This report examines the viability of the entry of Hydrocap into one of two markets, namely one that is consumer oriented or one that is commercially oriented. This report was able to discover through the utilization of the Juste et al. (2008) article that due to various barriers to entry in the consumer market it would be more viable and less risky to enter into the commercial market.
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This decision is bolstered by the fact that the current commercial market (golf courses) that the company is targeting has been experiencing a problem as of late involving environmental concerns regarding the condition of local ground water sources that have been affected by both the runoff from fertilizers utilized on the golf courses and the excessive amounts of water that is being used to maintain them.
Since the product of the company (Stagreen) is capable of increasing the amount of water retained by the root system of grass this presents itself as viable product that should resolve the issue of wasteful water usage by golf courses.
This report proposes the strategy of pursuing a customer oriented market orientation in order to develop a sufficient client base while at the same time pursue a corporate brand redesigning campaign in order to make the company more in line with the “Green Movement”.
By doing so the company will be able to present itself as a viable solutions provider towards managers of gold courses for the continued criticism leveled against them for wasteful water and effect of fertilizer run offs on local ground aquifers.
This particular case study examines the case of Hydrocan, a new incorporated company that plans to enter into the Canadian fertilizer market utilizing its unique product Stagreen.
What sets this particular type of fertilizer apart from other such products in the market is the fact that it promotes the root systems of grass to store more water thus reducing the amount of water needed to maintain your average lawn of grass by about 40%. In this particular case setup there are two means of market penetration that Hydrocan can choose from:
1.) It can choose to penetrate the consumer market which is composed of a highly competitive and fully saturated market where two main competitors (Scott’s Co. and Ortho Chemicals) control 50% of the market share with discount stores, specialty stores and home improvement stores being the 3 main methods of retail in this particular market.
It must be noted that based on the case data Canadians spent $2.3 billion on gardening at the retail level with $315 million going directly into fertilizer sales. As such the Canadian consumer market is both a highly competitive while at the same time highly lucrative consumer market given the amount of money spent on a yearly basis
2.) The second means of market penetration in this particular case is for Hydrocap to aim for the consumer market with the purpose of gaining the consumer patronage of the various golf courses within Canda.
As indicated by the case data there are currently 1,800 golf courses within Canada, due to the well known water demands of such courses the water retaining properties of Stagreen should prove to be rather enticing given the continued pressure of environmental groups on course owners due to the amount of water utilized in maintaining such courses and the subsequent fertilizer runoff which affects the aquifers within local environments.
It is still undecided as to what market should Hydrocap attempt to penetrate, what particular type of market orientation would be te most appropriate and finally what strategies would be the best to utilize in order to maximize the potential earnings of the company.
As such the purpose of this report is to detail the various problems, situations and strategies that can be utilized in this regard and come up with an effective solution to the problems seen in the case study data.
Statement of the Problem
Based on the data from the case study, the main problem in this particular instance is whether Hydrocan should attempt to penetrate the consumer or commercial product with their initial product Stagreen.
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While each market has its own appeal to Hydrocan such as the $315 million consumer fertilizer market or the 1,800 golf courses within Canada at the present which spend an average of $104,000 to $300,000 on course maintenance, the fact remains that Hydrocan as a recently developed business venture is only capable of producing 180,000 kilograms of its product per month.
This is equivalent to 18,000 10 kilogram bags if it were to attempt to venture into the consumer market or 3,600 bags if it were to opt for the commercial market.
As evidenced by its limited capacity for production this shows that while it would be possible for the company to attempt to focus on both markets the fact remains that the costs associated with market penetration, sales and advertising is already quite large for venturing into one market making the costs associated for going into two that much more considerable.
Market analysis studies such as those by Hughes et al. (2010) explain that for any newly established business venture what is important is to “define” itself in that it develops a specific strategy for targeting one particular market instead of trying to appeal to all market segments that it sees (Hughes et al., 2010).
The problem, as Hughes et al. (2010) explains, is that by attempting to appeal to all the market segments that are targetable based on a particular product line is the fact that it stretches both the resources and manpower of the company too thinly.
