Introductory reflection
The United Cereal Eurobrand case, set within the European organization of the giant multinational breakfast foods company United Cereal, portrays the background of a launch decision for a new cereal product, the ‘Healthy Berry Crunch’. As the case evolves, the decision has major strategic and organizational implications for Lora Brill, European Vice President. The case focuses especially on two central decisions confronting her: Should ‘Healthy Berry Crunch’ become the company’s first Eurobrand and be introduced in a coordinated manner Europewide? And, from an organizational perspective, should she create Eurobrand teams to implement her proposed Eurobrand concept or are there other more effective as well as efficient organizational designs for a target-oriented marketing management?
The main objectives of this analysis are on the one hand to review the process of balancing the efficiency of a European cross-border integration in developing a global product strategy. At the same time the responsiveness required by national differences has to be considered. Furthermore, the organizational implications of the Eurobrand strategic choices, including the implications for the assignment of roles and responsibilities to the national and international managers will be explored.
Based on all those regarded subjects, a set of decision recommendations for the launch and the brand issue of UC will be developed. Another important point is to examine the behavioral as well as strategic issues involved in such a multinational new product launch, above all due to the fact that various country preferences have to be taken into account. Especially, the important role of country-level operations in developing and diffusing international innovations has to be included.
The Essay on United Cereal Case 2
... launch Healthy Berry Crunch as United Cereals first Eurobrand concept. In order to support this idea, a major change in the organizational ... the global strategy, which she wanted to name “Eurobrands.” Eurobrands will centralize decisions for products as well as marketing, promotion, and ... must be wise in choosing international strategies. In the case of Europe, most of the countries that surround the ...
Based on a reflection of all mentioned points, decision recommendations for an optimal strategy, regarding those two central problems, will be made. This strategy for Lora Brill has to consider the specific company structure, the special features of the European breakfast cereal market, as well as the company targets.
United Cereal: company structure and strategies
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2.1
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United Cereal: company structure and strategies
UC and its positioning in the breakfast cereal market
A vision requires a formulated and clearly articulated statement of intentions, which include future needs of potential customers. Its features contain a core ideality, uniqueness, imagery as well as a future orientation. 1 Lipton claims that the vision statements of highly effective organizations communicate three principle themes: the mission or purpose of the organization, the strategy for achieving the mission and the elements of the organizational culture which are necessary to achieve the mission and which support the strategy.2
A core ideology consists of two distinct elements: core values and core purposes. While the strategies and practices have to be adapted according to the changing environment continuously, core values and core purposes remain fixed in the long run. As a set of guiding principles, core values are the essential and enduring principles of companies and have an intrinsic value as well as importance to those inside the organization. UC’s focus on customer values, market orientation and constant innovation, as defined in the company phrases, are embodied in its vision. A sample is demonstrated in its customer and market orientation (‘You inspire us’), emphasizing it is the customer who permanently inspired UC to operate innovative and therefore supported company in developing to a pioneer in the application of consumer research and focus groups. UC listens to the customer, spots the trend, and holds the high value placed on extensive market testing prior to launching new products.
The Essay on L’Oreal : Strategies for the Indian Market
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The second principle is constant innovation (‘Innovative winning’).
UC has a reputation as an innovator, both in its products and brand management system. Honoring the past while embracing the future, UC rejects conventional methods and creates innovative products as is reflected in being market leader with some more than half a century old products, though the life cycles in this segment are typically very short.
A core purpose, as the second part of a core ideology, is the organization’s reason for existence and reflects people’s idealistic motivations to work for an enterprise. It describes more the basis of existence of an organization than a specific target. 1
2
see O’Brien/Meadows (1998)
see Lipton (1996)
United Cereal: company structure and strategies
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David Packed, one of HP’s founders, assumed that the deeper and real reason for existence of companies is not just to make money, but to get people together to accomplish something they cannot accomplish separately in making contribution to society, as a fundamental matter. As declared in UC’s vision ‘We accompany you to embrace every delicious and hopeful morning’, UC aims to improve the living standard of people by providing delicious and quality food and sharing the joy, hope and happiness with them.
An envisioned future is a long-term (20-30 years) goal including vibrant descriptions of how to achieve it. It requires thinking beyond the current situation and is fully future-oriented. To create an effective envisioned future a certain level of unreasonable confidence and commitment is required. UC aims to become the leader and winner of the food industry through constant innovation and progress in order ‘to pursue forever innovative and vigorous winning’. Altogether, the vision of UC ‘we accompany you to embrace every delicious and hopeful morning, and you inspire us to pursue forever innovative and vigorous winning’ explains what UC stands for, why it exists as well as the direction for its future development.
2.2
Generic strategy and organizational design of UC
Porter’s generic strategy matrix highlights cost leadership, differentiation and focus as the three basic choices for firms.3 These three strategies are created by the combination of two dimensions: strategic advantage and competitive scope. Strategic or competitive advantage is of two kinds, differentiation or lower cost. Strategic target or competitive scope can be in terms of geographic targets, customer segments served, and the range of products. Focus strategies can be based on differentiation or lowest cost. Based on the information about UC’s European strategy and organization, UC has obviously followed the focus strategy, with a concentration on differentiation originally but a small move towards cost reduction, which can be seen as hybrid 3
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Asics has been developing sports shoes for more than 50 years and yet there principles haven?t changed. Everything Asics undertakes at its research and development center in Kobe, Japan is developed on the basis of scientific work with the intensive cooperation of male and female athletes, and with a very clear objective: To enable professional and recreational athletes all over the world to ...
see Pretorius (2008)
United Cereal: company structure and strategies
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strategy, which is not recommended by Porter. Nevertheless, there are studies, which suggest that combining the two competitive strategies may also be successful, as is evidenced by the success of IKEA or Toyota, who have both pursued a hybrid strategy.4
Existing differences across European markets as proved by the failure of the ‘Europeanization Initiative’ in 2004 have led UC to maintain its national subsidiaries and pursuing a customized marketing strategy. Each subsidiary is led by a Country Manger with a strong freedom of decision and is focused on local products and markets. Therefore, due to a geographical market segmentation and identification of target markets, UC has established a matrix organization. As a result, each subsidiary has its own manufacturing, marketing, R&D and further functional divisions. Additionally, the European country managers compete with their counterparts from the other markets of UC over the budgets and financial support from the European headquarters.
They operate with extensive autonomy to make product and marketing decisions based on their market understanding and experience. Those local adaptions combined with competition among the CMs are expected to maximize the subsidiary’s local profits. New products have been invented and different marketing approaches have been established in each market to differentiate UC from the market rivals. However, the increasing competition in the Central European cereal markets has put the profit margins of UC under pressure. Reaching lower costs and implementing more efficient processes has become more vital. Most CMs now rely on cost reductions in their existing portfolios to maintain profits rather than launching new products. Consequently, the competitive strategy of UC is tending to move to a higher cost dropping concentration, as could be exemplified by economies of scale and synergy effects due to a second ‘Europeanization Initiative’ or Eurobrand Strategy.
