Identify a company in any industry of your choice and examine the environment they have been operating and their growth strategies.
As the world around us continues to age more and more, most people are having a strong interest in premium wines. Australia's wine industry is among the country's leading sectors that have a major impact on the increasing economy boom of Australia over the last one decade (Chong, 2014, p. 45). Today, Australia’s wine industry has gone global due to the production of the world’s best wines. The industry leaders have set Australian wine sector to become the world’s most profitable, valuable and influential wine producer by 2025. Wine production in Australia is governed by a code of conducts that were established in 2008 whose aim was establishing a common Australian supply framework and establishing dispute resolution system to enhance quality production in the market.
New technologies help in improving productivity, economies of scale, quality of products, and efficiency in production (Jones and Hill, 2008, p. 22). Due to this, the industry is highly competitive as many players are attracted to operate in the sector. The most competitive wine producing companies in Australia include Penfolds Grange Shiraz, Southcorp, BRL Hardy, Beringer Blass, and Orlando Wyndham. However, this report will only analyze Penfolds Grange Shiraz which has become the most famous wine producer and brand itself in Australia. Penfolds operates under the Foster’s Wine Estates Group. This report will examine the environment in which Penfolds Grange Shiraz has been operating and its market growth strategies.
Macro business environment factors refer to the forces that exist outside the company and are beyond management control. The macro business environment will entail PESTLE analysis of Penfolds Grange Shiraz as follows:
Recent research shows that the Australian wine industry has significantly grown for the past five (5) years. The Australian government has been supporting the wine industry in many ways. The political temperatures in the industry have been controlled through the establishment of laws and regulations that promote independence in the sector. The government offers financial support and finances the construction of infrastructure in which Penfolds Grange Shiraz is supplied to its target markets conveniently (Hill, Jones, and Schilling, 2014, p. 48). However, tax policies do not favor Penfolds for the government taxes a large portion of the profits earned.
Australia has been experiencing significant progress and growth regarding wine production over the last decade, and this has contributed significantly to economic growth of the country. More tourists are being attracted to Australia due to Penfolds Grange Shiraz, a wine product that is highly valued both domestically and internationally. Inflation rates in the Australian wine industry have been controlled, and the industry ensures that prices of Shiraz do not vary from time to time (Gupta, 2013, p. 14). Penfolds Grange Shiraz operates in an economy which has buyers of high disposable income. Australian economy controls fluctuation rates of currency, and this enables Penfolds Grange Shiraz to thrive in the global markets effectively.
Social-cultural factors include the beliefs, norms, attitudes, religion, behaviors, and perceptions of the society to the product being offered in the market by a company. With advancements in technology, most Australian people have changed their lifestyles and trends to wine consumption (David, 2011, p. 16). Most people are valuing and consuming wine products produced by Penfolds Grange Shiraz. On the other side, there have been no significant changes in the societal beliefs, norms, and attitudes towards wine production. Most Australian citizens are Muslims, and this brings the aspect of religion-related factors to Penfolds Grange Shiraz's wine operations in the country.
Technology greatly affects the wine industry, and this has led to the creation and innovation of more demanded and valued wine brands to Australia. Penfolds Grange Shiraz operates in the technologically competitive wine industry and faces stiff competition from Southcorp, BRL Hardy, Beringer Blass, and Orlando Wyndham who are technologically competitive wine producers in the market (Smith and Marsh, 2007, p. 225). However, the management of Southcorp, BRL Hardy, Beringer Blass, and Orlando Wyndham has invested more in wine production technologies, and this leads to the innovation of new products.
Wine production in Australia is governed by a code of conducts that were established in 2008 whose aim was establishing a common Australian supply framework and establishing dispute resolution system to enhance quality production in the market. Penfolds Grange Shiraz operates following this law (Hill and Schilling, 2015, p. 120). Also, the company own patent rights on its products and has also established health and safety regulations that seek to protect employees’ rights and patent infringements.
The law requires Penfolds Grange Shiraz to preserve and conserve the environment in its wine production operations. In the past, Penfolds Grange Shiraz has been penalized heavily by the government because of environmental pollution. Impact of wine production activities to the environment is a rising concern to the Australian society and government (Gupta, 2013, p. 16). Improper waste disposal mechanisms by Penfolds Grange Shiraz have been dealt with by the government.
