Master of Business Administration-MBA Semester 4 MB0052 – Strategic Management and Business Policy - 4 Credits Assignment Set- 1 (60 Marks
Note: Each question carries 10 Marks. Answer all the questions.
Q.1 What similarities and differences do you find in BCG business portfolio matrix, Ansoff growth matrix and GE growth pyramid. (10 marks)
Ans. The BCG matrix is a portfolio management tool used in product life cycle. BCG matrix is often used to highlight the products which get more funding and attention within the company. During a product’s life cycle, it is categorised into one of four types for the purpose of funding decisions. Figure 3.5 below depicts the BCG matrix.
Figure 3.5 BCG Growth Share Matrix Question Marks (high growth, low market share) are new products with potential success, but they need a lot of cash for development. If such a product gains enough market shares to become a market leader, which is categorised under Stars, the organisation takes money from more mature products and spends it on Question Marks. Stars (high growth, high market share) are products at the peak of their product life cycle and they are in a growing market. When their market rate grows, they become Cash Cows. Cash Cows (low growth, high market share) are typically products that bring in far more money than is needed to maintain their market share. In this declining stage of their life cycle, these products are milked for cash that can be invested in new Question Marks.
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Dogs (low growth, low market share) are products that have low market share and do not have the potential to bring in much cash. According to BCG matrix, Dogs have to be sold off or be managed carefully for the small amount of cash they guarantee. The key to success is assumed to be the market share. Firms with the highest market share tend to have a cost leadership position based on economies of scale among other things. If a company is able to apply the experience curve to its advantage, it should able to produce and sell new products at low price, enough to garner early market share leadership. Limitations of BCG matrix: — The use of highs and lows to form four categories is too simple — The correlation between market share and profitability is questionable. Low share business can also be profitable. — Product lines or business are considered only in relation to one competitor: the market leader. Small competitors with fast growing shares are ignored. — Growth rate is the only aspect of industry attractiveness — Market share is the only aspect of overall competitive position 3.4.2 Igor Ansoff growth matrix The Ansoff Growth matrix is a tool that helps organisations to decide about their product and market growth strategy. Growth matrix suggests that an organisation’s attempts to grow depend on whether it markets new or existing products in new or existing markets. Ansoff’s matrix suggests strategic choices to achieve the objectives. Figure 3.6 depicts Ansoff growth matrix.
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Figure 3.6 Ansoff Growth Matrix Market penetration – Market penetration is a strategy where the business focuses on selling existing products into existing markets. This increases the revenue of the organisation. Market development – Market development is a growth strategy where the business seeks to sell its existing products into new markets. This means that the product is the same, but it is marketed to a new audience. Product development – Product development is a growth strategy where a business aims to introduce new products into existing markets. This strategy may need the development of new competencies and requires the business to revise products to appeal to existing markets. Diversification – Diversification is the growth strategy where a business markets new products in new markets. This is an intrinsically riskier strategy because the business is moving into markets in which it has little or no experience. For a business to adopt a diversification strategy, it should have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks. 3.4.3 McKinsey/GE growth pyramid The McKinsey/GE matrix is a tool that performs a business portfolio analysis on the Strategic Business units in an organisation. It is more sophisticated than BCG matrix in the following three aspects:
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— Industry (market) attractiveness – Industry attractiveness replaces market growth. It includes market growth, industry profitability, size and pricing practices, among other possible opportunities and threats. — Competitive strength – Competitive strength replaces market share. It includes market share as well as technological positions, profitability, size, among other possible strengths and weaknesses. — McKinsey/GE growth pyramid matrix works with 3*3 grids while BCG matrix is 2*2 matrixes. External factors that determine market attractiveness are the following: — Market size — Market growth — Market profitability — Pricing trends — Competitive intensity/rivalry — Overall risk of returns in the industry — Opportunity to differentiate products and services — Segmentation — Distribution structure (e.g., retail, direct, wholesale) Internal factors that affect competitive strength are the following: — Strength of assets and competencies — Relative brand strength — Market share — Customer loyalty — Relative cost position (cost structure compared to competitors) — Distribution strength — Record of technological or other innovation
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— Access to financial and other investment resources
Figure 3.7 McKinsey/GE Growth Pyramid
Q.2 Discuss the investment strategies applicable for businesses and methods to rectify faulty investment strategies. (10 marks) Ans. An investment strategy is a key component of every conceivable business type, and
it's critical to ensuring the success of the business. Entire college programs have been designed specifically to teach business investment strategies, but a few key tips can help lay groundwork for effective investing. 1. Use Income to Eliminate Debt o While the pay-down of outstanding debt may not seem like business investment on the surface, debt elimination can equate to a financial return that outpaces even the best investments. If a business has outstanding debt financed at a given interest rate, paying off that debt guarantees an instant return of that percentage. Because business debt often reaches into double digit interest rates, paying off this debt can provide an instant, guaranteed return that is significantly higher than usual returns on other investments.
