business analysis and strategy recommendation of juc

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Charlie Chen EMBA Student ID: 00004301 | Managerial Marketing | June 20, 2014 Business Case Analysis and Recommended Marketing Strategy FOR JUST US! CAFE

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Page 1: Business analysis and strategy recommendation of juc

Charlie Chen EMBA Student ID: 00004301 | Managerial Marketing | June 20, 2014

Business Case Analysis and Recommended Marketing Strategy

FOR JUST US! CAFE

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Table of Contents

Document Objective ..................................................................................... 3

Case Background ......................................................................................... 3

Problem Statement ....................................................................................... 4

Market Analysis ............................................................................................ 5

Competitive Analysis ................................................................................... 5

Environment Analysis .................................................................................. 6

Technology trends ....................................................................................... 6

Consumer trends ......................................................................................... 7

Economic Trends ......................................................................................... 7

Internal Analysis ........................................................................................... 7

sales and profitability ................................................................................... 8

customer brand loyalty ................................................................................. 8

Strengths and weakness ............................................................................. 8

threats and opportunities ............................................................................. 9

Strategic Analysis ........................................................................................ 9

Threat of new entry .................................................................................... 10

The Power of suppliers .............................................................................. 10

the power of buyers ................................................................................... 10

the threat of substututes ............................................................................ 10

Rivalry among existing competitors ........................................................... 10

Strategic Alternatives ................................................................................. 10

Fit and Attractiveness Analysis ................................................................. 11

Recommendation ....................................................................................... 12

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where and how to compete ........................................................................ 12

References .................................................................................................. 14

Appendix A ................................................................................................. 15

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Document Objective

In this case study and strategy recommendation document the author use the knowledge and methodologies learned in the managerial marketing course of (EMBA) to analyze the position dilemma that Just Us! Cafes (JUC) is facing and help the management team of the organization addressing some of its burning issues. By leveraging analytical tools and framework learnt from the course the author able to produce a competitive, sustainable strategy for the business.

The ultimate goals of this document are to provide a structured recommendation to JUC management team and mapping the relationship between competitive forces and business strategies and answering the question of where to compete and how to compete.

Case Background

JUC Profile

Just Us! Cafe started by its founder Jeff and Debra Moore in 1996. It structured as worker-owned co-op and their main product is organic coffee which imported from fair trade certified coffee producers all over the world.

JUC Business Objectives and Initiatives

JUC‘s goal and objectives are simple and humble.

Role model in fair trade business and community ownership

Provide best value and exceptional service

Ensure the business operated with sense of environment responsibility

Accountable to its members and broader community

JUC was the first fair Trade coffee roster in Canada. It has unique principle of “people and planet more important than profit”. The founders of JUC also established a non-profit organization: Just Us! Development and Education Society which promote social and environmental awareness by providing documentary and educational activities to schools and organizations.

Sales Performance Summary

The company managed to have a healthy sales growth (over 10%) for 8consecutive years (refer to Just Us! Cafes Revenues 2002-2008 report). The company has relatively small diversified product range (coffee bean, Tea, sugar and chocolate). Those diversified products also brought high percentages of sales growth.

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JUC had built strong customer loyalty in its product with young, educated ethical conscious consumers. They are not only interested in its products but also interested in its activities and philosophies.

From sales revenue perspective its main sources are large amount of retail stores. It also established strong relationship with local specialty food stores and office market.

Substantial JUC sales revenue comes from wholesaling to large retail stores and supermarkets chain. JUC obtained enormous brand recognition and loyalty from local distribution channel which contributing 40% of its total revenue.

Problem Statement

As for all other business, JUC has been facing many challenges after almost 10 years 2-digit consecutive growths.

Externally it has faced a few major national competitors Kicking House, Tim Hortons and Second Cup.

Furthermore some of the large international players such as Kraft, P&G and Nestle are also extending their coffee product into this category. In Canada, large supermarket chains also provide their private label organic and fair trade coffee products.

