Keurig – Case Study

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The attach file is the case study for the assignment.

Read the Keurig case study located in the section titled Case Studies in your textbook concerning the following situation:

This case describes a new product success story, set in a competitive business climate. Keurig was one of the companies to commercialize an innovative technology that allowed people to brew one cup of coffee at a time. Keurig was established in 1992. The word, “Keurig,” means excellence, and it has been the guiding principle behind its products and services. Keurig patented its single serve brewing system and first entered the office coffee service, or Away From Home (AFH), marketplace in 1998. In 2003, Keurig became one of the first to enter the At Home (AH) marketplace with a single serve brewing system designed for use in the home.

By 2010, 25 percent of all coffee makers sold in the United States were Keurig branded machines. Keurig is regarded as a market leader. However, Keurig faces two major challenges. First, some patents of Keurig’s key technologies are approaching the expiration date. Without the protection of the patents, Keurig can lose revenue from the K-Cup portion packs, thus reducing GMCR’s coffee sales. Keurig can also lose royalties from other roaster coffee sales using Keurig’s technology. The second challenge is the perceived environmental impact of the K-Cup portion packs. It will need to be addressed to prevent erosion of Keurig’s position in the marketplace.

An evaluation of Keurig’s business-level strategy, competitive rivalry, and SWOT analysis will aid in the discussion and weighing of strategic options available to Keurig. The results of the analysis can then be used to establish and support a strong set of recommendations seeking to ensure a continuation of Keurig’s strong performance and top market position.       

  • Assess Keurig’s business-level strategy. Has the company’s business-level strategy been successful?
  • How does Keurig’s strategy stand up against competitive rivalry in the industry?
  • Review the important elements of Keurig’s external and internal environments.  Analyze key factors in the SWOT analysis.
  • Evaluate Keurig’s s international strategy and its use of alliances to achieve company objectives.
  • Weigh the challenges confronting Keurig. What are the greatest risks for Keurig? What recommendations can be made to support Keurig’s growth and profitability objectives?

Submission Details:

  • Present your analysis as a 3–4-page report in a Microsoft Word document formatted in APA style.
  • Support your responses with examples.  Cite any sources in APA format.CASE 8: Keurig: From David to Goliath: The Challenge of Gaining and Maintaining Marketplace Leadership

    Eric T. Anderson

    On March 17, 2011, the vice president and general manager of Keurig Incorporated’s At Home division, John Whoriskey, sat in his office in Reading, Massachusetts, reminiscing about the changes he had been a part of since joining the company in 2002. At that time Keurig was a privately held company with just over $20 million in revenues and a plan to enter the single serve coffee arena for home consumers, which Whoriskey himself had been hired to head up (see  Exhibit 1 ). Nine years later Keurig was a wholly owned subsidiary of Green Mountain Coffee Roasters, Inc. (GMCR), a publicly traded company with 2010 net revenues of $1.36 billion (see  Exhibit 2 ) and a market capitalization of between $8 and $9 billion.

    Exhibit 1: Members of Keurig and GMCR Senior Management Teams

    Keurig Senior Management Team

    ·  Michelle Stacy, President

    ·  John Whoriskey, Vice President, General Manager At Home Division

    ·  Dave Manly, Vice President, General Manager Away From Home and Consumer Direct Divisions

    ·  Kevin Sullivan, Vice President, Engineering

    ·  Ian Tinkler, Vice President, Brewer Engineering

    ·  Bob McCall, Vice President, Packaging, Equipment, and R&D

    ·  Dick Sweeney, Co-Founder, Vice President, Contract Manufacturing and Quality Assurance

    ·  Basil Karanikos, Vice President, Packaging Special Products

    ·  Chris Stevens, Vice President, Corporate Relations and Customer Development

    ·  Mark Wood, Vice President, New Business Development

    ·  Mike Degnan, Vice President, General Counsel

    ·  John Heller, Vice President, Finance

    GMCR Senior Management Team

    ·  Larry Blanford, President and CEO

    ·  Howard Malovany, Vice President, Corporate General Counsel and Secretary

    ·  R. Scott McCreary, President, Specialty Coffee Business Unit

    ·  Frances Rathke, Chief Financial Officer

    ·  Stephen J. Sabol, Vice President, Development

    ·  Michelle Stacy, President, Keurig

    Exhibit 2: Green Mountain Coffee Roasters Financial Performance ($ in thousands)

    Fiscal Year Net Sales Gross Profit Net Income
    2005 161,536  56,975  8,956
    2006 225,323  82,034  8,443
    2007 341,651 131,121 12,843
    2008 492,517 174,040 21,669
    2009 786,135 245,391 54,439
    2010 1,356,775 425,758 79,506
    Note: Net income for 2005 and 2006 is after equity in losses of Keurig, Inc., net of tax benefit. GMCR acquired Keurig in June 2006.

    Source: GMCR Annual Reports.

    In 2003 Whoriskey oversaw the introduction of Keurig’s first At Home brewer, at the same time convincing the company’s board of directors to take the risky approach of launching design and development of a next-generation brewer before the first brewer had reached the marketplace. That decision turned out to be critical to Keurig, providing the basis for a suite of products that secured Keurig the four best-selling coffee makers, in dollars, in Q4 2010. 1  Its strategy had been to offer a wide variety of coffees compatible with its single serve brewing system. Now, the company had just concluded an agreement with Dunkin’ Donuts that would make five flavors of its coffee available in K-Cup¼ portion packs compatible with Keurig brewers. Starbucks, a company synonymous with super-premium gourmet coffee, had also agreed to offer its coffee and Tazo tea for the Keurig¼ single-cup brewing system.

    In the fourth quarter of 2010, approximately 25 percent of all coffee makers sold in the United States were Keurig-branded machines, 2  and Keurig was recognized as among the leaders in the marketplace. Keurig now faced different challenges than in 2003 when it was a small, unknown marketplace entrant. Among them, Whoriskey considered what impact the impending expiration of key technology patents and the perceived environmental impact of the K-Cup¼ portion packs could have on the company’s growth. Whoriskey wondered what Keurig’s growth potential was, and how the new arrangements with Starbucks and Dunkin’ Donuts could be leveraged to achieve it.

    The Company and Its Products

    Keurig had been founded to commercialize an innovative technology that allowed coffee lovers to brew one perfect cup of coffee at a time. 3  Beginning with the company’s inception in 1992, the word “keurig,” derived from the Dutch word for excellence, had been the guiding principle behind the company’s products and services. With its patented single serve brewing system, Keurig first entered the office coffee service, or Away From Home (AFH), marketplace in 1998. In 2003 Keurig became one of the first to enter the At Home (AH) marketplace with a single-cup brewer designed for use in the home.

    Keurig’s single-portion brewer strategy was built on three key product features: a coffee brewer that perfectly controlled the amount, temperature, and pressure of water to provide a consistently superior-tasting cup of coffee; a unique, patented portion-pack system (marketed under the K-Cup¼ brand) containing ground coffee beans as well as filter paper; and a varied coffee selection to replicate the choices available in a gourmet coffeehouse.

    ©2012 by the Kellogg School of Management at Northwestern University. This case was developed with support from the December 2009 graduates of the Executive MBA Program (EMP-76). This case was prepared by Elizabeth L. Anderson under the supervision of Professor Eric T. Anderson. Cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. To order copies or request permission to reproduce materials, call 847.491.5400 or e-mail [email protected] . No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Kellogg School of Management.

    This varied coffee selection was a key differentiator for Keurig and was achieved through licensing arrangements with a variety of gourmet coffee roasters. A selective but nonexclusive relationship with a coffee roaster enabled the roaster to pack its specialty coffees in the K-Cup¼ portion pack. Coffee roasters controlled the quality of their coffee and the number of varieties available through portion-pack production lines. A production line was owned or leased and operated by the coffee roaster. K-Cup¼portion packs were produced by four North American roasters with more than seventy-five coffee varieties. Roaster partners included GMCR, Diedrich Coffee, Inc., Van Houtte, Inc., and Timothy’s Coffee of the World, Inc. The roaster paid Keurig a royalty for each K-Cup sold. 4  Other roaster partners were subsequently added, such as Tully’s in 2006.

    At the time of Keurig’s entrance into the AH marketplace in 2003, the company was privately held, with three significant shareholders. MDT, an investment advisory firm that managed a U.S.-based profit-sharing plan, had served as Keurig’s lead venture capital investor since 1995 and led the company’s board of directors. GMCR held a 42 percent stake in Keurig, and Van Houtte owned 28 percent. As provided for in separate shareholder agreements with MDT, neither GMCR nor Van Houtte was allowed to have a seat on the board of directors, enabling Keurig to maintain a roaster-neutral company strategy.