The Essay on An International Market Entry Strategy
... on the product type and the life cycle. Waterfall strategy allows the company to take time to understand a market and make ... official launch outside the United States, many Asian and European customers eager to get Apple’s smart phone would buy ... involves estimation of potential market size and revenue patterns, identification of target segment, creation of brand awareness, identification and creation ...
2.3
The implementation of the ‘UC way’
When disregarding UC’s vision and its ‘UC Way’, the brand management system – originally established by UC in the food industry – has been a substantial internal advantage keeping UC as the market leader for many years. In this system, brand 4
see Wheelen/Hunger (2011)
United Cereal: company structure and strategies
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managers are authorized with the leadership of cross-functional teams. Each brand is managed as a mini profit center and is constantly measured against other brands. Based on this structure, an intense competition for the support from R&D and the resources for product development exist among UC’s brands. This could also be a reason for the reduced lateral communication within the system. However, the vertical communication is strong within each brand, and top managers are deeply involved in even apparently less important brand decisions, such as advertising copy and label changes.
With the special emphasis on the vertical communication, it is definitely a complex process to obtain the final approval for each single brand due to the high value attached. The complicated process itself reflects the ‘UC Way’ relatively high by ‘honoring the past’. During this process, all brand managers are supposed to ‘listen to the customer’ for making the right decision in order to ‘spot the trend and make the market’. Finally, the company takes few risks, as a result of this process, into account, which is certainly meaningful for ‘embracing the future’.
Obviously, highly competitive relationships among these small profit centers drove each brand team to improve the productive efficiency with limited resources. In this way, resources (R&D supports, budget, etc.) could be most efficiently used. However, there could be a reasonable problem if resources are only allocated, based on the effectiveness of the single brand teams. Prudent attitude for every big or small decision keeps an ideally low level of the risk for the company and protects the good image of the brand, which is profitable for UC. Firstly innovations always require a certain level of risks and secondly, the described thoughtfulness generates more administrative, marketing and transaction cost.
The Term Paper on Project On " Arvind Mill" ( The Product Mix And Its Strategy)
PROJECT ON “ARVIND MILL (THE PRODUCT MIX AND ITS STRATEGY)” Master of Commerce Semester-I (2013-2014) Submitted In Partial Fulfillment of the requirements For the award of degree of M.Com-I By Suraj Shridhar Tripathi Seat No: _______ Tolani College of Commerce Sher-e-Punjab society, Andheri (East), Mumbai-400 093 PROJECT ON “ARVIND MILL (THE PRODUCT MIX AND ITS STRATEGY)” Master of Commerce ...
Because of different requirements from each national unit of UC, different combinations of more than 100 branded products are distributed to each national subsidiary. According to the various preferences among these European countries, brand managers produce new products or promote the same branded product in different customized ways to adapt the local situation, which is apparently in line with UC’s positioning in the differentiation strategy. With regard to the increasingly competitive cereal market and the huge price and profit pressure, limited budgets provide only little chance for developing and launching new branded products
United Cereal: company structure and strategies
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because they rely on high development and introductions spending. Hence, brand managers have preferred the way of product extensions more than the one of new product introductions in the previous years. From this point of view, those decisions are event largely in line with UC’s positioning trend to a larger cost focus.
2.4
The typical expanding way of UC’s European business
When a firm decides to expand to international markets, there are several ways to be considered. Export, franchising, licensing, contracting, joint venture, foreign branch, private equity investment, and wholly owned subsidiary are of commonly used approaches.5
In 1952, UC for the first time entered the European market by acquiring an established company located in UK. In the following 30 years, UC used the approach of a wholly owned subsidiary to expand its operation in Europe. First acquiring an established local firm, then introducing products of US product lines to grow. In 2009 about 20% of global sales of UC are contributed by the European market. Owning foreign subsidiaries completely makes a company extremely flexible in introducing new products from a matured market into new markets. This gives UC the advantage to diversify the product line and to meet different needs of customers.
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Moreover, by acquiring an existing local company, UC entered the new market by using an existing distribution channel and relationships with suppliers and customers. This feature helped UC to reduce the entry complexity of this formerly new market. Nonetheless, several disadvantages are also associated with this approach. First, it is always a challenge to integrate the acquired firm to the global company group and share the same corporate values, policies, and views. Moreover, in comparison to other approaches, the subsidiaries have to take the whole risk and deal with it solely when facing unfavorable conditions. However, the parent company can take some risk for its branches and the local divisions can share the risks with its parent company.
5
see Pearce/Robinson (2009)
Analysis of UC’s external and internal environment in Europe
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3.1
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Analysis of UC’s external and internal environment in Europe A view on macro-environmental differences in the European market
Although Europe has grown together politically and economically, there are still lots of existing differences in sociocultural factors.6 A major consequence of culture is its effect on consumption patterns of individuals and societies. Depending on the underlying cultural attitude consumers tend to follow certain consumption patterns. Successful brands have been able to adopt their branding strategies in line with dominant cultural philosophies and weave their brands into the cultural fiber.7 This is a very important fact because the ways in which people live their consumption life vary greatly from one European country to another, as reflected in the variety of national tastes and breakfast traditions in Europe. Nevertheless, there is a common development towards nutrition awareness regarding health and nutritional values.
But nevertheless there are mutual trends as for example the growing influence of children on the buying-decisions of the parents. A study showed that one-third of parents has changed its shopping habits to be more environmentally conscious because of information they received from their children. For this reason it is important to become aware of young people’s influence in everyday family buying decisions, and to convince those so-called ‘green teens’ that a company’s products are environmentally friendly.8 These facts offer huge chances for UC since it has the possibility to develop its marketing-mix simultaneously with the aging of this ‘green generation’ and form a strong (Euro-) brand with a positive image including a consideration of their greener life style and consciousness. In the past ten years, consumers in the EU have been relatively pessimistic about their future prospects. A lower level of resources has caused a shift towards an emphasis on quality products that are reasonably priced.9 This fact fits perfectly to a hybrid strategy regarding UC’s future strategy containing a move towards cost focus. Initiating a Eurobrand strategy could intensify this.