Locally those small coffee roasting companies and independent coffee shops (which people from surrounding neighbors use for family and friends gathering places) and well known chains with strong financial muscles and strong brand equity were trying to get into the “fair trading trend”. One of them is Trident Bookseller & Café. It offered fair trade certified as well as conventional coffees and other beverages.

Starbucks with strong global brand equity has entered the local market too.

Internally, the lack of advertising skills and knowledge of the existing management team limited the brand to reach more border consumers. Clearly the advertising efforts of JUC brand are far less than its competitors.

Coffee product market is very competitive. After over 12 years in the business, the company landed on its turning point in 2008.

The company management team is seeking to answer following strategic questions:

How to compete with national/international and local competitors

How to leverage current loyalty customers as core and extending existing customer base

Should JUC consider to extend the variety of its products

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How to leverage all forms media and new technology to promote JUC’s products and philosophy

How to better engage and interactive with target customers (i.e. college students and young professionals)

Should JUC extend their distribution channel?

How to further engage all staffs of the organization and encourage them to try their best to serve our customers

Market Analysis

University students, young professional office workers

Super Market, Retail Store Shoppers

Coffee shop take away customers

Needs Social, relax and enjoy premium coffee product

Quantity, quality, organic coffee product

Social, family gathering food, beverages, drink

Driven By Quality of product and Fair Trade and environmental awareness

Price, package, promotion,

Location, activities, interior decoration

Competitors Kicking House, Trident Bookseller & Café, Java Factory

Kraft, Private-label, P&G, Second Cup

Starbucks, independent shop, Tim Horton,

Characteristics Premium location, high quality and high price

Large quantity, lower price

Multiple products, various customers

% of Market medium but growing large small

Table 1-1: Market Segmentation of Coffee Product

Young professional consumer market is the primary market of JUC. The organization need to develop strong market strategy in order to consolidate its leading position in this sector.

There is large emotional element involved in purchase JUC product and the organization need to find a way to stimulate this intangible asset. Facebook and Twitter are great tools in terms of stimulate customers emotional element. They are also a useful tool to explore customer’s unmet needs.

Competitive Analysis

Core Product Category: high quality roasted coffee and Tea product sourced from fair trade partners as well as sugars, chocolate.

Most Direct Competitor Key Strengths and weaknesses

Position in Market

Kicking house e-commerce site, market has been extended US and Europe;

Solid local clients base, Loblaws stores, Upscale food retailers

Kraft International food brands, strong finance, national distribution; Not

Supermarket, retailers, independent coffee shops,

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Fair Trade Certified restaurants

P&G Leading gourmet coffee brands, strong finance, Fair Trade Certified

Supermarket, retailers, independent coffee shops, restaurants

Private-Label Strong finance, national distribution, cheaper price, large customer base

Supermarket, retailers, independent coffee shops, restaurants, consumers

Second Cup Largest Canadian specialty coffee retailer; Not Fair Trade Certified

Various consumers

Starbucks International brands, strong finance, variety of food and beverages

Various consumers

Tim Horton Large chain of quick service restaurant, not Fair Trade Certified

Various consumers

Table 2-1: Competitors table

JUC was facing competition from different directions by competitors with different strengths. The organization not only have to compete with local players, supermarket chains but also have to compete with international players. But, there are some unique valuable propositions JUC possessed. Directly works with coffee farmers and has its local coffee roster facility enabling JUC to cut mid-man cost and control the distribution of its products in order to ensure the freshness of the products. Co-op business model which gives employee a great sense of belonging and enabling them to present their best and to improve customer experience when they visit JUC coffee shops.

However, we cannot ignore heavy weight competitors such as P&G, Kraft. They can launch massive marketing campaign in order to grab market share. They are backed up by their strong financial muscle and able to leverage their existing distribution channel to lower the cost of the product.

Large supermarket chain Loblaws not only is the most important customer of JUC but also is a strong competitor with their own organic and fair trade private label coffee product. Figure 1-1 illustrated the competitors and JUC’s relationship.

