ZESPRI Case Essay
1. Main issue
Zespri’s main issues are to maintain their leadership in the industry and to increase New Zealand kiwifruit exports to $3 billion by 2025. In order to reach the objective, in existing market, Zespri should increase per capita consumption through more focused marketing. They also need to find emerging markets, research on new varieties and improve the 12 months supply program.
2. Porter’s five forces
2.1 Degree of rivalry
The degree of rivalry is low. The four biggest kiwi fruit producing countries are China, Italy, New Zealand, and Chile. Despite of the higher production of China, it had become a net importer of fresh kiwifruit. From the exhibit 16, it demonstrates that New Zealand has the highest average net market returns and grower returns from 1999-2009, compared with Italy and Chile. According to those data, we can conclude that they cannot compete with New Zealand cause other countries do not have the management and financial support from the government as comprehensive as Zespri has. They are not able to produce the kiwi, which is high quality and high productivity like Zespri produced, even if they spend tons of years. Apart from that, Zespri spend over 6% of the revenues on promotion, not only in-store activities but also using mass media. The value of ‘brand New Zealand’ was recognized as pure and natural, and thus Zespri is a price setter rather than a price taker, therefore they can price higher than other brand and people would still like to choose Zespri.
2.2 Threat of substitutes
According to the possibility of substitute by other fruits, the rate is really high. There are multiple fruits people can easily choose from the supermarket. They have variety of nutrition people can get by digesting them. Even though we know that kiwi has more nutrition than other fruits have, we may still not choose kiwi due to its high price. Kiwi fruit is not necessary in consumers’ life. Maybe some people don’t like the taste of the kiwi. The threat of substitutes is high.
2.3 Threat of new entrants
The threat of new entrants is low. It will take an amount of money to start that business. Firstly, I should emphasize Zespri has a strong brand. It is hard for new entrants to persuade customers to choose other brands. They must need much more money in advertising. Secondly, Zespri has the experience to produce high quality and high yield fruits and they got the patent protect. It is unrealistic for new entrants to achieve to that level and scale. Thirdly, Zespri has the government support by funding their research and development. Thus new entrants will not be threat for Zespri.
2.4 Supply power
The supply power is relatively high. In this case, the grower or the supplier own and control Zespri. About 82% of 2010 growers were Zespri shareholders. To avoid becoming a supply driven, Zespri helped the growers to make more profit. They answer the questions and share the information with growers, help them adopt the best technology and growing practices, and thus produce high quality and high tasting kiwi fruits, help them to acquire firsthand information from their customers by ‘grower tour’, and invite customers to visit New Zealand to deeply understand their kiwi fruits. Zespri and suppliers are highly relying on each other.
2.5 Customer power
Customer power is high. Firstly, the kiwi fruits production only occupies 1%of the total world fruit production. That means not a great number of people buying kiwi. They can buy other kinds of fruits instead of kiwi. Even though the kiwi produced by Zespri has a great deal of nutrition and great- tasting, the price is much higher than other fruits. They would have no advantages to compete in the market with other fruits.
2.6 Porter’s five forces conclusion
The new entrants and rivalry cannot compete with Zespri because Zespri is a mature company on their management and strong brand aspects. But there are a lot of other kinds of fruits as substitutes. Suppliers and Zespri are in the reciprocal relationship. They need each other and should go hand in hand in the future. Zespri should make effort to develop a good relationship with customers such as spending more money on promotion and making them well understand the value of New Zealand kiwifruit.
3. VRINE Analysis
3.1 Is it valuable? —-Yes
Zespri is a grower-owned corporation and the main supplier of the world’s third largest kiwifruit producer, New Zealand-grown kiwifruit. It had exported over 100 million trays of kiwi to more than 60 countries all over the world in the last one year, which meant the export value for Zespri was over $1.5 billion. (p. 1.) According to Zespri Group Income Statements from 2006 to 2010, Zespri had earned 25,890,000 NZD of net profit after taxation in 2010. Besides, Gold kiwi is sold by a price 30% higher than Green and Gold made up about 25% of Zespri’s sales. That is to say, Zespri has the capability to keep meeting the increasing demand of customers by supply chain management to gain long term shelf space and also has the resources to meet shoppers’ preference for sweeter alternatives by Taste Zespri Program and investments on R&D.
