Introduction to the Problem
The article demonstrates the case of CoolBurst, a fruit juice company based in Miami, FL. Louisa Reboredo is the CEO, who spent 15 years working with the company and dedicates most of her time and energy to improving its performance (Wetlaufer). She regularly works on weekends to identify the causes of stagnant annual revenue and the lack of growth. Louisa’s son, Alfonso, buys a drink from a competitor and mentions that CoolBurst’s products are difficult to find, as they are sold only at schools. Louisa realizes that the competitor’s popularity might be explained by their creative approach, which was not encouraged by her company’s former CEO.
CoolBurst had been an industry leader in the Southeast for a decade due to its efficient marketing strategy, purchasing/plant operations, and advanced information technology system. The company’s products were sold in multiple restaurants and school cafeterias in Florida, Alabama, Georgia, and South Carolina. As a result of steady growth, the Chicago-based parent company did not interfere with CoolBurst’s operations. However, the past four years have been unproductive, and the senior management contacts Louisa for budget projections and personnel changes (Wetlaufer). The CEO’s concern regarding CoolBurst’s stagnation should be addressed by analyzing the competitive environment and providing relevant recommendations to remedy the situation.
Analysis of the Competitive Environment
The introduction reveals CoolBurst’s weaknesses in terms of innovation, advertising, and site selection. In addition to these findings, the Five Forces Model developed by Michael Porter might help examine the competitive environment affecting the company and identify the strategies to solve the problems (Todorov and Akbar 183). According to the approach, the collective strength of five forces regulates a business’s profit potential. The ultimate goal of a competitive strategy is to secure a place in the industry by either sheltering from competitive forces or establishing barriers to entry.
The first force to consider during the analysis is the competition in the industry. CoolBurst’s conservative CEO rejected the project of Sam Jenkins, a former marketing director, who expressed creativity and developed exotic flavours, such as Mango Tango (Wetlaufer). The ex-employee eventually joined CoolBurst’s start-up competitor, Thirst Smashers, which installed their drink carts in popular locations and developed novel favors and slogans to attract customers. Along with Thirst Smashers, Drink-Ups is another market player that employs aggressive radio advertising and maintains its presence in the Southeast.
The second force refers to the threat of new entrants to the market. Todorov and Akbar claim that new players are willing to gain market share by efficiently allocating their finances, introducing technologies, and offering low prices (187). Entry barriers are relatively low for the fruit juice industry due to the capital requirements (advertising costs) and the absence of government restrictions (Todorov and Akbar 189). Entry barriers may include economies of scale (decline in product cost), product differentiation (innovative marketing, customer loyalty), and non-scale cost advantages (favorable access to certain locations). Thus, based on the factors discussed above, the threat of entry is high in the juice industry.
The third force to examine is the bargaining power of suppliers, which might impact profitability. When suppliers increase the price, companies have to raise their final prices and decrease the quality or keep their prices unchanged regardless of the decreasing profit (Todorov and Akbar 191). Indispensable suppliers have significant power over industry players if their products are vital for the buyer’s business or there are few substitute products available for sale. However, there are multiple suppliers in the fruit juice industry, which means that their bargaining power is low.
The fourth force is the buyers’ bargaining power and its effect on industry profitability. Buyers are considered powerful if they purchase large quantities of a standard/undifferentiated product, pose a risk to backward integration, and have near-complete information (Todorov and Akbar 191). In contrast, price-sensitive buyers have low profits and depend on the product, representing a significant part of their purchases. The buyers’ bargaining power is strong in the juice industry, as it is easy for them to find a substitute supplier and negotiate the price.
Finally, the fifth force is the threat of substitute products performing the same function as the original one. Substitutes can control prices and negatively impact the profit potential of the companies because they create a price ceiling that should not be overstepped (Todorov and Akbar 190). Substitute products should be examined if they are produced by high-profit industries and rely on recent trends improving price-performance trade-offs. The fruit juice industry in the US competes with major manufacturers of soda, energy drinks, coffee, and tea, such as The Coca-Cola Company, which responds to the rising trend of health consciousness (IBISWorld). There is a serious threat of substitute products in the fruit juice industry due to the substitutes’ low cost established by top players.
Recommendations
The challenges and the analysis of the competitive environment suggest that Louisa Reboredo is asking the right question at the end of the case. As the new CEO, she has the power to change the organizational culture of CoolBurst and increase its profits. Louisa may consider hiring young professionals/interns to encourage creativity and raise awareness of current trends. The measure will require the CEO to replace the company’s conservative norms with an open-minded approach enhancing the productivity of creative employees like Sam Jenkins. He noticed the company’s problems required innovation and claimed that CoolBurst’s decade-long success could be explained by the lack of competition rather than effective strategies.
It might be reasonable to improve the presence of the brand in the area after conducting market research. The research might provide valuable data on the selection of favorable vending locations and the local competitor’s strategies. Considering the competitors’ aggressive marketing strategies and the high threat of new entrants, TV/online advertising and new brand identity might attract diverse customers and increase profitability. Low bargaining power of suppliers and high bargaining power of buyers facilitate entry into the industry. Therefore, CoolBurst should examine the needs and demands of customers through the use of surveys to offer relevant products or update the product line.
Works Cited
IBISWorld. “Juice Production Industry in the US – Market Research Report.”IBISWorld, 2021.
Todorov, Krassimir, and Yusaf H. Akbar. Strategic Management in Emerging Markets: Aligning Business and Corporate Strategy. Emerald Publishing Limited, 2018.
Wetlaufer, Suzy. “What’s Stifling the Creativity at CoolBurst.” Harvard Business Review, 1997. Web.