The Strengths And Weaknesses Of Ong Guan Biscuit Marketing Essay

As Ong Biscuit Sdn. Bhd. foresee that their existing product range might fail to support such a rate of growth in the future, they turned to ideas for new products as solution. Their product range covers effectively the middle price market segment, which is the most important part of the entire market in value terms.

A new product is adopted, biscuits for a slimming diets, biscuits with added mineral and vitamins, chicken crackers – a chicken flavoured savory biscuit

Weaknesses

Marketing

Although the company employs a dual brand policy for its biscuits, these brand names have not strongly nor effectively featured on tin labels nor on plastic packets. The only promotion has been in the form of special discounts and allowances to the channel members as incentives to display, recommend and push Ong Biscuits at the point of sale.

The company is having difficulties in attempting to break into the central and northern states of Peninsular Malaysia

a) Is the biscuit industry in Malaysia attractive? Justify your answer with reasons.

Attractiveness in this context refers to the overall industry profitability. An “unattractive” industry is one where the combination of forces acts to drive down overall profitability. A very unattractive industry would be one approaching “pure competition”. Looking at the market background of biscuit industry in Malaysia, it can be considered as an attractive industry. An attractive industry is one in which firms are able to generate and claim or appropriate profits. The market for biscuit industry has generally grown over the period from 1963 to 1968. According to the department of statistics, in 1963 total growth sales in biscuit industry is RM28.807 million but in 1968 the gross sales biscuits by bakeries amounted to RM33.5 million.

As attractive industries are profitable and as that profit is desired by other firms, the biscuit industry in Malaysia also been entered by new entrants. In fact, the biscuit market is extremely competitive. The industry is characterized by a large number of small competitors with only five relatively big manufacturers in term of annual turnover.

Biscuit industry in Malaysia is also considered as attractive because biscuit factories in Malaysia can produce almost the same quality of imported products. Despite the historical association of premium quality biscuit with imported products, there is definite growing recognition of quality in locally manufactured biscuit among consumers. This can increase the local factories’ profit.

Besides that, an attractive industry has a characteristic of having a large market to support the industry. Biscuit industry in Malaysia has this characteristic as the consumption pattern of biscuit is fairly typical of mass-market convenience food products. Thus the consumer profile corresponds broadly to the profile all households in the market in terms of age, socio-economic class and region. Nearly a quarter of all housewives purchase biscuits in jany given month and consumption is noticeable higher among households with children.

There is also low reliance on uncontrollable variables in biscuit industry in Malaysia such as the weather, commodity prices and advanced technologies. That makes the industry more attractive.

b) What are the factors that contribute to the attractiveness of the industry?

Micheal E. Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porters model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry. Five forces that determine the competitive intensity and therefore attractiveness of a market :-

i) Rivalry and competition among the factories

This force describes the intensity of competition between existing companies in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry. Competition between existing companies is likely to be high when :

There are many companies of about the same size,

Companies have similar strategies

There is not much differentiation between companies and their products, hence, there is much price competition

Low market growth rates (growth of a particular company is possible only at the expense of a competitor),

Barriers for exit are high (e.g. expensive and highly specialized equipment).

Biscuit industry in Malaysia seem to be attractive as it’s market is extremely competitive. A biscuit company have to strive and struggle to keep themselves in the business as competition intensifies in the industry. Besides Ong Biscuit Sdn. Bhd. which once was amongst the top five in the industry, the existence of competitors such as Guan Siang, Khong Ghee, Tai Peng and Soon Kee have make the industry become more attractive. It influenced Ong Biscuit Sdn. Bhd.’s rate of growth. The intensity of competitiveness among firms increases whenever new firm enter the industry.

For Ong Biscuit Sdn. Bhd. which was established in 1955, the company grew at an exceptional rate during the first ten years of its existence. Ong Biscuit Sdn. Bhd. became amongst the top five in the industry once. However, it involved in rivalry by other biscuit factories that reduced the company’s share of wafers and crackers in the market. For example, when competitors from smaller manufacturers lower ex-factory prices, Ong Biscuit Sdn. Bhd.’s rate of growth has declined. Rivalry increases when consumers can switch brands easily. In biscuit industry, generally, competitive products look very much the same in term of shapes and sizes and all the factories sell their biscuits in three main type of packaging namely big biscuit tin, gift tins and sealed polythene packets. Ong Biscuit Sdn. Bhd. took great pride in the company’s wafer cream sandwich and unsweetened crackers which have been successful almost as soon as they were first sold in the late fifties. However, both these best sellers are being manufactured by more and more rival factories.

The behaviour of rivalry, could either reduce or increase industry profitability. As rivalry among competing firms intensifies, industry profits decline, in some cases to the point where an industry becomes inherently unattractive.

ii) Potential Development of Substitute Products

Threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. This category also relates to complementary products. The threat of substitutes is determined by factors like brand loyalty of customers, close customer relationships, switching costs for customers, the relative price for performance of substitutes and current trends.

iii) Bargaining power of suppliers

The term ‘suppliers’ comprises all sources for inputs that are needed in order to provide goods or services. The bargaining power of suppliers affect the intensity of competition in an industry, especially when there is a large number of supplier. The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources. Supplier bargaining power is likely to be high when: 

The market is dominated by a few large suppliers rather than a fragmented source of supply,

There are no substitutes for the particular input,

The suppliers customers are fragmented, so their bargaining power is low,

The switching costs from one supplier to another are high,

There is the possibility of the supplier integrating forwards in order to obtain higher prices and margins. This threat is especially high when

The buying industry has a higher profitability than the supplying industry,

Forward integration provides economies of scale for the supplier,

The buying industry hinders the supplying industry in their development (e.g. reluctance to accept new releases of products),

The buying industry has low barriers to entry.

In such situations, the buying industry often faces a high pressure on margins from their suppliers. The relationship to powerful suppliers can potentially reduce strategic options for the organization. 

iv)         Bargaining Power of Customers

Similarly, the bargaining power of customers determines how much customers can impose pressure on margins and volumes. The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer’s sensitivity to price changes. Customers bargaining power is likely to be high when

They buy large volumes, there is a concentration of buyers,

The supplying industry comprises a large number of small operators

The supplying industry operates with high fixed costs,

The product is undifferentiated and can be replaces by substitutes,

Switching to an alternative product is relatively simple and is not related to high costs,

Customers have low margins and are price-sensitive,

Customers could produce the product themselves,

The product is not of strategical importance for the customer,

The customer knows about the production costs of the product

There is the possibility for the customer integrating backwards

v) Threat of New Entrants

The competition in an industry will be the higher, the easier it is for other companies to enter this industry. In such a situation, new entrants could change major determinants of the market environment at any time. There is always a latent pressure for reaction and adjustment for existing players in this industry. The threat of new entries will depend on the extent to which there are barriers to entry. These are typically :

Economies of scale (minimum size requirements for profitable operations),

High initial investments and fixed costs,

Cost advantages of existing players due to experience curve effects of operation with fully depreciated assets,

Brand loyalty of customers

Protected intellectual property like patents, licenses etc,

Scarcity of important resources, e.g. qualified expert staff

Access to raw materials is controlled by existing players,

Distribution channels are controlled by existing players,

Existing players have close customer relations, e.g. from long-term service contracts,

High switching costs for customers

Legislation and government action