6
see Solomon/Bamossy/Askegaard/Hogg (2006)
see Daye (2009)
8
see Solomon/Bamossy/Askegaard/Hogg (2006)
9
see Solomon/Bamossy/Askegaard/Hogg (2006)
7
Analysis of UC’s external and internal environment in Europe
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European consumers are less tolerant of exaggerated or vague product claims, and they are more skeptical about marketing activities, what should be considered when developing the communication strategies of ‘healthy products’. Certain trends seem to exist in all western European markets. These include a tendency to more unevenly distributed income, an aging generation with an increasing number of older people, a decrease in household sizes, as well as an intensification in environmental concern and consumption of ‘green’ products.10 In spite of these common trends, there are – as mentioned above – big differences in the local contexts in which these trends are found as well as differences in the degree to which the trend is significant in each individual country.
This is demonstrated by the differences in Europe’s cereal market with a cereal consumption of 8.0 kg However, numerous European managers expect an increase in the importance of Eurobrands and the ‘Euro-consumers’.11 However, why and when companies should or could adopt pan-European strategies or not remains a complex matter. An existing study suggested 21 influencing factors on pan-European marketing standardization, including management characteristics, firm characteristics, industry characteristics and government characteristics, but not market characteristics.12
Even though consumer behavior analysis plays a significant role in the choice to standardize or adapt marketing strategies, every consumer differs to a certain extent in what he buys, why he buys, who influences or makes the purchase decision, how he buys, when he buys and where he buys. Some of these differences may be explained at the lifestyle level and some are obviously related to national or regional differences. It is also recognizable that some differences are disappearing, due to the increasingly international supply of goods and the increasing internationalization of the retailing system in Europe.13 However, not even the fact that similar goods are bought in similar stores across European countries approves the existence of the ‘Euro-consumer’. Product usage and knowledge, and to a certain extent imagery, may be relatively shared among Europeans, but as soon as one takes the contexts of acquisition, consumption and disposal into account, the actu10
see Solomon/Bamossy/Askegaard/Hogg (2006)
see Saghafi/Sciglimpaglia (1995)
12
see van Eenennaam
13
see Tordjman (1995)
11
Analysis of UC’s external and internal environment in Europe
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al role and meaning of the product in daily life becomes colored by the local culture. No lifestyle survey has yet demonstrated a truly European profile in any of the lifestyles. Consequently, European segments continue to be defined in rather abstract common denominators.14
It is often asserted that segments such as international business people, or younger people mainly influenced by trends from Internet usage (Social Media), MTV and other ‘global youth culture’ phenomena, are especially prone to standardized marketing. European managers e.g. tend to be prime consumers of pan-European media, like international business magazines (FT) or CNN. Subsequently there may be a tendency to an advanced degree of internationalization among younger, wealthier and well-educated people.
On the other hand, a study demonstrates that there are also differences between the various countries in the level of brand awareness, purchase level, as well as in the degree of significance of socio-economic factors for purchases.15 In general, the absence of the classical ‘Euro consumer’ does not mean that French, Swedish, British, Dutch, Spanish, Greek or German consumers cannot have more in common in certain aspects than they have with their neighbors. But it means that these similarities can be analyzed and understood only with methods that are also able to take the differences into consideration.
Hence the call for an understanding of the new cultural units that makes up today’s marketplace of international lifestyles, global issues, national rituals and local habits. Nonetheless, differences in consumer behavior even exist within bigger countries as for example Germany, the UK or the US. Although they are probably not as big as the international differences, companies are successful in applying standardized marketing strategies within a country and even global marketing strategies in consumer good industries as for example Coca Cola’s demonstrate the success of global food brands with only little adaption, especially in local product tastes. This ‘best practice’-model could help as kind of an instruction of how to create a strong international or panEuropean brand in the case of a Eurobrand strategy of UC.
14
15
see Solomon/Bamossy/Askegaard/Hogg (2006)
see Dubois/Laurent
Analysis of UC’s external and internal environment in Europe
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When looking on the economic factors of the EU, there are differences as well, especially in economic growth rates. On the one hand, the GDP growth has slowed down since some years, being mostly under 2 % and in 2009 even negative. On the other hand, there are huge differences among them. Germany for example, has had differences in economic growth of more than 2 % with a positive development in the last few years. In contrast to Germany other regions, especially the southern European ones, perform relatively negative.16 From the political view, the EU seemed to be a political stable area in the past.
Unfortunately this has changed since the financial crisis in 2009 and the resulting problems. Although most of the crucial members still believe in the advantages of a common economic area, there is lots of criticism, even with thoughts of withdrawal efforts as e.g. of the UK. Nonetheless it should be viewed as stable since most of the EU countries depend from the common EU market.
3.2
Porter’s five forces analysis of UC’s micro-environment
To analyzing the corporate microenvironment or the competition within an industry of Porter lists five major forces, which consist of a company’s competitive environment. In Porter’s view a corporation is most concerned with the intensity of competition within its industry. The five basic competitive forces, which are described in the following chapter, determine the intensity level. The collective strength of these forces determines the ultimate profit potential in an industry. The stronger each of these forces is, the more companies are limited in their ability to raise prices and earn greater profits.
Although Porter mentions only five forces, a sixth one – other stakeholders – can be added here to reflect the power that governments, local communities, and other groups from the task environment wield over industry activities.17 The further central forces consist of the threat of new entrants, the bargaining power of suppliers, the bargaining power of customers, threat of substitute products or services and the position among current competitors.18 Although a PESTEL analysis is recommended for evaluating the attractive16
see de/statista.com (01-07-2012)
see Wheelen/Hunger (2011)
18
see Porter (1979)
17
Analysis of UC’s external and internal environment in Europe
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ness of a market before, this study blanks most points of it out since UC already operates in the European market.
By the threat of new entrants new competitors enter the market and boost thecompetition. For this reason they may cause changes in the market share. In the European market several examples demonstrate that entry barriers are not high enough to stop new entrants. Correspondingly for UC’s environment the threat of new entrants exists and UC has the threat of facing newcomers in the market. Relating to the bargaining power of suppliers, the higher their power is, the higher is the cost pressure for UC. In the European market, UC faces increasing prices, which indicate that the bargaining power of supplies cannot be ignored since there are only few suppliers for the cereal market. Although raw materials for cereal food production are very standardized products, they strongly depend from the agricultural policy and local opportunities and data of regions. The same applies for the bargaining power of customers.
The more powerful the bargaining power of customers is, the lower the profit potential of an enterprise is. The profit potential is very limited when customers have great bargaining power on the price of the products or services. Due to the European economic crisis of the recent years and the development of consumer expectations, the priceconsciousness of customers has increased. A consumer expects a certain basic level in quality and benefits but is not willing to pay a considerably higher premium price than cost leaders. Moreover, the retail market quantity has decreased due to mergers and acquisitions of retail markets.19 Both features increase the customers’ bargaining power and limits UC’s profit potential.
