at young and style seeking individuals looking for on-the-go drinks therefore this niche is continuously expanding and increasing. Weaknesses 1. Smirnoff has a particular niche market based on young individuals therefore this market may be shrinking in developed markets considering the overall demographics of these regions. 2. Customers have low switching costs in this segment of the business therefore Smirnoff may be forced to curtail the prices in order to remain competitive in global market for spirits and wines. 3. Diageo has not engaged into the practice of achieving growth through acquisitions. Due to this factor, firm may not be able to tap into the local markets where it wants to operate. Opportunities 1. Opportunity to enter into emerging markets especially China can provide a very lucrative alternative for the firm to expand. 2. Smirnoff can also be targeted at customers of higher age group. Since alternative delivery channels have been developed therefore it is critical if the firm is able to re-focus on this segment of the business also. Threats 1. Threat from competitors especially from Beam Global could be significant due to its overall size and market penetration. 2. Increasing health consciousness of the people may force them to discard drinking or reduce it. This can reduce the overall global demand for the product. What is the Issue? The above analysis therefore may help to identify some of the key issues which firm may face in the near future. Some of the key issues are: Regulatory Requirements One of the key issues to be faced by the firms operating in this industry would be to successfully deal with the regulatory requirements. Developed countries are faced with strong fiscal deficits due to their welfare nature and many governments are attempting to reduce burden on them. Rehabilitation and healthcare related costs of the alcoholic individuals therefore can be one of the significant costs to be dealt with. Further, in order to expand at the global level, firm has to meet strict and difficult regulatory requirements in order to continue to expand. Most of the Muslim countries have officially banned drinking of alcohol therefore firm may be deprived of a huge market which could not be tapped because of the regulatory environment in these countries. Entry into countries like China can also require firm to meet important regulatory requirements before firm can actually start tapping the Chinese market. Thus meeting the regulatory requirements can be one of the key issues to be faced by the firm in the near future. Successful management of this therefore can lead to further expansion for the firm in existing as well as new markets. This issue has been identified from PESTLE Analysis. Competitive Forces Another important challenge to be faced by the brand as well as the firm is to successfully meet the competition. With Russia’s gradual entry into the global markets, it is quite possible that the world may be able to get hold of the original Russian vodka. Other firms are making strategic acquisitions also thus growing acquisitions can become one of the key trends in future. In order to achieve the required level of growth at the international level, it would be critically important that the firms must also look into the opportunity of improving their supply chains. Since drinks are usually low cost items therefore competitors who are good at managing their costs would be able to successfully compete at the international level. It is also important to understand that this industry is dominated by the players who are in the market since long and as such have their own dedicated and loyal customer base. In order to achieve growth in such market therefore would require more innovation and creativity in terms of offering more variety and flavors. The above key issues are considered as most important because they can serve as the decisive factors in industry which is quite complex and requires extra energy and efforts to build a loyal base of customers. Changing preferences and attitudes towards health coupled with stiff competition can be issue of significance importance and may force the firms to take pro-active approach. Implementation Plan In order to overcome the above issues and become successful player in the international market, it is important that the firm may take following two important steps: Formation of Strategic Alliance Most of the large firms such as Beam Global have expanded at the global level through a consciously chosen strategy of acquisitions. In order to become truly a global brand, Smirnoff and its parent company need to formulate strategic alliances at the regional and local level. Strategic alliances will not only allow the firm to become more diverse in its orientation but will also expose the firm towards the local knowledge and expertise. (Podolny, Shepard, & Saloner, 2000). Before making any entry decisions on any market, checking the same market through the formation of strategic alliances could be one of the key strategic steps to be taken. In order to achieve the same, firm may enter into a strategic alliance with firms like SABMILLER or other smaller regional players. Formation of strategic alliance with Sabmiller may allow the firm to