Product portfolio and competencies
The current business scenario is having both challenges and opportunities for the contemporary business organizations. This is getting further amplified by the changes in the internal and external business factors in the business operation. In terms of the external business environments, changes are having both positive and negative impacts on the business operation (Vogel & Guttel, 2013). On the other hand, changes in the competition in the industry are also influencing the business potentiality. All these factors are having major influences on the large scale business organizations due to their larger exposure in the market. Fonterra is largest company in New Zealand with having revenue for more than NZ$ 17 billion (fonterra.com, 2018). It is founded in 2001 on the basis of dairy cooperatives among the farmers. It is reported that Fonterra constitute more than 30 percent of the total dairy exports worldwide.
The mission of Fonterra states their policy of meeting the customer needs of quality dairy products by offering products of highest standards along with empowering the dairy farmers in the most sustainable way. On the other hand, their vision statement states that they want to be the global leader in the dairy industry and with having the worldwide presence across major economies. From their mission and vision statement, it can be concluded that their business approach is centered towards meeting the customer demand and attaining sustainability goals. The corporate culture of Fonterra is also based on sustainability and ethics by meeting the highest standard in dealing with all the involved stakeholders.
This report will discuss about the core competency and competitive advantages possessed by Fonterra in their business operation. In addition, the product portfolio of them will be discussed in details. The impact of the external business factors and competitiveness in the industry on Fonterra will be identified and analyzed along with discussion on the impact of emerging technologies. This report will identify the core four market segments and will develop two target segment profiles for Fonterra.
In the market of New Zealand, there are number of brands currently operated by Fonterra catering to different product categories. One of their major brands is Anchor under which almost all types of dairy products ranging from cheese to other everyday dairy products. With this brand, Fonterra is targeting the mass market of New Zealand. Another major brand of them is Kapiti under which they offer specialty products such as ice cream. This brand is positioned as more premium to the Anchor and caters to different customer segments (Shadbolt & Duncan, 2014). Other major brands for them are Mammoth that offers iced coffee and chocolate and Perfect Italiano that offers authentic Italian cheese. The major value propositions for the customers are the quality products with authentic tastes and ready to eat products.
Currently, Fonterra is having the market leadership status in New Zealand in the dairy market. Some of their brands such as Anchor are having the maximum market share in their respective segments with having distant competitors. Current competencies for Fonterra include direct relationships with the dairy farmers that are helping in sourcing the raw materials in fresh form and without the added costs of intermediaries (Basu, Banerjee & Sweeny, 2013). In addition, the brand value and identity of Fonterra can also be termed as competency due to the fact that it is helping them to push the sales of their new products in the market. Having brands in different product categories and different price ranges are also helping in catering to larger customer segments and enhancement of the brand identity.
Determination of the external business factors
New Zealand is one of the most politically stable countries in the world. It is reported that New Zealand is having lower intensity of political risks. Thus, it is beneficial for Fonterra in doing business in New Zealand. It is also reported that New Zealand is having the score of 2 in terms of rule of law in the country. This shows the effectiveness of the regulatory bodies and also having positive impact on the business operation of Fonterra. In terms of corruption, New Zealand is having the ranking of 88 that denotes the lower intensity of corruption in the country (TheGlobalEconomy.com, 2018). Business activities of Fonterra in New Zealand are free of corruption and unethical factors. However, on the other hand, it is also being identified that rules and regulations regarding the agribusiness in New Zealand are becoming more stringent in order to have more sustainability. Standards are becoming higher for food product quality and management of livestock (Chen et al., 2015). Thus, it may get difficult for Fonterra in adhering to these changes with maintaining the profitability.
As of 2015, New Zealand is having the economic growth of 3.33 percent that denotes the positive market potentiality for Fonterra. However, they are having their business in some other countries also. Thus, the fluctuations in the economy of these countries can affect the business of Fonterra. In this case, the changes in currency exchange rate are having the major impact on the foreign revenue for Fonterra. It is also reported that household consumption in New Zealand witnessed constant growth till 2014 but dropped in 2015 and standing at 100.62 billion USD (TheGlobalEconomy.com, 2018). This will also have adverse impact on business of Fonterra by reducing the average customer consumption rate. On the other hand, Fonterra is also having impact of lower tax rate in New Zealand due to the fact that New Zealand is having lower and stable tax structure in the country. In terms of business freedom, New Zealand is having the score of 95.5 in global economy index that denotes that business organizations operating in New Zealand are having fewer burdens of government regulations (Saad, 2014). This is another positive impact on the business operation of Fonterra.