Then, additionally the threat of substitute products typically limit the profit potential of a business by determining maximum price levels oriented towards substitute product providers. In European market, there is a variety of national traditions and thus of providers for breakfast cereals. There are lots of alternatives for breakfast cereals, especially in southern European countries with a lower importance of cereals. Customers frequently eat different foods for breakfast instead
19
see Schneider (2011), http://wirtschaftslexikon.gabler.de/Definition/handel-ist-wandelentwicklungen-in-der-handelsstruktur.html
Analysis of UC’s external and internal environment in Europe
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of cereals. Keeping on developing new products to meet the customers’ need is important for UC to maintain its market share.
Finally the competition within an industry is an important feature with regard to the profit capabilities. In a highly competitive industry the probability of extremely high profits is relatively low. Hence, low prices or differentiation are two ways of accomplishing high profits and competing with other players. In UC’s case, the two biggest corporations UC and Kellogg control a total of 46% market shares, with the biggest four players reaching a total market share of 70% of and numerous smaller companies sharing the remaining 30%. Accordingly, the cereal market in Europe can be seen as highly competitive.
3.3
Analysis of potential organizational designs
The way in which an international marketing organization is structured is an important determinant of its ability to exploit effectively and efficiently the opportunities with respect to the markets. It also defines the capability for responding to difficulties and challenges. International operating corporations have to decide whether the organization should be structured along functions, products, geographical areas or combinations of all, featured in a matrix.20 Since dynamic environmental changes lead to new strategies, the organizational structure and control systems has to change as well in order to reflect new strategies.
There are two crucial issues to addressing these challenges: firstly to develop the structure that provides the best possible framework for both flexibility in individual markets and a worldwide leading strategy – and secondly to create the type and degree of control from the Board Directors to boost total effort. This organizational design has to be flexible enough to be adjusted when market changes occur. However, the greater the level of internationalization is, the more complex the structures can become.21
If market conditions with respect to product acceptance and operating conditions vary considerably across world markets, the geographical structure is the one to 20
21
see Hollensen (2008)
see Czinkota/Ronkainen/Zvobgo (2007)
Analysis of UC’s external and internal environment in Europe
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choose.22 This structure is especially useful for companies that have a homogeneous range of products, but at the same time need fast and efficient worldwide distribution. Typically, the world is divided into regional division. Many food corporations use this type of structure. Its main advantage is its ability to respond easily and quickly to the environmental and market demands of a regional or national area through minor modifications in product design, pricing, market communication and packaging. Moreover, economies of scale can be achieved within regions. Moreover national subsidiaries are able to act self-directed.
However, this may also complicate the tasks of coordinating product variations (horizontal coordination) and transferring new product ideas and marketing techniques from one country to another, as it is required for UC’s possible Eurobrand launch of ‘Healthy Berry Crunch’. Though the geographical structure supports regional expertise, since each region needs its own product and functional specialists, duplication of functions and accordingly inefficiency is often the result, as it is in UC’s case. Due to a rising price pressure from the European customers and the intense competition, this inefficient organization is very expensive why financial resources cannot be concentrated on product innovations.
Some global companies, as United Cereal it is, use both capabilities (geographic and functional focus).
As a result a more complex structure has been adopted, the matrix structure. The international matrix structure consists of two organizational structures intersecting with each other.23 Consequently, there are dual reporting relationships. These two structures can be a combination of the general forms already discussed. For example, the matrix structure might consist of product divisions intersecting with functional departments, or geographical areas intersecting with global divisions. The two intersecting structures will largely be a function of what the organization sees as the two dominant aspects of its environment.
In UC’s case it is internationally a two-dimensional integrated structure with combination of geography and function, as it is the typical one. Generally, each product division has worldwide responsibilities for its own business, and each geographical (country managers) or product division (product managers) is responsible for the foreign operations in its region. Here, the national subsidiaries are responsible for operations at the country level. Because dimension of geography overlaps at 22
23
see Hollensen (2008)
see Hollensen (2008)
Analysis of UC’s external and internal environment in Europe
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the affiliate level, both enter into local decision-making and planning processes. Characteristically product and country managers defend different positions, what leads to tensions and ‘creative’ conflict. UC’s Country managers tend to favor responsiveness to local environmental factors, and product managers defend positions favoring cost efficiencies and global competitiveness. The matrix structure deliberately creates a dual focus to ensure that conflicts between product and geographical area concerns are identified and then analyzed objectively. The structure is useful for companies that are both product diversified and geographically spread.
By combining a product management approach with a market-oriented approach one can meet the needs both of markets and of products.24 The approach of the transnational model held that companies should leverage their capabilities across borders and transfer best practices to achieve global economies and respond to the local market.25 In this way companies avoided duplicating their functions (product development, manufacturing and marketing).
However, it required that senior managers could think, operate and communicate along three dimensions: function, product and geography. It can also be called ‘think global and act local’.
On the other hand, Quelch and Bloom (1996) have predicted the return of the country-oriented manager.26 Their study included an analysis of the behavior of local managers in different countries and concluded that the opportunities in expanding emerging markets, as e.g. Eastern Europe, have to be grasped by entrepreneurial country managers. The transnational manager on the contrary, is better suited to stable and saturated markets, such as Western Europe, with its progress towards a single market.
3.4
The SWOT analysis of UC’s environment in Europe
The use of the SWOT analysis is based on the prior analyses of the micro- and macro-environment and foundation for the strategy formulation. It combines the
24
see Hollensen (2008)
see Bartlett/Ghoshal (1989)
26
see Quelch/Bloom (1996)
25
Analysis of UC’s external and internal environment in Europe
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analysis of strengths and weaknesses based on internal resources with the external environment and the resulting opportunities and threats.27
In the external analysis an opportunity is a situation that the firm is favorable when considering its environment. Deregulation, innovation of new technologies, as well as decreased bargaining power of suppliers or buyers are several indicators of opportunities. A threat is a situation that a firm is unfavorable when considering its environment. Social change or tightly regulation, undesired technology changes, and lost of key suppliers or buyers are some representatives of threats. For the internal analysis, strengths are specific resources of a firm owns which are a competitive advantage in comparison with other firms within the industry. Weaknesses on the other hand, indicate that there are lacks within the company resources, which could lead to a high risk from an external point of view. With regard to Lora Brill’s case and UC’s internal structure, UC has several strengths.
UC has a tradition of more than 100 years even managed to be a global competitor in a multi billion industry. This success results from the high consumer orientation and the big focus on market research reflected in the pioneer efforts in consumer research and qualitative market research (focus groups).
