THX PRIMABLEND BAKESHOP CLASS CASE Exploring further into the town, urban icons continue to manifest their power. Sure one can have a Jollibee sundae or a Chowking halo-halo in the plaza, but San Mateo prefers the delectable pastries and the mouthwatering butter-rich cakes whipped only by Primablend.. traveleronfoot.wordpress.com Alberto | De Joya | Gulanes | Japinan | Jumarang | Lauraya | Toledo | Versoza BA 190 THX Problem Statement How can Primablend re-establish its brand in the face of competition? How should Primablend reevaluate its business model in the changing environment? Analysis a. SWOT Analysis Strengths Equity Icon in local culture Destination store First mover Loyal Stable customer base Strong financial capabilities (cash based) Flexible business operations Opportunities Expansion Corporatization Marketing campaign Growing industry Weaknesses Stagnant company growth in a growing industry Accessibility of the products Threats Competitors (fast-food, small bakeries, large national brands, etc) penetrating local market Expensive raw materials Products can be easily imitated It is very clearly shown in the case that Primablend is very strong, both as a brand and as a business. Its brand equity is deeply rooted in the culture of San Mateo, and the company and its products are considered to be icons of the baked goods industry by their loyal buyers. Because it used to be the only establishment of its kind within the area for such a long period and because of the superiority of its products, Primablend is also considered to be a destination store, with many customers coming from other areas just to purchase their pastries. The company has a strong, cash-based financial system, with high liquidity and no debt. Its business operations are extremely lean and flexible due to the dynamic staffing, store layout, and production system of the company, and the store can usually accommodate rush orders and changes in specifications. However, in the big picture, Primablend is not doing so well compared to its competitors. Despite years of strong business, Primablend s growth is stagnant while the rest of the industry is growing. This is a problem because inflation of raw materials and other factors may outpace Primablend s growth, especially since Primablend serves only a fraction of the demand for its products. Also, although there is value in its being a destination store with superior-quality products, the fact remains that its products are not very accessible for such lucrative markets as the larger cities of Metro Manila, or in the other urban regions throughout the country. There are many opportunities that the company can make use of in the growing industry. There is the compelling need to expand their business: the company can add new product lines and, more importantly, create a larger distribution system and put up more branches. Also, the company may open itself to investors to help fund its expansion, turning the company into a family corporation where the CEO and her daughters will still make final decisions but with the support and expertise of professional managers. There is also the possibility of conducting a marketing campaign, leveraging Primablend s colossal brand equity and word-of-mouth to garner new business throughout the country. The company needs to be more aware of the capabilities of its competitors, as these could severely eat into Primablend s market, both literally and figuratively. Competitors of all sizes can attack from all sides, capturing the market s need for cakes, pastries, snacks, and dining options, while leaving Primablend irrelevant. There is also the problem with the way the company sources its raw materials, which become more expensive every year. The company must find new and more affordable ingredients for its products. Finally, the company must guard its recipes and formulations even more tightly as its products can be easily imitated, now that competitors are positioned to overtake Primablend s business in an industry where it is not the bakery with the best recipe that wins but the bakery that sells the most of a recipe. b. Porter s 5 Forces Threat of New Entrants HIGH Bargaining Power of Suppliers HIGH Rivalry among Firms HIGH Bargaining Power of Buyers HIGH Threat of Substitutes HIGH Threat of New Entrants Given the nature of the bakery industry, threat of new entrants is high as there are relatively low barriers to entry. There is low initial capital outlay as equipment cost is low and there is little research and development cost incurred prior to starting the business. Furthermore, product differentiation is present though it is hardly a deterrent factor as many businesses sell the same products or imitate quickly. Bargaining Power of Buyers In this industry, customers enjoy a significant buying power as they incur low switching costs. In general, the demand for food is highly price elastic. Majority of the customers are sensitive to price increases and would not hesitate to change their tastes and preferences accordingly. This is especially pertinent during occurrences of high inflation as the general public switch to cheaper alternatives. Bargaining Power of Suppliers Despite the commoditized nature of the suppliers products, Primablend faces high bargaining power from suppliers due to the company s size. Some inputs have to be sourced directly from the supplier s premises, either because the volume usage of Primablend is too low, or because these suppliers would not want to deliver outside Metro Manila. Primablend is thus a captive buyer in this situation because it is held hostage by a supplier free to switch to another customer. Threat of Substitutes Threat of substitutes is high because there are several alternative establishments such as fast food chains, industrial bakeries, retail bakery shop chains, retail bakeries in supermarkets as well as bakeries in high end hotels. Also, price performance can affect the customers buying decisions as mentioned under bargaining power of buyers. Rivalry among Firms Rivalry is high among all the firms because the market is already saturated. There are two other bakeshops in San Mateo as well as major fast-food chains like Jollibee, McDonald s, Chowking, and Tropical Hut. The low switching costs that customers enjoy and the diversity of these establishments increases the rivalry among the firms. c. VRIO Analysis *Strength or Weakness VRIO y FRAMEWORK Marketing Human Resources Technology Goodwill Strategic Partnerships Strong Brand Identity VALUABLE y Yes Yes Yes Yes Yes Yes RARE y No Yes No Yes No Yes DIFFICULT y EXPLOITEDy TO IMITATE No No Yes No Yes No Yes Yes Yes No No Yes S OR COMPETITIVE y W* IMPLICATIONS W Sustainable Advantage S Sustainable Advantage S Temporary Advantage S Sustainable Advantage W Temporary Advantage S Sustainable Advantage For the strong competition that Primablend faces, it is important to implement an effective marketing campaign. However, Mrs. San Juan opted to rely on word-of-mouth promotions by providing good quality and value for money cakes and pastries. This was an effective rouse for Primablend as it captured a loyal consumer base, nevertheless, the industry changed. It had become more competitive and the market