While a multiple market approach is plausible for far larger companies the fact remains that the limited production capacity, capital and manpower available to business startups makes this a risky strategy with little opportunity for success given the dynamics seen in most markets especially when taking into consideration the actions of competitors within the same market.
Aside from the inherent difficulties of the multiple market approach are the problems found within the target markets of this case as well. Products within the consumer market are primarily sold through 3 channels: discount stores (ex: Wal-Mart, Sears etc.), specialty stores (ex: nurseries), and home improvement stores (ex: Home Depot).
While it may be true that many of these establishments have been expanding their selection of fertilizers and home gardening tools due to increased consumer demand the fact remains that the Canadian home gardening market is highly competitive with the top two firms (Scotts Co and Ortho Chemicals) controlling nearly 50% of the market share.
With the price offerings of the products of both of these companies being roughly in line with the price to be set for Stagreen this presents itself as potentially disastrous situation given the fact that the products of these companies have far greater brand visibility, have a longer history of consumer usage of their products and as a result have a greater degree of “trust” between the company and consumers regarding the quality of the product being sold.
Park & Steensma (2012) explains that there are two ways in which business startups can rival well established competitors within the same market (Park & Steensma, 2012):
1.By giving better price offerings
2.Presenting a better product
Since the Hydrocan is situating the price range of its products at the same range as those by other fertilizer manufacturers then its strategy would obviously be that of presenting a better product which it apparently does so since Stagreen can supposedly cut down on the water costs associated with maintain a good looking lawn.
The problem with this strategy lies in whether or not consumers will opt for this particular type of product given the properties of the fertilizers they have been so used to when maintaining their lawns.
While it may be true that the case presented indicated that Stone Age Marketing Consultants said that local consumers within Canada didn’t have a particular brand preference when it came to what type of fertilizer to use on their lawns, this particular fact is a little hard to believe since studies such as those by Dahlqvist & Wiklund (2012) it is show that in one way or another there is a certain degree of brand preference despite the fact that customers don’t overtly show it (Dahlqvist & Wiklund, 2012).
As Dahlqvist & Wiklund (2012) explains, consumer are creatures of habit in that while they may not overtly show it nor voice it out they tend to gravitate towards particular brands that they have utilized continuously for quite some time (Dahlqvist & Wiklund, 2012).
Since the products of Scotts Co. and Ortho Chemicals have been around for much longer it I plausible to imagine that consumers would gravitate towards those instead of a new brand despite the unique properties associated with Stagreen since the prices are within the same range.
In the case of commercial markets the target consumer are the 1,800 (and increasing) golf courses that are within Canada. Unfortunately the main problem with penetrating this particular market is the fact that golf courses owners tend to stick to a particular brand when it works due to problems associated with testing new brands and seeing them subsequently fail resulting in a destroyed course.
Taking this into consideration what is needed in this particular case is to develop a strategy that takes into account the concerns of golf course managers in maintaining a health golf course while at the same time addressing the issue of the continued criticism being levied against gold courses due to the sheer amount of water they consume and the fact that the spill off from the fertilizers they use contaminate underground water supplies.
In order to create a proper situational analysis the article “Franchise firm entry time influence on long term survival” will be utilized in conjunction with the analysis of the data from the case study as well as other research material. The main reason this particular article was chosen was due to its focus on the long term survival of franchises through early entry into a particular market.
It presented the reasons as to why late entry into a market by a rival company often has a far lesser chance of survival as compared to a company that has already been well established within the local community.
Taking into consideration the fact that Hydrocan is a late competitor into the Canadian fertilizer market, this article will help to explain the problems with entering into specific markets, what strategies can be utilized and the degree of success to be expected.
|Unique Product Attributes |
-When examining the types of product attributes seen in the other products shown in the case study it can be seen that Stagreen focuses on a different attribute (i.e. fewer times needed to water the grass) as compared to the other types of products available in the market which focus on the strength of the fertilizer and how it would help plant growth.