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Reinvest Funds to Nurture the Business
Perhaps one of the most common ways businesses invest their funds involves purchasing additional equipment, remodeling customer-facing environments or opening additional locations. By reinvesting profits back into the business for expansion or improvement, the business stands to gain additional profits as a result of the expansion. As an added bonus, a guaranteed return on the investment will come in the form of tax not assessed on the reinvested funds.
Invest in Other Businesses
Some businesses find success in investing their profits in other noncompeting businesses. These investments may be made as traditional cash investments, as loans or by purchasing securities issued to business start-ups. Investing in other businesses can be an especially wise move for companies in shaky industries, as spreading investments into other types of operations can help diversify a business's holdings and reduce the risk of a complete business loss.
Or — Use of income to eliminate debt — Reinvestment of funds to nurture the business — Investment in other businesses Investment is defined as the commitment of money or capital (e.g. purchasing assets, keeping funds in a bank account etc) to generate future returns. A proper understanding of the investment strategies and a thorough analysis of the options helps an investor to create a portfolio that maximises returns and minimises exposure to risks. Following are the ways to invest successfully: — Leave a margin of safety – Always leave a margin of safety in your investments to protect your portfolio. The following are the two ways to incorporate the above principle in your investment selection process. ° Be conservative in your valuation assumptions ° Only buy assets dealing at substantial discounts to your conservative estimate. — Invest in business which you understand – Invest in a business in which you have a thorough understanding of the customers, products/services etc.
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— Make assumptions – Make assumptions about your future performance by recognising your own limitations. Never purchase the stock until you understand the industrial economy and able to forecast the future of the company with certainty. — Measure your success – Evaluate your performance by the underlying measures in business. — Have a clear disposition towards price – The more you pay for an asset in relation to its earnings, the lesser is your return value. So have a clear outlook towards the price. — Allocate capital by opportunity cost – Allocate investments/assets to the choice which has been opted as the best among several mutually exclusive choices.
Internal methods to rectify faulty investment strategies In this section we will explain the methods to rectify faulty investment strategies. Some of the methods are as follows: — Internal transformation — Corporate restructuring and reorganisation — Financial restructuring — Divestment strategy — Expansion strategy — Diversification strategy — Vertical and horizontal integration strategy — Building core competencies and critical success factors Frequent assessment report assists in detecting the problems associated with faulty investment strategies in an organisation. Internal transformation Internal transformation takes place in an organisation to sustain constant growth, survival and maintain profitability. It includes corporate restructuring, downsizing of employees etc. The following are the reasons for internal transformation of a company: — Pressure on owner to decrease costs
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— Overstaffing — Large and complicated company structure — Low flexibility of staff — Financial instability The main objective of a company which adopts internal transformation is to increase efficiency by reaching the standards in the global market. This is achieved by holding high quality level of productivity. The essential components of a successful business transformation are as follows: — Achievement ° A new level of sustainably high performance emerges ° Extraordinary and unexpected results appear throughout — Improved synergy ° Collaboration naturally occurs across all levels ° Creativity and innovation flourishes — Aliveness ° Employees flourish as they openly express their passion, commitment and creativity towards work. ° Growth and development occurs both personally and professionally — Shared future ° The entire organisation unites to accomplish the future and live consistently with core values We will now discuss the two internal transformation processes in the following section. — Corporate restructuring and re-organisation — Layoffs and employee termination
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Q.3. a. Distinguish policy, procedure and programmes with examples. (5 marks) b. Give a short note on synergy. (5 marks)
Differences between policy, procedure, process and programmes In the previous topic we discussed the definition and meaning of policy, procedure, process and programmes. Now we will analyze how each concept is different from the other. 1. Policy is general in nature and identifies the company rules. 2. Policy explains the reason for existence of an organisation. 3. Policy shows how rules are enforced and describes its consequences. 4. It defines an outcome or a goal. 5. They are described by using simple sentences. 6. Policies are guidelines for managerial actions. 7. It is a planned way to handle certain issues in the organization. 8. It is framed by the top level management. 9. Policies are a part of the strategies of Procedure identifies the specific actions and explains when an action needs to be taken. It describes emergency procedures which include warnings and cautions. It is systematic way of handling routine actions. Procedure defines the means to achieve the goals. Procedures are written in an outline format. It is generally detailed and rigid. It is a part of tactical tools. Process is a set of activities conducted by people to achieve organizational goals. Process defines the method in which the work is done. It is a long term rule that drives an organization. Programme is a concrete scheme of activities designed to accomplish a specific objective. It provides step by step approach to the activities taken to achieve the goals. Programming helps in developing an economical way of doing things in a systematic manner.