became saturated. Primablend doesn t have enough communication channels to effectively convey their real value to target market. Primablend is proud to have their loyal and skilled and skilled workers. They have a very low employee turnover where 95% of employees have been with them for at least 10 years. Definitely, their human resource is one of their valuable assets because of their superior skills honed for years. They have already created an atmosphere of trust and confidence with their employees which not a lot of companies are fortunate enough to have. Primablend maximizes their use of human resources through multi-tasking and cross trainings for further flexibility to better satisfy customer needs. In terms of technology, baking equipments and machineries are readily available in the market. Primablend acquired all these to further improve manufacturing and operations. The machines and equipments used in the baking industry is basically very similar because processes are almost the same. Primablend exploits theirs very well to ensure that resources are used efficiently and quality is maintained. Primablend is the first bakeshop in its immediate area, San Mateo, as well as in its neighboring towns. For a certain period of time, it has maintained its position as the only snack shop in the area. It was only after a few years that competition begun. These years of enterprise have created a respectable amount of goodwill for their business from the customers. Even big companies and global brands weren t able to steal away the loyalty of consumers. It is important for Primablend to recognize this emotional attachment to them by their customers and utilize it to their advantage. Strategic partnerships are a very familiar operation by several companies nowadays. It s popular in the food industry. This can be a source of a stable income and a good promotional campaign for Primablend. They can be sole provider of cakes and pastries of a specific restaurant. Primablend is already considered an icon in its area because of its years of existence. It is known for its delicious cakes and pastries. Their brand was able to stand firm amidst the penetrations of both direct and indirect competition. Primablend can leverage on its strong identity in formulating their future strategies and plans for the business. Recommendation a. Short Term Plan While the company recognizes that a view towards expansion will be necessary to sustain the life of the business in the long-run, the need to undertake such an expansion is not of topmost priority. With this it is necessary that Primablendstrengthens its brand in San Mateo as more fast food chains and small bakeries enter. It can do this through the following: y Product Line Extension We can capitalize on the trend of combining western flavors with traditional Philippine cuisine. This will capture the taste of a younger demographic and attract new customers in general. Primablend can also incorporate healthy options to their menu to bank on the health trend. Some examples of new products will be: -Green tea coolers, green tea cakes, etc -Ube cakes and mango cakes -Ice cream cakes -Incorporation of foreign brands like Snickers Cake, Oreo Cake, Kit Kat Cake, Hersheys Cake, etc. to provide a more appealing taste. y Localized Marketing Campaign In strengthening its brand identity, Primablend Bakeshop should capitalize on being the neighborhood bakery. Furthermore, the company should bank on the long-time loyalty of and goodwill of its customers. Being the establishment that San Mateo locals grew up with, the brand must emphasize customer relationship, such as buying cakes for special events and their pastries as pasalubong, only from Primablend, their neighbourhood bakery. Loyalty Programs This will nurture relationship with long-time loyal customers. Customers can acquire loyalty cards, with every purchase and visit corresponding to a scoring system. Accumulation of a certain number of points entitles them to freebies and discounts. y b. Long Term Plans When Primablend has finally regained its foothold in the market, it can then consider the possibility of expansion and incorporation because by now they have a stronger position in the market and risks are lessened. Also, this would solve the problem of accessibility raised by customers. Expansion brought about the issues on quality of products, management control and financial constraints. Thus, the group proposesfranchising. This will reduce investment costs at the same time expand business reach through chain stores. Franchising would ensure that the quality of products is maintained with the assumption that a standardized approach is strictly followed. y Centralized Production Facility Mrs. San Juan believes that quality can be best kept consistent with a single centralized production facility. The production facility will be strategically located in Metro Manila to address proximity issues with their suppliers of inputs - suppliers who don t want to deliver outside Metro Manila. As a result, sourcing costs would decrease. y Business Structure Given that Mrs. San Juan doesn t want to handle the operations of multiple branches at the same time, it is recommended that she franchise the business. With a franchise, a presence is developed more quickly, and with less franchisor investment. Furthermore, franchisee qualifications for ownership are set and enforced, and also, agreements require franchisees to abide by stringent operating rules, to be set my Primablend s management, thus maintaining product and service quality. Also, franchisees have a greater incentive to work hard as they are essentially the owners of their business units. From a financial standpoint, franchising is beneficial to Primablend asfranchisees will take the responsibility for the capital investments of their respective business units. Furthermore, royalties are received regularly and money is obtained when goods are delivered rather than when they are sold. Franchisees also enjoy several advantages by investing in Primablend Bakeshops. They acquire a well-known name and product lines, and benefit from cooperative marketing efforts. Also, standard operating procedures and management skills may be taught to them. y Supply Chain Management Effective supply-chain management requires choosing a type of relationship appropriate to product and market conditions and adapting management practices to that relationship. Given this, the group recommends establishing a contract between Primablend and its suppliers. Respect, trust, mutual benefit and fairness must be considered when negotiating terms. It is also critical for Primablend and its suppliers to stipulate terms in relation to purchase specifications, including amount and quality, payment, delivery and returns. Ultimately, Primablendshould move toward longer-term collaborative strategic partnerships with external business partners. c. Implementation Plan Short Term Plans Month Launch new marketing campaign Launch loyalty program Introduce new products Localized Marketing Campaign Long Term Plans 1 2 3 4 5 6 Year Construction of Centralized Production Facillity Implement New Business Structure Establish Proper Supply Chain Management 1 2 3 4 5