Desert Industry

INVESTIGATING COMPETITIVE ADVANTAGEIN THE SMALL SCALE DESSERT INDUSTRY IN SOUTH WALES.

1. INTRODUCTION:

Financial Success often depends on marketing ability of a firm. Finance, operations, accounting and other business functions cannot help unless there is sufficient demand of products and services of a firm in the market. Hence, the focus of the firms today is totally on the customers (Kotler and Keller, 2006). In broader sense, the whole marketing process can be defined in the following diagram:

In every stage of the marketing process, a firm not only has to keep its focus on the customers but also have to keep the efforts to be ahead of its competitors. Hence, in each stage of the marketing process, a firm tries to be ahead of its competitors by gaining a competitive advantage over them. In order to do this, certain competitive strategies are followed. These strategies involve taking offensive or defensive actions to create a defendable position in the industry. The best competitive strategy for a firm is unique and dependent on the challenges that the firm is facing. However, it is not possible for a firm to enjoy a competitive advantage in the market over a same strategy for long term basis. So, with the change in the external environment and competitor’s strategies, the competitive strategies of a firm, too, has to undergo certain changes.

The project proposes to study competitive advantage for small firm in desserts industry, which has created a niche segment for itself in the competitive dessert and bakery market of South Wales. It also aims to study the importance that such small firms give to competitive advantage and the way they evolve with time.

2. FOCUS

2.1 Aim:

By considering the above mentioned facts, the aim of the project has been narrowed down to:

“To study Wales dessert market taking into consideration the prominent players in the industry, thereby, identifying the evolution of its competitive advantage and strategies over a period of time and the possible opportunities and threats in the coming time”.

2.2 Objectives:

1) To study Wale’s Dessert market and evolving competitive strategies of prominent players of industry with time.

2) To carry on a comparative study on the competitive strategies of the prominent players of wale’s dessert market.

3) To identify the upcoming threats and opportunities, hence, making recommendations in terms of how players can gain competitive advantage over its competitors.

3. CONTEXT:

The concept of gaining competitive advantage forms the thrust of marketing activities in an organization. Working on a project using a study on competitive advantage would be a great value addition to me as a student of marketing specialization. This is because of the reason that Competitive advantage encompasses almost all major aspects/fields of marketing ranging right from the conception of product development through product promotion to product launch and strategies for its sustenance in the market. The reason for choosing not too developed dessert market was that information about the competitive advantage and strategies of large firms and MNCs is well talked of in books, articles, news, journals. Even while compounding theories and frame works related to competitive advantage and strategies, theorists have given major consideration to large corporations and MNCs. The Focus of project on such small segment industry is to understand the perspective and dimensions of the concept of competitive advantage and strategies at a small scale.

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4. LITERATURE REVIEW:

4.1 About the Conceptual framework:

Competitive advantage: The Concept

The concept of Competitive Advantage was compounded by Michael E. Porter in 1985. In order to create a defendable position in the market or in order to survive successfully in the presence of various competitive forces so as to generate high returns on investments, it is important for a firm to take either offensive or defensive strategies (Porter, 1998).

Resource Based Theory

The major contribution of the resource-based view of the firm to date has been as a theory of competitive advantage.

It argues that it is very important for a firm to develop a sustainable competitive advantage (SCA) within so as to successfully survive in highly competitive market. According to the theory, achieving a SCA allows the firm to earn economic returns over its investments. Also, it lays emphasis on how firms achieve and sustain competitive advantages. The theory puts forward the idea that in order to gain competitive advantage, possession of certain key resources that have unique features like value, barriers to duplications and appropriability, acts as an effective stimulus. The theory also stresses upon effective deployment of the resources in the market to maximize returns and on the appropriate strategic choice of the firm (Fahy and Smithee, 1999).

A customer should see any competitive advantage as a customer advantage. For example, if a company sells fresh food than its competitors, this will not be a customer advantage if customers do not value fresh food. Companies must concentrate on building customer advantages because only by focusing on customer advantages, high customer satisfaction and vale can be assured which further leads to repetitive purchases that are i.e. A loyal customer base and ultimately higher market share (Kotler and Keller, 2006).

Resource-Based Model of Sustainable Competitive Advantage :

Source: (Adapted from Fahy and Smithee, 1999)

Porter’s Generic Strategies:

These are the Basic approaches to strategic planning that can be adopted by any firm in any market or industry to improve its competitive performance. For an organisation to obtain a sustainable competitive advantage Michael Porter suggested that they should follow either one of three generic strategies:

1) Cost Leadership

2) Differentiation

3) Focus

These strategies are applied at the business unit level. They are called generic strategies because they are not firm or industry dependent. Each generic strategy implies different skills and requirements for success which commonly translates into differences in organisational structure and culture.