Environment Analysis

In this section the author uses the PEST methodology to analyze the business environment of JUC currently facing.

TECHNOLOGY TRENDS

The internet and social media revolution transformed our society to a complete new world that we have never experienced before. There are increasing trend that organization leverages social media to consolidate their

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existing customer base as well as attract new customers. Social media provides complete new way for organization to engage consumer and also can be used for target marketing. The good news is those new methods are relatively cheaper than traditional advertising and much effective from customer engagement perspective.

CONSUMER TRENDS

Coffee drink becomes more popular even in developing world (i.e. China). Drink Coffee becomes a statement of fashion of Chinese middle class. According to the consulting firm Dragonomics, China middle class population has over 300 million people. They have “significant discretionary spending power,” and to tap into the total financial assets of China’s middle class—roughly ¥1.3 million ($213,900) per capita, according to Forbes China. It will be a significant market for any coffee retailer even those reaching the tip of the iceberg. Most of the publication of middle class in China is well educated. China also has most advanced and matured e-commerce infrastructure in this planet. The biggest China e-commerce (B2B, B2C) provider –alibaba.com has over 1 million goods supplier, Revenue over 1 Billion in 2010.

On the other hand, years of global warming campaign made consumer in developed and developing countries become more and more environmental consciousness and appreciate those companies invested in social and environmental responsibility.

ECONOMIC TRENDS

Local economic of Canada is in the middle of recession. Coffee product expenditure will be inevitably reduced by domestic consumers. We can see some small coffee retailer and large national/international retailer started to reduce the price in order to maintain their market share. The superb quality products with higher price are particularly vulnerable.

Figure 2-1 PEST diagram graphically illustrated how JUC surrounded by the environment.

Internal Analysis

As Aaker (2011) suggested, the management team need to know if company existing assets and competencies are good enough for them to win the competition, if not then the current strategy need to be enhanced, extended or even changed.

What are the brand core capabilities

Which of these capabilities is a source of competitive advantage?

What do these capability advantages allow the brand to deliver in the marketplace?

Produces high quality organic coffee

It makes JUC different compare with normal coffee

Meet requirement of group customer who enjoy high

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Table 3-1: Internal Capabilities

Figure 3-1 SWOT diagram graphically illustrated strength, weakness, opportunities and threats that JUC is facing.

SALES AND PROFITABILITY

Since 2008, the number and range of Fair-trade certified products imported to Canada have been growing steadily and Canadian consumers have gradually contributed to the movement and willing to change their shopping list in order to participate this movement and be part of global Fair-trade solution (Sara et al. 2009). JUC has enjoyed its natural market growth for over 10 years since 1996. However the situation has changed due to: increased numbers of competitors from large international brands and increased numbers from local and nationally coffee roster/distributers. Numbers of those competitors backed by much stronger financial resource and much more sophisticated marketing strategies as well as distribution channels. JUC’s market share is facing pressure from competitors.

CUSTOMER BRAND LOYALTY

This is the most important asset of JUC. Customer brand loyalty helped JUC to hold their market share and has sustainable profit even the competition intensified in last few years. The grocery store wholesale channel is relatively strong and demonstrated the high customer satisfaction with the product. Since JUC actually spent very little on advertising this brand loyalty appeared to be very solid and valuable.

STRENGTHS AND WEAKNESS

The unique position in the coffee retailing market of JUC and the brand loyalty (which built by their reputation of early entering into the fair trading business and high quality coffee product) are strengths/competencies of JUC. It usually requires decade and million dollars to build. It is very powerful in consumer product business.

product provider quality coffee

Source raw material via fair trade partners

Attractive to business ethical sensitivities’ customers

Purchase JUC products =contribute to fair trade activity and environment

Co-op business model Great sense of ownership of business

Employees will put extra effort to produce goods and service

Strong relationship with retail distribution channel

This is an extreme valuable asset of JUC and one of Key Success Factor

Those customers have great influence in consumer market and bring JUC sustain revenue

Royalty customers This is another key success factor of JUC

Deep customer engagement for product promotions, package deals, etc.