This included an extensive market testing prior to launches, as well. Moreover, even if most of the food brands in the industry has had fixed life cycles, UC has been able to extend life cycles by continuous innovation. Besides, it has secured more product and process patents than any other competitor. For this reason innovation strength has to be seen as one of the success drivers of UC. This also applies for the brand management system with brand managers in leadership roles of cross-functional teams including manufacturing, marketing and other functions.
So, every brand manager competes with the other brands concerning R&D and product development resources. This competition combined with the local customization has lead to a very strong penetration and successful sales numbers in the single markets. The company follows three core values, which have always been supported by the company. ‘The UC Way’ slogan represents the companies drive to ‘Listen to the customer’, ‘Spot the trend, make the market’, and ‘Honoring the past while embracing the future’. Due to the high costs of a failed launch, UC has gone a careful launching process based on much market research it at the same time has spent a 27
see Wheelen/Hunger (2011)
Analysis of UC’s external and internal environment in Europe
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lot of money with huge efforts when deciding to launch. This could be called a considered but intense way. As a company originally headquartered in America’s heartland, they have made some big jumps to become the second leading seller of breakfast products in Europe.
The European market provides several opportunities for UC. Based on the fact that growth was increasingly coming from expansion into new offshore markets, UC’s innovation strength could be a crucial opportunity to grow faster than its rivals. Traditionally, the European countries have different tastes and habits of breakfast. However an interest of healthy foods, which is mainly showed among aging baby boomers in both United States and Europe, has grown in the late 1990s. More natural and less sugar in cereal products has become a key trend in the cereal industry. This gives UC an opportunity to launch a new product to meet the new demand of the Europe market. Besides, the technology of freeze-dried fruits enables UC to produce healthy cereal without many additives.
The EU as one big market has made it easier and cheaper with regard to labeling, advertising, and general marketing practices, which also represent some opportunities for UC in the European market. Lora Brill is on the verge of making a decision that would change the face of the whole company. She is considering the possibility of transforming the individual units of UC into one powerful Eurobrand. Another opportunity that moving to a Eurobrand would provide is the ability to reorganize the corporate structure making it more cost-efficient and at the same time effective and successful.
This could be an advantage concerning the move towards a focus strategy with a combination of differentiation and low-cost focus. Additionally, United Cereal is facing is the opportunity to keep pace with their leading competitor, Kellogg. Kellogg has already launched a cereal with fruit in it in order to meet growing demands for healthy food. They basically run the market of this specific niche. In order to gain a large piece of the market share and enjoy some benefits of being a second-mover, UC has to follow quickly. Kellogg already owns a larger share of the overall cereal market so UC is playing catch up. By making a move like this and implementing a Eurobrand they would provide themselves a chance to really strike back against Kellogg.
On the other hand, UC also shows also internal weaknesses as for example the lack of agreement on its managerial level. It seems that everyone has a differing
Analysis of UC’s external and internal environment in Europe
17
view on the direction the company should be moving towards. Some people believe that a better-structured central leadership should take over and push for a Europe-wide Eurobrand, while other protest that each individual European country should be treated as its own entity and power should be transferred to the single country managers, who are specialized on the specific requirements of their markets. Having such an intense debate between the internal forces of a company lead to an internal blockade with negative consequences for the coordination, especially when strategic changes should be implemented. Strengths also indicate that a company serves its customers better than its competitors, as UC surely does. Nevertheless, this strength of UC leads to a weakness, which is reflected in a lower efficiency within the manufacturing and marketing division of UC because of lots of single marketing activities for every local market and less economies of scale effects. The company’s focus on local products and markets, with its requirements for significant marketing and product development teams in each country, has lead to a situation in Europe where sales, general and administrative expenses are 25% higher than in the U.S. operations.
Above all, due to the specific local positioning of the products, most of the activities have had to be done in own responsibility. Due to the high costs caused by the single development and launch of almost every new product for a small amount of markets, the release of new products has slowed down. Thus, country managers have focus product extensions rather than the launch of a new product. In addition to that UC’s lateral communication within the organizational structure has slowed down harmonization and coordination processes within Europe because every brand manager has concentrated on vertical communication with the headquarters. Consequently, some major threats are facing UC in the European market. In 2003, Kellogg, the toughest competitor, has already introduced the ‘Special K’-bar with freeze-dried strawberries to the European market, with Cereal Partners followed with its version in 2007. These two firms compete aggressively with UC in almost every European country. The competition is growing dramatically in Europe. In addition, the market growth of cereal industry has slowed to less than 1% annually. This puts United Cereal’s margin growth under pressure, as the profit margin is a key performance indicator (KPI) for the VPs and the board. Moreover, in contrary to the trend of the customers’ preference to lower-priced products due to the
Evaluation of UC’s strategic alternatives and recommendations
18
European economic crisis, UC’s product prices have grown. Sales figures could therefore also suffer from this trend in preferences. United Cereal is faced with lots of competition, with the increasing competition within the European cereal market. Main competitors are Kellogg and Cereal Partners and also ahead of United Cereal in coordinating European strategy. The launch of Healthy Berry Crunch in France would cost an enormous amount of money, which is above the approval of the Division VP. Besides, other country subsidiaries may not be able to launch the Healthy Berry Crunch because they are still recovering from the recession or they might not be able to get capacities for a placement in stores. Moreover, when creating a Eurobrand and implementing ‘Euro teams’, country managers might see this as a challenge to their local authority levels. The team members might also not cooperate well together due to a cultural distance.
4
Evaluation of UC’s strategic alternatives and recommendations
4.1
UC’s ‘Healthy Berry Crunch’ – challenge
4.1.1
Launching Decision for Healthy Berry: Advantages and Disadvantages
Based on the previous analysis of the European environment, Lora Brill should launch the Healthy Berry Crunch in France. The following facts also support our decision: Firstly, French consumers have shown interest in healthy food. The test results for the Healthy Berry Crunch blueberry version in six French cities show up a 64 % intention rate to buy, which is an exceptional number considering this as new product. Besides, the consumer panel results in Benelux and Germany are also in favor of Healthy Berry Crunch. This meets the previous SWOT analysis, which points out a trend towards healthy food and environmental consciousness, which is a large opportunity for UC.
Secondly, strawberry flavored Special K of Kellogg would be the only competing product in the French market in this new segment. However, there are speculations about the launch of Berry Burst Cheerios in France by Cereal Partners, another rival. Correspondingly, the competition in this segment is not too intense yet, but new entrants are probable. For this reason, changes in the market devel-
Evaluation of UC’s strategic alternatives and recommendations
19
opment and the launch timing will decide the over the success of the product line. Being kind of a first-mover after Kellogg would bring advantages in gaining a high market share and to strengthen the market position. Thus the product should be launched in France first as soon as possible.
