Strategy Assessment For The A2 Milk Company

External Environment Assessment using Porter’s Five Forces

In the intense competitive business environment, the corporate entities are taking special care towards implementing effective strategies, which is very much needed in terms of strengthening position in the market. As discussed by Robson, (2015) implementation of effective strategies serves the organisation with the ability to accomplish the organisational goals and objectives. With the assistance of well formulated strategy, the organisations become able to monitor their internal functionality and thereby measure success. Strategic planning is one of the most significant aspect of strategy, which supports the corporate entities to outline achievable goals. Hill, Jones & Schilling, (2014) observed that it is imperative for the corporate entities to implement proactive strategy in order to run their internal functionality with utmost proficiency. Present paper intends to discuss about strategy in terms of The a2 Milk Company. This is one of the famous companies, producing multiple dairy products. The external environment of the company will be discussed and certain recommendation will be given to the company in order to implement effective strategy. Furthermore, this paper will also cover the financial and non-financial measures, which the company can undertake.     

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The a2 Milk Company is one of the famous dairy firms in New Zealand, serving millions of dairy products. This company has been founded during 2000 with the intention of serving naturally produced milk protein which can have a firm impact on health and well-being of people. Currently, the company is operating their business in Australia, China, New Zealand and multiple Asian market. During 2016 to 2017, the rate of profitability of the company has been increased by 50%. The a2 Milk Company is the expansion of A2 Corporation Limited, which is one of the famous companies in New Zealand. The founder of the company was Dr Corran McLachlan- the famous researcher, researching on the health related impact of A1 beta-casein. Another founder of the company was Howard Paterson, who was one of the richest men in New Zealand. He was also a famous dairy farmer. The company has undertaken effective generic test with the intention of determining the extent to which, a cow can produce milk beyond protein. The generic test has acted as a driving force among them (The a2 Milk Company., 2018). This generic test has acted as a driving force behind them in order to market the A2 milk. The fundamental mission of the company is to be pioneer in scientific understanding about the A2 protein and thus allow the people to enjoy higher nutritional value of real milk.

Implementation of Effective Strategy

Figure 1: Logo of The a2 Milk Company

(Source: The a2 Milk Company., 2018)

In-depth assessment of external environment serves an organisation with the ability to figure out the condition of competitors and implement strategy accordingly in order to cope up with the competition. Wheelen et al., (2017) showed that Porter’s five forces is one of the most effective frameworks, through which the range of competitors in a market can be assessed. This company supports in determining the competitive intensity in an industry. Subsequent discussion will help in understanding Porter’s five forces in the context of The a2 Milk.

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Figure 2: Porter’s Five Forces Framework.

(Source: Rothaermel, 2015)

Hubbard, Rice & Galvin, (2014) commented that industry rivalry deals with the number and nature of competitors in an industry. At the same time, competitive rivalry also supports in analysing the quality and accountability of products of the competitors. The intensity of rivalry for the case of The a2 Milk Company is high as the company is operating their business in extremely competitive food and beverage industry. The inclusion of competitors like Nestle is creating barriers for The a2 Milk Company to run their business effectively.   

The position of a company and their ability to secure a prominent position in the market can be affected by entry of new company. As discussed by Galbraith, (2014) the threat from the new entrants is also very high in the food and beverage industry is also very high as the companies are putting ample stress on attaining innovation in order to attain success from business. It is imperative for The a2 Milk Company to serve the customers with new value proposition in order to attain a strong position in the market.                                       

This parameter of the framework deals with the likelihood of the customers towards consuming products. When a new product satisfies the needs and requirements of the requirement of the customers, then the intensity of competition in an industry increases. For the case of The A2 Milk Company, the threat from the substitute products is high due to the existence of giants like Nestle. It is imperative for the company to increase the switching cost of customers.  

The buyers are highly demanding and always seek high quality of products. At the same time, the customers are highly intended towards pocket friendly price. This creates intense pressure on The A2 Milk Company. As there are multiple companies in the food and beverage industry, the bargaining power of customers is also high as they have the ability to seek for discount and offer. It is important for The A2 Milk Company to stream line both their sales and production process. This is the way, through which they can attain a strong base of customer.   

Recommendation for The a2 Milk Company

There are various in the food and beverage industry who hold a very dominant position. At the same time, there are numerous companies in the food and beverage industry (Buckley, Burton & Mirza, 2016). Therefore, the negotiating power of the suppliers is extremely high. This is affecting the product quality of The A2 Milk Company. It is imperative for The A2 Milk Company to establish a strong supply chain.