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The unique business model is JUC’s another strength because it co-op philosophy and way they operated which gave employee a great sense of belonging, But on the other hand its relatively small scale of production, narrow product range and not so strong finance made them vulnerable and hard to compete with those competitors are backed up with diversified product range and unmatchable financial strength.

The other weakness is the management team lack of experience in competitive market and lack of understands the importance of advertising and e-commerce.

THREATS AND OPPORTUNITIES

JUC should use recession as drive to turn threats become opportunities. JUC should increase its marketing budget to boost their product market activities in order to gain better market position. The author believe JUC should:

aggressively promote itself as an organization with business ethical culture and at the same time supply superb value of organic coffee products

launch its loyalty program with tangible rewards to its loyal customers

launch kids beverage value deal

developing new market internationally by leverage new technology

looking for joint venture opportunities in developing countries such as China

increase its distribution channels physically or virtually

developing new product to extend its existing market

Strategic Analysis

As strategy advisor, the author would like to work with the management team of JUC to find answer for the following questions as Aaker, (2011) addressed in his book “Strategic Marking Management”:

1. Are existing assets and competencies enough to enable the company to win the competition?

2. Should the management team consider enhancing, extending, or even altering and replacing the existing strategy?

In essence, the effective strategy should base on fully understanding the company’s current position in the market and competition facing then figure out how to change its position and envision what the company will achieve after the change. The position change should base on what are the strengths/advantages the company has compare with its competitors as Michael Porter told us in one of his speech (on Youtube).

By using Porter’s 5 forces Competition analytical tool, we can easily visualize the relationship of 5 forces in JUC case (Figure 4-1).

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THREAT OF NEW ENTRY

Heavy weight competitors such as P&G, Kraft diversifying from their tradition market to coffee product market have the ability to leverage their existing capabilities and cash flow to launch marketing campaign and price war with JUC. Coffee retailing industry has relative low entry barriers made new entry easier. The ability to purchase higher volume raw product made those large scale players easy to negotiate huge price discount with any supplier in the market. Their existing logistic resource can easily observe the cost of relatively small amount of coffee product from source to the destination and allow them further reduce the total cost of sailing product and maximize the profit margin.

THE POWER OF SUPPLIERS

The taste of coffee very much depends on its raw material: coffee bean. It is almost impossible for coffee roster to switch supplier after they established their product in the market. The supplier may increase the price during low harvest season which will push the cost of final product higher and reduce the profit margin.

THE POWER OF BUYERS

The consumer enjoys over supplied coffee products in the market. They have absolute bargaining power. Consumer can select product based on quality, price, tastes, brands and service. During the recession period consumers tend to be more prices sensitive. Distributors and retailers have strong bargaining power because they can indirectly influence downstream customers (M. Porter, 2008).

THE THREAT OF SUBSTUTUTES

Substitutes of JUC product are non-coffin drink include but not limited to such as fruit juices, soft drinks, water, energy drinks and beers. Whereas pubs, bars, restaurants, Starbucks and McDonald’s can be highlighted as substitute places for customers to meet someone and spend their times outside of home and work places.

RIVALRY AMONG EXISTING COMPETITORS

Rivalry among existing competitors is high within the industry JUC’s major competitors are Kicking house, Kraft, P&G, Private-Label, Second Cup, Starbucks, and other small local coffee shops and cafes.

Figure 4-1: Author uses Porter’s Five Forces Model Competition to demonstrated JUC current situation.

Strategic Alternatives

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JUC has established it unique market position by its management team and co-op workers. As Porter pointed out in his article “The Five Competitive Forces That Shape Strategy”, the company ether “faced with pressures to gain market share or enamored with innovation for its own sake, managers can spark new kinds of competition that not incumbent can win” (M. Porter, 2008).

There are four areas that contribute to business strategies.

