Nov 14, 2018 in Research

Fairlife Case Study

Case Overview

The case documents the attempt by Coca-Cola Company to enter the milk market. The company aims to capitalize on its prowess in marketing strategies to enter and control the milk industry. The leaders of the organization have exuded confidence that their milk product known as Fairlife will fetch huge profits. Although the company is sure that Fairlife will succeed, some analysts are skeptical because of the conditions in the milk industry. The milk market in the United States has been on a gradual decline, a factor that should be considered when determining the potential performance of Fairlife. Apart from the shrinking market, consumers are very sensitive to price changes. Consequently, sellers of milk are affected by the changes in the milk prices because they have to conform to customers’ acceptable prices. There is limited differentiation of products in the market. As such, customers can switch from one seller to another. The market is also fragmented, which means that there are no nationally recognized sellers of dairy products. Coca-Cola has a chance to enter and control the market because of the absence of established traders in the milk industry and the perceived demand for premium milk products. This paper evaluates the main marketing issues, in particular, the most critical one and provides alternative solutions. Additionally, it explores the suitability of the solutions and the merits and demerits of the chosen option.

Marketing Issues

The first marketing issue is the fragmentation of the milk industry. The industry has no major companies with recognized brand names country-wide. Therefore, the entrance of a national brand is likely to cause serious competition disruptions. Since Coca-Cola is an international brand, it has the capability of aggressively penetrating the market and acquiring a market share. Therefore, this issue is an opportunity that the company should take and utilize its experience to dominate the dairy industry. The joint venture with Select Milk Products provides credibility to the corporation’s attempt to enter the market. Although Coca-Cola has limited experience in dairy products, its ability to offer premium products is not questionable because of the joint venture. Select Milk Products will provide expertise in the production process while Coca-Cola will inject its marketing efficiencies in the venture.

The second marketing issue is the declining market, combined with consumers’ price sensitivity. The positive energy expressed by Coca-Cola may be hindered by the fact that the dairy industry has experienced decline over the past several decades. Competitors are likely to consider exit strategies in a declining market. It is, therefore, peculiar for Coca-Cola to enter a shrinking market. One of the characteristics of the dairy industry is the price-sensitive consumers. Their sensitivity is both an opportunity and a threat to Fairlife. The inherent opportunity can be utilized by offering products at a lower price than competitors. However, such a move is unlikely to benefit Coca-Cola because its plan is to offer a premium product, which demands a premium price. Differentiation based on prices has been used by competitors to attract market share across industries. However, in markets where price differentiation is impossible, companies must seek alternative means of differentiation. Therefore, Coca-Cola must devise means of entering such a market without compromising the quality of its product.

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The third issue is represented by the low switching costs in the market. The customers’ perception in the market is essential because it influences their purchase decisions. In the market where Coca-Cola aims to enter, customers do not perceive any major differences in dairy products. As such, they can switch from one seller to another without incurring substantial inconveniences. According to Porter’s analysis, it is strenuous to consolidate a customer base in the market with low switching costs. Low switching costs allows clients to seek products from another supplier with perceived differences in either price or value. In such a market, it is difficult to build customer loyalty. The absence of obvious differences provides a chance to Coca-Cola to create credible differences that can appeal to customers and make them loyal to Fairlife. Such differences should make clients experience difficulties when they decide to switch to competitor products.

The final marketing issue is the high demand for premium dairy products.  Currently, the premium market has been dominated by non-dairy products such as silk almond milk. The tremendous growth in the past for non-dairy products shows that Fairlife is likely to attract a substantial market share, especially because of its increased nutritional value. A customer’s ability to purchase premium non-dairy alternatives is an indication that the prospective attempt by Coca-Cola may have a potential market. The challenge for the corporation is to decide the most effective strategy to use to maximize the market’s potential.

The Most Critical Issue

The most critical issue is the price-sensitive declining market. The most attractive markets are those within the growth stage. They offer numerous opportunities for new and established competitors to compete and generate revenues. However, a declining market indicates that it is not suitable to investors, especially to those at the entry stage. Therefore, the availability of a market with a potential for growth is an essential factor that determines the success of a firm. The lifespan of a declining market is very short. As such, a company trying to enter a market may not recover its investment cost before a market becomes obsolete. It is the most important issue because the market Coca-Cola is planning to enter does not show great potential, given its historical performance. The company’s confidence comes from its success in other beverage markets and its marketing strengths. The success in other markets is not a suitable parameter to predict the performance of a product in another market accurately. The price sensitivity of the market does not provide any consolation for the company.  The absence of price sensitivity would have empowered Coca-Cola to charge premium prices for Fairlife and expect customers to purchase. However, customers in this market may not buy highly-priced products.

Alternative Solutions

The first solution is to concentrate on the premium part of the market by providing Fairlife to customers. The conditions in the dairy market indicate that there are no premium dairy products. The performance of the alternative non-dairy products has been commendable, which indicates that some customers may be in need of high-end products. Therefore, one alternative solution to the declining market is to concentrate on the premium segment that seems to be growing and establish efficiency there. The effort of the company is to defend its acquired market share from being disrupted by other competitors.