3.2 Is it rare? —-Yes
Kiwifruit market is a niche market which accounted for only less than one-quarter of 1% of global fruit production in all. In addition, Zespri focused on various attracting ads channels like transportable ads and tasting promotions which differentiated it from other competitors. Also, the innovation of Gold and Organic kiwi is exclusively unique as people nowadays prefer to taste fruits with more attributes. When it comes to relationship with local suppliers, Zespri had the advantage over others that it contributed on building good relations with its exporters and this asset was not owned by most competitors.
3.3 Is it inimitable? —-Yes
It is not simple for other competitors or new entrants to imitate kiwi producing techniques and the value of Zespri for the reason that Zespri has system patent and intellectual property to protect it from being replicated. Besides the special structure of the company is hard to copy since about 82% shares of Zespri were owned by growers, those growers were motivated internally to come up with more innovative thoughts about their products in order to gain more profit margins. This, to some extent, gave an impetus to the development of all types of kiwi to have more attributes that customer wants which was more effective than other companies under different structures. The close relationship with suppliers also made Zespri difficult to duplicate due to the suppliers would protect their cultivated customer groups globally.
3.4 Is it non-substitutable? —-No
Kiwifruit could be replaced directly or indirectly by many alternatives in the market. For example, other kinds of fruits and vegetables that can provide fiber, Vitamin C or iron like Del Monte’s extra sweet “Gold” pineapple, functional drinks and healthy drinks that are portable as well as nourishing. What’s more, other kiwifruit bands could also be a substitutable choice for customers once they are not satisfied with Zespri’s production.
3.5 Is it exploitable? —-Yes
Although in the long run Zespri will be facing with the threat from other strong competitors like Turners & Growers as it might subvert Zespri’s marketing structure, Zespri is still competent to exploit the capabilities it owns. Zespri has the capital to focus on research and development to improve its techniques like “girdling” to develop more kiwi attributes to cater to people’s preferences. Also given the increasingly intense competition in kiwi market, with the good relationship with its suppliers, Zespri could receive other kinds of fruit from its exporters with some priorities if it is needed for Zespri to extend its business range in the future. Emerging markets are another exploitable factor that with cooperating with hiring local employees, Zespri could spread and distribute kiwifruit in the local areas widely and smoothly.
3.6 Holistic analysis of internal environment
In conclusion, the capital ability, rareness and inimitability could keep Zespri in the leading position in kiwifruit market for years. However, with more and more powerful new entrants entering the industry, Zespri could find other ways to make up for its weaknesses such as substitutability. With the exploitation of new attributes of kiwi and wider range of customer groups, Zespri is very likely to stay as a leader in kiwifruit market in the long term.
4. Financial Analysis
Return on assets measures the ability to turn assets into profit. In this industry, Zespri had a relatively low return on assets ratio, therefore, Zespri still need to find a way to operate more efficiently.
Return on equity rate shows the return on investment by shareholders. Zespri allocated shares to the growers based on their production value. Thus, the returns of investment for shareholders are significant. From 2006 to 2007, return on equity is stable, which give more confidence for growers to put more effort on the business.
For Zespri’s debt to equity, it doesn’t have that much long term debt to repay. Most of debts are short term liability. In addition, we can find from the debt to equity ratio, Zespri had enough equity to repay due to the higher equity. Too much debt can put your business at risk, but too little debt may limit your potential. Zespri still has space to get some leverage on their investment to boost profits.
An increasing asset turnover ratio indicates the company is using your assets more productively. There was a downtrend in asset turnover from 2009; because new strategy need more assets in the company achieve objectives. However, it takes some time to see the improved sales, thus, asset turn over went down. For long term consideration, the asset turn over would go up again when the new strategy works.
Equity turnover ratio measures how much revenues (sales) are generated for one dollar of total equity. This ratio is significant to company’s owner, because it connects the sale to shareholder’s equity. The more sales means the more productively equity works. All the Zespri’s shareholders come from the grower, they are likely to see the growth in their investment, at the same time; they would be more active to put more investment in Zespri.