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Ans. b. Synergy is the energy or force created by the working together of various parts or processes. Synergy in business is the benefit derived from combining two or more elements (or businesses) so that the performance of the combination is higher than that of the sum of the individual elements (or businesses). Organizations strive to achieve positive synergy or strategic fit by combining multiple products, business lines, or markets. One way to achieve positive synergy is by acquiring related products, so that sales representatives can sell numerous products during one sales call. Rather than having two representatives make two sales calls to a potential customer, one sales representative can offer the broader mix of products. Mergers and acquisitions are corporate-level strategies designed to achieve positive synergy. The 2004 acquisition of AT&T Wireless by Cingular was an effort to create customer benefits and growth prospects that neither company could have achieved on its own—offering better coverage, improved quality and reliability, and a wide array of innovative services for consumers. Negative synergy is also possible at the corporate level. Downsizing and the divestiture of businesses is in part the result of negative synergy. For instance, Kimberly-Clark Corporation set out to sharpen its emphasis on consumer and health care products by divesting its tiny interests in business paper and pulp production. According to the company, the removal of the pulp mill will enhance operational flexibility and eliminate distraction on periphery units, thus allowing the corporation to concentrate on a single, core business activity. The intended result of many business decisions is positive synergy. Managers expect that combining employees into teams or broadening the firm's product or market mix will result in a higher level of performance. However, the mere combination of people or business elements does not necessarily lead to better outcomes, and the resulting lack of harmony or coordination can lead to negative synergy.
Q.4. Select any established Indian company and analyse the different types of strategies taken up by the company over the last few years. (10 marks)
Cadbury plc, formerly known as Cadbury-Schweppes plc, before it demerged from its Americas Beverages manufacturing business in 2008 (Peston, 2008), is the world’s leading confectionery manufacturer and distributor. Cadbury plc “operates in over 60 countries, works with over 35,000 direct and indirect suppliers and employs around 50,000 people” (Cadbury India Ltd., 2008).
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Cadbury stresses the importance that it places on quality. Apart from its mission statement, it also references the slogan, “Cadbury means quality” as an integral part of its business’s activities (Superbrands, 2008). Lastly, Cadbury also aims to put “A Cadbury in every pocket” (Karvy Research, n.d.) by targeting current consumers and encouraging them to make impulse purchases and by maintaining a superior marketing mix (Karvy Research, n.d.). Cadbury India Ltd, as the Indian subsidiary of this confectionery giant, also utilizes the same mission and vision statements of its parent firm when operating in the Indian market, albeit with different business strategies and approaches. Since Cadbury’s activities vary from country to country, this report will simply examine the activities of Cadbury India Ltd in the Indian market, one of the fastest growing confectioneries markets in the world (Financial Express, 2008). Products offered by Cadbury India Ltd. Cadbury plc manufactures and sells three different kinds of confectionery: chocolate, candy and chewing gum (Cadbury India Ltd., 2008), but in the Indian market, its product line is split up into the chocolate confectionery, milk food drinks, candy and gums categories (Cadbury India Ltd., 2008). This report will examine two different products offered to the Indian market by Cadbury India: Cadbury Dairy Milk (chocolate category) and Cadbury Bournvita (milk drinks category). (a) Cadbury Dairy Milk (b) Pricing Cadbury India enjoys controlling 70% of the confectionery market in India, of which 30% is directly due to the success of its Dairy Milk product, which averages sales of around 1 million bars per day (Cadbury Dairy Milk, 2008; Marketing Communications, 2008). Cadbury Dairy Milk bars are Cadbury India’s cash cow in the country’s 4000 tonne, Rs. 6.50 billion (around 1.6 billion CAD) chocolate market (Gupta, 2003), as such, has been designated its flagship brand (Cadbury India Ltd., 2008; Chatterjee, 2000). Part of Cadbury Dairy Milk’s success lies in its shared history with India’s identity (it was first sold in 1948, one year after the country was made independent from the British Empire) (Cadbury Dairy Milk, 2008) but also in the fact that it is priced relatively cheaply (Chatterjee, 2006) and is relatively affordable by the Indian masses. Even its smallest Dairy Milk bar, the 13 gram version, is priced at Rs. 5 (about 0.13 CAD), affordable by many middle-class Indians as an occasional treat, but not affordable for those who buy from the less-then-3-rupee (Rs. 3) segment of the market (Chatterjee, 2006). Its history of operating in the country and its average level pricing of chocolate bars, has made the Cadbury dairy Milk bar synonymous with high quality, affordable pure milk chocolate for many Indian customers (Cadbury Dairy Milk, 2008).