Energizing the business: 1) Involve loyal customer to contribute internet marketing campaign to write comments on Facebook/Twitter of their brand experience. 2) Motivate loyal customers with JUC membership volume discount, 3) Offer buy 5 get one free in JUC’s retail stores. 4) Offer promotion to attract new customer. 5) Use sponsorships, endorsers, social program as brand energizer to promote JUC as coffee product producer with organic raw material and superb quality as well as leader of CSR in the country.

Leveraging the business: understand the strengths of the firm (refer table 3-1) develop business strategies to maximize the competitive advantages. 1) Provide market materials to support grocery channel in order to enhance brand image in their retail stores and provide consumer guidance. 2) Instead of physically extended market to another region, JUC should leverage internet technology to extend its market nationally or even internationally.

Creating a new business and going global: 1) Partner with domestic coffee machine manufactures to provide them organic coffee capsules/pods for their private labels. 2) Provide those products to hotel and motel chains. 3) Leverage Internet/e-commerce to go national/global.

Figure 5-1: Alternative Strategic Positions

Fit and Attractiveness Analysis

Orgnic coffee capsaule /POD

• Core Buyer Segment: Domestic coffee machines (Electrolux, Phillips, Delonghi, Miele, Map Mia, Aldi)

• Value Proposition: healthy Coffee drink for consumers at home

• Soruce of Competitive Advantage: orgnic coffee bean

• Market Size: Emerge market and will be huge

Orgnic sachet/capsaule/POD for hotel/Motel

• Core Buyer Segment: chain of hotel and motel, conference venues, etc.

• Value Proposition: small package for easy use and reduce wast

• Soruce of Competitive Advantage: orgnic coffee bean

• Market Size: established large market

Go national/global via e-commance

• Core Buyer Segment: global market (inc. China Middle Class via alibaba e-commence platform)

• Value proposition: healthy Coffee drink for consumers at home globally

• Soruce of Competitive Advantage: orgnic coffee bean

• Market Size: very large

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There are pros and cons regarding those possible strategic approaches. Let’s take a look those pros and cons against each approach.

Those approaches in energizing and leveraging the business section are significant cost less and risk less compare with the approaches in creating new products and going global.

However those shot term approaches may only enable the firm to gain temporary advantage in a very competitive local market and some of the competitors will very soon catch up by using same method(s) or even better method(s) and in a larger scale.

With the innovation approaches that has been illustrated by Figure 5-1, the firm actually able to create a new battle field in the traditional coffee roaster’s market. The major challenge of this approach is the significant capital investment of new product line.

Recommendation

As marketing strategist, author suggests the management team should take 2 legs approach.

WHERE AND HOW TO COMPETE

On one hand JUC need to adopt approaches in energizing and leveraging business sections. These short term strategies will help company to consolidate its current market share.

On the other hand JUC need to enter a complete new market to produce small capsule/pod/sachet for domestic coffee machine manufactures. These small package products will not only bring large profit margin but also will have huge market potential. These new products will fully utilize the JUC’s strengths (organic coffee product and marketing image as leading firm of social and environment responsibility) and provide customer a complete new experience.

As the funding of new production line (for producing capsule/pod/sachet), the author suggests the management team should consider to leverage its unique corporate structure to invite co-op members, employees, business associates and border community to sponsor the capital investment of equipment (co-ownership, business partnership or even IPO.).

Author also strongly recommends that JUC management team should consider leverage e-commerce technology to go national/global.

E-commerce is one of the greatest benefits of internet. It provides a virtual platform for any business to go global. Here is a list of the competitive advantages of e-commerce over internet:

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Very low initial (upfront) cost compare with traditional marketing method.

Minimize and streamline the back-end of product order/deliver process. (refer following diagram).

Figure 7-2: Lifecycle of e-commence

o Receive customer payment at the same time as the order placed. Greatly improving company’s cash flow

o On demand producing product means that there will be no overstock cost

o Customer will always receive freshness product.

It provides a low barrier for JUC product to reach mass market nationally and internationally. The virtual platform (e-commence) enable JUC to go global without huge marketing expenditure.