The first advantage of adopting this solution is that the company can develop competence that those in the general dairy products’ market may not have. Concentrating on a single segment provides the organization with a chance to understand customers and their needs. Consequently, the company can create products that suit those needs. The narrow market segment can help Coca-Cola to develop personalized relationships with customers by responding to their unique needs. Such associations may create customer loyalty, which is an elusive aspect of the dairy industry. Other competitors with an extensive market focus may not be able to provide such customized products. Consequently, they may be unable to outperform Fairlife. The second merit for implementing this choice is that the company can customize its marketing messages to appeal to customers’ needs. When customers are targeted, they may feel valued because the company put extra effort to understand them. Consequently, they become loyal to the corporation. As a result of personalizing its interactions, it can gain market leadership by increasing its market share. The company’s focus on Fairlife as a premium product will be the first dairy premium product. Customers will have no alternative at the initial stages and will be forced to consume the product at the set price. Therefore, Fairlife is likely to enjoy monopoly at the beginning of its life cycle.

The pitfall associated with this solution is that focusing on a single segment may limit the company’s ability to pursue other beneficial ventures. As a result, when the segment is hit by an economic crisis, the company is at a high risk of collapse because all its efforts are on the single segment.

The second alternative is to defend the segment where Fairlife thrives and seek other emerging ventures at the same time. Some of the new ventures include entering new segments. The combination of defending the premium segment and seeking new ventures distributes risks and stabilizes the company.

Therefore, the first advantage of this solution is that the firm is protected from unexpected environmental conditions. When changes occur in one segment, the company is cushioned from collapse by the other ventures. The second advantage is that the company can generate competitive advantage by leveraging the strengths of the various market segments.

The demerit with this strategy is that it can reduce profitability since it does focus effort on a single segment to develop competence. Therefore, the business may become unsustainable because no single market segment is stable enough to provide sustainability. Since the company pursues several opportunities at a go, it may fail to maximize the utilization of resources.

The third alternative is to enter the premium market with Fairlife, but create strategies to produce other premium products for the same segment. Product diversification will ensure that a wide customer base is attracted to the company’s offers. Through market research, the Corporation can keep pace with the changing preferences and proactively develop products to match them. The importance of this venture is based on the fact that imitators and early adopters will create products to compete with Fairlife. 

The first advantage of this alternative solution is that the company will limit the competitors’ product features because its numerous products will accommodate many characteristics. Therefore, any offer from the competitors can be countered by one of Coca-Cola’s products. Consequently, the company can dominate the market by having a variety of products.

The downside of this solution is its heavy investment requirement in research and development. Developing new products requires numerous surveys to ascertain the existence of a need in the market. The actual development process is also expensive because the products must be tested and modified according to customers’ feedbacks. The products consume a lot of resources before they are presented to the market, compared to a single product venture.

The Best Solution

The third alternative is the best for various reasons. First, developing new products to serve the same segment does not eliminate the company’s ability to develop economies of scale. Since the products are within the same segment, the corporation’s competence can be enhanced. The company has better chances to survive through this strategy, compared to market diversification because it has created stability in the premium market segment. Secondly, the solution allows the company to attain both stability and flexibility. Since Fairlife will be the signature product, the firm’s performance will be stable once the product becomes accepted by the clients. The availability of other products for the same market segment provides flexibility. Any problem with Fairlife may be leveraged by selling the rest. Therefore, the company can be responsive to a variety of customer needs through the product mix, while promoting Fairlife. Additionally, the company can edge out competitors by limiting their offers. Since early adopters and imitators change aspects of an existing product to create a new offer, product diversification can lock them out of competition. When Coca-Cola has a variety of products within the premium segment, it increases the probability that features not found in Fairlife can be found in other products. Consequently, any possible change that the competitors can introduce to the market is covered by one of the company’s products. The third solution maximizes the first alternative’s merits and increases competitive advantage by diversifying its portfolio.

One of the positive outcomes that the implementation of the chosen alternative will bring is market dominance. Customers in this segment can get almost any product they want from the company through its diversified portfolio. As such, competitors will have little chance of succeeding in the market. The only drawback the implementation may create is on the side of customers. Coca-Cola can manipulate the prices, leaving the customers with no remedy because there are few competitors in the market.

Recommendations

Coca-Cola should implement the third alternative because it will provide it with market dominance and control of the dairy premium segment. The alternative provides a clear strategic advantage and mitigates the risks of offering a single product. The economies of scale that the company would gain by adopting this strategy can help it create entry barriers for competitors. Through efficiencies in production and marketing, the company can sell products at a price that new entrants cannot charge. Consequently, it will become the market leader and will set the pace for other competitors, thus controlling the largest market share. When a company is in a dominant position, it can control some forces that affect the industry, which provides it with advantage, while disadvantaging others. Such forces include competition and pricing of commodities. Concentrating on market research can increase the knowledge of the organization for future product developments. Therefore, the third alternative is strategic because it takes care of future ventures.

Conclusion

The main marketing issues include fragmentation of the market, a price-sensitive declining market, low switching costs and high demand for dairy products. The most critical issue among them is the declining market because it directly affects the success of Fairlife. There are three alternative solutions to reduce the negative effects of the shrinking market. The first one is to concentrate on the premium product Fairlife. The second solution is to defend Fairlife’s segment, while seeking ventures for new segments. The third alternative is to develop Fairlife for the premium market and other products for the same customers. The third alternative is the best because it promotes the development of economies of scale, flexibility and stability for the company. Moreover, it allows the company to edge out its competitors from competition. Therefore, Coca-Cola should implement the third alternative because its benefits are more than those of other alternatives and promotes its market dominance.

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