In terms of socio-cultural factors, human development index in New Zealand is rapidly increasing with no downward trend. This denotes that Fonterra is having positive social change in the country. In addition, the awareness of the customers regarding health is also increasing and this will provide more opportunities for the dairy products of Fonterra. Products of Fonterra such as yoghurt and fruit juices are witnessing steady growth of demand due to the increase in health consciousness (Foote, Joy & Death, 2015). However, the differences in the socio-cultural factors in different host countries for Fonterra are creating challenges for them. It is becoming more important for Fonterra to introduce different products in accordance to the different socio-cultural traits of different countries. It is also reported that population of New Zealand is also increasing and as of 2015, they are having 4.6 million (TheGlobalEconomy.com, 2018). Thus, increase in population is also creating more market opportunities for Fonterra.
It is reported that share of usage of clean energy is increasing in New Zealand with having the share of more than 34 percent as of 2015 (TheGlobalEconomy.com, 2018). This denotes that Fonterra is the having access to clean and renewable sources of energy that will in turn reduce their cost of operation. In addition, this will also help Fonterra to enhance their sustainable business practices in the market. However, on the other hand, it should also be noted that increase in the regulations to environment will pose challenges for Fonterra. This is due to the reason that business operation of them is directly related to the environment (Rosin, 2013). If more stringent regulations are introduced in relation to the dairy and meat production, then it will affect the business effectiveness of Fonterra in the long term.
Bargaining power of buyers
· Bargaining power of buyers is moderate for Fonterra.
· There are number of competitors present in the market offering dairy products.
· Customers are having more options in selecting the dairy products (Kalaugher et al., 2013).
· However, the brand value and market leadership position of Fonterra is helping to reduce the bargaining power of the buyers.
Bargaining power of suppliers
· Suppliers of Fonterra are mainly the dairy farmers.
· They are having higher bargaining power.
· Fonterra is only having the option of sourcing their raw materials from the dairy farmers (Bijman, 2016).
· Thus suppliers can influence the pricing and business approach of Fonterra.
Threat of new entrants
· Threat of new entrants is moderate for Fonterra.
· Probability of entering of small brands in the dairy sector is high with having the requirement for lower investment.
· But the new entrants are having the challenges to match the brand value of Fonterra (E.Dobbs, 2014)
· In addition, it is also difficult for the new entrants to match the economies of scale of Fonterra.
Threat of substitutes
· Threat of substitutes for Fonterra is high.
· There are good number of substitute products is available in the market.
· Switching cost of customers is low.
· Thus, pricing of the substitute products will determine the pricing strategy of Fonterra (Schewenger,Straub & Borzillo, 2014).
· Competitive rivalry is high for Fonterra.
· Almost all the diary brands in New Zealand are initiating different strategies to gain market share (McLay, 2014).
· It is challenging for Fonterra to cope up with the market trend on periodic basis.
Fonterra is having extensive policies related to corporate social responsibility and ethics. One of the major socially responsible activities for Fonterra is animal welfare (Saedi et al., 2015). According to the business charter of Fonterra, in order to have high quality and high volume of milk, it is important to have right care for the animals. In accordance, Fonterra is having highest standard for animal care. It is also reported that Fonterra is having activities in relation to the protecting waterways and preventing from getting contaminated (Servaes & Tamayo, 2013). The dairy farmers are given the major focus in maintaining their welfare and well being. The employees and other involved internal stakeholders are having parameters for ethical standards and they are refrained from any conflict of interests and corruption. This is helping Fonterra in creating an ethical organization (Bocken et al., 2014). This is further helping Fonterra to effectively operate in the market due to the reason that ethical branding and extensive socially responsive activities are helping in creating positive impression on the customers. In the case of agribusiness, welfare of all the involved stakeholders is directly linked with customer impression of dairy products. Thus, in the case of Fonterra, corporate social responsibility and ethics are enhancing the competitiveness.