With increasing awareness of environmental impact and corporate social responsibility globally, JUC products and corporate image will gain good marketing attraction globally via this virtual platform.

As Porter cleverly point out in 2001, the powerful e-commerce technology can become a powerful force for the competitive advantage of the business by integrated it to overall business strategy.

In order to establish a distinctive strategic position in the market, the management team need to have the ability to define the business’ unique value proposition and willing to make tough decision which will determine where to compete and how to compete (refer Figure 7-1: Plan to win).

Customer order goods online

goods production on demand

Good deliver to customer directory

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References

1. Loudyi, S., Sagebien, J., Turgeon, N. & Mckillop, I. 2009, ‘Marketing Planning At Just Us! Cafes’, Ivey Management Services, Version (A) 2010-06-09.

2. Aaker, D., 2011, Strategic Market Management, John Wiley & Sons Inc., Hoboken NJ.

3. Porter, M., 2008, ‘The Five Competitive Forces That Shape Strategy’, Harvard Business Review, January 2008, pp. 79-91.

4. Porter, M., 2001, ‘Strategy and the Internet’, Harvard Business Review, March 2001, pp. 63-78.

5. http://www.chinabusinessreview.com/marketing-to-chinas-middle-class/

6. https://m.youtube.com/watch?v=ibrxIP0H84M.

7. http://www.privco.com/alert-alibabas-revenue-52-yoy-to-record-846-billion-alibaba-profit-175-stunning-growth-names-partners-and-directors

8. http://www.franchiseek.com/market_trends_coffee_china_1004.htm

9. Holdsworth, D., 2014, ‘Strategic Positioning Workbook’, UTS: PSB.

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Appendix A

Figure 1-1: competitors’ and JUC relation diagram

Figure 2-1: PEST Analysis of JUC

Nestle, Starbucks,

Tim Hortons, Second Cup

Kraft, Private-Label, P&G, independent Coffee shop

Kicking House

Java Factory

Trident Bookseller &

Café

Increased public awarness of fair trade and demand of high quality coffee product in Canada

Reatively tight comsumer's budget since Canada is in the middle of recession. Cost of the product become major factor for general comsumers

Increased coffee product comsumers in local Universities

Increased coffee product comsumers in the general public

Increasee coffee product comusuers globally

Internet E-commence (B to B, B to C)become more import for any trading company since it drematically reduce the fix and variable cost of operation and enable the product to reached vast of consumers anywhere

Impact Just Us! Cafe Current

Position

Competitor fulfill same needs in an alternative Way

Competitor fulfill some same needs

Competitor fulfill all same needs

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Figure 3-1: SWOT Analysis of JUC

Figure 4-1: Porter’s Five Captivities Model

more consumers perfer fair trade and high quality product than covnventional product

Strong Presense in local Unis

Strong Customer loyeraty

Relatively nerrower market reach so do its customers range

Lack of mass media reach, and very low marketing budget

Lasck of mutiple distribution channels

Extend products lines in retails storesExtend products distribution channels nationaly and intrnationaly

Attract family members of loyalty customers and promote Fair Trading

The country is in midst of a recessionlocal compatitors are caching up

Large international food companies are entering the market with hguge finacial musules

JUC Need Improve Itself

Rivaly Among Existing

Firms

Threat of New

Entrants

bargaining power of buyers

Threat of Substitute products

bargaining power of suppliers

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Figure 6-1: Fit/Attractiveness Analysis

Top end product line

for retails

new package for domestics coffee Machine Makers

Domistic market

national/

International

Local retail distribution

E-commence national/international

partners with domestic coffee machine makers

Hotel/Motel in room refill pod/sachet

High

FIT

Low

ATTRACTIVENESS High

A Winning Business Strategy

Where to Compete

The new production line investment decision

Program How to Compete

Complete new Fully Utilize current Go Global via

Products Assets & competencies e-commence

Figure: 7-1: Plan to Win

Present products

New products

Present Markets

New Market