Cost Leadership – A firm is said to be following the strategy of cost leadership if it is able to deliver a product with same features and quality as its competitors but at a comparative lower cost to the customer. For a business to achieve such a strategy, it is important to achieve low cost of production and distribution. In short, the strategy emphasizes on charging lower price than competitors to gain more market share (Kotler and Keller, 2006) (Dibb et al, 2006) and (www.quickmba.com).

Differentiation – The differentiation strategy, unlike cost leadership, lays stress on delivering products with the benefits exceeding the same products produced by the competitors in the market. According to the strategy superior performance of the product is valued by a large part of the market (Kotler and Keller, 2006) (Dibb et al, 2006) and (www.quickmba.com).

Focus – The focus strategy is also known as a ‘niche’ strategy. This strategy is adopted when a firm is neither in a position to implement cost leadership nor differentiation strategy. In this strategy the focus in terms of efforts and resources is confined to on a narrow and defined segment of a market. A niche strategy is often used by smaller firms. A company could use either a cost focus or a differentiation focus.

A firm using a focus strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages other firms from competing directly (Dibb et al, 2006) (Kotler and Keller, 2006).

PROS:

1) Porter’s generic strategies model achieves to reduce the strategic alignment of the organisations between cost and differentiation. The model successfully indicates that differentiation strategy is equally effective as cost leadership.

2) The selection of a generic strategy provides direction to management and staff that helps them acquire internal consistency between management style, reward system, recruiting policy, etc. so as to shape its internal structure as per the choice of strategy of the firm.

CONS:

1) The concept of porter generic strategies is mostly focused on large multinational companies with multiple business units although the strategy can be implemented on small organisations too, but the tools employed in the strategies are too complex to add optimum value to them.

2) Porter stated that competitive strategic analysis needs to happen on an ongoing basis. But even when a quantitative/economic change in the industry’s conditions is detected, the reaction is frequently too late to realign the company. Most change occurs bottom-up, intuitively and creatively, and can be detected early using soft data rather than hard data

Porter’s Five Forces: Michael Porter’s Five Forces of Competitive Position model provides a simple perspective for assessing and analysing the competitive advantage or strength and position of a corporation or business organization. Industry structure and positioning within the industry are the basis for models of competitive strategy promoted by Michael Porter. The “Five Forces” diagram captures the main idea of Porter’s theory of competitive advantage.

Source: (Adapted from Ankli , 2007)

Bargain Strength of Supplier: Since a powerful customer always has the discretion of forcing supplier for discounts, delay payment or preferred services, later, sometimes have to partly finance the former, so the supplier has to partly finance them. As for examples, Enormous bargaining power is enjoyed by huge Supermarket chains that have huge, concentrated buying power (C Murphy, 2005) (Thompson and Strickland, 2004).

Bargain Strength of Customers: The bargaining power of the customer depends on the range of choice of suppliers that it has with him/her. In a situation of monopsony, where one customer has the choice of many suppliers, the bargaining power of customer is high to an extent where he himself sets the price. Whereas for a situation where customers are poorly placed, their bargaining power is negligible and hence they have to accept the terms offered by the suppliers (Ankli, 2007) (Aaker and McLoughlin, 2007) (Thompson and Strickland, 2004).

Potential Entrants: The firm has to be alert from not only the competitors but the new entrants in the market pose equal threat of market share being snatched. The possibility is even higher if there are minimal barriers to the entry and exit to business entities in the market. However, in reality, the industries have the policies that protect the financial interests of existing firms in the market and restrain additional rivals from entering the market (Thompson and Strickland, 2004) (Ankli, 2007).

Substitutes: Another set of competitors that may pose threat to the market share of a firm are the firms that produce the products that can be substituted against the existing product of the firm. This threat is of high intensity if there is high willingness among the customers to switch from the use of current product to its substitute. Some major factors that may stimulate the willingness of customers to switch to the use of substitute can be use of breakthrough technology in substitute, Steep price difference between the existing product and the substitute (C Murphy, 2005) (Ankli, 2007).

Industry Rivalry: The intensity of competition is directly proportional to the structure of the industry. What matters here is the number and capability of your rivals if – you have many competitors and they offer equally valuable products and services, then in this situation you will have little power. If you are doing the same thing what others are doing i.e. suppliers and buyers are not happy with your deal, they’ll go elsewhere. On the other hand, if you do that no-one else can do, then you can often have tremendous advantage and strength (Thompson and Strickland, 2004) (Ankli, 2007).

According to Obasi & Richard, with the use of the concept of Competitive advantage and strategies, it would be easier for the firms to have a better insight in business situations and the appropriate strategies pertaining to these situations. Also, the managers would be able to make tactical decisions rather than relying on their intuition, experience, or trial and error alone (Akan et al, 2006).