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(ii) Consumer segments served and advertising/promotional strategies used Cadbury India Ltd continuously markets Dairy Milk as a relatively inexpensive treat, towards market segments divided by age, income, technological knowledge and healthconsciousness. In the 1990’s, the company stated promoting the chocolate for “the kid in everyone”, in an attempt to appeal to adults as well as children (Cadbury Dairy Milk, 2008). In order to appeal to potential lower-income customers in the villages of India, further marketing in the form of the “Real taste of life” campaign (Cadbury Dairy Milk, 2008) attempted to absorb these customers into its market share. By using opinion leaders from Bollywood and using extensive advertising in newspapers, television, magazines and massive billboards across the country, Cadbury managed to capture the attention of the nation and cement its market share superiority in India (Cadbury Dairy Milk, 2008; Marketing Communications, 2008). Nowadays, Cadbury’s is trying to tap into the potential market of younger generation Internet users by offering contests and hosting competitions online, the most notable being its “Pappu Pass Ho Gaya” (Pappu Passed!) joint venture operation with Reliance India Mobile, a branch of India’s largest network service provider, which allowed students across the country to check their examination grades online and celebrate with Cadbury’s Dairy Milk if they did well (Cadbury Dairy Milk, 2008). Furthermore, Cadbury India continuously develops new versions of its Dairy Milk brand in order to keep its adult and children consumers satisfied and interested. Variations include the Fruit & Nut and Crackle & Roast Almond variations (Cadbury Dairy Milk, 2008) which are meant for snacking, as well as the Cadbury Dairy Milk Desserts, “to cater to the urge for ‘something sweet’ after meals” (Cadbury Dairy Milk, 2008). The Cadbury Bournville Dark Chocolate bar, similar to the Dairy Milk bar, targets the healthconscious market segment of the chocolate market, who wish to enjoy the taste of dark chocolate but also its health benefits (Financial Express, 2008). Lastly, Cadbury Dairy Milk Wowie, with Disney characters embossed on each chocolate square (Cadbury Dairy Milk, 2008) clearly targets the child segment of its market. Cadbury’s market segmentation is quite effective because it allows them to target all three major market segments: children, adults and technologically-savvy consumers, but it does not serve those segments of the market that have been divided by income levels. Although Dairy Milk is affordable to the upper and middle-income consumers who view it as a midpriced item (Kochhar, 2007), lower income consumers who buy from the less-than-3rupee range of chocolate cannot afford to buy Cadbury Dairy Milk regularly. Cadbury will need to address the needs of this market segment in order to boost its sales of Dairy Milk. Indian consumers seem to be satisfied with Cadbury Dairy Milk as its marketing promotes it as an occasional indulgence, despite popular opinion that it is a relatively expensive luxury product (Cadbury India Ltd. Analysts Meet, 1999). This restrained
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marketing has allowed the chocolate to slowly become a measure of quality for many Indians, as Cadbury Dairy Milk is their “Gold Standard” for chocolate, where the “pure taste of Cadbury Dairy Milk defines the chocolate taste for the Indian consumer” (Cadbury India Ltd., 2008). In fact, Cadbury Dairy Milk was voted one of the India’s most trusted brands in a poll conducted in 2005 (Cadbury Dairy Milk, 2008). (iii) Product Positioning Cadbury India Ltd’s main sources of competition come from Amul, India’s own dairy company and Nestle India, Nestle’s subsidiary in India. As seen in Appendix B, Cadbury India controls around 70% (Cadbury India Ltd., 2008) of the chocolate market, whereas Amul controls around 2% (Dobhal, n.d.) and Nestle India around 27% (Nestle to expand, 2008). As mentioned earlier, Cadbury’s main strength comes from it ability to market Dairy Milk products “through altering the theme and functionality of the product as the time demands” (Cadbury India Ltd Analysts Meet, 1999). Although this has allowed it to control more of the market than its closest competitors, the reasons for its success may also lie in the fact that many Indians still view its chocolates as luxury products (Cadbury India Ltd Analysts Meet, 1999) and not as household goods. This contradicts Cadbury’s assertion that its leadership is maintained by a “superior marketing mix” (Karvy Research, n.d.). Cadbury India may have misinterpreted the popularity of Dairy Milk as a sign that the Indian public has accepted it as a household product. In fact, the booming economy and the increasing affluence of the burgeoning middle class (Basu, 2004) has promoted the use of status symbols, where the regular consumption of so-called luxury chocolates such as Cadbury Dairy Milk is viewed as fashionable (Kochhar, 2007). Despite Amul’s longer history in India, its chocolates are viewed as being local and not luxurious, justifying a lower price tag (Chansarkar et al., 2006). Cadbury India must maintain its current marketing strategy but slowly start to promote Dairy Milk as a household good so that consumers spend their rising disposable incomes on it and boost its sales (Rai, 2006). Amul’s origins as a community welfare program in Gujarat, one of India’s most industrialized states, to becoming a national enterprise (Amul, 2008) spanned the decades during which newly-independent India forged its identity, thus becoming an integral part of India’s identity and giving its marketing strategy a new source of authority. Cadbury simply cannot match this kind of national endorsement, so by at least promoting the fact that it has been operating in India for almost as long as Amul, it can try to be “Indian” too. This, in combination with the longest running advertising campaign that Amul is famous for gives it a brand awareness boost. Moreover, Amul’s reputation for credibility, safety and consumer satisfaction was only reinforced when Cadbury India’s Chinese-made products were found to be contaminated with worms and melamine (Sinn and Karimi, 2008). The “Gold Standard” (Cadbury Dairy Milk, 2008) was no longer gold, nor was it a standard anymore, as people’s confidence in its safety was shattered. In order to position its products as safe and
