Strategy

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TEAM #59

Mission and Objectives Mountain View Beverage Company: Mission Statement At the Mountain View Beverage Company, we strive to be an industry leader in the soft-­‐drink market, including fruit drinks, soda pop, ready-­‐to-­‐drink teas, and organic high-­‐energy drinks. Our corporate image of being a friendly and sensible player in American business is made possible by our strong marketing program and our own bottling plants and distribution fleet. We are always attuned to the needs of local eateries, cafés, and coffee shops, as this is where we developed such a loyal customer base. As our customer base continues to grow and support us, we will be able to move our products into grocery and convenience stores. We will continue to expand our business so that our stockholders can remain pleased with our product quality and the company’s managerial vision, marketing plans, and operating efficiency. We will continue to supply our customers with beverages that are a healthy, vibrant source of drinking pleasure because at the Mountain View Beverage Company, we want to be “On Your Side” in today’s complex world. Mountain View’s High Quality Objectives • Customer Satisfaction o Provide the highest quality of products and services to fulfill the needs of our customers o Find innovative ways to make healthier product alternative choices o Provide a superior friendly corporate image o To promote and inform a satisfying, healthy lifestyle

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Employee Satisfaction o Provide a quality and challenging work environment o Encourage both individual and group initiatives, cooperation, trust, and collaboration o Challenge individuals to be innovative o Embrace and respect the diversity of all individuals

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Shareholder Satisfaction o Maintain high stock price growth o Provide transparent information with shareholders o Provide investors with a high return by acting in their best interest

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Social and Environment Respect o Uphold all values and ethical standards in business transactions o Foster integrity and honesty in all operations o Embrace customer preferences and needs as they relate to social and environmental trends o Maintain strong relationships with customers, investors, employees, agents, and the public o Comply with all global and domestic laws, regulations, and cultures

External Analysis A)

The world is constantly changing. In order to thrive as a company, Mountain View must

look at the trends and forces that shape the business as the company moves into the future and

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continues to make strategic decisions. Mountain View must look at all six elements of their general environment and analyze the threats and opportunities that they are facing. Mountain View has the opportunity to explore technological change in the environment with the self-­‐chilling can and the all-­‐natural sweetener stevia leaf. The firm’s new product, Thrive Zero, is targeted at the young professional. The target audience is fascinated not only with the technology itself, but the content the product delivers. Mountain View will be able to gain a first mover advantage by seizing this new technology. The self-­‐chilling can could potentially give Mountain View a competitive advantage by understanding the next generation of consumer trends. The stevia leaf has zero calories and sugar, and is 200-­‐300 times sweeter than sucrose. Mountain View is able to change the industry competition by having a product on the market that is calorie-­‐free, sugar-­‐free, and still provides an “energy buzz.” Over the past twenty-­‐five years, the Mountain View Beverage Company has established a loyal customer base. The firm has been able to capture basic information to focus on suburban youth, college students, and young urban professionals. The age demographics that Mountain View is faced with are the 15 to 40 year age groups. This has allowed Mountain View to focus their website on the health benefits that their drinks offer and to always be “On Your Side” for their customers. Mountain View is able to exploit their demographics by focusing on the age of technology, especially social media. Recently, a health-­‐conscious movement has overtaken the United States. Soft-­‐drink consumption rates have declined in recent years, especially in the youth market of ages six to eighteen. There has been a growth in information regarding the negative effects of sugar and

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caffeine on the body, and the impact they may have on obesity. Many school districts are taking action and are eliminating soda pops entirely from their schools. In response, Mountain View has followed this new cultural trend that guides the society and created products that are beneficial to their customers. The company has followed the cultural trend of going organic with their beverages along with calorie-­‐free and sugar-­‐free, such as Thrive Zero. Mountain View strives to provide organic and health benefits in their products. The company’s website has followed the trend as well by posting information about vitamins, antioxidants, health information, promotional active trips, and ways to stay active. The overall health of the economic climate will dictate the sales of Mountain View’s beverages. This is because Mountain View beverages are not a necessary beverage product if the economy is relatively low. However, the demographics of Mountain View include the educated, suburban, young professional with above-­‐normal incomes, so the sales of the company’s beverages should stay relatively constant whether or not the economy is low. The relationship between Mountain View and the legal and political conditions can have a significant impact if the company decided to expand globally. If Mountain View, one day, decided to expand globally, they may be faced with regulations that do not exist in the United States. Also, with the concern of soft-­‐drinks on the youth, legislative action has taken place in some states on top of the action of schools in general. This legislation could make it illegal to place soda pops in schools. This could affect Mountain View’s expansion to schools, or the soft-­‐drink industry. Mountain View must also look at specific international events. The company must be