Appeals to Environmentally Conscious Consumers
-Since Stagreen enables people to save on the amount of water they use in maintaining their lawns this creates an entirely new dynamic for the product making it more appealing to consumers that are environmentally conscious.
Fully Equipped Production Facilities
-As seen in the case study data, Hydrocan has a fully equipped production facility that will enable the company to meet demand well into the future while at the same time having sufficient room for subsequent expansion and improvement of current facility equipment.
Established Supply Chain Network
-it was seen that the company already has a well established supply chain network thus making it a lot easier for products from the company to get to consumers in various locations throughout Canada.
|Fully Saturated Consumer Market |
-The main weakness of the entry of Hydrocan into the Canadian fertilizer industry is the fact that the consumer market is already fully saturated with several other brands with two in particular (owned by Scotts Co. and Ortho Chemicals) dominating 50% of the market. This makes entry into the market arduous at best impossible at worse since the company will in effect have to contend with well established brands
Pricing Scheme Utilized
-The pricing scheme utilized by the company, while competitive, is still within the same price range as some of the more popular fertilizer products within the consumer market. This means that it is not implementing a strategy of “lean business” in order to cut costs in production which will result in customers not seeing the difference between what Hydrocan is selling compared to other well established brands resulting in most consumers choosing a brand they trust.
-The company is only able to produce 180,000 kilograms of Stagreen a month which limits the number of markets and areas is it is able to penetrate
Shipping, Storage Costs and Seasonal Demand
-The company has high shipping and inventory costs which is further complicated by seasonal demand of the product being sold.
|Environmental Concerns |
-Criticisms regarding the water usage and subsequent adverse environmental effects necessitates the need for golf course managers to develop new strategies of golf course maintenance that requires less water and produces a far lesser degree of fertilizer run off that affects local aquifers. Due to the properties of Stagreen which results in roots absorbing more water this will enable golf managers to utilize less water in maintaining courses thus defusing the continued criticisms regarding their wasteful usage of a shared natural resource.
Becoming a Niche Market Pioneer
-Due to the unique properties of Stagreen this will enable Hydrocan to become a market pioneer in a niche market that specifically caters to environmentally conscious consumers. Thus the company won’t have to compete directly against Scotts Co. or Ortho Chemicals for consumers since the fertilizers these companies utilize are of a completely different type than the one Hydrocan markets (i.e. they focus on growth or the slow release of nutrients instead of water absorbency)
|Price War |
-The main threat to the company at the present is the possibility of a price war between the major competitors in the consumer market today. Should this occur the company will be unable to sustain a lower price scheme over the same period of time as the larger companies due to its small capital and the lack of alternative revenue streams
Development of New Environmental Legislation
-Should the Canadian government develop new environmental legislations regarding the current number of golf courses due to concerns regarding their rampant and wasteful water usage what may occur is the subsequent closure of several courses in order to limit their impact on the local environment.
–One issue that may come up is the potential for consumers not to care at if Stagreen is able to help grass retain more water since they care more about how the grass grows and at what rate as compared to how many times they have to water it.
When examining the products utilized in this particular case study it can be seen that the products developed by Scotts Co and Ortho Chemicals focuses more on continuous release or maximum growth formulas. While such products are effective in terms of their ability in providing sustained growth to grass the fact remains that the strength of the various chemicals utilized has an inadvertent effect on the local ecology especially when used on a large scale.
Various environmental groups have stated that when such fertilizers are used on golf courses the runoff water which contains various percentages of the chemicals utilized in the fertilizers can actually contaminate local ground water making it in effect undrinkable.
While such fertilizers have little impact on the local ecology on a small scale the fact remains that the concerns brought up by these environmental groups does show the necessity for a type of fertilizer that is either harmless when combined with groundwater or can reduce the necessity of repeated uses of large amounts of water in order to maintain a golf course.
It is in this regard that the fertilizer developed by Hydrocap (Stagreen) can in effect resolve the issue present in golf courses around Canada.
On the other hand since this particular problem doesn’t exist in the case of small scale operations such as your average home lawn such a product doesn’t seem as ideal since most home owners prefer the properties seen in the products developed by Scotts Co. and Ortho Chemicals since they are basically after the sustained and maximum growth potential of the grass on their lawns.