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affordable treats once again, Cadbury India should make attempts to be even more sensitive to consumer demands. Customer satisfaction must be given the utmost importance, even if the company has to run at a loss for a few months, as this will eventually allow it to negate some of the extensive damage that this negative publicity has to the firm’s reputation. The new extra-layer packaging of chocolate that is now being used in the manufacture of Dairy Milk is a good first step to take in reclaiming some of the public’s trust (Vivek, 2004). Lastly, Amul’s innovative ideas will be the bane of Cadbury. Their release of diabetic friendly chocolate and chocolates catering to different ethnic flavours (Janve and Dogra, 2007) as well as chocolates for festive seasons allow them to rapidly sway consumers over to their products. This accounts for their soaring annual market growth rates of 18% annually (Indian Express, 1999). In comparison to Nestle India however, Cadbury India’s longer track history gives it a competitive edge. Cadbury has more of a brand recognition power than Nestle has, and it uses this extensively to promote Cadbury Dairy Milk all over the country. Nestle still has to break into the Indian market; one way to do this would be to follow Amul’s lead and develop and market products that meet specific ethnic needs, such as chocolates for Diwali and Rakshabandan (two different Indian festivals) (Kochhar, 2007) , concepts that Cadbury India has yet to explore. Cadbury India must counter this threat that Nestle and Amul pose, namely, the production of chocolates specifically for the festive seasons of India. By doing so, Cadbury will be able to position its chocolates as chocolate specifically designed for India, endearing it to the consumers and boosting its sales. (a) Cadbury Bournvita (i) Pricing Cadbury Bournvita was first sold on the Indian markets in 1948, soon after Cadbury India Ltd (then known as Cadbury-Fry) was incorporated (Cadbury Bournvita, 2008). As a result of being one of the first products offered on the Indian market by Cadbury, combined with successful marketing strategies and promotional offers, Cadbury Bournvita enjoys a 17% market share of the malt-based food drink market (Cadbury Bournvita, 2008). India alone accounts for 22% of the world’s malt-food milk drink retail sales (BeverageDaily, 2004), but unlike Cadbury Dairy Milk, Cadbury Bournvita does not control a large share of India’s malt-based food drinks market. Bournvita is largely sold in 500 gram bottles for around Rs. 95 (2.35 CAD) a piece despite other sizes being available, and is perceived to be quite expensive (Hawa, 2002). However, due to its long history with India, and the fact that it is used a staple source of nourishment by Indian mothers for their children, Bournvita’s still remains popular (Hawa, 2002).
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(ii) Consumer segments served and advertising/promotional strategies used Cadbury markets its Bournvita product in diverse market segments. Bournvita has been marketed mainly towards children, but also finds followers amongst elderly people, pregnant women and athletes (Hawa, 2002; Cadbury Bournvita, 2008). Continuous brand re-invention, a “rich brand heritage” and complete overhauls in packaging, product design, promotion and distribution have allowed Cadbury Bournvita to maintain its 17% market share over the years in India’s 220,000 tonne malt-food market (Cadbury Bournvita, 2008; BeverageDaily, 2004). Over the years, Cadbury has marketed Bournvita in order to appeal to the change in perceptions and tastes of its consumers. It focused on the “Good Upbringing, Goodness that grows with you” campaign to promote Bournvita as an essential health drink for children (Cadbury Bournvita, 2008). This campaign was conducted mainly on the radio, the primary medium of communication for many Indians at the time (Ranjan, 2007). This campaign was followed by the massively successful “Brought up right, Bournvita bright” television, newspaper and magazine campaign (Cadbury Bournvita, 2008) to reach out to more children and promote the link between intelligence and Bournvita, a concept that appealed to many children. In order to cement their consumer base and ensure brand loyalty, in the 1990s, Bournvita challenged the public by promising complete physical and mental development for its consumers (Cadbury Bournvita, 2008), where the subsequent television marketing campaign secured Cadbury Bournvita’s place in the Indian market. The most recent marketing campaign undertaken by Cadbury Bournvita is the one specially designed to harness consumers’ uncertainty about the challenges of the new millennium. The “Real Achievers who have grown up on Bournvita” campaign focused on preparing consumers with the health, vitality and nutrition necessary for facing the challenges of the new millennium (Cadbury Bournvita, 2008) and allowed Cadbury Bournvita to keep “pace with the evolving mindsets of the new age consumers” (Cadbury Bournvita, 2008). This marketing campaign was broadcast on television and published in newspapers in an effort to recruit contestants (Kapoor, 2007). The release of new versions of the original Bournvita such as Bournvita 5-Star, combining the flavour of the original chocolate Bournvita with the flavor of Cadbury 5Star (Cadbury Bournvita, 2008), one of its caramel chocolates helps maintain consumer interest. The new product is being aimed at the segment of children who want nutrition but also taste (Cadbury Bournvita, 2008). By also sponsoring the Indian Olympic team to the Moscow Olympics of 1980 (Cadbury Bournvita, 2008), Cadbury Bournvita has managed to appeal to an athletic market segment as well. Recently, by supporting sports competitions and sponsoring athletes across the country, Cadbury Bournvita has managed to promote itself as a sports drink for athletes (Kapoor, 2007). Furthermore, one of the most famous Indian examples of Cadbury Bournvita’s ingenious marketing is its sponsorship of the Bournvita Quiz Contest. The Bournvita Quiz Contest is the longest running quiz show in India, having first been aired in 1972. The Contest