    At Home Product Introduction

    Keurig felt that being one of the first entrants in the product category was critical to its performance. The company’s launch of the B100 single-cup brewer in September 2003 coincided with Salton’s U.S. launch of the Melitta One:One brewer and Flavia’s SB100 brewer. Each brewer differentiated itself by its features, underlying brewing technology, and packaging of the coffee. Both the Keurig and Flavia brewers used a proprietary portion pack, while the Melitta brewer used a 44 mm pod. All three provided the ability to brew a single cup of coffee at a time (see  Exhibit 3 ). The Keurig and Flavia systems (both brewer and coffee) were only available online, whereas the Melitta system was available online and in limited retail outlets.

    Exhibit 3: Comparison of Early Single-Cup Brewing Systems

    Features Keurig B100 Melitta One:One Flavia SB100 Senseo Home Café HCC100
    Manufacturer Keurig Salton Filterfresh Phillips Black & Decker
    Coffee packaging Proprietary K-Cup 44 mm pod Proprietary Filterpack 62 mm pod 62 mm pod
    Brewing sizes 8 oz. 5 oz., 8 oz. 5 oz., 8 oz. 4 oz., 8 oz. 7 oz., 9 oz., 14 oz.
    Water reservoir 64 oz. 28 oz. 96 oz. 50 oz. 34 oz.
    Shortest time to first cup < 1 min 1 min < 1 min 2+ min 1 min
    Shortest time to second cup Immediate 45 sec 40–45 sec 30 sec 10 sec
    Number of flavors 75+ 6 15 4 9
    Suggested retail price $249.99 $49.99 $99.99 $69.99 $59.95
    Source:  Singleservecoffee.com , company analysis.

    A New Business Is Brewing

    The AH single serve concept was well received by coffee lovers. Early press and user reviews showed that customers were happy with the ability to brew a single cup of coffee with no mess—no scooping of coffee or dealing with filters—in 60–90 seconds. Feedback among the users of the three initial entrants varied, however, with the selection of coffee varieties a common thread for discussion. Melitta One:One offered only five options and the Flavia system was only slightly better, with a choice of eleven flavors. In addition, both systems’ offerings were restricted to a proprietary roaster. Meanwhile Keurig offered a total of more than seventy-five options encompassing a variety of flavors from four different coffee roasters. It quickly became apparent that feedback on a brewing system was often driven by the user’s individual coffee preferences, so greater quality and variety of coffee positioned Keurig well in the marketplace. Users complained, however, that all three competitors lacked availability of the proprietary coffee packs in retail stores. Online ordering was the only option and required some advance planning to have a continuous supply of coffee.

    Some new, larger players entered the single serve marketplace in 2004. In March of that year, Phillips and Sara Lee International launched the Senseo 7810 in the United States. The pod-based system brewed Sara Lee’s Douwe Egberts coffee brand and produced a distinct frothy layer on top of the brewed coffee. The U.S. introduction of the Senseo followed launches in the Netherlands, France, Germany, and Denmark between 2001 and 2003. More than 5 million machines and 2.5 billion pods had already been sold in those countries. 5  The brewer’s primarily plastic construction was still viewed as sturdy and overall it received positive reviews for its simplicity and ease of use.

    In February 2004 Procter & Gamble announced that it had joined forces with four appliance marketers 6  to launch the Home Café single-cup brewing system in conjunction with a $50 million-plus marketing campaign. The Home Café pod system would brew Folgers and Millstone coffees. Black & Decker produced the first Home Café brewing system in May 2004, but users frequently complained about the machine leaking, the difficulty of properly placing the pod in its holder, and the volume of plastic used in the brewer construction. In late 2004 the Mr. Coffee Home Café brewer was added to the line and received more positive reviews.

    Both the Senseo and Black & Decker Home Café systems were available online and in limited retail outlets, an improvement upon the limited distribution of early products. Across all products, however, reviews of the coffee varied from one extreme to the other, highlighting the challenge of being able to meet the taste requirements of a range of coffee drinkers, from the casual one-cup-a-day drinker to the gourmet coffee snob.

    Even so, the entrance of P&G marked a turning point for single serve brewing. Extensive ad campaigns, including infomercials and an appearance on the show Survivor in September 2004, created awareness of the Home Café product line. In turn, this created spillover recognition for all single serve brewing systems, and the category grew.

    Managing Brewer Manufacturing Costs

    At the time of Keurig’s B100 launch, management knew that its brewer price was very high. Even so, Keurig management felt that it was important to gain experience and consumer exposure in this emerging business. Mark Wood, VP of new business development, explained, “Launching new products stimulates interest in the company and in the category.”

    When the B100 was introduced in fall 2003, Keurig embarked on an ambitious three-pronged approach to address the brewer’s cost structure. The approach consisted of reengineering the existing brewer to reduce cost, evaluating overseas options for brewer manufacturing, and launching a new brewer project in time for the holiday 2004 season, including retail distribution. Kevin Sullivan, VP of engineering, joined Keurig just after the initial launch of the B100 brewer and, after overseeing modest cost reductions on the current design, focused the engineering team’s attention on the next-generation brewer, the B50 (see  Exhibit 4 ).

    The B50 design effort replicated existing Keurig benefits: time, temperature, and volume (TTV) control, use of the existing K-Cup¼ portion pack, at least two brew volumes (e.g., 6 oz., 8 oz.), and support of a retail price point of $149. Limiting the variance in the TTV components was key to meeting the taste profile requirements of both the “Cuppers” 7  and Keurig’s roaster partners. Engineering evaluated three alternatives in its design process: redesign of the B100 brewer, evaluation of the pod systems in the marketplace to see how they could be modified to achieve the Keurig benefits, and a bottoms-up new design of the brewer. Ultimately Keurig chose to start from scratch when designing the new brewer, balancing the product features with budget and schedule requirements to meet the fourth quarter 2004 deliverable.

    In parallel with the B50 design efforts, Dick Sweeney, VP of contract manufacturing and quality assurance, oversaw efforts to select a manufacturer for both the B100 and the new B50 brewers. After narrowing the field down to three companies, Keurig selected a single vendor in late December 2003. Production of the B50 began in September 2004, and in November 2004 the company received the first shipment of brewers via airfreight to meet the goal of holiday distribution.

    Keurig’s Retail Launch Strategy

    Keurig’s retail launch strategy included two features central to its success. Whoriskey explained it as follows:

    · We recognized that retailers were different and competed in different market segments. Selling a single brewer could create conflict among retailers that could limit distribution.

    A high-end retailer such as Williams-Sonoma did not typically carry the same product assortment as a mass merchant like Target. We also needed to offer assurance to retailers that their support of a premium brewer would be worth their investment.

    As a result, Keurig envisioned producing a suite of brewers—“good, better, best”—that would allow it to offer different products in each retail segment to meet the needs of those retailers’ target customers. The products would match varying retail price points and offer a range of product features. The “better” category of product would provide broader appeal for multiple segments. Initially the B50, with its improved cost structure, fit the better category and was designed to meet a price point of around $149. In some cases, a “good, better, best” suite of products also allowed Keurig to meet varying retailer margin requirements. As shown in  Exhibit 5 , average profit margins varied between mass merchants such as Target and premium retailers such as Williams-Sonoma.

    Exhibit 5: Retailer Annual Gross Margins (%)

    Retailer 2006 2007 2008 2009 2010
    Amazon.com 22.9 22.6 22.3 22.6 22.3
    Bed Bath & Beyond 42.8 41.5 39.9 41.0 41.4
    Kohl’s 36.4 36.5 36.9 37.8 38.2
    Macy’s 39.9 40.4 39.7 40.5 40.7
    Target 30.3 30.2 29.8 30.5 30.5
    Williams-Sonoma 39.9 38.9 33.8 35.6 39.2
    Source: RetailSails data.

    In launching the B50 brewer, Keurig also needed to address retailer concerns that investments in support of Keurig would not be eroded away. That investment included inventory costs to carry the brewer, shelf space, advertising, and training of in-store staff about the product. To address potential retailer concerns, Keurig created a minimum advertised price (MAP) program.

    Premium manufacturers in numerous industries, including Bose, Viking, Sub-Zero, HP, and Nintendo, often used MAP programs. These programs minimized intrabrand price competition by providing incentives to retailers who only advertised prices at or above the MAP price; a common incentive was cooperative advertising dollars that could be used to subsidize retailers’ advertising expenses. A retailer that chose to advertise in a manner inconsistent with the MAP program could lose out on these financial incentives. A retailer that repeatedly violated these terms could eventually lose the right to distribute a manufacturer’s product. From the retailers’ perspective, the MAP price provided some comfort that competing retailers would not undercut them on advertised prices.

