The objective of the company is to launch vitamin-enriched bottled water as a new product in the market. The target market segment is athletes who are between ten and thirty years old. Thus, the purpose of this paper will be to provide a strategic analysis of the company’s internal and external environment. The PEST framework will facilitate the analysis of the external environment or the market, whereas the SWOT model will be used to evaluate the internal environment. The objective of these analyses will be to identify the company’s strengths, weaknesses, opportunities, and threats. The aforementioned analyses will lead to a discussion of the company’s strategy.
The strengths of the company include the following. First, it has been able to produce the right product for the target market. One factor that is likely to improve the competitiveness of the product is that it is tailor-made for athletes. The product’s package includes an ergonomic bottle that is easy to use in a sports environment. Consequently, the athletes can carry the bottled water along with them as they practice in the fields. Athletes are likely to identify with the product or brand because it suits their needs. The resulting increase in brand loyalty will enable the company to increase its sales and market share (Loudon, Stevens and Wrenn 78).
Second, the company has focused on developing a high quality product. Concisely, the product meets the acceptable safety standards. Moreover, the company is aware of the customers’ sensitivity to product quality. The customers prefer pure natural water to soft drinks because the later is associated with negative health effects. In response to this concern, the firm has focused on obtaining its water from natural springs and bottling it without eliminating minerals from it. Consequently, the water has positive health effects that are likely to make it attractive to the customers. Since the product’s quality is high, the company can charge a premium price in order to make high profits (Loudon, Stevens and Wrenn 115).
Third, the company has the capacity to extend its product portfolio in response to emerging market needs. In particular, the company is able to introduce new products such as flavored water, and mineral water among others. The importance of this capability is that it will enable the company to satisfy different testes and presences in the market (Loudon, Stevens and Wrenn 95). Consequently, its sales and market share will increase. Furthermore, the company’s main competitors such as Pepsi and Coca-Cola have a wide range of products that satisfy specific needs in the market. In this regard, extending the product line will enable the firm to compete effectively with its rivals in the market. In addition, it will be able to serve new market segments, especially, those that are currently underserved.
Finally, the company has an effective marketing approach or strategy. It uses the labeling on the bottles to advertise the product. The labels are used to convey important information such as sports statistics, which the target market is likely to be interested in. As the potential customers read the information on the labels, they are also likely to learn about the product. The labels also market the product before and after the purchase. Consequently, this marketing strategy is likely to enable the firm to reach a large number of potential customers (Loudon, Stevens and Wrenn 92). Moreover, using the labels negates the need to advertise the product in print and electronic media, thereby reducing the firm’s marketing costs.
The company has the following weaknesses. To begin with, the price of its product is higher than that of its competitors’ products. Price is one of the most important factors that determine the competitiveness of a product in the market (Loudon, Stevens and Wrenn 174). As a rational being, the customer will always opt for the cheapest product or brand in the market. In this regard, the disadvantage of the high price is twofold. First, it will limit the product’s ability to penetrate the market (Loudon, Stevens and Wrenn 177). Concisely, the customers will switch to less expensive brands because dominants firms such as Coca-Cola are able to offer high quality products at low prices. Hence, the dominant firms will increase their market shares at the expense of the company. Second, the company will have to justify the high price by highlighting the qualities of its product in order to increase sales. In this regard, the company will have to engage in expensive sales promotional activities such as advertising in order to convince the customers to buy the product at the high price.
The second weakness is that the firm has a weak distribution network. The implication of this weakness is that potential customers will not be able to access the product at the right place (Loudon, Stevens and Wrenn 193). Additionally, this weakness is an indication that the company is not using the most effective distribution channel to sell its new product. The resulting reduction in product visibility will reduce the company’s sales. In most cases, manufacturers obtain customers’ feedback concerning their products through distributors such as supermarkets and wholesalers. Hence, the weak distribution network might jeopardize the firm’s ability to obtain feedback from the customers.
The third weakness is that the firm did not establish its production center at a strategic location. Consequently, it is incurring high transportation costs in order to distribute the product. The high transportation costs will reduce the competitiveness of the firm’s product. Concisely, it will increase the retail price of the product, thereby reducing sales. High competition in the market will limit the firm’s ability to pass the transportation costs to the customers. In this regard, internalizing the high transportation costs will reduce the firm’s profit margin.
Finally, the brand awareness is low because the product is being introduced in the market for the first time. Brand unawareness leads to poor market penetration (Loudon, Stevens and Wrenn 201). Concisely, the customers are not likely to purchase the product because they lack information about it, as well as, past experiences in using it. Customers cannot make purchase decisions if they lack product information.