When analyzing the price levels set by the company per 10 kilogram bag of fertilizer ($22.50) as compared to the pricing scheme adopted by other companies within the same category (ex: Scotts Turf Builder- $24.50, Ortho with pesticide – $23.99) it seemingly looks like the product of Hydrocan is set at a competitive price range.
Due to the seasonal weather within Canada this greatly constrains the sale of fertilizer products during particular seasons. While other companies have gotten around this by having product offerings for indoor plants and gardens the fact is that Stagreen really cannot compete with them in terms of versatility due to the fact that the unique quality of Stagreen in that it helps to retain water which indoor plants and gardens don’t really need in abundance.
It must also be noted that the seasonal shifts also places a distinct burden on the company in terms of storage costs for unsold fertilizer during the active months of sales.
One way around this would be to shift current inventory for sale to international locations such as the Philippines where the weather is the same all year round however considering the costs of shipping and international product promotion this doesn’t seem like a viable option at the present given the limited production capacity of the company.
What the pricing scheme doesn’t indicate is that various fertilizer companies spend nearly 20% of their sales revenue on marketing activities with another 4% going directly into advertising (ex: Miracle-Gro has the highest brand name awareness among consumers to date). It must also be noted that a large percentage of the money that goes into marketing by these companies goes into a variety of support systems for discount retailers (i.e. training for representatives, brochures etc).
With Hydrocan only willing to utilize $104,000 for magazine advertising, $84,000 for newspaper advertising and $225,000 for seasonal discounts the fact still remains that the main “players” within the consumer fertilizer market are obviously spending more than Hydrocan and spending it on a strategy that maximizes both the level of brand awareness for their product as well as the degree of support that discount stores can utilize in selling it (i.e. more informed in-store representatives and promotional material that can be handed out to customers such as brochures.
As such with the bulk of sales being made through discount retailers it becomes obvious that players in the industry such as Scotts Co and Ortho Chemicals have a massive lead in terms of the level brand awareness they have generated and the means in which they promote and encourage sales of their product.
Environmental Analysis- Combining the Article Viewpoint with Current Case Situation
The article “Franchise firm entry time influence on long term survival” by Juste et al. (2008) presents a rather interesting outlook on company survival by focusing not on the market forces of supply and demand or even on methods of sustained development through management innovation, diversification and subsequent product development but rather it focuses on the concept of early entry as being a highly influential factor in the long term survival of a company.
This is a particularly interesting position to take especially when considering the fact that nearly 90% of all early entry businesses into new markets or new businesses with innovative approaches to address a particular need within a specific niche market fail within the first 5 years.
In the case of Juste et al. (2008) study it can be seen that the aim of the author was to show how companies in Spain established in the early 1950s – 1980s have been able to survive for so long due to their early entry into the market. This was done by comparing the survival rate of company entries into the same market at later dates and how they were unable to usurp the position of companies that were established much earlier.
It is based on this that it can be assumed that the overall goal of the author was to prove that when it comes to investing into a particular company or entering into a particular market it is best to do so as a market pioneer especially in cases where franchises are established in new international locations.
In the case of Hydrocap it obvious from the case study data that it is not a market pioneer and is in fact planning to enter into a fully saturated consumer market which significantly reduces its chances for long term survival. Juste et al. (2008) elaborates on the problems that companies such as Hydrocap may experience by stating that entry time influences the type of strategic decisions a firm can employ as well as its long term survival.
It was their hypothesis that the earlier the entry of a particular franchise into the Spanish market the more likely it was to establish itself and result in long term survivability. On the other end of the spectrum the study also showed that in cases where late entry was seen there would be a lesser degree of market survivability due to the presence of already well established brands (Juste et al., 2008).
It is based on the Juste et al. (2008) study that it would seem to be inadvisable to attempt to penetrate the consumer market segment indicated in the case due to the already well established actors within this particular market.