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spans 7 countries, has involved more than 4000 schools and more than 1 million students, making it one of the most popular high school contests (Cadbury Bournvita, 2008), as well as one of Cadbury’s most successful marketing ventures till date. However, despite Cadbury Bournvita’s history of serving consumers in the Indian market, and amidst allegations of declining quality and taste of the Bournvita brand (Hawa, 2002), many customers still feel that Bournvita does not have the appeal that other brands, such as Horlicks do (refer to Appendix C) and thus the market is slowly switiching over to white malt-based food drinks such as Horlicks (Karvy Research, n.d.; Cadbury India Ltd Analysts Meet, 1999). (iii) Product Positioning The malt-based food drinks market in India is divided into brown drinks and white drinks categories (Cadbury India Ltd Analysts Meet, 1999; Karvy Research, n.d.), with white drinks being popular in the southern and eastern parts of the country, and the brown drinks being popular in the northern and western parts of the country (Karvy Research, n.d.). Cadbury Bournvita’s major source of competition comes from GlaxoSmithKline’s Horlicks and Heinz Food’s Complan. As seen in Appendix C, Horlicks is the market leader with a 44% market share (Chatterjee, 2006), followed by Cadbury Bournvita with its 17% market share (Chatterjee, 2006) and then Complan with its 13% market share (Samajdar, 2006). As mentioned earlier, the malt-drinks market is split up into the white and brown drinks categories. The white drinks category is mainly led by Horlicks whereas the brown drinks category is led by Bournvita (Karvy Research, n.d.). Lately, more consumers have started switching over to consuming white drinks than brown drinks, thereby giving Horlicks a larger market share than Bournvita (Karvy Research, n.d.). When competing with Horlicks, Cadbury Bournvita’s current marketing strategy is simply not enough. Given than Horlicks has been operating in the Indian market for longer than Cadbury (Horlicks, 2008), this larger market share may be explained by more consumer familiarity with Horlicks than with Bournvita, however, Horlicks’ extensive marketing campaigns may also have played a part. Horlicks has always marketed itself as a “Great Family Nourisher” with products such as Mother’s Horlicks designed for different members of the family (Horlicks, 2008), which makes it more appealing to a wider section of the market, with products designed for different members of the family, such as Mother’s Horlicks (Horlicks, 2008), than Bournvita’s mainly child-oriented approach. Thus, even elderly and convalescent consumers can consume the product without feeling conscious of consuming a child-only product. Even the Bournvita Quiz Contest, effectively Bournvita’s longest running marketing campaign, mainly attracts more child consumers to its product (Radakrishnan, 2002), and thus cannot compete with Horlicks’ wider appeal. Thus, the solution lies in
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Cadbury India marketing Bournvita as an adult drink as well. Only then will it be able to compete effectively with Horlicks. Meanwhile, Complan’s market share of 13% (Samajdar, 2006), is less than Bournvita’s. Although both products are targeted at children, Complan has marketed itself as a “perfect nutritional supplement” (Complan, n.d.) rather than as a healthy drink for children, which is Bournvita’s approach. Since the words ‘nutritional supplement’ connote a need for extra nourishment, this may possibly work against Complan as many families may feel that their child receives enough nourishment and does not require more. Although Cadbury Bournvita currently has a larger market share of the two, it must continue to market itself as a child-friendly drink, and not as a nutritional supplement, in order to maintain its superiority. Delivering Cadbury products to customers
India’s 300 billion USD retail market is growing at a rate of 30% per annum (Rai, 2006). In a country where half a billion people are under the age of 25, disposable incomes are on the rise and the economy is growing at a rate of 8% annually (Rai, 2006), selling treats such as Cadbury Dairy Milk bars and Cadbury Bournvita powder will generate massive returns. However, in order to be able to sell these products to customers, proper distribution channels must be identified. The Indian retail sector is composed of 97% “family-run, street corner stores” (Rai, 2006) and the remaining 3% consisting of malls and shopping complexes. Therefore, Cadbury India Ltd. produces its products in factories spread geographically across India, but also sells its products through a chain of over 300,000 retailers spread across India (Cadbury India Ltd Analysts Meet, 1999). The efforts of these retailers are augmented by the support of 1900 distributor locations and 27 depots (Cadbury India Ltd Analysts Meet, 1999). Furthermore, of a total of 3600 locations that sell Cadbury products, almost 3100 locations are directly supplied by Cadbury India Ltd distributors at least thrice a month (Cadbury India Ltd Analysts Meet, 1999). These distribution networks give Cadbury India its competitive edge in India’s massive consumer market. SWOT Analysis of Cadbury India Ltd. Cadbury India Ltd’s objective of putting a “Cadbury in every pocket” (Karvy Research, n.d.) can only be done if the company markets its Cadbury Dairy Milk as a household good and its Bournvita as a family-friendly drink. Until then, its Cadbury Dairy Milk success will only be short-term in nature and Bournvita will not be able to reverse the trend towards the consumption of white malted drinks (Cadbury India Ltd Analysts Meet, 1999) and compete with Horlicks. As seen in Appendix D, if Cadbury Dairy Milk can be marketed extensively enough to break the ‘luxury’ perception that consumers have of it currently (Cadbury India Ltd Analysts Meet, 1999), it can benefit from inelastic demand as a household product, thus generating a constant stream of revenue and cementing the