    In the months leading up to the B50 launch, Whoriskey focused on a number of issues associated with moving into the retail environment, including gaining product placements with retailers, identifying a logistics partner that would manage the fulfillment to retail stores, and introducing new, lower-count-size packages of K-Cup¼ portion packs. By the holiday 2004 season, ten retailers had agreed to distribute the B50 brewer in about a hundred stores. Keurig selected M. Block and Sons as the exclusive retail distribution partner for the brewer and completed repackaging of K-Cup¼ portion packs to offer quantities of eighteen at a MAP price of $9.95. Whereas Sara Lee and P&G focused their marketing dollars on television and print advertising, Keurig devoted its more limited advertising dollars to in-store demonstrations of the product. The television and print coverage by Keurig’s rivals increased consumers’ exposure to the single serve concept and sent them to stores with curiosity about the products. Once in the stores, Keurig hoped its demos would get people hooked on the taste, ease, and simplicity of the Keurig system.

    The At Home Marketplace Heats Up

    With the entry of competitors and heavy advertising spending, interest and awareness of single serve brewing increased and sales of Keurig brewers took off. By the holiday 2005 season, Keurig had grown its retail presence to 3,500 stores. Existing competitors were also adding products, with new entrants joining the fray.

    Competitor Activity

    Kraft partnered with Braun to introduce the Tassimo Hot Beverage System in the United States in September 2005. Designed by Kraft, the product had been introduced in France, Switzerland, and the United Kingdom in 2004 and was touted as the leading competitor to the Senseo system there. The Tassimo system used a proprietary portion pack, the T-Disc, which included a bar code that provided information to the machine about the appropriate brewing settings (amount of water, brewing time, and temperature). In addition to coffee, the Tassimo offered cappuccino, espresso, cafĂ© crema, tea, and hot chocolate—a total of about fifteen varieties, featuring Kraft brands such as Gevalia and Maxwell House as well as Kraft-distributed Twinings Tea. The brewer’s suggested retail price was $169.99, with a cost of about $0.50 per T-Disc. Like P&G, Kraft used its marketing muscle to push the Tassimo system and the entire single serve segment of coffee brewing. The system was featured in an episode of The Apprentice: Martha Stewart, in which contestants were tasked with creating a retail space for selling the new system. Kraft reportedly invested $75 million in marketing the system’s introduction.

    Kraft subsequently announced a partnership with Starbucks in December 2007, introducing four Starbucks varieties in time for the holiday season. Starbucks positioned it as a natural fit for the company, a “way to provide an authentic Starbucks coffee experience to our customers, and to do so anywhere and anytime they prefer.” 8  This expanded relationship between Kraft and Starbucks (building off a 1998 supply and distribution agreement) came on the heels of a revamped business plan to “spur stronger and more profitable growth” 9  in the Tassimo system. It also expanded Tassimo’s beverage offerings to more than sixty worldwide. 10  At the same time, Kraft announced a new brewer alliance with Bosch to replace Braun, which had been acquired by a coffee competitor, P&G.

    Additionally, another competitor had appeared on the scene in 2005. Bunn was a manufacturer of drip coffee makers for commercial and AH applications. With the Bunn My CafĂ©, the company joined the single serve segment, advertising a patented jet action sprayhead as a differentiator in the brewer’s ability to release flavor and aroma. The pod-based brewer used a pour-over method that required the consumer to pour in the desired amount of water, from 4 to 14 ounces, each time a new cup was brewed. The pod drawer was designed to receive a range of pod sizes, enabling the brewer to be used with a variety of different roasters’ pods and increasing the variety of coffees available for use with the brewer. The brewer was introduced with a suggested retail price of $199.95.

    Not all product introductions were successful, however. P&G experienced slow sales and a smaller adoption of its Home CafĂ© line after its initial splash. In June 2006 the company announced it would cut marketing funds for the product, after having spent an estimated $41 million since the launch of the first brewer in 2004. Similarly, after significant success in Europe, Senseo’s sales and product innovation in the United States seemed to trail off.

    The stumbles and uncertainty of some of its competitors did not slow Keurig down. In fall 2005 Keurig introduced two new AH brewers to its product line: the Keurig Elite B40 and the Keurig Special Edition B60. With variations in the programmability and features, these products helped the company target the “good” and “best” segments of its distribution strategy, respectively. The B40 was generally offered at a retail price of $99.95, while the B60 was generally offered at $199.95. In fall 2006 the Keurig Platinum B70 was introduced with the most robust set of features and functionality to date, including four cup sizes, a programmable LCD display, and a larger water reservoir. Each brewer provided the same user experience in terms of ease of use and brewing of a great cup of coffee, consistent with Keurig’s overall product commitment. By the first quarter of 2007, Keurig had secured a position as one of the market leaders in the small but growing single-cup segment of the broader coffee maker category (see  Exhibit 6 ).

    Exhibit 6: Single Serve Coffee Maker Sales by Brand

    Brand Jan.–Mar. 2005 Jan.–Mar. 2006 Jan.–Mar. 2007
    By Dollar Volume ($)      
    Keurig 152,730 1,154,135 2,293,802
    Braun 0 1,622,884 2,166,536
    Phillips 1,379,242 1,120,567 1,172,441
    Flavia 0 0 170,719
    Mr. Coffee 60,017 249,363 168,508
    Krups 0 222,310 152,419
    Melitta 1,040,165 525,173 35,214
    Bunn 41,408 62,593 24,424
    Black & Decker 608,635 645,033 24,168
    By Unit Volume      
    Keurig 1,022 8,813 17,995
    Braun 0 9,925 15,029
    Phillips 22,730 18,905 18,881
    Flavia 0 0 1,648
    Mr. Coffee 1,173 3,471 3,456
    Krups 0 1,771 4,109
    Melitta 27,252 11,279 634
    Bunn 212 337 115
    Black & Decker 11,535 11,376 969
    Note: Total coffee maker category includes all coffee makers and espresso makers. NPD data does not include all retailers and is estimated to represent 35 to 40 percent of the total marketplace.

    Source: NPD data.

    Changes at Keurig

    In June 2006 GMCR completed the acquisition of the remaining shares of Keurig, transitioning Keurig from a small, privately held company to a wholly owned subsidiary of a publicly traded company. In doing so, GMCR not only signaled its commitment to single serve brewing but also reaffirmed its support of Keurig’s multibrand strategy, one of the company’s key differentiating features and an important element of its success. This move enabled Keurig to leverage the resources of GMCR to further its growth in the single serve segment. The added financial backing of GMCR was critical to Keurig’s ongoing product innovation and also allowed the company to aggressively protect its design and technology investments.

    Ownership by GMCR allowed Keurig to pursue a new avenue for expansion of its robust offering of coffee varieties with its single serve brewers. As an example, Keurig and Caribou Coffee announced an agreement in early 2007 that would make eight flavors of Caribou Coffee available in K-CupŸ portion packs. This arrangement represented a new model for production and sales of K-CupŸ portion packs.

    · Under the terms of the arrangement, Caribou Coffee will blend and sell its gourmet coffee beans to Keurig. Keurig will be responsible for packaging the coffee into K-Cups in accordance with Caribou Coffee’s specifications. Under the license from Caribou Coffee, Keurig will also serve as the wholesale distributor and a direct retailer for all Caribou Coffee K-Cups.  11

    Rather than requiring a roaster partner to operate its own production line, Keurig could benefit from the manufacturing capabilities of its parent to pursue relationships without upfront capital or leasing costs.

    At the same time, tension existed between GMCR and the other roasters over the longevity of GMCR’s commitment to a multibrand strategy. This tension eased as GMCR embarked on a strategy of acquiring the wholesale businesses, including the K-Cup¼ portion-pack production lines, of each of the original roaster partners, beginning with Tully’s in early 2009, followed by Timothy’s in late 2009, and Diedrich’s Coffee and Van Houtte in 2010. Driving these acquisitions was GMCR’s desire to become a leader in the highly fragmented coffee industry. GMCR added complementary brands to its portfolio while expanding its geographic presence and manufacturing and distribution capabilities.