The micro business environment factors affecting Penfolds Grange Shiraz wine operations include:
The wine industry has become very competitive with many players investing in the wine production sector. The major competitors of Penfolds Grange Shiraz are Southcorp, BRL Hardy, Beringer Blass, and Orlando Wyndham. Technology has made the Australian wine industry more competitive than never before (Zott, Amit, and Massa, 2011, p. 1040). Penfolds Grange Shiraz has gained a competitive advantage over these rivals through product differentiation and innovation of new products as demanded in the market.
Micro Environment Analysis
According to (), "the only right definition of a business purpose is creating a customer." Penfolds Grange Shiraz aims at making high profits through offering the market the right wine products that they demand. Today, the marketing strategies of Penfolds Grange Shiraz begin and end with the target market. Penfolds Grange Shiraz has been finding customers for its Shiraz and other wine products through customer satisfaction and demand surveys (Zott, Amit, and Massa, 2011, p. 1042). The Shiraz and other wine products made by Penfolds are of high quality- hence a high degree of consumer satisfaction.
In relation to suppliers, Penfolds Grange Shiraz has adopted a purchasing policy that brings a bargaining power to the company. The main focus of Penfolds Grange Shiraz is availing the required raw materials and labor according to the wine manufacturing programme. The company uses both individual and business houses suppliers. These suppliers bring the required resources for Penfolds Grange Shiraz to produce wine (Lechner and Gudmundsson, 2014, p. 88). This development of a reliable supplier's environment has substantially impacted on the wine production operations by Penfolds Grange Shiraz.
In a business environment context, “public” refers to people in general terms. According to (), "A public is any group in the society that has a potential or actual interest in a company's ability to deliver on its set objectives." In the case of Penfolds Grange Shiraz, the most interested publics include the environmentalists, media, tax authorities, consumer protection groups, and the immediate society. Penfolds Grange Shiraz company has an obligation to operate its wine production business in a manner that satisfies all these interested groups. Penfolds Grange Shiraz has created goodwill among public and appropriately manage its relationships with customers, suppliers, and distributors.
Penfolds Grange Shiraz has been successful in using market intermediaries when promoting, selling, and distributing its wine products to the target market. Penfolds Grange Shiraz contracts the media to advertise its wine products to the market, and this has enabled the company reach more customers in the whole country (Aylward, Glynn, and Gibson, 2006, p. 42). Also, the company uses distributing agencies and market service agencies as well as financial institutions in doing its wine business.
The Australian wine industry is composed of trade and workers unions that defend the rights of employees in the sector. The organized labor unions in Penfolds Grange Shiraz employees have secured workers position and interest in the company as compared to their competitors (Shaw, 2015, p. 80). There is a collective bargaining power of employees in the Australian wine sector when compared to other countries, and this gives Penfolds Grange Shiraz company a healthy edge to compete and grow internationally.
Company’s Competitive Advantage
The main competitors of Penfolds Grange Shiraz are Southcorp, BRL Hardy, Beringer Blass, and Orlando Wyndham. However, since the establishment of the Grange product in 1992, no other red wine in Australia has proven able to rival the company’s reputation, quality, value, consistency, and development pattern. Penfold's red wine products range from Grange which is rich and opulent to the destined Shiraz that brings a great feeling to consumers (Charters et al., 2008, p. 140). The process of producing wine at Penfolds involves great attention to detail from the choice of the best grapes from their low-yielding, old Shiraz vines- through to fermentation and fastidious oak maturation.
The unique wine produces made and offered to the customers by Penfolds are offered in the market. The company has been able to gain and maintain a competitive advantage due to its proper use of competitive advantage strategies (Wheelen et al., 2017, p. 6).
Company’s Generic Strategies
Penfolds Grange Shiraz uses Porter's generic strategies to create a sustainable and
Cost leadership Strategy
Penfolds use the cost leadership strategy to gain a competitive advantage over the rival companies such as Southcorp, BRL Hardy. As a result, the company has been making more wine sales than these competitors (Tanwar, 2013, p. 15). Penfolds uses two approaches to achieving this competitive advantage. These strategies are;
- Increasing profits by lowering expenses while charging its wine products at the Australian market average prices.
- Increasing the market share through charging lower prices on wine products, while making a significant and reasonable profit on the sale of wines for the costs are reduced.
As a result, Penfolds has become a market leader in the Australian wine industry and also the lowest-cost producer in the industry (Wheelen and Hunger, 2006, p. 40). Due to this, Penfolds has established efficient logistics; a lows cost base, and access to the capita required in technological investments that bring costs down.