Position of the Researcher
The position of the researcher for this particular case study is one that advocates entry into the commercial market segment as well as a complete redesign of the way in which Hydrocap presents itself as a business in order to both take advantage of the first entry position as a company that supplies exactly what golf course managers need in order to mitigate the criticisms regarding wasteful water usage (i.e. since Stagreen enables grass roots to hold more water) while at the same time takes advantage of the growing awareness within Canada regarding environmental conservation.
Analysis of Alternatives
In the article of Ordish (2006) it can be seen that early and late entrants into a particular market had varying operational and management strategies which Ordish (2006) explains is a direct result of having to contend with different market situations (Ordish, 2006).
Ordish (2006) goes on to state that in the case of early pioneers into a particular market there are rarely any other competitors and as such this enables them to establish a customer oriented rather than a competitor oriented strategy (Ordish, 2006).
This is particularly important to take note of in the case of Hydrocap penetrating into the commercial market segment since the case data indicates that most golf course managers develop long lasting relationships with particular supplier and that it takes a great deal of effort in order to establish these profitable relationships in the first place.
There are actually three components to market orientation that should be taken into consideration when it comes to deciding how a company will choose to act within a competitive environment, these are: customer orientation, competitor orientation, and inter-functional coordination.
In the case of customer orientation a company spends what resources it has in gathering data on the needs and behaviors of various consumers, the same can be said for competitor orientation however it focuses on competitors instead (Smeets and Yingqi, 2010). It must also be noted that either method has a distinct weakness.
Focusing too much on consumer orientation can actually blind a company to changes in the market or may actually stifle innovation since the company focuses too much on consumer satisfaction rather than changing based on trends (Smeets and Yingqi, 2010).
Focusing too much on competitor orientation on the other hand results in too much time and capital being placed on competitive activities which results in companies at times neglecting their consumer bases and focusing too much on getting ahead of the competition (Relationship and innovation orientation in a business-to-business context, 2010).
On the other hand both methods also have their own respective strengths such as the customer orientation strategy being more effective in uncertain markets whereas competitor oriented strategies become effective in fast growing markets (Smeets and Yingqi, 2010).
Taking such factors into consideration it can be seen that what is needed in the case of penetrating the commercial market segment specifically targeting golf courses is a customer oriented market strategy where the company focuses on developing a long lasting relationship with golf course owners in order to develop a certain degree of product patronage.
This is due to data presented by the case study which indicates that it isn’t market forces per see that results in sales in this particular category but the means in which the company interacts with its consumers which results in sales of the product in question. As such the company can become a first mover in this market by presenting a unique product that addresses an apparent problem.
Taking this into consideration, Costa (2011) explains that in cases where a company is the first mover in a particular market this gives it a considerable advantage by the mere fact that it can focus on a customer oriented strategy without having to worry about subsequent problems related to inter-market competition within the immediate future (Costa, 2011).
This allows the company to develop itself as a viable brand and develop a well established reputation within its chosen market through a strategy that focuses more on developing proper relations with consumers. Costa (2011) goes on to state that “the power of a well established brand should never be underestimated since it can enable a company to persevere in the face of severe competition via the strength of its brand alone” (Costa, 2011).
This particular statement by Costa (201) is in direct relation to what Juste et al. (2008) defines as “pioneering advantages” in the case of franchise firm entry times. From the perspective of Juste et al. (2008) “pioneers benefit from brand loyalty, higher switching costs and pre-emption of scarce resources such as locations, brand reputation or customer preferences” (Juste et al., 2008).
It is the recommendation of this report that aside from pursuing a customer oriented market orientation that the company should also change its image in order to match that of the “Green Movement” within Canada in order to better diversify itself from its competitors within the same market due to the fact that its product (i.e. Stagreen) in effect promotes natural resource conservation.
What is the Green Movement?
The concept of going green is based off the process of altering approaches towards the consumption and utilization of resources so as to ensure a more environmentally friendly method of using and consuming resources.
The basis behind this is the assumption that since the Earth is a closed off ecosystem with a finite amount of resources if nothing is done to conserve and ensure these resources stay replenishable in the long run there may come a time when the Earth will no longer be able to support human civilization.