Third, considering the savings of 10 to 15 % through a Eurobrand launch in the overall costs for Europe, the launch of Healthy Berry Crunch would meet the company’s long-term strategy of streamlining the operations and product matrix of Europe. Product innovations are a core of UC’s history and the launch of Healthy Berry Crunch fits to this principle.
Qualified experts also agree with the decision to launch this new product as Eurobrand, as Kurt Jaeger does, Northern Europe Divisional VP and Europe’s most knowledgeable person for breakfast cereal strategies. In his statement ‘customer tastes in Europe are converging and old cultural habits are disappearing’. So, market differences are apparently eroding, as displayed in the sample results that show up only small differences. Though there are still differences in tastes which have to be respected even within a Eurobrand strategy.
4.1.2
Possible effects of a launch decision on the UC Way
Based on the analysis in the first part of this case study, the launch of Healthy Berry Crunch appears to be moderately in line with the UC way as described in the following points: Regarding UC’s ‘constant innovation-principle’, the launch of Healthy Berry Crunch cannot be considered as an entire innovation but as an extension of the already existing product line Healthy Crunch. Market research in France, UK, Germany, and Benelux displayed that the improvement is just the right one for the market. Secondly, by launching Healthy Crunch, UC concentrates on changes in customer needs and is therefore in accordance with its customer and market orientation. As the growth of Healthy Crunch seems to be constant and new focus on healthier food, adding new product lines as for example the Healthy Berry Crunch in France can extend the market and open new market segments. So, this extension matches the requirements of a changing market completely. Consequently, even though the launch of Healthy Berry Crunch will
Evaluation of UC’s strategic alternatives and recommendations
20
not fully fit to the UC way due to less market research and a lower degree of innovation as well as it is linked with a large investment risk, it is still in line with UC’s principles.
4.2
The Eurobrand decision for ‘Healthy Berry Crunch’
4.2.1
A critical view and recommendations for the Eurobrand Concept
One of the fundamental premises of branding is its ability to reduce customers’ search cost and perceived risk by standardization of images, messages, communications, attributes and features. As such brands generally strive to maintain their defining brand identity, brand personality, brand images and brand elements across markets. This standardization poses the first challenge in cross-cultural situations. Brands often need to adopt their products to different cultures what violates the standardization principle. Therefore treating the standardization and adoption issue becomes extremely crucial and the task of balancing standardization with customization is one of the major implications of international brands.28 In this context the success of Coca Cola as a global brand through local taste adaptions has to be considered.
Cultural differences impact branding and are indeed a major factor that has an impact on the success or failure of a brand. As brands enter different cultures, it becomes imperative for them to carefully tread the standardization-customization scale wherein they not only manage to retain the inherent brand identity which is the very reason for their acceptance across markets, but also adopt crucial taste differences to appeal to the local tastes and preference of customers. Due to the importance of cost-reductions in the European countries it is important to generate synergy effects and take advantage of economy of scale effects through a pan-European brand, although small adaptions in taste has to be made since there are too enormous differences. A Eurobrand strategy is a brand strategy coordinated Europe-wide with regard to product marketing activities, which had succeeded in product development for UC. As consumer tastes are converging, old habits are disappearing, and EU regu28
see Roll (2005)
Evaluation of UC’s strategic alternatives and recommendations
21
lation is eroding market differences, a potential can be seen in having homogeneity of products across Europe, by standardizing products, the whole marketing management as well as promotion and advertising.29 In UC’s case, a Eurobrand can be formed to a very strong food brand, with a certain quality promise everywhere in Europe and a high recognition value throughout Europe. This would also increase the level of bargaining power toward retailers, since every consumer expects a strong and familiar brand in every retail store. Moreover, the introduction of new products becomes easier when a brand ‘good-will’ already exists. This would be completely in line with UC’s basic principle and status as innovator. As mentioned before, EU has unified its regulations of labeling, marketing practicing to a large extent, which also indicate cost reduction potentials through a more standardized pan-European positioning and appearance of UC and its Eurobrand.
By taking into consideration all mentioned points a Eurobrand strategy is fully recommended. Since UC’s product program is large and similar positioned, Homburg sees a common brand as economically advisable.30 Nevertheless studies show up that differences especially in tastes and food traditions require a certain degree of local adaption. In addition to that the UC way says ‘Listen to Customer’ and accordingly to consider different national taste preferences, which has to be accomplished despite a Eurobrand strategy. In the food industries the taste adaption is an important success driver, as several examples and success stories show (Coca Cola, Unilever) and is therefore the only recommended customization for the Eurobrand.
For this reason the organizational design has to include multinational experts as well as a regiocentric production approach, summing up countries with similar food traditions and tastes and thereby achieving economies of scale effects. The European market should be divided into four regions with Northern Europe, Western Europe, Eastern Europe and Southern Europe owning manufacturing plants for every region. As a result it is a suitable chance to adapt similar regions and achieve cost savings through shortdistance logistics and high scale effects. A Eurobrand has enormous benefits (costs, awareness across markets, etc.) for UC and offers huge opportunities for growth. And although the standardization level 29
30
see Homburg/Krohmer (2009)
see Homburg/Krohmer (2009)
Evaluation of UC’s strategic alternatives and recommendations
22
will increase by introducing a Eurobrand, there are still relatively good and cheap opportunities for local adaption. Weave the brand into the cultural fiber: The increasing distribution of the Internet access offers brands a powerful tool to involve customers and bring the brands closer to the local culture by providing them a platform to interact with the brand. Creation of online discussion groups, and online brand communities is a certain step towards co-creating brand value with the customers. By weaving the brand essence into the public fiber, brands can leverage cultural differences to their advantage. Moreover, the understanding of consumption patterns is another central point because of individualistic and collectivistic culture differences within Europe.
Individualistic cultures support customers to make consumption decisions based on their personal choice, at an individual level. On the other hand, collectivistic cultures support customers to make consumption decisions on a group level (family, extended family, network of friends and even community).
By launching Eurobrands, UC will be able to cut its product development and marketing costs by 10 to 15 % within a period of three years. It could be a huge step with regard to UC’s competitive strength and would be in line with European consumer expectation, prospecting both a high quality level and a moderate price. By being the first one to introduce such an idea, will provide UC a strong market penetration if the idea turns out to be successful.
It is recommended to launch the Healthy Berry Crunch in France as a test market for the Eurobrand approach as well as to compete with Cheerio’s Berry Burst in this country. It would be easier to evaluate the success of the Healthy Berry Crunch in comparison to Cheerio’s competitor product. Finally, if the product launch and Eurobrand approach develops to UC’s satisfaction, Healthy Berry Crunch is recommended to be launched in the other relevant European markets by using the same Eurobrand strategy.