    With GMCR’s backing, Keurig’s ongoing success enabled it to expand its marketing and distribution presence. In the holiday 2007 season, Keurig launched a $3 million television advertising campaign in sixteen cities, coupling it with in-store demonstrations and cooperative advertising support in retail stores. That investment grew close to $20 million, including a $6 million national advertising campaign, for the holiday 2008 season. In conjunction with that same holiday season, Keurig and GMCR also launched brewer and twelve-count K-Cup¼ portion-pack offerings in the grocery channel, adding to the purchase options available to consumers. The total number of retail outlets, including grocery stores, exceeded 16,000 locations by the end of 2008 (see  Exhibit 7 ). Keurig brewer sales continued to grow, and in the fourth quarter of 2008 Keurig had captured close to 20 percent of total coffee maker sales in dollars (see  Exhibits 8  and  9 ). Keurig further expanded the brewer options available to the consumer, introducing the first third-party brewer designed using Keurig’s proprietary and patented brewing technology in 2007. 12

    Exhibit 7: Keurig Retail Presence

    Year Ending No. of Retail Stores No. of Supermarkets Total Retail Locations
    December 2004 200 0 200
    December 2005 3,500 0 3,500
    December 2006 7,000 200 7,200
    December 2007 10,000 1,300 11,300
    December 2008 13,800 2,600 16,400
    December 2009 17,900 10,000 27,900
    December 2010 19,000 14,400 33,400
    Source: GMCR earnings releases.

    Exhibit 8: Cumulative Keurig Single-Cup System Sales (in thousands)

    Year Ending Keurig-Branded Brewers K-Cup Portion Packs
    September 2004 124  
    September 2005 226 312,405
    September 2006 474 448,880
    September 2007 953 638,298
    September 2008 1.936 1,650,654
    September 2009 2,342 3,300,532
    September 2010 4,543 6,185,532
    Source: GMCR earnings releases.

    Exhibit 9: Keurig Coffee Maker Sales Share

      2007 2008 2009 2010
    Dollar Sales by Quarter        
    Q1 (Jan.–March) 2.8 6.7 14.1 24.5
    Q2 (Apr.–June) 3.5 7.3 16.9 24.8
    Q3 (July–Sept.) 4.1 7.9 17.3 26.5
    Q4 (Oct.–Dec.) 8.4 17.8 36.4 45.3
    Unit Sales by Quarter        
    Q1 (Jan.–March) 0.9 2.3  5.7 10.8
    Q2 (Apr.–June) 1.1 2.6  7.4 11.1
    Q3 (July–Sept.) 1.3 2.7  6.8 11.3
    Q4 (Oct.–Dec.) 3.1 8.1 18.6 25.1
    Note: Total coffee maker category includes all coffee makers and espresso makers. Derived from NPD data. NPD data does not include all retailers and is estimated to represent 35 to 40 percent of the total marketplace.

    Source: GMCR’s NPD data from its earnings releases.

    Marketplace Evolution

    A question facing Keurig and all manufacturers of single serve brewing systems was the state of the coffee marketplace and the ongoing role of single serve applications. The marketplace for drip coffee makers in the United States was stagnant, with a decline of approximately 3 percent from 2004 to 2010 (see  Exhibit 10 ). Single serve coffee makers, however, had grown to represent about 19 percent of the total sales volume in that same time. Importantly, about 71 percent of the 115 million households in America owned a coffee maker in 2008. In terms of coffee consumption, research showed that 44 percent of all U.S. consumers had a daily cup of coffee and 75 percent of that consumption was done in the home. 13

    Exhibit 10: Automatic Drip Coffee Maker Sales

      Unit Volume Single Serve Share (%) Dollar Sales ($) Single Serve Share (%)
    2004 26,705,000 5.5 804,878,390  8.4
    2005 27,250,000 5.7 870,138,800  9.5
    2006 27,148,060 5.2 918,040,600 11.2
    2007 26,101,870 5.0 903,635,800 11.9
    2008 23,281,190 7.0 825,397,700 17.1
    2009 25,482,840 12.6 976,260,400 29.6
    2010 25,870,160 19.4 1,099,732,000 42.9
    Note: Drip coffee makers include automatic drip coffee and pod machines. Restatement of data post-2004. Volumetrics derived from presumed trend 2005 vs. 2004.

    Source: NPD Group, Inc./Consumer Tracking Service.

    Industry analyst Harry Balzer of the NPD Group commented:

    · Coffee consumption per capita is fairly stable in the U.S. So for a coffee company to gain share in the marketplace, it needs to shift share or get consumers to pay more for a cup of coffee. Manufacturers of coffee makers have to address one or more of three key components: novelty, time, or money—is it new, does it save time, or does it save money?

    Analysis of the foreign marketplace could also provide some insight into the U.S. marketplace’s potential. Industry analyst Scott Van Winkle pointed to the success of Nespresso S.A., a business of Nestle Group, in Europe as an indicator of the potential for Keurig in the United States: “I could see Keurig’s market share for coffee makers grow close to 50 percent based on the precedent set by Nespresso in Europe, where they have reached the 40 percent range.” Initially introduced in Switzerland in 1986, Nespresso’s single serve espresso machine experienced a slow start until the mid-1990s, when it entered a period of rapid growth. According to the company, Nespresso achieved organic growth of more than 20 percent in 2010 and estimated “global market share of around 20 percent in the segment of espresso and filter portioned coffee machines.” 14

    Choose. Brew. Enjoy.Âź

    Choose

    From its initial entry into single serve brewing, Keurig recognized the importance of choice to allow each person to find a coffee that met his individual taste preferences. Keurig continued on this path by entering into relationships with three key coffee brands, each with its own loyal following: Folger’s Gourmet Selections in 2010, followed by Dunkin’ Donuts and Starbucks in 2011. In February 2011 GMCR entered into a promotion, manufacturing, and distribution agreement with Dunkin’ Donuts that would make five flavors available in K-Cup¼ portion packs, sold exclusively in its restaurants by the second half of 2011. In addition, Keurig brewers occasionally would be sold in the restaurants. GMCR would be responsible for packaging the K-Cup¼ portion packs using coffee that was sourced and roasted to Dunkin’ Donuts specifications.

    In March 2011 GMCR entered into a manufacturing, marketing, distribution, and sales relationship with Starbucks that would make Starbucks and Tazo tea K-CupŸ portion packs available by fall 2011. Starbucks had previously introduced its own portion pack of instant coffee targeted at single serve consumers, Starbucks VIA Ready Brew, which had achieved $100 million in worldwide sales in under a year. 15  The relationship would enable Keurig to potentially reach the approximately 50 million customers served in Starbucks stores every week, an estimated 80 percent of whom did not have a single serve brewer at home. 16

    The Starbucks relationship presented an exciting opportunity for Keurig to add a super-premium coffee brand to its robust offering of flavors. However, there was some uncertainty concerning the long-term benefit. Starbucks had already announced a strategy to pursue multiple options in single serve brewing.

    · “The single serve coffee category in the U.S., and much of the world for that matter, is in its beginning stages of development,” said Jeff Hansberry, president, Starbucks Consumer Products Group. “At this very early stage, there are numerous contenders and no demonstrated long-term winners related to either format or machines. Following our very successful introduction of Starbucks VIA Ready Brew in the U.S. and into a growing number of international markets, Starbucks will continue to explore the many single serve and on-the-go solutions and options available to us, and to participate in those where we can better and more conveniently serve our customers wherever they may be.”  17

    The question remained whether Starbucks’s relationship with GMCR and Keurig represented an interim solution or whether it would fulfill a key component in Starbucks’s overall single serve offering.

    In conjunction with expanding their coffee offerings, Keurig and GMCR also continued to grow the grocery presence to enable consumers to easily obtain K-CupŸ portion packs. By the end of 2010, K-CupŸportion packs could be purchased in 98 percent of grocery stores in the Northeast and 61 percent of all grocery stores in the United States. 18

    Brew

    Its commitment to technological innovation continued to be a key component of Keurig’s success. Where appropriate, Keurig obtained patents covering its innovations and vigorously defended them. In January 2007 Keurig filed a patent infringement lawsuit against Kraft Foods Inc., Kraft Foods Global, Inc., and Tassimo Corporation asserting that Kraft’s T-Discs infringed upon a Keurig technology patent filed in August 2003. In October 2008 Kraft agreed to settle out of court with a lump sum of $17 million for a limited, nonexclusive license for applicable Keurig patents related to beverage machines and beverage cartridges.

    More recently, Keurig had filed a lawsuit against Sturm Foods:

    · The Sturm portion packs that we’ve seen appearing on several retailer shelves contain instant coffee and state they are intended for use in Keurig brewers. As our complaint notes, our lawsuit asserts that Sturm’s portion packs infringe two patents, which cover certain technologies relating to the use of brewers and portion packs.  19

    Keurig was looking for similar success in this suit. However, the longevity of some of the existing patents still could pose a problem. Certain patents associated with the current generation of K-Cup¼ portion packs were set to expire in 2012 and 2017, while brewer patents had expiration dates out to 2023. Pending patent applications associated with the current generation of K-Cup¼ portion packs, if issued, could extend those expiration dates to 2023 as well. Without patent protection, the door could be opened to competitors such as Sturm Foods, which would look to market a product to compete with the K-Cup¼ portion pack, thus eroding GMCR’s own coffee sales as well as royalties from other roaster coffee sales using the Keurig technology.