The differentiation strategy has been applied by Penfolds in making its Grange Shiraz and other wine products unique, attractive, and valuable than those offered by competitors. Grange and Shiraz product brands are well designed with attractive features, more durable, and strong brand image that is valued in the target market. Penfolds thrives in technological research and development, and this greatly contributes to the innovation of new wine brands as demanded by the market (Giuliani and Arza, 2009, p. 920). Further, effective sales and marketing strategies when promoting its Grange and Shiraz products to the market differentiates Penfolds wine services from the competitors.
Also, Penfolds use focus strategy by concentrating on the wine market only something which enables the company understands different market dynamics and the unique wine needs of customers in the Australian market (Marks, 2011, P. 245). Penfolds has developed a unique low-cost structure specified for the Shiraz and other wine products it offers to the customers. As a result, the company has built a strong brand loyalty amongst the Australian consumers.
Penfolds is a wine producing company that continuously research new business ideas as an approach to increasing its coverage and presence in the Australian markets.
Ansoff's Product-Market Expansion
The use of Ansoff's product market expansion grip helps the company in developing marketing strategies for its products (Hussain et al., 2013, p. 196). The effective use Ansoff's model enables Penfolds in spotting competitive growth strategies in the market to diversify its wine operations across the country and other global markets.
Market penetration strategy
Penfolds Grange Shiraz aims at increasing its wine products sales and profitability. The effort of the company seeks to provide Grange and Shiraz red wines products to all target markets, and this forms its market penetration strategy ((Hussain et al., 2013, p. 198). However, close rivals such as Southcorp and BRL Hardy have employed better foreign market penetration strategies in the existing market. Penfolds needs to, therefore, concentrate on both the existing and new markets in order to remain competitive as it enters new markets.
Market development strategy
The development of new markets for a company's existing and new products is known as a market development strategy. Penfolds has established excellent strategies of spotting new markets for its Grange and Shiraz red wines products hence increasing its domestic and global presence in the wine production industry (Hussain et al., 2013, p. 200). Development of more global markets for Penfolds wine products has made the company among the world’s most reliable, valuable and competitive producers of red wine.
Product development strategy
The current wine products produced by Penfolds are Shiraz and Grange brands. Due to investment in technology and advanced recruitment of talented staff- Penfolds has been modifying and developing these products by adding more attractive and unique features that attract more customers globally (Hussain et al., 2013, p. 202). Also, the company uses social media marketing, Google Ads, and other digital advertising techniques in promoting its wine products in the market.
Diversification strategy entails the establishment of new product offerings in the new markets identified by a company. The company has been determined in the creation and innovation of new red wines products as demanded in the market, and this diversifies its product offerings. Also, Penfolds has diversified its wine operations by partnering with companies from other industries such as the insurance, transport, health, and banking and finance (Boriraj, 2008, p. 10). As a result, the company has established promising business outside the scope of its current and main wine production business segmentation.
Recommendations and Conclusions
Australian wine industry is among the leading producers of wine in the world. Australia aims at becoming the leading wine producer in the world by 2025. However, with the current management and operations of Penfolds in its wine business, this dream may go unrealized and unmet (Barney and Hesterly, 2010, p. 2). Therefore, Penfold in partnership with the Australian government should adjust their wine production operations and business in the market in the following ways:
Obtaining mergers and acquisitions (M&As): Penfolds should merge with other wine producing companies in countries like America, France, and Italy as a foreign market entry strategy in these world’s leading wine producer countries. Also, acquiring small wine producing companies in these countries will assist Penfolds to offer its red wine products in the global markets.
Upgrade wine product quality and charge reasonable prices: Penfolds operates in a highly competitive environment. Surviving in the wine market requires the company to model and improve the product (wine) quality as well as charging fairly reasonable prices which are lower than those charged by the competitors.
Reduction of wine importation to Australia: Penfolds should join other companies unions to defend its right by demonstrating against the increased importation of red wine from Italy, France, America and other countries to Australia something which lowers its market. Also, the Australian government should discourage wine importation and ensure that tax policies on foreign products are high to discourage their importation.
Adopt better product promotion and marketing strategies: While Penfolds uses social media marketing tools such as Facebook, WhatsApp, Instagram, and Twitter, and Google Ads to market its wine products in the market; this is not sufficient to reach all market demography. Penfolds should intensively use company website, radio Ads, and Television Ads to meet both children and aged customers who feel that they are not met well by the company's current strategies of promoting its products.
In conclusion, Penfolds has the potential to become the world’s leading wine producer by 2025 as stipulated in its strategic plan. Therefore, the company should exploit all the existing market opportunities using the right strategies and approaches to realize its set strategic goals.
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