Implementation of effective strategy is highly significant in order to operate the internal functionality of the company in an effective manner. The position of a firm within an industry play a significant role in determining the rate of profitability of that company (Galbraith, 2014). With the assistance of this way, Porter’s generic strategies is an effective theoretical framework, by which a company can acquire competitive advantage. There are four different parameters of Porter’s Generic strategies which are as follows:

With the assistance of cost leadership strategy, the organisations become the least cost producer in the entire industry. As disused by Priem, Wenzel & Koch, (2018), it can be said that the structure of an industry plays a pivotal role in the way of determining its cost advantage. The cost leadership include economics of sales, technology and access to raw material. It is the prime responsibility of the low cost producer in an industry to figure out multiple sources of cost advantage in terms of attaining desired business outcome. The inclusion of cost leadership is highly significant in order to secure a strong position in the industry. 

Figure 3: Porter’s Generic Strategies

(Source: Kumar & Reinartz, 2018)

Differentiation strategy deals with producing new and innovative products that can catch the attention of customer. This is the way, through which the value of a company can also be strengthened. The organisations can implement this product differentiation strategy to those customers, who are not price sensitive (Kumar, Lahiri & Dogan, 2018). This is the mode of satisfying the target market.   

This supports the companies to explore lower cost advantage in comparatively lower market segment. The fundamental aim of any company behind executing cost leadership strategy is to target the niche market and thereby offer products at comparatively lower price. Through this way, the dynamics of niche market can also be assessed (Boon et al., 2018).

The differentiation leadership strategy serves an organisation with the ability to target the broader market which is the key of attaining competitive advantage in the entire industry. Differentiation leadership basically intends to modify the premium price of their products to keep the customers happy and satisfied.

Financial and Non-Financial Measures to undertake

Based on the geographical position and product line of The A2 Milk Company, it is recommended for them to execute product differentiation strategy. As the intensity of competition is high in the food and beverage industry is high, product differentiation strategy can help them to remain unique in the industry. Their customers are only limited to a certain segment due to lack of diversity of their products. Therefore, it is the prime responsibility of the management of The A2 Milk Company to execute product differentiation strategy in order to increase their product line. It is imperative for them to introduce dairy related products such as ice-cream, chocolate, curd, which can serve them with the ability to attract multiple customers. It is imperative for them to make in-depth research to have knowledge about the requirement of target market. It is the general tendency among the customers to have variety of products, which helps them in taking purchasing decision. Product differentiation strategy serves an organisation with the ability to strengthen the value of their products which is the key of improving the accountability of a product in the market.

Both financial and non-financial strategy must be implemented for executing product differentiation strategy. Money is one of the most important factor in terms of executing any kind of strategy. Raw material is one of the most significant factor of expanding product line. Therefore, it is imperative to determine certain cost of raw material. This is the way, through which they can also come up with the challenges related to bargaining power of buyers. Advertisement is also a critical factor towards catching the attention of the customers towards the new product. Therefore, a separate advertisement cost must be determined for making lucrative advertisement that can drag the attention of customers.

A strong and proactive action plan is the major factor towards implementing product differentiation strategy. This is the mode of launching new products in a consistent manner. Branding is another vital non-financial measures that can be undertaken in product differentiation procedure.  It is imperative for The A2 Milk Company to make proper branding of their products in order to maintain psychological bonding with the customers. The company hire a skilled graphic designer in order to make their logo much more lucrative. Promoting new product in the market requires highly effective marketing strategy. Therefore, it is imperative for the HR department of The A2 Milk Company to hire people, having strong marketing knowledge. This can support in promoting the new product in market and thus catch the attention of buyers. Training is also a vital measure, which the company can undertake to strengthen the product oriented knowledge among the new recruiters. The training session must be designed in such a manner which can help the staffs to amplify their knowledge about the new product.  

Conclusion:

To conclude, it can be said that strategic management is the most imperative mode of running business in a consistent manner. The a2 Milk Company is a famous entities, serving naturally reduced milk which is the key of protecting the health and wellbeing of the customers. The external environment in which The a2 Milk Company is running their business is highly volatile due to the existence of business giants like Nestle. Thus, the intensity of competition is also high in the industry. This is the reason, for which The a2 Milk Company is encountering with the threat from the substitute products. Therefore, it is imperative for the company to implement effective strategy. As the threat from the product is high, the company should implement product differentiation strategy and thus expand their product line for strengthening their position in the market. They must introduce the dairy products like chocolate, ice-cream and curd to attain a strong base of customer. With the assistance of product differentiation strategy, The a2 Milk Company can also increase the value of their products.

References:

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The a2 Milk Company. (2018). The a2 Milk Company. [Online] Available at: https://thea2milkcompany.com/ [Accessed 24 Aug. 2018].

Wheelen, T. L., Hunger, J. D., Hoffman, A. N., & Bamford, C. E. (2017). Strategic management and business policy. Pearson.