Finally it will be necessary to strengthen the competencies of the new established centralized Eurobrand team headquartered London (UK), which include the country managers as experts, a competency cut of the national subsidiaries that more concentrate on the implementation of the Eurobrand strategy and act local. A detailed recommendation for the organizational design will follow in the next chapter.
Evaluation of UC’s strategic alternatives and recommendations
4.2.2
23
An analysis: possibilities and risks of building up a Eurobrand
Launching Healthy Berry Crunch as the first Eurobrand will give UC a first mover advantage over its competitors. Although there are costs associated with the launch of Healthy Berry Crunch as Eurobrand, UC could save between 10 to 15 % in product development and market costs over three years. Thus the savings will compensate the costs associated with the Eurobrand launch. By establishing Healthy Berry Crunch as a Eurobrand, it will give UC a huge competitive advantage with respect to its competitors and make it difficult for a new competitor to enter this market since the brand strength will increase immensely in the long run.
Even if the sample size of the test market and consumer panel results is too small, the overall outcome is very positive. As mentioned before, consumer tastes in Europe are converging because market differences are eroding. Hence, it there is a relatively high probability that Healthy Berry Crunch will be well received across Europe. Nevertheless, UC will have to change its organizational structure in order to support a Eurobrand strategy, which might lead to some resistance within the company. For this reason it will be important to convince the critics and to accomplish acceptance among them. Lora Brill has a very short period for making her decision and after weighing the pros with the contras, it makes sense for her to launch the Healthy Berry Crunch in France, with the status as first Eurobrand.
4.3
Impacts of a Eurobrand on the organizational structure
Following the discussion of UC’s strategy, this subchapter concentrates on the organizational structure of UC giving some recommendation on how to change the current structure of UC in order to make it consistent with the selected Eurobrand strategy.
Evaluation of UC’s strategic alternatives and recommendations
4.3.1
24
The connection between structure and strategy
Organizational structure is the formal system of task modules, which reflects hierarchical relationships within a company, controls the coordination between employees and motivates employees to behave consistently with the organization’s strategic plan and objectives.31 When changing a strategy, the structure has to be verified to support the new strategy, as should occur for implementing the Eurobrand strategy.
Otherwise the structure slows down the implementation and development of the new strategy.32 In general, a matching organizational structure is the crucial component for a company’s success. If management concentrates only on the superior target without taking the organizational processes into account, employees or managers will work in their individual modes, resulting in an absolutely inefficient organization unless every part and every employee works collaboratively and every operation, effort and resource supports the strategy.
4.3.2
An analysis of Lora Brill’s construction and recommendations
According to Lora Brill’s concept, the European Organizational Structure of UC should firstly contain central Eurobrand teams, composed of the brand managers from the national subsidiaries, delegates from each functional group such as logistics, manufacturing, R&D etc., as well as three experienced Vice Presidents who are in charge of the regional divisions. Moreover, the responsibilities of the VPs should be enlarged and despite having already charged divisions, VPs should also act as advisors for certain products for the whole European market, meaning that VPs will be responsible for the cross-market coordination and communication of certain products.
The country subsidiaries system exists at the same time, except the change of importing the current brand managers. Lora Brill’s proposed new organizational structure is complex and does not completely suit to any traditional organization structure. At first sight, it is a multidivisional matrix structure, since there are also three division VPs who are in charge of different regions in Europe besides one director for each function department. However, the new structure 31
32
see Cerami (2000)
see Jones (2010)
Evaluation of UC’s strategic alternatives and recommendations
25
encloses differences. For example each division VP is also responsible for different pan-European product groups including their specific but small taste adaptions, inducing a product team structure. Hence, as shown above, Lora’s proposed organizational structure is quite complicated.
Learning from the ‘fruit juice disaster’, Lora does not want to weaken the authorities of country managers in order that she can get support from these CMs, as a result of giving the VPs roles as advisors for products so that these senior managers’ experience and position can be taken advantage of. Moreover, having gained insights from the European technical teams, Lora plans to found Eurobrand teams, which can better serve for her Eurobrand strategy. Lora’s concept can make use of significant resources like marketing and R&D; it can also earn coordination, control and overview of the UC’s whole business in Europe, thus solving the difficulties of UC in Europe.
In her case this is of huge importance because the central problems of UC have since many years been the increasing pressure from price and profit due to high expenses of marketing and product development teams in each country, combined with the lack of effects on economies of scope and scale. Based on the real situation and lessons from the past failure, Lora’s Eurobrand concept of and her proposed organizational structure take the critical factors into consideration, why it is not sudden to arrive in the conclusion that this concept and the structure will be more successful in comparison with the fruit juice launch.
To UC’s generic strategy and Eurobrand strategy, Lora’s proposed organizational structure is partly appropriate. The current structure of UC in Europe comprises national subsidiaries managed by country managers. Each CM makes his own market decisions and decides about the introduction of certain products in order to increase the subsidiary’s profit. This current structure has the lack of consistence in the European strategy. As a result, the product selection process is a weakness due to UC’s limited awareness in regarding Europe as one common market. UC’s country manager structure in Europe does not support for the coordination of products and brands bases on the new strategy. As analyzed before, UC’s original generic strategy is a differentiation strategy. However, due to an increasing competition in Europe, also costs have to be considered within the strategy. The SG&A cost of the current CM structure is 25 % higher than the cost of the coun-
Evaluation of UC’s strategic alternatives and recommendations
26
terparts in the US because marketing and development has to be done by every single local team before launching a product. Additionally, based on the estimation of her finance director, the implementation of coordinated European product strategies will lead to money savings due to staff reductions and other savings through synergy effects. Brill’s proposal structure integrates the marketing and development teams of specific kind of product, which may also decline costs in accordance with pursuing an additional cost reducing strategy (included in the cost leadership model).
Lora’s Eurobrand strategy definitely requires the launch of Healthy Berry Crunch throughout Europe. Obviously UC’s current structure is not proper for this strategy and her proposals are a first good approach. Nevertheless the structure can be improved in a few aspects for her consideration of some potential problems and it has room for improvements since her organizational design is not radical enough. For instance, the implementation of the new strategy can be only then effective if employees within the structure are able and willing to work together as well as to communicate clearly. However, with Lora’s design there could still be a coordination problem due to still existing high responsibilities of CMs. Moreover, higher cost reductions could be achieved by implementing a more centralistic strategy for Europe and higher responsibilities for the headquarters. It is recommended that only one European Marketing Vice President should be responsible for the Eurobrand strategy.