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Dairy Milk brand as a cash cow product. This objective can be accomplished by simply building on the good reputation and trust that it has earned, and by listening to the needs of its consumers. Bournvita meanwhile needs to be extensively marketed in order to reduce the damaging effect that Horlicks’ family-friendly marketing mix is having on its market share. Furthermore, the key threat that can affect Cadbury India Ltd’s success in India is Amul’s innovative marketing strategy. As a result of its witty marketing strategies, length of time serving India and its ability to develop and market products specifically tailored for Indian consumers, Amul’s yearly growth rate of 18% may slowly start to eat away at Cadbury’s success (Indian Express, 1999). Conclusion Cadbury India Ltd’s position in India is relatively strong. In order to maintain its lead in such a large market, it must learn to address the specific needs of its consumers and continue to maintain their goodwill, while also analyzing its competitors’ marketing strategies. By doing so, it will be able to isolate the benefits and drawbacks of its competitors’ marketing mix and use those to its own advantage. Cadbury must also appreciate the advantages of a positive reputation and always stress consumer satisfaction. One key aspect of this lies in maintaining the safety of its products so that the name of Cadbury is always synonymous with high quality safe products. Repeats of the recent melamine and worms issues cannot be allowed to happen as once consumer confidence in its brand name is shattered, Cadbury India’s brand recognition aspect will immediately work against it by highlighting the link between its name and contaminated food products. This will cripple sales and reverse the fruits of 70 years of hard work in the country, leaving the path open for more efficient local companies like Amul to learn from Cadbury India’s mistakes and take over its market share.
FutureStrategy In the branded impulse market, the share of chocolate in 6.6% and Cadbury’s share in the impulse segment is 4.8% factor like changing attitude, higher disposable income, a large youth population, and low penetration of chocolate (22% of urban population) point towards a big opportunity of increasing the share of chocolate in the branded impulse among the costly alternative in the branded impulsemarket. It appears that company is likely to play the value game to expand the market encouraged by the recent success of its low priced ‘value for many packs’. Various measures are undertaken in all areas of operation to create value for the future. New channel of marketing such as gifting and child connectivity and low end value for money product for expanding the consumer base have been identified. In terms of manufacturing management focus is on optimizing manufacturing efficiencies and creating a world class manufacturing location for CDM and Éclairs. The company is
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today the second best manufacturing location of Cadbury’s Schweppes in the world. Efficient sourcing of key raw material i.e. coca through forward purchase of imports, higher local consumption by entering long term contract with farmer and undertaking efforts in expanding local coca area development. The initiatives in the terms of development a long term domestic coca a sourcing base would field maximum gains when commodity prices start moving up. •Use of it to improve logistic and distribution competitiveness •Utilizing mass media to create and maintain brands. • Expand the consumer base. The company has added 8 million new consumer in the current year and how has consumer base of 60 million although the growth in absolute numbers is lower than targeted, the company has been able to increase the width of its consumer base through launch of low priced products. • Improving distribution quality by addressing issues of product stability by installation of visi coolers at several outlets. This would be really effective in maintaining consumption in summer, when sales usually dip due to the fact that the heat effects product quality and thereby consumption. • The above are some steps being taken internally to improve future operation and profitability. At the same time the management is also aware of external changes taking place in the competitive environment and is taking steps to remain competitive in the future environment of free imports, lower barrier to trade and the advent of all global players in to the country. The management is not unduly concerned about the huge deluge of imported chocolate brands in the marketplace. It is of the view that size of this imported premium market is small to threaten its own volumes or sales in fact, the company looks at the tree important as an opportunity, where it could optimally use the global Cadbury Schweppes portfolio. The company would be able to not only provide greater variety, but it would also be more cost effective to test market new product as well as improve speed of response to change in consumer preference through imports. The only concerns that the company has in this regard is the current high level of duties, which limit the opportunity to launch value for money products.
Q. 5 Why do you think it is necessary for organisations to have vision and mission statements and also core competencies? Support your answer with relevant examples. (10 marks)
Ans. Vision and Mission statements A well-articulated strategic intent guides the development of goals and helps in inspiring the employees to achieve targets. It also facilitates in utilising the intent to allocate resources and in encouraging team participation. It comprises of the vision and mission statements.