Current ratio measures a company’s ability to meet short term obligations with short term assets, as well as a useful indicator of cash flow in the near future. In the past five years, Zespri‘s current ratio kept between 1 to 2, which is a good sign for company. It also means that Zespri can pay its salaries, bills and expenses on time.
5. Decision Criteria
Zespri has been looking for strategy to improve its performance in Kiwifruit industry. When managers decide to make a decision for new strategy, the decision criteria should be considered as follow:
1. Meeting the global sourcing requirement
2. Keeping Zespri in an advantage position in the Kiwifruit industry.
3. Achieve target export which is $ 3 billion by 2025.
6.1 New marketing mix
For the situation Zespri is facing, Zespri could consider a new market mix including the improvement of product, price, distribution and promotion. In terms of products, the variability of products can meet different level of customers. For now, Zespri own three kinds of Kiwifruit, new line of production can be explored such as Kiwi juice. Thus, Zespri still have space to improve the product quality and variety. Products would focus on the customer’s preference based on different market.
As for the price, Zespri plans to control the cost of produce and keep the price in the same level like before, because price is one of the factors affecting the market to accept products. With the development of new products, the cost of product would be control around 50-70 US cents, otherwise, it would affect the profit margin.
Zespri exported Kiwifruit to all markets except for Australia. In the marketing mix, Zespri considers to expand its market share in the global market. Kiwifruit accounts one quarter of 1% of entire fruit production, Zespri need to explore new market in order to increase the export. The new
market may lead to more duty and customs, accounting for 6%.
For the promotion purpose, Zespri should build a relationship with the local government and social median, because it is a good way to make the local to accept the products that come from other country. Zespri would keep the previous promotion activities. In addition, Zespri pay more attention to the public relationship in different market. With the improvement of public relationship, Zespri shows the public a positive image to the market, thus, consumers have a good perception of Zespri. Meanwhile, the cost of promotion will grow to 7%.
New marketing mix improve the original strategy weakness and make it more suitable for the market situation Managers can choose one or different combination flexibly based on different market For the long term consideration, new marketing mix will help Zespri to gain a advantage in the competition Cons:
There is a high cost for Zespri to develop a new marketing mix It exist potential risk for Zespri to use a new marketing mix because of uncertainty The target may not be reached in a short time
6.2 Strategic Alliance
Zespri is trying to find international cooperation partners for overseas market. The company that can effectively complement what Zespri needs will be a good choice. For instance, China is one of the northern producer, which can supply Kiwifruit in different season, besides, it has perfect environment and lower labor cost for producing Kiwifruit. When Zespri cooperate with Chinese company, Zespri provide the technology to produce the same quality Zespri Kiwi and Chinese company offer the source for production like land and labor.
Overseas market has strong purchase power
The strategic alliance is a win-win situation for both companies Alliance can utilize resource effectively
It may doesn’t work well because of the profit conflict
The result may different from expectation due to complex situation It may be limited by patent protection, local regulations and taxes 6.3 Status Quo
If there is no suitable alternatives for Zespri to reach its goal, Zespri can choose stay in the same strategy they used before. Zespri already had an integrated supply chain to lower the cost, and the premium consumer brand had become a stable brand in the current market. Besides, the investment in innovation helps Zespri built up a successful brand image. The strategy already put into the market, and it will work for next few years. Therefore, the status quo also keeps Zespri in a growth export, which increases 0.4%. Pros:
There is no extra cost for Zespri but they still can gain increased profit All the strategies are stable for Zespri
It is easy to be affected by the economic environment
Competitors may imitate the strategy and replace Zespri’s position in this industry
Based upon on the analysis of the internal capabilities , resources and competitive advantages of Zespri and the external business industry environment as well as the comparison of different alternatives, the idea of making a new marketing mix for Zespri seems to be the right idea for Latin Jager to follow. The New marketing mix could improve the original strategy weakness and make it more suitable for different market conditions so that the managers can make decisions more flexibly based on the characteristics of different markets. For the long term consideration, new marketing mix will help Zespri to keep the competitive advantages and meet the global sourcing requirement by cooperating with the kiwifruit growers in different countries like China, etc. The new marketing mix also has the highest potential for growing market share at least in the short-run.
