Essay, Pages 11 (2676 words)
This report provides analysis, evaluation, and recommendation for Model. Industry competitive environment It is currently at the multi-country level since there are still a lot of untapped markets around the world especially in Asia and Africa, hence, possibility In market growth which will lead to global competitions. The key players are consolidating their businesses to help achieve global stand points. Major Competitors Heinlein: this is Model’s main rival in the international market. Heinlein markets its beer as a premium import – old and respected recipe for taste – “high quality product.
It is very controlling over its marketing and advertising strategies, however, campaigns weren’t getting to local customers. Thus, fail to Increase the market share for quite some time. Heinlein is the only dominant importer that has local brewery. It owns and operates its distributors. FEMMES: this is Model’s main rival in the domestic market, Mexico. It scored top seven best tasting beer in Mexico. In short, FEMMES produces beers that are more suited to the local’s taste better than Model.
Moreover, FEMMES has forward vertical integrated Its strong distribution outlet, OX, a well spread convenient stores.
It Is also a sole distributor of Coca-Cola products In Mexico and Central America. It tried to strategically ally with Heinlein In the US to promote its product but failed terribly. Merger between Ellen and Enhancers-Busch If Nevi and Enhancers-Busch merge, they will control the huge chunk of middle- high price market share, one fifth of the world beer market. That will result in stronger distribution network and more economies of scales, both of which will be very hard to surpass.
If Model wants to respond, it should either partner up with another medium size company or Join Ellen and Enhancers-Busch merger.
Currently, Group Model and Nelson Coors are considering a Joint collaboration for Foster Group. This will help Increasing competing power against the two giants’ merger, Core Competencies Strong network and relationship with distributors Competitive Advantage Strong brand loyalty Strategic partnerships in distributions and marketing Visible and available to markets Model’s Strategy Model took blue ocean strategy when entered to the US. It focused on untapped market instead of focusing on price strategies like its competitors. It differentiated its products in many ways I. . Clear bottle, light taste to cater to maximum possible arrest, and its marketing strategies focused on brand image – light, fun, and exotic dreams. It clearly divided the US into 2 zones for each of their distributors to fit to their strength in knowledge of local markets the most. It also let its distributors decide on marketing strategies while Model supervised from afar, only to make sure that everything goes allying with the brand image and position. This strategy is call “think global, act local. ” Group Model’s transnational strategy gives it the best of both worlds.
It benefits from producing in one single location as producing in a wide scale, economies of scales. Couple with its strong relationship with the distributors, Model was allowed to explore the best of the distributors’ knowledge of the local markets to tailor its taste and image that were most suited to the local desire. By playing its strength, it has trumped Heinlein, former number one import beer in the US. As the markets grow, it is harder for Model to pursue with the single location brewery strategy because as it is expanding this means higher transportation expense and tax burden.
As for its competitors, Heinlein and FEMMES they use a more Global Strategy – not only the production but also marketing and advertising as well re done in one single manner. As a result, both companies are less responsive to local needs. PROBLEM STATEMENT “How can Group Model sustain its success both in the domestic market (Mexico) and international market against the potential merger and acquisitions of big players? ” Challenges Domestic: how to become a lead player in the beer industry in Mexico? International: how to expand and survive globally? Firm: how to compete when other major players are heading to consolidation?
Challenges that should be tackled first are international expansion strategy and consolidation strategy. Recommendations Domestic: increase in domestic sales by 20% in 5 years by building strong internationally, Model should try the same strategy but locally. In return, Model should gain access to greater distribution channels. That means low cost in logistic but more effective distributions. However, there is a possibility of negative cooperation. Since FEMMES has bought OX, a famous convenient store, Model should try forward vertical integration with one of the convenient store chain in Mexico as well.
If vertical integration is not feasible, it should try opening up its own convenient store chain. This way, Model is in better control of distributing its reduce when and where. Also, this would cut intermediaries out, hence, increase Model’s profit margin. Moreover, Model would receive first hand information to develop its products and marketing and advertising strategies. However, this requires some investments and some experience in this industry to efficiently compete with OX. Model should try backward integration as well. It may buy the bottle factory and farm its own raw materials.