    Another issue facing Keurig lay in the patented K-CupŸ portion pack itself. Key to the quality and freshness of its coffee, the K-CupŸ design included materials and a heat-sealing process that made recycling difficult. Keurig had introduced the My K-CupŸ reusable filter assembly in 2006, a reusable filter designed to work with the Keurig single-cup brewing system. Although it was initially targeted for use by consumers wanting to use their own gourmet coffee instead of a prepackaged portion pack, it could also provide a solution to environmentally conscious users who were concerned with the disposal of the used K-CupŸ portion packs, which contained plastic and other nonrecyclable materials. That solution did not address those consumers interested in the convenience of the traditional K-Cup portion pack, however.

    Keurig’s competitors were facing the same challenge. In December 2010 Bunn My CafĂ© had introduced a new brewer that used pods that could be composted. In Europe, Nespresso had introduced dedicated portion-pack collection points to facilitate capsule recycling, and in 2009 it committed to tripling its recycling capacity by 2013. A similar issue had arisen in the bottled water industry. The convenience of bottled water, together with consumers’ desire for a healthier alternative to soda, had resulted in rapid growth in sales of bottled water. But concerns about the volume of empty plastic containers in landfills threatened the industry and caused sales to slow, leaving bottled water manufacturers scrambling to find solutions to their environmental challenge.

    Concerns about the environmental impact of the K-Cup portion pack had started to surface in user comments on websites and in newspapers such as the New York Times. 20  Estimates of the amount of nonrecyclable material from the K-Cups appearing in landfills had some users contemplating use of another, more environmentally friendly single-cup brewing system. Keurig’s own life cycle analysis compared a number of environmental factors of the Keurig single-cup brewing system to traditional drip brewing. The analysis had shown that product-packaging disposal contributed only a fraction of its total environmental impact as compared to the production of the packaging itself. 21  As a result, the company was working with its packaging suppliers to improve the environmental dimensions of the packaging production process. The introduction of nested packaging to reduce the size of a box of K-Cup¼ portion packs and experimentation with a tea-based K-Cup¼ portion pack made with paper were additional environmental initiatives undertaken by the company. With the increasing popularity of the Keurig single-cup brewing system, the K-Cup¼ portion-pack packaging was one of the company’s most significant environmental challenges and needed to be addressed to prevent erosion of its position in the marketplace.

    Enjoy?

    By March 2011, Keurig was in an enviable position. In the fourth quarter of 2010 it had shipped a record number of products, and Keurig models were the four bestselling brewers, in dollar sales, in the United States. The company had also just announced the agreements with Dunkin’ Donuts and Starbucks, which would strengthen its multibrand approach and penetrate a new retail outlet.

    But Whoriskey and the rest of the senior leadership team at Keurig and GMCR couldn’t help but turn their attention to the future. Whoriskey was eager to begin writing the next chapter in Keurig’s success story, but questioned the potential size of the single serve opportunity, the impact of expiring technology patents and environmental concerns, and how to maximize the effectiveness of Keurig’s relationships with its coffee-roasting partners.

 
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P&G Japan: The SK-II Globalization Project

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he written report (no less than 5 pages, plus bibliography, supporting materials) is due on the week of your case presentation. You should cite at least 2 sources in your paper

 

 

Case study is to be no less than 5 pages and should follow APA guidelines. A title page and references page are required, but an abstract is not. A good way to organize the analysis is shown below:

 

 

 

Introduction

 

 

 

Brief summary of the issue(s) indicated in the case

 

 

 

Main body (Use appropriate headings)

 

 

 

Analysis of the issues identified in the case questions (provided separately)

 

 

 

Evaluation of courses of action taken in the case

 

 

 

Conclusion

 

 

 

Conclusion

 

 

 

Lessons Learned

 

 

 

Notice that you are expected to: (a) state the major issues being discussed, and, (b) make an evaluation of the situation to include your in-depth evaluation of what happened

Introduction

SK-II is a high-end skin care product, which has proven to be a success in the highly selective and competitive Japanese cosmetics market. It fits in the Japanese environment nicely. For starters, the wealthy Japanese society gives P&G a large market to target. Also, the uniquely sophisticated habits of Japanese women means they are more likely to accept the more complicated procedure required by SK-II. SK II involves six to eight steps, which is more than the number of steps of any other skin care products used in the rest of the world (1, p.8).

Overall strategy of the of the organization

Given this product’s success in Japan for 1999 ($150 million in sales), P&G is considering expanding its SK-II into a global brand. When doing this, management has to consider how the Japanese market compares to the other markets being proposed (China and Europe) as part of their international expansion. They should also do a thorough analysis of each of the markets being considered for this product, and an analysis of their competitors’ firm wide international strategy. Because the Japanese market is very different from these other markets, the same level of success cannot be guaranteed. This includes the distribution channel and the supporting industries, e.g., TV advertising is relatively cheaper in Japan than in Europe.

Models and Theories

P&G’s International Business-Level Strategy .

Porter’s model suggests that international business-level strategies are usually grounded in one or more of these home-country factors (1, p. 274). Based on Porters model, the firm’s strategy, structure, rivalry and demand conditions seem to be significant for P&G’s international business-level strategy.

Firm strategy, structure, and rivalry: SK-II is the result of the combined ingenuity of P&G’s most talented technologists from its worldwide labs, as well as the specific expertise from a Japanese group. This combination worked well because it reflected the best of P&G’s consolidated R&D while catering specifically to the needs of the Japanese market (2, p. 8). Being a global company headquartered in the U.S. makes it easier for P&G to bring its global talent to its home-country so that it can improve its R&D capabilities and thus have a competitive advantage. Having a pre-existing global structure may also make it easier to adapt this product to the needs of those other countries where P&G does business. When considering expanding the SK-II market, this competitive advantage should be considered.

Demand conditions. The initial product opportunity for SK-II came about from U.S / global demand for an improved facial cleansing product (2, p. 8). That spawned the creation of SK-II as well as other products developed to meet these needs. Because SK-II was developed in response to the demand conditions in Japan, it became a highly regarded cosmetics product and survived the ferocious competition in the Japanese market; thus proving to be a competitive advantage. Furthermore, having a certain amount of understanding of the emerging Asian economic powers, P&G realized that fashionable people in countries like Korea, Taiwan, Hong Kong, etc., closely follow the fashion trends in Japan. Therefore, by entering the Japanese market and securing a substantial level of market share, P&G could have also created further competitive advantage for entering those emerging Asian markets. This strategy may even prove true in the case of entering the Chinese market. However, one may argue that China is a poorer country, but the populations in Hong Kong, Taiwan and Singapore are basically ethnically Chinese. Therefore, their habits should be much closer than that between Japanese and Chinese. Hence, with the successful entry into the Hong Kong market, Taiwan markets can be used as a direct test of the level to which Chinese women will accept the demanding procedures of SK II (2, p.6).

P&G’s International Corporate-Level Strategy

International Corporate-level strategy can be classified into three different types: multidomestic, global, or transnational (1, p. 277). November, 1999 was an interesting point of time for P&G because the firm’s corporate level strategy appears to be shifting from a multidomestic strategy to a transnational, or perhaps global, strategy. This is being done through the O2005 initiative, and explains some of the struggles P&G may face trying to expand the SK-II product globally.

As discussed in the case analysis, P&G was “in the midst of a bold but disruptive Organization 2005 restructuring program. As GBU’s took over profit responsibility historically held by P&G’s country-based organizations, management was still trying to negotiate their new working relationships.” (2, p. 1) This quote explains P&G’s international corporate level strategy, both where it was, and where it’s trying to go. A tell tale sign of a multidomestic corporate level strategy was for P&G to have profit responsibility held by their country-based organizations. A multidomestic strategy has strategic and operating decisions decentralized to each country to allow products to be tailored to each local market (1, p. 277). The opposite is true for a global corporate strategy. Under an international global corporate strategy, products are standardized across all markets and economies of scale are emphasized (1, p. 280). This was the direction P&G was headed in when GBU’s took over profit responsibility. In fact, this structure is very similar to a ‘worldwide product divisional structure’ which supports the use of a global strategy (1, p. 280).