For example, the variety of products can meet the different needs for customers in different countries. There is still a strong customer base on premium products like in Japan and more and more people will have a need to live in a healthy life in the emerging economies countries that may need both premium products with higher prices and the lower priced products like the green kiwifruit. So, it has greater potential for Zespri to meet target exports commitment which is $ 3 billion by 2025 as the Appendix shows that the predicted revenue attributable to New Zealand pools of implementing the new marketing mix strategy is $1,632,482 in 2011 which is larger than those of the other two options.
In order to implement the new marketing mix strategy properly, the implementation process will be a combination of a short term plan and a long term plan that contains these steps as follows.
In the short run: Developing a New Marketing Mix Strategy Plan
Step One: Market Search: (01.01.2011-15.01.2011)
In order to develop a reasonable and effective new marketing mix strategy plan, what need to do first is do the marker search in terms of the four aspects: Products, Price, Promotion, Place .
As for the products, the products provided by Zespri are mainly green kiwifruit, golden kiwifruit and organic green and golden kiwifruit. In terms of the appearance, color and taste as well as the healthy ingredients about the vitamins, Zespri needs to find different people’s preference in the target and possible markets so that they can cultivar various kiwifruits and even sell other forms of kiwifruits products like kiwifruit juice to meet the specific needs and wants of the customers in future. As mentioned in the case, those varities may include sweeter greens, more yellow-fleshed or different colored varieties, and smooth-skinned fruit.
As for price, Zespri is always the price setter in the market. Generally, compared with others, Zespri set a higher price for the products because of higher shipping cost, labor cost and higher quality, etc. In different countries, customers’ purchasing powers are different. Other factors like the currency rate and tax rate, etc. also have effects on the price. Zespri needs to find how to set up the price appropriately and consider the different local factors in the price-setting.
As for promotion, Zespri has various promotion strategies like TV advertising, in-store marketing activities, etc, In addition to those, Zespri also use the billboards, print and other forms of advertising,such as the digital screen in Shanghai taxicabs , and buses and cars. For reducing the risk of losing profits for green kiwifruit growers, Zespri also provides the package offering of Zespri Green and Zespri Golden to customers. However, Zespri also needs to find other efficient promotion strategies for future development and not only focuses on the sales strategy in different countries. For example, Zespri could do some efforts to establish good public relations that can enhance their brand image and finally increase the customer base indirectly.
As for place, on one side, Zespri needs to consider about choosing more sourcing places globally, on the other side, Zespri needs to explore more potential markets to increase the exports of Kiwifruits. Currently, Zespri has exported kiwifruits to all the markets except for Austrila and it also gets the kiwifruit source from other countries. When selecting the place, the key factor is whether Zespri can enhance the ability to sell kiwifruit more profitably. Not every location is suitable to produce high quality products and to maintain sustainable supply chain partnerships.
Step Two: Collecting and Analyzing Data: (15.01.2011-31.01.2011)
The second step is to collect and analyze the data by doing the marketing research based on these four aspects. There are two categories of data collection after the market reasrch: quantitative and qualitative. Quantitative categories of this data can show statistically significant differences. For example, by analyzing the quantitative data in the sales distribution places, the managers can know how the sales amounts differentiate in different cities and in different countries where Zespri has exported the kiwifruit. As for the qualitative methods, it can help Zespri discover problems in the markets. For example, by doing interviews among small selected size of cutomers, the managers can learn about customers’ opinions, values and beliefs on the products and their consumer behaviors ,etc.
Step Three: Determining the Final Plan of the New Marketing Mix Strategy: (01.02.2011-28.02.2011)
The final step in the short-run is determine the final plan of the new marketing mix strategy based on the market research data and the analyzing results as well as the current situations of Zespri internal and external environment. There is a proposed new and simple marketing mix plan designed as follows:
4. Products: Zespri Green, Zespri Gold, Zespri Organic Green and Gold, and Zespri kiwifruit juice. 5. Price: Premium pricing method and Localization pricing method. 6. Promotion: TV ads, Online media ads, In-store promotions, Billboards, Digital screen on taxicabs, buses and cars, enhancing public relations by implementing CSR like charity for the less developed areas, 7. Place: for sourcing-globally; for exports- export to all markets,etc.