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Vision statement A vision statement defines the purpose and principles of an organisation in terms of the values of the organisation. It is a concise and motivating statement that guides the employees to select the procedures to attain the goals. Vision statement is the framework of strategic planning. A vision statement describes the future ambition of an organisation. A vision is the ability to view what the organisation wants to be in future. It is prepared for the organisation and its employees. It should be implanted in the organisation being collectively shared by everyone in the organisation. It conveys an effective business plan. It integrates an understanding about the nature and aspirations of the organisation and develops this conception to lead the organisation towards a better objective. It must synchronise with the organisation’s principles. The ambition should be rational and achievable. Example - Wal-Mart’s vision is to become worldwide leader in retailing.
Vision statement of L&T L&T employees shall be innovative and the empowered team will constantly create values and attain global benchmarks. L&T shall promote a culture of trust and continuous learning. It shall meet the expectations of employees, stakeholders and society. (i) Cadbury’s Vision Statement
Our objective is to deliver superior shareholder returns by realizing our vision to the be the world’s biggest and best confectionery company. We are currently the biggest, and we have an enduring commitment to become the undisputed best. At the heart of our plan is our performance scorecard, delivered through our priorities, sustainability commitments and culture Cadbury plans to “deliver superior shareholder returns” (Cadbury plc, 2008) by measuring its financial progress in the areas of growth, efficiency, capabilities and sustainability from 2008 to 2011 (Cadbury plc, 2008). Mission statement A mission statement is the extensive definition of the mission of an organisation. It is a concise description of the existence and fundamental purpose of an organisation. It describes the present potentials and activities of the organisation. It conveys the purpose of the organisation to its employees and the public. It is vital for the development and growth of the organisation.
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Mission statement is the responsibility by which an organisation aims to serve its stakeholders. It gives a framework on the operations of the organisation within which the strategies are devised. It describes the present capabilities, the stakeholders and the reason for existence of an organisation. The statement distinguishes an organisation from its other competitors by explaining its scope of activities, technologies, its products and services used to achieve the goals and objectives. It should be practical and achievable. It should be clear and precise so that the actions can be taken based on it. It should be unique and different to leave an impact on everyone. It should be credible so that the stakeholders accept it. Example -Wal-Mart’s mission is to provide ordinary customers the chance to buy the same thing as rich people.
Mission statement of IBM “At IBM, we strive to be the forerunner in inventing, developing and manufacturing most advanced information technologies, including computer systems, software, storage systems and microelectronics.” The distinction between mission statement and vision statement is that the mission statement focuses on the present position of the organisation and the vision statement focuses on the future of the organisation. (ii) Cadbury’s Mission Statement Cadbury’s mission statement outlines its overall business objective and its commitment to its customers. Our core purpose “Working together to create brands people love” captures the spirit of what we are trying to achieve as a business. We collaborate and work as teams to convert products into brands. Core competencies are those skills that are critical for a business to achieve competitive advantage. These skills enable a business to deliver essential customer benefit like the selection of a product or service by a customer. Core competency is the key strength of business because it comprises the essential skills. These are the central areas of expertise of the company where maximum value is added to its services or products. Example – Infosys has a core competency in information technology. It is a unique skill or technology that establishes a distinct customer value. As the organisation progresses and adapts to the new environment, the core competencies also adjust to the change. They are not rigid but flexible to advancing time. The organisation makes the maximum utilisation of the competencies and correlates them to new opportunities in the market. Resources and capabilities are the building blocks on which
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an organisation builds and executes a value-added strategy. The strategy is devised in a manner that an organisation can receive reasonable profit and attain strategic competitiveness. Core Competencies are not fixed. They change in response to the transformation in the environment of the company. They are adaptable and advance over time. As an organisation progresses and adapts to new circumstances, the core competencies also adapt to the transformation.
Q. 6. What is SBU? Explain its features, functions and roles. Mention some of the successful SBU of MNC’s. (10 marks) Incompelete
Ans. Strategic Business Unit or SBU is understood as a business unit within the overall corporate identity which is distinguishable from other business because it serves a defined external market where management can conduct strategic planning in relation to products and markets. The unique small business unit benefits that a firm aggressively promotes in a consistent manner. When companies become really large, they are best thought of as being composed of a number of businesses (or SBUs).Strategic Business Unit (SBU) is necessary when corporation starts to provide different products and hence, need to follow different strategies.SBUs are also known as strategy centers, Independent Business Unit or even Strategic Planning Centers. Strategic Business Unit (SBUs) is necessary when corporation starts to provide different products and hence, need to follow different strategies. To ease its operation, corporate set different groups of product/product line regarding the strategy to follow (in terms of competition, prices, substitutability, style/ quality, and impact of product withdrawal). These strategic groups are called Strategic Business Units (SBUs). Each Business Unit must meet the following criteria: 1. Have a unique business mission, independent from other SBUs. 2. Have clearly definable set of competitors. 3. Is able to carry out integrative planning relatively independently of other SBUs. Should have a Manager authorized and responsible for its operation.
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