However, during the SK-II development through the expansion proposal, P&G’s international corporate strategy appears to be a transnational strategy, which combines aspects of the two aforementioned strategies. This is done in order to emphasize both local responsiveness and global integration and coordination. This is true with the SK II project. When the SK-II product was first created it was done so on a global level to meet a global demand. The product was then localized for the Japanese market. For instance, separate marketing teams were used in the U.S. and in Japan to develop this product for each market (2, p. 8). By first creating one product to meet global demand rather than regional demand, P&G was able to achieve economies of scale and efficiencies by having one R&D team working on a product that would meet many regions needs. However, P&G then allowed each region some flexibility in how they marketed, priced, and distributed this product. This was a big reason for SK-II’s success in Japan.

It is apparent that P&G has adopted a transnational strategy. In line with the characteristics of that strategy, P&G is considering expanding a product proven to be successful in a demanding (Japanese) market in to other markets. By doing so, P&G will need to rely on aspects of a global strategy that uses a standardized product for the global market such that the competitive advantages in the home-country (Japan) can be leveraged out globally, thus achieving economies of scale. P&G will also need to rely on aspects of a multidomestic strategy that pays great attention to various unique features of different markets. For the Greater China market and the European market, P&G will need to make an effort to fit into the local environment in order to achieve success in a different culture from Japan. In order for this transnational strategy to work for the SK-II expansion, the P&G corporate structure must have good communication and flexibility. Without that, a transnational strategy will not be as effective, and the SK-II expansion may not succeed.

Industry environmental analysis: Porter’s ‘The Five Forces of Competition’ Model

Paolo de Cesare knew there were significant risks in his proposal to expand SK-II into China and Europe. This skin care line from P&G has been a huge success in Japan, a country where customers, distribution channels and competitors were different from those in most other countries. The Model of ‘The Five Forces of Competition’ helps describe the current situation of SK-II in Japan as well as analyze the Industry Environment in P&G’s target market for its skin care line. This information can be used by P&G when deciding whether or not to launch SK-II in China and the United Kingdom.

Japan : In this special market, where the world’s leading per capita consumers and highly sophisticated users of beauty products are, the threat of a new entrance seems to be very low. There exist entry barriers that make it difficult for new firms to enter this particular market. Among these barriers is the difficult access to the complex Japanese distribution system and the product differentiation of the very competitive companies that already share the market (3, p. 1). Companies as Shiseido, Lion, Kao, and Kanebo compete for market share, suggesting that with few big players in a slow growing market there is strong rivalry (4, p. 1). Furthermore, the low switching costs of the skin care products makes easy for competitors to attract buyers from the rivals, thus enhancing the competition. The threat of substitute products for SK-II in Japan is high because of the high innovative capacity of P&G’s competitors, Kao and Lion (5, p. 1). These Japanese companies spend huge amounts in research and development to be on top of the technological challenge. The bargaining power of the buyers is not the main factor to set the price, but competence for market share among competitors is. This lets customers have many options to choose from. Additionally, the bargaining power of suppliers doesn’t seem significant for this industry as well.

China: Just the opposite of the Japanese market, the Chinese market has a high threat of new entrances. The Chinese prestige-beauty segment is growing fast, at 30% to 40% a year and is very attractive for new firms to enter. Almost all-major competitors are already there: LancÎme, Shiseido, and Kao are examples of companies selling products in China (6, p. 1). The intensity of rivalry among the competitors is still low, because this growing market reduces the pressure for firms to take customers from competitors. However, the threat of substitute products is high, because the big players in the Chinese market are mostly global firms, with high innovative capacity. The bargaining power of suppliers and buyers is low.

Europe : Well-respected companies including Estee Lauder, Lancîme, Clinique, Chanel and Dior crowd the field of high profile skin care products, resulting in high competence among existing competitors and a low threat of new entrances. The brands’ prestige and the loyalty of their sophisticated and beauty-conscious customers are high entry barriers. As in Japan and China, the threat of substitutes is high because of the brand’s globalization, and the fact that those companies can easily legally imitate their competitor’s new products. The bargaining power of the buyers is high because of the multiple options they have to choose from. As in the previously described markets, the bargaining power of suppliers is not significant.

Five forces vs. market table

  Japan China United Kingdom
Threat of new entrants Low High Low
Bargaining Power of suppliers Low Low Low
Bargaining Power of buyers High Low High
Threat of substitute products High High High
Intensity of rivalry among competitors High Low High

The I/O and Resource Based Models of Above-Average Returns

Regardless of what geographic market Proctor & Gamble plan to enter with SK-II, they need to carefully observe and learn from those companies already in that market. They have to find out what it is that successful firms are doing to gain and maintain market share. The I/O model of above-average returns dictates that firms in the same industry generally possess the same resources and pursue similar strategies in order to achieve high returns (1, p. 14). On the other hand, P&G has to utilize its own resources and capabilities which are not similar to competitors in the high-end cosmetics industry. This theory is based on the resource model of above-average returns. The resource model maintains that firms in an industry generally do not have similar resources and capabilities, and that a firm’s unique resources provide a competitive advantage (1, p. 16). The best strategy for P&G to pursue in taking SK-II to the global marketplace is to congruously use these two models. In Japan, where P&G had a large market share in this industry, they utilized their extensive technological resources and extensive research and development. While these resources were spread over the cosmetics industry (each firm has extensive research and development and technological resources), P&G had the advantage of being a large corporation with deeper pockets than many competitors. With the decision of taking SK-II into the global marketplace looming, these two models serve as effective tools in determining which geographical markets SK-II can flourish. In some cases, as with the U.K. market, the application of these two models can reveal that it might be a better decision to enter a particular market. In the U.K., many firms are fiercely competing for share in a saturated market. The firms’ resources and capabilities are spread thinly across the market. This makes it difficult to establish and maintain a competitive advantage. Contrary to the U.K. marketplace, the Chinese cosmetics market is still growing. P&G has the opportunity to leverage its own competitive advantages to enter this market with full force. While SK-II has little visibility outside of Japan (2, p. 6), P&G could use their Japanese market experience to develop an effective strategy for entering other markets such as China, Europe, and eventually the United States. They had established market share in Japan, but the other geographical markets consist of different environments and different competitors who possess different resources and capabilities. As of 2004, P&G’s most recent challenge is entering the very competitive U.S. cosmetics market with SK-II. It is planned for release in America for February 2004, sold exclusively at Saks Fifth Avenue.

Comparison to other organizations

L’oreal Comparison.

L’oreal has been one of P&G’s major global competitors in the cosmetics industry. L’oreal’s transnational strategy has led them to be the number one in (#1 what?) the world. In 1994 P&G was number two but they have since dropped to number four. Part of the reason for this has been L’oreal’s ability to capitalize in the international markets.

L’oreal has steadily become the leader in cosmetics by their ability to adapt their products to the global market and achieve a high level of efficiency. L’oreal’s transnational strategy has allowed it to build a strong global structure while still leaving room for different adjustments that might be needed at a local level. For example, L’oreal’s ‘Free Hold’ line (a mousse) was originally priced on the high end of the market, targeted for a higher class of consumer. Once it was realized that the market for their mousse products could be aimed at a younger or less affluent target, L’oreal released a studio line that was less expensive than the Free Hold line (7, p. 1). This example shows that L’oreal is willing to use different price levels in different regions or demographics.

L’oreal has also adjusted its management structure by specific job function. For example, both U.S. and Europe have a VP of operations. This type of management allows for the businesses to implement necessary changes at the local level that might not be needed throughout the entire corporation. These factors allow for the continued success that L’oreal has when using a transnational business strategy on an international level.

Proctor and Gamble is trying to go in a different direction than L’oreal when trying to expand their international business. P&G mostly uses a global strategy where seven global business units that would take control and implement changes into the local businesses (2, p. 5). This approach uses the SBU’s to makes changes at the local level while still maintaining the best interest of the corporation. With SK-II, P&G seems to be completing their transition from a transnational strategy to this global strategy. In a global strategy a company offers standardized products with strategies dictated from the main headquarters. This type of strategy produces less risk for P&G, but it also lowers the chance for potential growth by letting local markets dictate their own strategy. With a global strategy, a business does not take into consideration the local demand by adapting their products to the needs of the people in that area. The global strategy essentially says that whatever the main company decides is best for the company no matter where it is located. (this is already mentioned above, and may be repetitive
also, no reference is made to the text where this was taken from) P&G has a different corporate structure than that of L’oreal based on their different business strategies. P&G has fewer managers that are in charge of the phases of business. For instance, P&G does not have multiple people holding the same positions in different countries where they do business. This structure does not allow for as much adaptation to the regional needs of the consumers.

Estee Lauder.