The following opportunities are available in the market. To begin with, the industry has a high growth rate. In the last five years, the industry grew by 9.4% and its worth is expected to increase to $45 billion in the next six years. Hence, the company has the opportunity to increase its production in response to the expected rise in demand in order to improve its profits. Social factors such as customers’ sensitivity to product quality also provide growth opportunities. The customers prefer pure natural water to soft drinks because the former has little health risks. In this regard, bottled water is the main substitute for carbonated soft drinks. Hence, the demand for pure natural water is likely to increase as customers become more cautious about their health. The company will benefit from the excepted increase in demand since it focuses on the production of pure natural water. Finally, the industry’s innovation potential is high because the firms are able to produce a variety of products. In this case, the firm can learn from its competitors in order to achieve product and process innovation.
The company is facing the following threats in the industry. First, the industry has a low concentration. Pepsi-Cola and Coca-Cola are the dominant firms in the industry. These firms control only 24% of the market. This means that the industry has very many firms that are competing for the same customers. The dominant firms are using their financial resources and price wars to prevent new entrants from serving niche markets. Consequently, the company can only penetrate the market with difficulty. Second, the industry is already saturated. The dominant firms have several products in their brand portfolios. For example, Nestle Waters North America owns six of the top ten leading brands in the industry. Market saturation is likely to increase competition in the industry as firms focus on differentiation in order to improve their sales. Finally, the industry is associated with high regulation. The regulation is done by various agencies from the federal, state, and local governments. The regulations focus on product quality, as well as, the environmental impacts of the production and consumption of the products. These regulations can lead to high production costs, especially, if meeting the desired quality standards requires the use of sophisticated technology (Witcher and Chau 124). In addition, the firm will not be able to join the industry or to sustain its operations if it cannot comply with the regulations.
The Firm’s Strategy
The company is pursuing a focus-differentiation strategy. This strategy involves serving a narrow market segment (Witcher and Chau 231). The rationale of focusing on a narrow market segment is that it will enable the company to gain an in-depth understanding of customers’ needs. Thus, the company will be able to offer products that meet the expectations of the target market segment. In this regard, the company is focusing on serving athletes who are between 10 and 30 years old rather than the entire market of potential consumers of bottled water. The company is also trying to achieve differentiation within this market segment. In particular, it is focusing on developing a product that is tailor-made for athletes. This involves packing the product in an ergonomic bottle, thereby enhancing its consumption in a sports environment. In addition, the company has specialized in the production of pure natural water, which is likely to suit athletes due to its health benefits. Firms that are pursuing a differentiation strategy often incur high production costs in order to produce high quality products (Witcher and Chau 125). Thus, they charge premium prices in order to cover the high costs of production. This perspective, perhaps, explains the high price of the company’s product. The company will be able to pass the high costs to the customers if close substitutes to its product are not available.
One advantage of the focus strategy is that it facilitates achievement of high customer loyalty (Witcher and Chau 128). Concisely, the strategy leads to the production of products that satisfy the specific needs of a particular market, thereby enhancing customer loyalty. The disadvantage of the focus strategy is that the company might record low sales by concentrating on a narrow market segment. Consequently, the company will have a low bargaining power. In this context, the suppliers are likely to exploit the company through high input prices. Changes in the tastes and preferences of the target market segment can lead to a significant reduction in sales, especially, if the company cannot adapt its products to the changes. Finally, the competitiveness of the firm is likely to reduce if its competitors imitate its strategy.
The company intends to join the industry by introducing vitamin-enriched bottled water. The firm’s strengths include ability to produce the right product for the target market segment and to use an effective marketing strategy. Additionally, it is able to maintain high product quality and to extend its product line in response to emerging market needs. The company is pursuing a focus-differentiation strategy in order to succeed in the market. The opportunities that are available to the firm include a high industry growth rate and a strong preference for pure natural water. Nonetheless, the industry is associated with low concentration and high competition. The firm’s weaknesses include brand unawareness, high price, weak distribution network and high transportation costs. These weaknesses limit the firm’s ability to penetrate the market.
Loudon, David, Robert Stevens and Bruce Wrenn. Marketing Management. New York: McGraw-Hill, 2004. Print.
Witcher, Barry and Vinh Chau. Strategic Management: Principles and Practise. New York: McGraw-Hill, 2010. Print.