4.2 About the Chosen Sector:

The desert industry of UK is although small industry however it is growing at a good pace. Since last few years many new players have entered in this segment and have been using competitive marketing strategies like Online Marketing, Customisation etc to sustain and do well. According to the website of British baker magazine there is an increase in the cake and cake bar’s market by 7% in the year 2008 as compared to 2007 to reach GBP 1.52 bn. According to research from Mintel out of the whole only two-third of the consumers only consume the cakes, frequency of use and penetration level is declining. Report also stated that the market is likely to grow between 2008 and 2013 by 26 % (www.bakeryinfo.co.uk).

According to Reuters the UK biscuit and the cake market in the year 2007 was approximately to be worth GBP 2.96bn, a boost of 13.6% since 2003. It is likely to see a rise in the biscuit and the cake market between 2008 and 2012, even though this may be largely driven by rise in input cost. Biscuits and cakes are getting a tough competition from other alternatives such as fruits and savoury snacks but its value growth is maintained due to some added value activities (www.reuters.com). It can be seen that the dessert industry is growing and considerable research can further contribute to aspiring small desert industries which is my intention.

5. Research Methodology:

5.1 Research Paradigm:

The research paradigm which will be used in the dissertation is Phenomenology. Phenomenological approach to research is so called because it is based on the way people experience social phenomena in the world in which they live. Phenomenologists are concerned with what things mean, rather than with identifying and measuring phenomena. They are particularly interested in the idea that human experience is a valuable source of data, as opposed to the idea that true research or discovery lies in simply measuring the existence of physical phenomena.

5.2 Research Approach:

Since the project aims to find out competitive advantage and competitive strategy, so the findings of the project would be qualitative in nature.

5.3 Research Methods:

Different research methods used for primary data are:

* Surveys

* In Depth Interviews

Different research methods used for Secondary data are:

* Self study from internet

* Books

* Research articles and journals

5.4 Sampling:

For the analysis, two samples are considered, namely:

a. Consumers

b. Players in the Dessert Industry

The consumers would be taken from all age groups, geographic locations and lifestyles. Similarly, players too would range from the biggest players in the market to the small organizations involved in the same business.

5.4.1 Sampling Criteria:

For the analysis, two samples are considered, namely:

a. Consumers

b. Players in the Dessert Industry

The consumers would be taken from all age groups, geographic locations and lifestyles. Similarly, players too would range from the biggest players in the market to the small organizations involved in the same business.

5.4.2 Number of Respondents/Participants:

For Customers: 125 – 150

For Players: 10-15

5.4.3 Sampling Technique:

The probability Technique will be used. The probability sampling is also known as random sampling. It gives each member of the target population an equal probability of selection.

5.5 Methods to analyse Primary Data:

The study would use MS excel for the analyses of the primary data and text analysis as well.

6. ETHICAL CONSIDERATION AND ISSUES:

Ethical considerations towards respondents:

* Proper information about the study

* Anonymity of the participants

* Freedom to choice

Ethical considerations for self:

* Clear communication with respondents

* Use of authenticated data

* Proper interpretation of data

7. REFERENCES:

MURPHY, C. 2005. Gathering, Analysing and putting it to work 1st edition. Aldershot, Hants: Gower Publishing Limited

Doyle, P., Stern, P. 2006. Markeing Management and Strategy 4th edition. Harlow, Essex: Pearson Education Limited

Dibb, S., Simkin, L., Pride, W., Ferrell, O. 2006. Marketing Concepts and Strategies 5th edition. Boston, MA: Houghton Mifflin Company

Thompson, A., Strickland, A. 2004. Strategic Management Concepts and Cases 13th edition. New York, NY: McGraw-Hill

Aaker, D., McLoughlin, D. 2007. Strategic Market Management 7th edition. Chichester, West Sussex: John Wiley & Sons, Ltd

Kotler, P., Keller, K. 2006. Marketing Management 12th edition. Harlow, Essex: Pearson Education Limited

Porter, M. 1998. Competitive Advantage Creating And Sustaining Superior Performance 11th edition, New York, NY: The Free Press

QuickMBA. 2007. Competitive Advantage [WWW] http://www.quickmba.com/strategy/competitive-advantage/ (15th Nov, 2009)

Bakeryinfo.co.uk. 2008. cake market on the up but trends are changing [WWW] http://www.bakeryinfo.co.uk/news/fullstory.php/aid/3879/Cake_market_on_the_up,_but_trends_are_changing.html (13th Nov,2009)

Reuters. 2008.

Fahy, J., Smithee, A. 1999. Strategic Marketing and the Resource Based View of the Firm. Academy of Marketing Science Review, 10, pp. 1-20

Ankli, R. 1992. Michael Porter’s Competitive Advantage and Business History. Business and Economic History, 21, pp. 229-232

Akan, O., Allen, R., Helms, M., Spralls, S. 2006. Critical tactics for implementing Porter’s generic strategies. Journal of Business Strategy, 27(1), pp. 43-53

8. TIME PLAN

In 6 months of the dissertation

2 weeks will be dedicate to introduction

1 month will be dedicated to Literature Review.

2 months for data analysis.

1 month for research methodology.

1 month for conclusion