The Estee Lauder Company prides itself on being one of the world’s leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products (9, p. 1). Under the Estee Lauder name there are many brands and line divisions including the self-titled Estee Lauder division. Similar to SK-II, Estee Lauder has a large international presence (SKII is still only in Japan..at least at the time of the case
should this be changed to say P&G?) and sells principally through limited distribution channels to compliment the images associated with its brands (10, p. 1).

By using a combination of global and multidomestic strategy, Estee Lauder’s strategy is much like the previously mentioned “transnational strategy” (1, p. 282). There are several top level executives that have a large responsibility to global operations. For example, Patrick Bousquet-Chavanne is a Group President and is responsible for marketing, sales and financial direction of all brands within The Estee Lauder Companies in Europe, the Middle East, Africa, Latin America, and the Asia/Pacific region. However, he has also established consolidated regional Product Development Centers in Paris and Tokyo (10, p.1).

The Estee Lauder Companies believe in a strong central philosophy typically found in organizations that use a global strategy but also show the willingness for ideas to come from all areas of the business. Their multiple research and development sites in New York, Belgium, Japan, Ontario, and Minnesota prove this (this just proves that headquarters has opened multiple centers for R&D
it doesn’t really prove that ‘decisions’ are made in regional areas of their business). In order to keep their product responsiveness quick, Estee Lauder’s company website speaks of manufacturing sites in the U.S., Belgium, Switzerland, the UK, and Canada. Estee Lauder has found a successful mix of upper-end cosmetic products with Estee Lauder and Clinique. While both products are priced with high-end cosmetics, they are differentiated enough to each bring in significant market share. From these results, The Estee Lauder Companies do well at mixing both a multidomestic and global strategy into a successful transnational strategy.

Current State of P&G

Currently the CEO of P&G is A.G. Lafley, a 1969 graduate of Hamilton College (not Harvard), who was previously in charge of the Beauty Care GBU. Under Lafley’s leadership, P&G has drastically changed its corporate structure and focus. Within the last year or two, P&G has outsourced all of its back-office operations, including $3 billion worth of IT business outsourced to IBM (13, p.1). This recent outsourcing trend also includes many of the Global Business Services (GBS) that were a major part of the corporate structure in 1999. Now GBS’s like Finance and HR have been outsourced so that P&G can focus on concentrating on its core products and competencies (14, p.1). According to its most recent annual report, P&G’s core competencies are ‘branding, innovation, and scale’, and this focus can be seen in the business decisions made by Lafley (11, p.6).

P&G’s corporate structure has gone through a restructuring that consists of more than just the reduction of unnecessary GBS’s. The international corporate strategy of P&G has clearly become transnational. There are currently 5 GBU’s which work to provide speed to market, as well as centralized product control for P&G. The GBU’s work closely with seven Market Development Organizations (MDO’s) who work with the local customers and country business teams to develop the right product mix for over 160 countries that P&G does business. (11, pp. 5 – 7) The coordination between these two groups shows P&G’s focus on using a transnational strategy to become a profitable global business in the 21st century.

Recommendations

China : We recommend P&G enter the Chinese market. As was previously discussed, the tremendous growth potential of this market is well worth the high import tariffs and government delays in the import process. If anything, these delays only further stress the importance of starting the process of entering China now, rather than later. There is also a risk of profit loss due to counterfeiting in China. However, because competition has already begun to enter the market, it is extremely important for P&G to also enter to take advantage of the increased growth rate while it exists.

Europe : We recommend P&G do NOT enter the European market. This market appears to already saturated, and growth in the region does not appear to be very strong. We are also concerned with the modest forecasted gains in relation to the expected losses incurred entering this market. P&G does not have expertise dealing with the perfumeries in Germany and France, and so we recommend that they look to acquire/partner with another company who has proven success in this region, should they decide to expand into these markets. Perhaps the recent acquisition of Wella could provide this kind of expertise. With the mixed results from the testing done in the UK, we recommend P&G do some more subjective research in this area before deciding to expand the SK-II line here.

Japan : We recommend P&G expand the SK-II product line in Japan. This is the home country for the SK-II line, and has already established a market for the product. While the slowing market growth and increased competition will result in companies having to fight for market share, SK-II’s proven success here should help this product line as it expands. A more plentiful SK-II product line may also help solidify its brand name as it expands to other countries.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
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Mars Inc. Strategic Plan

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Due: November 4th 6:00 pm (New York time zone)

APA Format

STRATEGIC PLAN The challenge of development and retention of “Millennials” work force at Mars Inc. Company”

1. Summary

2. Company’s background

3. Vision

4. Mission

5. Company’s values

6. Environment a. internal work environment b. external environment

7. Long term objectives

8. Strategy chosen and strategic analysis

9. Goals and execution of plan

10. Financial forecast and financial analysis

11. Critical factors for success of strategic plan

12. Evaluation and control

Extra sources Nutraceuticals World. Apr2019, Vol. 22 Issue 3, p26-26. 1/2p. Aroq – Just-Food.com (Global News). 6/25/2019, pN.PAG-N.PAG. 1p.

COMPANY PROFILE

Mars, Incorporated

REFERENCE CODE: C3AE6411-C994-4D5A-9623-4A6132E8C7D5 PUBLICATION DATE: 24 Jul 2019 www.marketline.com COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED

A Progressive Digital Media business

 

 

Mars, Incorporated TABLE OF CONTENTS

Mars, Incorporated © MarketLine

Page 2

TABLE OF CONTENTS

Company Overview …………………………………………………………………………………………..3 Key Facts………………………………………………………………………………………………………….3 SWOT Analysis …………………………………………………………………………………………………4

 

 

Mars, Incorporated Company Overview

Mars, Incorporated © MarketLine

Page 3

Company Overview

COMPANY OVERVIEW

Mars, Incorporated (Mars or ‘the company’) is involved in the manufacturing, distributing, and marketing of confectionery products, pet food, drinks and other food products. The company offers its products to distributors, specialty stores, retailers, and veterinary practices under several brands including M&M’s, Snickers, Dove, Mars, Wrigley’s, Orbit, Extra, Pedigree, Whiskas, Royal Canin, Double mint, and TWIX. The company’s manufacturing and distribution facilities are spread across North America, Asia Pacific, Europe, Latin America and the Middle East. Mars also operates pet hospitals in the US and Canada. The company is headquartered in McLean, Virginia, the US.

The company generates revenues of $35,000 million annually. Mars is a privately-owned company and does not publish its financial results.

Key Facts

KEY FACTS

Head Office Mars, Incorporated 6885 Elm Street McLean Virginia McLean Virginia USA

Phone 1 703 8214900 Fax Web Address www.mars.com Revenue / turnover (USD) Financial Year End Employees 115,000 Ticker

 

 

Mars, Incorporated SWOT Analysis

Mars, Incorporated © MarketLine

Page 4

SWOT Analysis

SWOT ANALYSIS

Mars, Incorporated (Mars) is engaged in manufacturing and marketing confectionery products, pet food, drinks and other food products. Diversified geographic presence, and comprehensive product portfolio complemented by strong brands are the company’s major strengths, even as Private ownership remains a cause for concern. Growing pet care healthcare industry in the US, growing confectionery market in the US, and focuses on nutrition products are likely to offer growth opportunities for the company. However, increase in labor wages in the US, compliance with government regulations, and changing consumer preferences could affect its business operations.

Strength

Diversified geographic presence Comprehensive product portfolio complemented by strong brands

Weakness

Private ownership

Opportunity

Growing confectionery market in the US Growing pet healthcare industry in the US Focuses on nutrition products

Threat

Changing consumer preferences Increase in labor wages in the US Compliance with government regulations

Strength

Diversified geographic presence

The company has a strong geographic presence worldwide. Mars operates over 413 sites, including manufacturing and R&D facilities in more than 80 countries worldwide. Different businesses of Mars have diversified presence across the world. Mars Petcare, based in Brussels, Belgium, has presence in 55 countries around the world and Mars Wrigley Confectionery has operations in more than 70 countries and distribution activities in over 180 countries. Mars Food has presence in more than 30 countries. Mars Drinks business has operations across North America, Europe and Asia. Mars operates 12 manufacturing plants worldwide. Diversified geographical presence enables the company to hedge the risks of revenue loss in matured markets like North America and Europe from growth prospects in the emerging markets like Latin America and Asia Pacific.