enter into Asian market because the overall portfolio of products offered by Sabmiller includes products which are suited for the Asian customers. Since firm is attempting to enter into the Chinese market, it is critical that the firm must find out the local suppliers of the Vodka and formulate strategic alliances in order to become more flexible and robust in its response to the changes occurring at the global level. It is also important that the firm must also look for the opportunities to enter the tried and tested markets on its own once the firm gains required level of knowledge and expertise. Diversification Firm has till now focused on the development of different flavors for the same product over the period of time. Though diversification has been achieved by the firm in terms of product diversification however, it still lacks diversification its true sense. Since Vodka belongs to a particular class of drinks and manages to hold on to the customers due to its uniqueness, it is important that the firm must be able to deliver more value against such expectation. (David, 2004) In order to achieve such diversification, it is critical that the firm must be able to diversify not only within its product range but also through diversification of its geographic boundaries. Diageo must need to find new markets for Smirnoff in order to achieve the required level of growth. Though the brand is showing sales growth, it is critical to note that diversification both at the product level as well as at the market level will serve as key strategic actions to be taken by the firm in the near future. It is critical for the firm to become more proactive in nature to become more diversified. Such diversification could be achieved by launching more new variants of the product as well as expanding into the emerging markets such as Brazil and China. A successful entry into China could be leading step for the firm to capture the fastest growing market in the world. Bibliography 1. ASIMOV, E. (2005, January 26). A Humble Old Label Ices Its Rivals. Retrieved July 03, 2011, from The New York Times: http://www.nytimes.com/2005/01/26/dining/26wine.html 2. Datamonitor. (2011). Smirnoff Vodka to Focus on it’s Brand Heritage . Retrieved July 03, 2011, from DataMonitor: http://www.reportbuyer.com/blog/smirnoff-vodka-to-focus-on-it%E2%80%99s-brand-heritage/ 3. David, F. (2004). Strategic Management: Concepts and Cases. New York: Prentice Hall. 4. Diageo Inc. (n.d.). History. Retrieved June 14, 2011, from Diageo: http://www.diageo.com/en-row/ourbusiness/Pages/History.aspx 5. HICKS, J. P. (1987, January 17). GRAND MET TO BUY NABISCO'S HEUBLEIN. Retrieved July 03, 2011, from The New York Times: http://www.nytimes.com/1987/01/17/business/grand-met-to-buy-nabisco-s-heublein.html 6. Kapferer, J.-N. (2004). The new strategic brand management:creating and sustaining brand equity long term. London: Kogan Page Publishers. 7. Podolny, J., Shepard, A., & Saloner, G. (2000). Strategic Management. New York: Wiley. 8. Wilson, A. (2009, October 29). Smirnoff shifts ad spend online in search of customers. Retrieved July 03, 2011, from The Telegraph: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/6459727/Smirnoff-shifts-ad-spend-online-in-search-of-customers.html Appendix PESTLE Core Trend P E S T E L 1 Regulation Economic recession Alcohol consumption is not considered as good. Innovation in product offering. Waste Management Regulatory environment may become tough 2 Societal pressure on governments Low affordability Crimes Use of internet for shopping. Use of natural ingredients in the product may endanger the environments Drunk driving regulations. 3 Religious and constitutional obligations of government Availability of substitute products Increased healthcare cost Improved advertising Pollution Banning of alcohol use Analysis of Competitors Your client Beam Global Pernord Ricard SA KSF 1 Legacy Presence in US market Presence in European market KSF 2 Innovation Innovation Innovation KSF 3 Large market presence Premium Brands Premium Brands Core Competence Legacy of the product Brand Recognition Brand Recognition Competitive Advantage Low Cost Global Presence Low Cost Business Strategy Brand Recognition Organic and acquisitions Brand diversification Porter Five Forces Bargaining Power of Buyers 1. Large number of buyers 2. Geographically diverse range of buyers. 3. Little or no room left for buyers to change their tastes overnight. 4. Cost of switching is low for the customers. Bargaining Power of Suppliers 1. Lack of organized suppliers. 2. Ability of firms for backward integration. 3. Supplier size is low Threat of new substitutes 1. Increased health consciousness may force consumers to buy substitute products 2. Products like colas, tea and herbal products can replace. 3. Product demand is relatively inelastic. Threat of New entrants 1. Cost of entry is low with very insignificant entry barriers. 2. Strong brand image of the older players may make it difficult for the new players to gain any significant market share. Industry Rivalry 1. Industry rivalry is high among already established players. 2. New entrants usually do not survive therefore the real competition is between the established players in the market. Read More