It then might use some of the productions in its own brewery and sell some to other breweries. However, this would require some knowledge and experience curve in order to succeed in those industries. International: maintain its position in the US (first place) and expand globally Model should invest in local breweries to induce the risk of Mexico economy fluctuation and import tax policies. It would also decrease logistic expenses for both its products and raw materials. Moreover, it would achieve some economies of scales as well. There is also a benefit from that region trade agreement (Free Trade Area).
However, there is a risk of that country economy meltdown and it would be quite difficult to control the products quality and hard to manage and control from head quarter. Above all, there might be numbers of difficulty implementing large scale strategic move. Model might want to focus on unexposed countries that have high population like India, China, and South Africa. Even though there are some brand existed in those markets, the market would still have enough untapped customers. Model could foster strong relationship with local distributors like it did before in the US.
However, taste of the beer and marketing and advertising might have to be tailored to those markets, hence, fractioned brand image of Model. Firm: ways to compete with other competitors when they are heading toward consolidation. Model should acquire or Joint-venture with other mid-size to big-size players that have the potential to compete with other consolidated companies. Synergy would maximize their capabilities and resources I. E. Research and development, distribution channels, and suppliers and customers network. It would also decrease some capital spending I. E. Numbers of staffs. Consolidation is also important to pursing domestic as well as international market. Knowledge and competencies of the other firm would be maximized. However, there is a risk of conflicting objectives and expectations, agreement among the partners to the best course of actions, cultural clashes, and the venture is dissolved and partners go separate ways. Model could expand its product line to, for example, non-alcoholic beer, Juice, or chips. This way Model would reduce its portfolio risk (producing only beer even though in under a lot of brands).
Non-alcoholic beer would attract non-alcoholic drinkers, who love to party like everyone else, but don’t like or even can’t drink (due to health reasons) alcoholic drinks. Juice would attract people of all ages and genders. And chips, would be a remoter together at the beginning and separately later when the chips are flying in the market. Not only expanding product line would reduce portfolio risk, it would also create new perceptions to consumers that are health conscious (as the lifestyle is shifting) that Model is not producing only alcoholic drinks (which are bad for health) but also some healthy drinks.
However, high initial investment is required as well as knowledge and some experience to compete in those industries. Since challenges that proposed are all quite important, some recommendations might be taken simultaneously to pursue all of the 3 aspects. However, the first challenges to tackle are international expansion strategy and consolidation strategy. Model could form a Joint-venture with its major shareholder, ABA Nevi. This is because ABA Nevi has been part of the Model all along and ABA should know and had learned to certain extends about Model and how it operated.
Thus, there should not be a dramatic strategic change. ABA Nevi has a massive distribution network, hence, more firsthand information from customers. There might be some concerns for Model in control over distribution and power struggle in this relationship because ABA is the majority shareholder. Model and ABA Nevi could come up with some kind of deal. After that, Model should exercise its core competencies from the consolidation in the untapped markets (China, India, South Africa) as well as in the local market (Mexico). It could develop its beer for local market.
Model Negro would be the beer that Model should focus on since it got the highest place among Model’s products (rank 1 lath in the total local market). At the same time, Model should try to reconstruct its organizational structure as well as improve efficient cost control process to improve its financial statement (exhibit 2 and 3). Once Model is strong, it hen should move onto expanding its product line for future preparation. Appendix Factor of Change (PESTLE) Political: 1 . Government tax policies: usually targeted alcohol because it has undesirable affect on society 2.
Regional trade agreements (NONFAT): increased opportunity in certain countries 3. Government regulations: in some countries, this would limit or even prohibit alcohol consumption Environmental: 1 . Resource scarcity: water is a major concern because water is needed enormously in brewing alcoholic drinks. Moreover, the key ingredients are sensitive to climate and only available in specific regions. Social: 2. Personal preference: people have different taste from place to place. For example, German loved beer while Italian loved wine. 3. Change in life style: people are more health conscious.
Technological: Logistic: this led to growth in market share outside of its home country. Economic: 1 . Need of constant cash flow: this led to consolidation of many firms around the world which resulted in many new big players in the industry. 2. Emerging market VS. traditional market: traditional markets are becoming saturated and declining in growth while the emerging markets are lucrative. However, the sales in traditional markets are still higher. . Currency fluctuation: currency fluctuation will impact export beer, hence, impact on costs to sell in outside countries. Legal: 1.