Comprehensive product portfolio complemented by strong brands

Mars owns an extensive portfolio of leading global products and brands. The pet care business offers a wide range of pet food products under 50 brand names that include Pedigree, IAMS, Royal Canin, Whiskas, Banfield, Cesar, Sheba and Temptations, among others. Of these, Pedigree, IAMS, Royal Canin, Whiskas and Banfield are billion dollar brands. The company sells its chocolate products under 29 brand names such as M&M’s, Snickers, Dove, Galaxy, Mars, Milky Way, Twix, 3 Musketeers, Balisto,

 

 

Mars, Incorporated SWOT Analysis

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Bounty, Maltesers and Revels, among others. M&M’s, Snickers, Dove/Galaxy, Mars/Milky Way and Twix are billion-dollar chocolate brands of the company. The company’s food segment comprises 13 brands that are available in more than 30 countries. Of those, Uncle Ben’s is a billion-dollar global brand and is more than 70 years old. The Wrigley business offers products under various brands, among which, Wrigley’s Spearmint, Juicy Fruit, Altoids, Life Savers and Doublemint have a long standing presence of more than 100 years. Mars’ drinks business offers five brands such as Klix, Flavia, Alterra, The Bright Tea Co., and Dove. As a result of an extensive product portfolio and a strong brand portfolio, Mars holds leading positions globally. For instance, Mars Chocolate is among the leading chocolate manufacturers in the world. Mars Petcare is also one of the leading pet care providers globally. The extensive product portfolio provides a diversified source of revenue for the company, while the strong brand portfolio lends better visibility and presence in all distribution channels and enables Mars to reach a large customer base. This in turn, increases its market penetration opportunities. Market leadership not only provides a competitive advantage, but also enhances the company’s bargaining power.

Weakness

Private ownership

Mars is a privately-held company. Although the company produces, distributes and markets confectionery products, pet food, drinks and other food products, the company is still mired by the various challenges that a privately-owned company faces. It has limited management layers and as a result, the decisions are always taken by few members which might be detrimental for the company. On the other hand, public limited companies have an edge over these companies as they are required to have sufficient members on the management and company’s board, thus providing a wider perspective of any business dilemma and makes decision making easier and efficient. These companies are also mandated to disclose their financial and operational activities, thereby providing transparency in their operations and generating goodwill for the company. This also helps the company raise funds from the market at favorable terms. Thus private ownership puts the company at a disadvantage over its public limited counterparts.

Opportunity

Growing confectionery market in the US

Mars manufactures and distributes confectionery products in the US. The growing confectionery market is likely to provide new growth opportunities to the company by increasing the demand for its products. The demand for convenient snacks is leading to growth in the market for confectionery products in the US. Product innovations and creation of new low-fat and low-calorie products are contributing to the demand for sugar-free chocolates and non-chocolate confections. Promotional activities and social media marketing are the other driving factors in the market. Products in small sized packs and innovation with different formulations and new textures are also influencing the sales of confectionery products in the country. According to in-house research, the confectionery market in the US was valued at US$39,005.2 million in 2018, and is expected to grow at a CAGR of 3.5% during 2018-23 to reach US$46,435.1 million by 2023. In terms of volume, the confectionary market in the US was 2,900.4 million kilograms in 2018 and is expected to grow at a CAGR of 2.1% during 2018-23 to reach 3,220.2 million kilograms by 2023.

 

 

Mars, Incorporated SWOT Analysis

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Product category wise, chocolate accounted for 56% of the total value of confectionary market in the US, followed by sugar confectionary with 35.4%, and gum with 8.6% in 2018.

Growing pet healthcare industry in the US

The company stands to benefit from the growth in pet healthcare industry in the US. According to in- house research, the US market for pet healthcare market is expected to reach a value of US$11,722.4 million by 2022 from US$10,338.6 million in 2017. In terms of volume, the pet healthcare market is expected to reach 1,178.1 million units by 2022 from 1,125 million units in 2017. Product category wise, grooming products accounted for 24.5% of the total value of pet healthcare industry, followed by external parasite treatments with 23%, pet supplements with 21.8%, worming treatment with 17%, and other pet healthcare with 13.8%. In accordance with this, the company entered into some strategic initiatives, including in January 2019, the company through its subsidiary VCA Inc acquired 50% interest in PetCare SA.

Focuses on nutrition products

The company focuses on preparing nutrition products to accelerate its new business opportunities. In line with this approach the company made some strategic initiatives including in June 2019, the company entered into an agreement to acquire Foodspring, a German nutrition food manufacturing company. The Foodspring product portfolio includes protein shakes, supplements, snacks & bars, muesli & porridge, smart cooking solutions and a range of beverages and it registered a strong brand image as producer and marketer of nutrition food across Europe. Through the acquisition, the company could strengthen its brand image across Europe. In May 2019, the company signed a partnership agreement with Jerusalem Venture Partners, an international venture capital fund, to provide support in creating innovative technology solution for making food, agriculture and nutrition foods worldwide.

Threat

Changing consumer preferences

The company’s operations are subject to ever changing consumer preferences. It must continuously develop, produce and market new products in order to maintain and enhance the recognition of its brands and try achieving a favorable mix of products. Consumer spending patterns and preferences that change rapidly cannot be predicted. The decrease in the market demand and change in consumer spending may result in inventories that are too high or cannot be sold at anticipated prices. The company’s business, financial condition and results of operations could be affected if it is unable to adapt to the trends in the market.

Increase in labor wages in the US

Increasing manpower costs may have a negative effect on the company’s operating costs and adverse effect on its profits. The tight labor markets, government mandated increases in minimum wages and a higher proportion of full-time employees are resulting in an increase in labor costs. The federal minimum Labor costs are rising significantly in the US. The federal minimum wage provisions are contained in the

 

 

Mars, Incorporated SWOT Analysis

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Fair Labor Standards Act (FLSA). As of January 2019, the minimum wage rate in the US was US$7.2 per hour. The minimum wage rate in 29 states and the District of Columbia is more than the federal rate. These wages range from US$ 13.2 in District of Columbia, US$12 in Massachusetts and Washington, US$11.1 in Colorado, US$11 in Arizona, US$10.8 in Vermont, US$9.9 in Arkansas, US$8.5 in Florida, US$8.2 per hour in Illinois. The minimum wage in the District of Columbia reached US$13.3 per hour.

Compliance with government regulations

The company’s operations are subjected to extensive regulation by the California State Department of Food and Agriculture, the Federal Trade Commission, the U.S. Food and Drug Administration, federal and state taxing authorities and other state and local authorities. The regulations by these authorities concern the tax regulations, food safety standards and the processing, packaging, storage, distribution and labeling of the company’s products. The company’s plants and products face steady inspection by federal, state and local authorities. Additionally, the company is subject to new or changed regulations, laws and accounting policies. If, the company’s fails to follow or is not in a position to fulfill with such requirements it could be subjected to civil remedies, including injunctions, fines, recalls, or seizures, apart from potential criminal sanctions. Hence changing rules and regulations exposes the company to potential sanctions and compliance costs that could adversely affect the company’s overall operations.

 

 

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OPR 320 Linear Models For Decision Making Homework

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Loading the Solver Add-in:

 

INSTRUCTIONS FOR WINDOWS, EXCEL VERSIONS 2010, 2013, 2016:

Before you add the Solver add-in in Excel, you must first make sure that all Office Updates have been installed:

1. Be sure to save and close all Office applications currently running, including Word, Excel, PowerPoint, Outlook, etc.

2. Start Excel.

3. Go to the File Menu and select Accounts.

4. Click on the Office Updates button.

5. Follow the prompts to install all updates.

Steps to add the Solver add-in:

1. In Excel, go to the File Menu and select Options.

2. Click Add-Ins, and then in the Manage box, select Excel Add-ins.

3. Click Go.

4. In the Add-Ins available box, select the Solver Add-in check box, and then click OK. Tip: If Solver Add-in is not listed in the Add-Ins available box, click Browse to locate the add-in. If you get prompted that the Solver Add-in is not currently installed on your computer, click Yes to install it.

5. After you load the Solver Add-in, the Solver command is available in the Analysis group on the Data tab.

INSTRUCTIONS FOR MAC, EXCEL VERSIONS 2010, 2013, 2016:

Before you add the Solver add-in in Excel, you must first make sure that all Office Updates have been installed:

1. Be sure to save and close all Office applications currently running, including Word, Excel, PowerPoint, Outlook, etc.

2. Start Excel.

3. Go to the Help Menu and select Check for Updates.

4. Follow the prompts to install all updates.

Steps to add the Solver add-in in Excel 2011, 2016 (Mac):

1. On the Tools menu, select Add-Ins.

2. In the Add-Ins available box, select the Solver Add-In check box, and then click OK.

· If Solver Add-in is not listed in the Add-Ins available box, click Browse to locate the add-in.

· If you get prompted that the Solver add-in is not currently installed on your computer, click Yes to install it.

3. After you load the Solver add-in, the Solver button is available in the on the Data tab.

 
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