Such an assumption is not without merit, as the human population continues to expand so too does the demand for resources increase. Unfortunately resources that command the highest demand (wood, fresh water, and food) are only replenishable to a certain extent while others have a set amount (oil, gas and certain chemicals) and cannot be replenished at all.
Advocates of environmental conservation such as former U.S. vice president Al Gore continue to reiterate the need to change the current rate and method of consumption so as to better utilize resources to ensure that they will continue to remain there for future generations. It must be noted though that the concept of going green is not a recent trend rather it has been going since the early 1970’s through the creation of various recycling programs and centers.
Despite this, it has only been within the past decade that the concept of environmental conservation has entered into popular culture. Advocates such as Al Gore, Nichol Richie, Lance Bass and various other pop culture icons were among the primary reasons why environmental conservation became popularized with younger generations today.
The reason behind this proposal is quite simple, Canada itself has been undergoing a subsequent shift as of late wherein the concept of environmental conservatism has not only gained ground with government legislators but with people within local communities as well.
More people are “buying green” than ever before and more and more companies are attempting to “green wash” themselves in order to conform to this new movement. By changing the image of Hydrocap into a promoter of “green technologies” golf course managers will be more easily persuaded to patronize the use of Stagreen since it will enable them to state that they are utilizing “green” methods of natural resource conservation.
This is beneficial for golf courses since it allows them to stay in business and promote themselves as being environmentally conscious while at the same time this produces a health profit for Hydrocap in terms of the continued patronage of such courses to their products.
First mover franchises need to stay relevant within their prospective markets by changing along with new consumer tastes (Relationship And Innovation Orientation In A Business-To-Business Context, 2010).This was seen by some of the new dietary innovations enacted by restaurants such as Wendy’s, Burger King and Olive Garden in order to keep pace with a consumer market that is slowly but surely turning towards healthier options in their food choices.
This push towards company innovation is lacking within the commercial fertilizer industry wherein instead of responding appropriately to the statements presented by various environmental groups against the effect of fertilizers on local ground water it has continued to be “business as usual” for these companies.
Such a lapse in judgment should not be present in any long term survival strategy and as such Hydrocap can take advantage of this situation by pursuing the following strategies:
1. The first strategy that should be pursed is to gear all advertising and product promotions for Stagreen to be in line with the “Green Movement” this means presenting study data, product results and firsthand accounts showing how the product promotes environmental conservation by reducing the necessity for the continued watering of grass.
The purpose behind this is to be able to rebrand the company as a pioneer in the fertilizer industry in its pursuit of natural resource conservation through a product that saves water. By doing so, the company will be able to enter a niche market within the fertilizer industry that focuses specifically on people that are either conscious of the environment or want to appear that they are conscious about the environment.
2. The second strategy is to create a customer oriented market approach that focuses on developing a long term relationship with the various golf courses within Canada.
By developing strong ties with course managers and by presenting Stagreen as a means of resolving the continued criticisms hurled against golf courses by environmental activists the company will in effect be able to both resolve the issue of golf courses being labeled as environmentally wasteful while at the same time producing a significant degree of product patronage.
3. One of the inherent weaknesses of the Juste et al. (2008) article was the fact that it neglected to elaborate on the possibility of new competitors armed with either more potent resources or capabilities from entering into the market and overtaking a first mover franchise’s market share.
In order to avoid this possibility from occurring to Hydrocap, once the company has been firmly entrenched into its specific niche market the third strategy that needs to be implemented is to focus on an inter-functional competitive orientation strategy that takes into account both new entries into its market as well as the maintenance of relationships with its current client base.
By doing so the company will in effect be able to continue to dominate its current niche market and ensure its continued success for many years to come.
It is expected that should the company follow the strategy outline in this particular report it will be able to minimize the risks it will encounter when entering into new markets while at same time ensuring that its client base will be satisfied with the products it sells since they address not only the issue of maintaining grass at a pristine level of condition but addresses the concerns regarding the ecological viability of golf courses.
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