Consumer law: it led to restriction of how much alcoholic drinks are sold and constraint on advertising and marketing of alcoholic drinks. Driving forces in the industry Change in social view and personal preferences: people are becoming more health conscious which causes problems for every alcoholic drinks industry. Alcoholic drinks, especially beer, are the reason for high calories. As a result, light beer and non-alcoholic beer emerged for health conscious consumers. Moreover, preference in beer taste is personal and it’s becoming more complex as abundance beer providers offer various beers to the markets.
Business consolidation: the key players headed towards consolidation and led to monopolistic markets (several key players leading the markets). Consolidation would give hard times to mid-size and small-size producers. All of which could not afford differentiation and economy of scales, hence have to focus on niche local markets. Emerging markets: there are still a lot of untapped market around the world, ‘e. India, China, Africa. Even in the tapped arrest, many countries still have low beer consumption per capita.
This means abundant opportunities for many international brewers in the industry. Key Success Factors Economies of scale: to produce products at the lowest costs, hence, moderate price in the markets. The price that many people can afford without thinking much. Moreover, to earn decent profit margins. Customer loyalty: with virtually no switching cost in this industry, strong loyalty is very important to support the product. Strong network and distribution channel: strong network ensures target markets assessments and local markets understanding.
On the other hand, strong distribution channels mean products visibility and delivery to customers in low cost with high quality services. Innovative marketing campaign and advertising: beer industry heavily depends on marketing to set brand image and position, and build brand loyalty in the market. “There’s no mystery about brewing beers – everyone can do it. Beer is all marketing. People don’t drink beer they drink marketing. ” Whininess’s President. Human capital: employees are able adapt quickly to the fast shifting markets.
Five forces The market attractiveness is ‘moderately unattractive’ because two of the five roses are indicating strong substitute pressure and high barrier for new entrants, two out of five are indicating moderate rivalry climate and moderate supplier’s bargaining power, and one is indicating low. Rivalry (Moderate) the rivalry climate is Differentiation in pricing strategy: while other brands are focusing on pricing strategies, Model focuses on product differentiation and adaptation to local tastes. Product differentiation: in this industry, products are moderately differentiated in terms of taste and positioning.
The taste is moderately differentiated, hence, brand image is a big part in picking beer. Buyer demand is still growing: there still are many untapped markets. Strong brand loyalty: even though brand switching cost is low, customers have high loyalty to the brand. Many existed competitors: there are a lot of strong big competitors in the markets. New entrants (high) barrier for new entrants is high High start up cost: the initial startup investment is high. High economies of scale: Model has sizable economies of scale in production, distribution, and advertising.
Cost advantages: Model has advanced brewing technology and favorable locations. Strong brand loyalty and product differentiation: t has been building customers’ loyalty, a process that is costly and slow, for a long time. Large customer base: new entrant would have a serious advantage. Restrictive government policies: government can limit or restrict beer in many countries due to the beliefs in some religions and the increase in health consciousness. Low fixed cost: many players are already in the game which means that they probably have low fixed cost because their facilities are likely to have been mostly depreciated.
Substitutes (strong) substitute pressure is strong Substitutes are readily available and new ones are emerging: there are many types of alcoholic drinks and bartenders are coming up with new drink recipes very often. Moreover, there are abundance of non-alcoholic drink options to pick from. Low cost in switching: customers can easily switch to other brands or other types of alcoholic drinks with no switching cost. Suppliers (moderate) supplier’s bargaining power is moderate Raw materials are not all year round available: they are limited and that gives suppliers the leverage over price and payment condition.
Raw materials are not substitutable: raw materials in brewing beer are not substitutable. Suppliers are not pendent on the industry: raw materials can be used widely in food industry. Suppliers’ products are critical to industry members: for example, the bottle industry. Bottle is very crucial and having rival companies own or control them might be push Model back a little. Buyers buyer’s bargaining power is weak Intermediaries e. G. Restaurants, convenient stores, and clubs (weak) Product differentiation: Model has unique products. Supply shortage: the numbers of products produced each year are still growing (exhibit 1).
Switching cost: the switching cost to competing products is low. Number f demand: demand is increasing and there are still a lot of untapped markets. Final consumers (weak) Numerous distributors: beers are offered in many stores, restaurants, pubs, and bars. Buyer information: buyers are well informed about the quality and price. Buyer has the ability to postpone purchases: buyers can buy something else to drink instead of beer Switching cost: the switching cost to competing products is low. Numbers of competitors: there are many competitors in the market, hence, the price and promotion are very competitive.