Fall+2008+Section+08-PJ+Week+6

=Class Discussion For Week 6: Team Magnum D.I.=

1. Place and Connectedness
Background: Traditionally, marketers have been tasked with finding customers that have enough in common so that a specific product can be developed for them. This sort of segmentation has now evolved to be based on preferences and attitudes, as opposed to traditional demographic measurements such as age, income, sex etc.

The consumer is moving from a place of passive acceptance of the products and services that are being offered to becoming a co-participant in the production of products. An example of this is Wikipedia, where the product is a direct result of input from the masses. In the future, customers will be much more involved in defining a product.

Finding the best opportunity in the market typically is done 3 different ways: Niche, Low Cost and Differentiation.

PLACE: "There's more to place than where it is...."

2. The Hotelling Beach
The example of the Hotelling Beach demonstrates that companies who are serving the same population of consumers tend to have minimum differentiation in their products, as opposed to a method of competition using differentiated products.

Hotelling's law is an observation in economics that in many markets it is rational for producers to make their products as similar as possible. This is also referred to as the principle of minimum differentiation as well as Hotelling's "linear city model". The observation was made by Harold Hotelling (1895–1973) in an article 'Stability in Competition' in Economic Journal in 1929. The opposing phenomenon is product differentiation, which is usually considered to be a business advantage if executed properly. Home Depot and Lowes have demonstrated business models that reflect the principles of Hotelling's Law.
 * Hotellings Law:**

Walmart, Fred Meyer and Target have also demonstrated strategies that reinforce Hotelling's observations.

3. Modern Supply Chain
Article: //Strategy as Ecology// by Marco Iansiti and Roy Levien
 * __ECOSYSTEM STRATEGIES__: keystone, physical dominator, niche, commodity
 * Macro and Micro Ecosystems

>> link to author's website: http://www.walmarteffectbook.com/thebook.html
 * __KEYSTONE__: Wal-Mart & Microsoft. How do these two companies treat their environment?
 * Book: The Wal-Mart Effect by Charles Fishman
 * Disturbances - part of the cycle
 * Successful -- IBM/GE vs. Unsuccessful -- Beta to VHS

[[image:cover-medium.jpg caption="Marco Lansiti"]]Understanding your niche and building a business ecosystem.
http://www.springerlink.com/content/y57w66282p450103/

5. Sustainability: The Adaptive Cycle
There is always a disruptive influece that comes in and causes the successful cycle to crash. there is then a period of reorganization and revitalization that occurs, and the cycle of innovation renews.



Cycles within cycles: small cycles impact larger cycles; environmental cycles (wild fires) may impact business cycles that can affect larger economic cycles

6. Jacqueline Novogratz - Bottom of Pyramid

 * http://blog.acumenfund.org/2007/08/27/jacqueline-novogratz-on-tedtalks/

It was noted that the poor did not shop strictly on price, but also on value, aesthetic and function. Since a majority of the world is considered poor (living on $1-$4 per day), it is mandatory to understand the "bottom of the pyramid" as well as how to create movement in their financial bracket. The topic of microfinance was introduced- providing a small dollar amount on a short-term basis to rural, unindustrialized economies in order for them to be able to start and sustain a profitable business within their communities.

"Sustainiable Banking With The Poor: A Microfinance Handbook" by Joanna Ledgerwood is an excellent start to understanding this concept further.

The BOP presents a large number of individuals, which suggest an opportunity to consider for firms and their products. Companies have sold their products in little packets and bottle versions to these segments, resembling a trial size item. For example, shampoo manufactures have used this opportunity to sell to the BOP segment. Here is a short you tube clip about BOP: http://www.youtube.com/watch?v=ba7lEef42KI

7. Case: Hariyali Kissaan Bazaar
The Hariyali outlets differientiated themselves from the small shops by doing a number of things, including being much larger in size and making the racks that allowed farmers to touch and feel the product before they purchased them. They created these outlets with the idea in mind that farmers would "want" to go there. http://www.ted.com/

In addition to HKB, ITC's e Choupal, in a different part of India, created a way for the farmers to get more value out of the products they sold by giving them access to commodities markets (for prices) and agri-science (to grow crops that receive a higher selling price). Also the e Choupal removed the influence of the //mandi// from the central marketplaces. http://www.echoupal.com/

8. Case: Natureview Farm
Our group decided it was most eco-friendy and benefical for Natureview to enter the conventional supermarket segment with their 32 oz. tubs as opposed to the 8 oz. cups or a line that catered to kids' preferences.
 * Natureview Farm Solution**

One the other hand, while entering the supermarket segment with the 32oz. tubs will result in the desired revenue increase, it will also result in a first-year loss in income of about $800K. Considering that the company's current annual profits are about $260K, it will face a cash flow problem as it deals with the loss and with venture capitalists who are looking to exit the business. A more feasible option would be to go with options 1 and 3. Option 1 will result in more than the desired revenue increase and a loss of $211K in earnings, while option 3 will mitigate some of the risks generated by option 1 through the profits it will generate and its low initial cost. Furthermore, the calculations do not take into account the cost synergies that may result from employing both options at the same time.

Above all, examining options 1, 2, and 3 reveals that these options are recipes for disaster. Each of these options places Natureview in an entirely new arena, the supermarket, in which they have no experience in and are the underdog. Natureview became a success in such health food grocery stores as Whole Foods and Wild Oats (when Wild Oats was independent of Whole Foods). In fact, before planning to hit the supermarket arena, Natureview held approximately 24% of the yogurt market in natural and health food grocery stores. By entering the supermarket industry, not only would they be leaving their niche market, but they will also have to invest heavily, take a big risk and battle fierce competitors with deep pockets. Just by entering the supermarket industry, Natureview will have pay a steep SKU fee for each of their products to each supermarket store. And if Natureview’s SKU doesn’t meet the supermarket’s target annual revenue, then their SKU will expire and they would have to purchase another one if they choose to continue to sell with that supermarket. Many supermarkets also require SKU purchasers to invest in costly periodic promotions for their products. So, with the money invested in the SKUs and promotions, if Natureview does not hit revenue targets, they will lose heavily in their investment, thus, making this a risky venture. Also, Natureview’s supermarket competitors, Yoplait and Dannon for example, not only run promotions frequently but they also spend around 60 million dollars annually in advertising, which makes it very difficult for Natureview to compete.

Natureview’s purpose for creating the three options was to increase revenue. They believed that penetrating the supermarket division would yield their desired revenues. However, with the risks and investment cost associated with options 1, 2, and 3, coming up with a 4th option seems as the wisest path to take. Option 4, as we discussed in class, could be selling in a new arena such as at schools or at sporting events. Option 4 could also include investing heavily to increase Natureview’s current 24% market share in health food stores to 50%.

Natureview could create a sub-brand to market to supermarkets. This would help to maintain Natureview's brand idenity to their natural food stores and allow the company the freedom to expand a new brand to a new market.

Natureview could also develop direct relationship with one, two, or several natural food stores to sell their yogurts. By cutting out the distributor and the agent, Natureview would have the ability to sell their products at a slightly higher price; this would be a reduced price from what the stores are used to paying.