Fonterra is having extensive online presence in their official site and third party online retailers. In addition, Fonterra also initiates online and digital marketing in terms of social media marketing and search engine optimization. Initiation of digital marketing is helping Fonterra to tap the customer segments more active in the digital mediums. This is due to the fact that in the current time, there are huge portion of the customer segments that are not active in the traditional mediums but they can be targeted through digital mediums such as millennial (Tiago & Verissimo, 2014). Thus, digital and electronic marketing is playing the role of increasing the brand exposure and market potentiality for Fonterra. On the other hand, initiation of the social media marketing is helping in determining the market trend and preference pattern of the customers towards their products.
In this case, the customer generated information plays an important role in effective marketing. This is due to the fact that the online marketing is strongly influenced by consumer information. For instance, selection of marketing medium and content design is being done in accordance to the information gathered from the customers (Khodakarami & Chan, 2014). On the other hand, the feedback generated from the customers in through social media also helps in evaluating the trend and preferences of the target customers. This helps in designing the approach of the marketing accordingly and enhance the effectiveness.
Demographic segmentation refers to the process of segmenting customers on the basis of their age groups, income and occupation. Segmentation in terms of age groups refers to the targeting of customers from a certain age groups. For instance, toy makers will target the younger age groups. Segmentation in terms of income refers to the targeting the customers from a certain income and price level (Sandy, Gosling & Durant, 2013). For instance, Apple targets the premium customers with having higher income for their products. Segmentation in terms of occupation refers to the process of targeting the customers by their professions. For instance, KFC targets the working professionals with their ready to eat food. Thus, it can be concluded that demographic population refers to the segmentation in terms of population derivatives.
Geographic segmentation refers to the process of classifying the customer segments in terms of geographical regions and places. For instance, Coles targets on the basis of geographic segmentation and offers different products in different regions according to the local preference patterns. This policy can be applicable only when the organization is having vast geographical and diverse areas for operation.
This process refers to the segmentation of the customers in terms of lifestyles and interests. Thus, the personal traits of the customers are being given the preferences for segmentation (Park & Jang, 2014). For instance, Nike targets the customers with having active lifestyles and preferences for healthier way life. In addition, the customers with having the preferences for newer and updated lifestyles products are also being targeted.
This process refers to the classification of the customers in terms of their relationship with the brand. Thus, the customers are being targeted on the basis of their approach towards the brand. For instance, Qantas targets the loyal customers more than others in order to retain the majority of their existing customers (Rupp, Kern & Helmig, 2014). In addition, the frequent flyers are more targeted by Qantas over the seasonal travelers. This helps them in having increased revenue from the market.
Target segment profile for Fonterra
From the above discussion of the customer segmentation bases, two target customer profiles are being identified for Fonterra. It is recommended that Fonterra should target customer from the age group between 18 and 30 with having the preferences for active lifestyles and healthy way of life. This customer profile can be targeted with the products such as iced coffee and flavored yoghurt due to the reason that iced coffee and flavored yoghurts will be preferred by the late teenage groups and it will be well matched with their active and fast lifestyles. This will also provide healthier alternative to other drinks for the customer. On the other hand, another recommended target customer profile is urban customers between the age group of 35 and 45 and having more brand loyalty and having professional lifestyles. With the products such as cheese, Fonterra will be able to target the older age groups and cheese is having more preferences in the urban areas. In addition, the alternate uses of cheese will also well align with the professional lifestyles of the customer.
Thus it can be concluded that there are number of negative and positive impacts being faced by Fonterra from their external environmental factors. In this report, these factors are evaluated along with their major impacts. In addition, the internal competencies of Fonterra are also being identified along with their competitive advantages. The role of digital media and corporate social responsibility is also being discussed in this report from the perspective of Fonterra. It is concluded that among all the segmentation bases available for Fonterra, two of the most ideal target customer profiles are being recommended for Fonterra.
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