The result would be an elimination of the coordination problem within the top management stage and cost savings involved. Under the Marketing Vice President, who should be be Kurt Jaeger, as most knowledgeable VP in Lora’s view, four Division Manager should be implemented. These should consist of the former Country Managers with three managers (for clear decisions) for each team, transferred from their CM positions to the stage directly below the VP (Kurt Jaeger) and other experts according to their local expertise. Even if European cultures get more and more similar, there do still exist cultural differences.33 Due to the big differences in food tastes and traditions in Europe, four similar regional divisions should be established and subdivided e.g. into Northern Europe, Western Europe, Eastern Europe and Southern Europe. This would better match the requirement of local adaptions in line with UC’s principles but at the same time 33
see Hofstede/Minkov (2010)
Evaluation of UC’s strategic alternatives and recommendations
27
generate large synergy effects and economies of scale effects since every regional division will have its own manufacturing plant. Within the regional divisions every member will additionally manage a certain product line as well as a brand and so in this way receives enough competencies under respect of the guidelines defined by their Eurobrand VP (Kurt Jaeger).
This approach can be seen as geocentric approach but with large supervision of the Marketing Eurobrand Manager. Since the former CMs will be integrated parts of the four regional division teams the high responsibilities of CMs will be cut to simplify the implementation of Eurobrand and to cut costs. To maintain abilities from the local expertise of the CMs, they will be transferred to the European headquarters as members of the four divisional Eurobrand teams.
This will enable UC to differentiate in tastes and to adapt to regional tastes further on, which is very important for success in the food industries. The new country managers will only be kind of coordinators who only implement the centrally developed marketing management, coordinate the country division and report to the headquarters. Further savings will be accomplished through a more unified product positioning and advertising since less staff for local adaptions will be needed through clear Eurobrand guidelines. Lora should ensure that the defined hierarchical structure is clear and efficient, and that every employee feels committed to the decision-making process.
Consequently, it is the main challenge and of exceptional importance to convince the country managers that their contribution will be considered in the Eurobrand teams or by the Marketing Manager and Eurobrand VP and that this not a challenge to their authority. This is especially vital because the failure of the previous standardized European product launches appeared to be a result of the lack of support provided by the CMs. As London is a very multinational city and kind of Europe’s capital it is an optimal location for a headquarters consisting of an international team.
4.4
The Balanced Scorecard as control tool for the Eurobrand
As managers and scientists have tried to analyze the inadequacies of current performance measurement systems, some have underlined making financial measures
Evaluation of UC’s strategic alternatives and recommendations
28
more relevant. On the other side operational measures like cycle time, customer satisfaction are significant. But managers should not have to choose between financial and operational measures. The experience of many companies proves that no single measure can provide a clear performance target or focus attention on the critical areas of the business. Therefore a balanced presentation of both financial and operational measures is necessary.34
A research project over several years with 12 companies at the leading superiority of performance measurement brought up a ‘balanced scorecard’, a set of measures that provides top managers a fast but comprehensive view of the business. This scorecard includes financial measures that tell the results of actions already taken as for example the sales results or the profits. Additionally, it complements the financial measures with operational measures on customer satisfaction, internal processes, and the organization’s innovation and improvement activities. This approach combines the financial key performance indicators with those operational measures, which are the drivers of a company’s future financial performance.35 For UC this means that independent from the launching decision, this performance model should be embedded in order to define measures that drive the performance and to control the development of the marketing and sales strategies of UC and as central control instrument of UC’s future Marketing and Eurobrand VP for all regional divisions including all important features for success in the long run.
34
35
see Kaplan/Norton (1998)
see Kaplan/Norton (1998)
Scenarios for a Eurobrand strategy and conclusion
5
29
Scenarios for a Eurobrand strategy and conclusion
Regarding the implementation and development of the product launch in France and a Eurobrand strategy, there are several potential scenarios for UC. Three of them are portrayed in this last chapter.
The first possible best-case scenario demonstrates a wholly success of the product launch of Healthy Berry Crunch in France, leading to an extension of the market entries in Europe. UC would gain a substantial market share within the first periods and strengthen its position in France as a powerful competitor in this segment against Kellogg. Due to its high competitive strength UC discourages other potential market entrants in the segment and even enlarges its market share in the long run since it can decrease prices. The large cost savings through the implementation of a Eurobrand and a more even organizational structure increases the brand awareness and consequently the market strength in Europe.
The Eurobrand implementation works equally well in the other European countries since the product quality is high and the local tastes adaption made the Eurobrand a very powerful competitor of Kellogg throughout the single European markets, in some markets event with a market leader position. As a result UC’s market shares in the single countries increases and profits boost. UC becomes market leader in several segments within the breakfast cereal market. A second scenario describes a moderate development. After launching the Healthy Berry Crunch UC gains a reasonable market share in its segment in France.
Due to UC’s weak market position and the high profit of Kellogg other competitors enter the market, why UC has to compete aggressively to gain a higher market share. Because of the reasonable savings by implementing a Eurobrand strategy UC is able to lower its prices in France and the other countries but is not able to increase its market share since the main rivals compete very price aggressively. Unfortunately the product launch is not successful in all markets since there are too big taste differences within Europe. Although UC tries to enhance the brand awareness in whole Europe, the implementation of the strategy only proceeds slowly with only small or even no increases in market share.
Scenarios for a Eurobrand strategy and conclusion
30
Finally, the third scenario explains the worst case. The product launch in France fails completely. The previous market tests were not representative enough and for this reason the brand awareness and market share of the Healthy Berry Crunch is considerably underperforming. Nevertheless UC decides to support the product further on in France as the preparation for the other Eurobrand product launches has already started. Even though UC supports the product with enormous expenditures for advertising and sales promotion. Nevertheless it never becomes a serious competitor of Kellogg in this market segment. Unfortunately, the product launches in Europe fail as well. The strategy implementation also fails miserably causing even losses. UC is not able to compete anymore and has to struggle. For this reason UC decides to reject the Eurobrand strategy and to re-implement the old integrated strategy. This is only possible with the help of the American headquarters.
Although it would have been more transparent and simplified to formulate a clearer product structure, as James Miller (VP) proposes, the cultural differences in European food traditions are too large and subsequently these local tastes have to be adapted for achieving a higher market share in the single countries. Nevertheless it is important to achieve as much standardization as possible to generate a higher cost efficiency since European consumers tend to expect also a reasonable price besides a certain product quality and feature level. Even though globalization and integrated markets offer brands a very lucrative deal in terms of unexploited market potential, greater number of customers, and broader reach, it also poses certain challenges such as cultural differences and the resulting consumption patterns. To maximize the opportunities brands should be sensitive to the cultural subtleties and adopt accordingly. Cultural differences can be transformed from a challenge to an opportunity when brands learn from the many best practices in the industry and adopt their branding strategies to adequately reflect the consumer preferences, especially in the food industries. A very good best-practice example is here reflected in the global brand strategy of Coca Cola, with a global marketing approach, however with customization in the product taste.
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