In the long run: Implementing the New Marketing Mix Strategy
Step Four: Establishing New Supply Chain for Kiwifruit Juice: (01.03.2011-31.03.2011)
In the new marketing mix plan, Zespri will provides a new kind of kiwifruit products-Kiwifruit Juice because it is easier to reserve the juice and the juice could be kept for longer time ,etc. At the same time, Zespri also exports the original three types of kiwifruit products. Furthermore, Zespri will still use the same ‘Zespri System’ for the Kiwifruit Juice. So, with no changes of the original products, Zespri needs to set up a new supply chain for the Kiwifruit Juice according to the New Zealand Kiwifruit Export Supply Chain model as Exhibit 4 shows. One of the different factors is that Zespri need to find the new manufacturers to produce the juice. For example, Zespri can find the kiwifruit juice manufacturer domestically or in other countries like China where there is enough kiwifruit source and the labor and land
cost are less.
Step Five: Implementing Marketing Activities & Exporting: (01.04.2011-31.03.2012)
After establishing the new supply chain for kiwifruit juice, the following step is implementing the marketing activities and exporting the kiwifruit juice and the three types of kiwifruit,too. What needs to mention is about the new marketing promotion of kiwifruit juice since it is a new release of Zespri, more marketing efforts should be devoted for it. For the new kiwifruit juice, Zespri can use the same promotion strategies as the kiwifruits such as in-store activities can provide the free and small amour of taste for customers who are not familiar with the juice. The ads like Tv ads,online media ads, digital screen ads are also need for the new juice. Zespri also can bundle Zespri kiwifruits and kiwi juice as a package offering to customers in the beginning stage. For exporting, Zespri can choose the same distribution places where they have exported the kiwifruits since they have been familiar with those markets and there is certain number of customer base of Zespri brand products.
Step Six: Evaluation: (01.04.2012-30.04.2012)
The last step in the process is evaluation of the plan. During the implementation all of the strategies, Jager and other managers also need to know how to control the development plan and evaluate the new marketing mix strategy. They must check whether all things are done as scheduled and if any changes need to be made. They can do the controlling and measuring depending on the timeline and sequence of actions as the Gantt Chart in Appendix shows. The evaluation criterion is mainly the financial performance after implementing the new marketing mix strategy such as the pool revenue of Zespri in 2011. Based on the controlling and evaluation, they could know whether Zespri should continue the new marketing mix strategies.
9. Contingency Plan
If the new marketing mix strategy plan makes no sense, the contingency plan that Latin Jager can choose for Zespri is finding strategic alliance. Since the main issue in Zespri is that there is strong need for them to solve the global sourcing problem and ensure their products on shelf all year around to maintain the competitive position and to meet the commitment to increase New Zealand kiwifruit exports to $3billion by 2025, the primary focus in this strategy is to make sure that Zespri could provide enough and qualified kiwifruits all year around on the retails shelves. So, if implement the contingency plan Zespri has to do a combined market research again that focuses on which country would be the best choice for the strategic alliance. Futhermore, Zespri may need to corporate with a local company in the country which could provide better networking, distribution channels, etc and also reduce the potential risks of doing business overseas.
For example, China may be a good choice for Zespri because China has the capacity to produce large amounts of kiwifruit and there is cheaper cost of labor and land. With a strong and famous brand image, it may be easy for Zepri to find enough supply chain partners to cooperate. If Zespri find parters to cooperate in China, it can ensure that there are more sources of Zespri kiwifruits. They can choose to sell in the Chinese market where customers purchasing power become stronger and stronger to gain more customers and to save the shipping cost,etc so that they can get higher profits per product. They also can get the Chinese source to sell in other Asia markets like Korea and Japan,etc. In conclusion, this contingency plan will be very beneficial for Zespri. However, they also need to prepare well in case that they must go back for the backup plan and furthermore, one of the hardest issue for them is to ensure that they can get the same high quality products in China as well as in New Zealand.