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mindful of events that not only occur in the country but outside of the United States as well. If there is a labor strike or war in Paraguay, where the stevia leaf is planted, this could affect Mountain View’s productivity and sales. Mountain View must be cautious of regional economic recessions. This could have an impact on the bottling plants where the beverages are produced. B) There is a high threat of entry into the soft-­‐drink market. In fact, the U.S. energy drink market has doubled over the past three years. New entrants can easily imitate the means to produce, bottle, and distribute beverages. Energy drink companies are marketing towards the same demographics, trendy and upscale 15 to 35 year olds. In addition, most energy drinks are attracting consumers in similar ways through bold colors, extreme sports, and intensified tastes. Mountain View has a moderate supplier threat. The soft-­‐drink industry generally has a concern of inventory issues such as raw materials, containers, and the finished products. Mountain View’s path dependence has allowed the company to form socially complex relationships with their suppliers. Mountain View has a twenty-­‐five year history of working with suppliers, and trusts that their suppliers will provide the raw materials necessary to make the beverage. However, since Mountain View requires the stevia leaf, organic products, and types of vitamins, the suppliers have the ability to increase the prices because of the unique raw materials. Also, Mountain View faces price fluctuations from certain raw materials such as caffeine, corn, teas, herbs, and gasoline. There is a moderate threat of substitutes for Mountain View. The beverage market has a seemingly endless amount of beverage options out there including soda pop, milk, juice, organic drinks, and energy drinks. Substitutes are playing an increasingly important role in

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placing a price ceiling on the retail prices of the soft-­‐drink industry. If the prices of products in the industry become too high, consumers will adjust and switch to buying a substitute product. Since Mountain View makes high-­‐quality beverages at a premium price, the firm must be careful not to overprice their products. However, Mountain View uses a product differentiation strategy for their newer products to distinguish them from their competition. This strategy lowers the threat of substitutes because Mountain View has a unique niche in this market, and buyers will not be able to get the same satisfaction from another product in the market. Mountain View has a low threat of buyers. The firm established buyer relationships with local eateries, cafés, and coffee shops when the company first started. This has allowed Mountain View not to feel threatened with the numerous alternatives that their suppliers carry. Also, Mountain View has strong distribution channels to place their products in convenience stores to please their clientele. The combinations of company sales agents and independent agents have created positive relationships with Mountain View buyers. Mountain View’s product differentiation strategy sets their products apart from other beverages. Buyers will pay the price to purchase Mountain View beverages. The firm has a moderate threat of rivalry in the soft-­‐drink industry. Mountain View has been able to establish the firm in 86% of U.S. markets. The company has increased its position in the industry to become the number five firm in U.S. sales. Mountain View is a second tier competitor, competing against three other similarly sized firms. Mountain View has grown to be the seventh largest player in the domestic organic energy drink market. The threat of rivalry revolves around the top seven companies competing in the organic energy drink market. However, Mountain View has been able to differentiate their products, which has

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reduced their threat of rivalry. Internal Analysis A) Early on in the history of the Mountain View Beverage Company there were three major investments that became the company’s main key resources and capabilities. The first of these initial investments was for a strong marketing program. A strong marketing program is valuable for Mountain View so that they can effectively communicate a consistent message to consumers. Communicating what consumers want to hear will help increase their purchasing decisions. Although Mountain View’s marketing program is an important factor in the company’s success, many firms in the soft-­‐drink industry have marketing programs that are effective in communicating to their target audience. As long as the firm is willing and able to make the investment into a marketing program, it is not difficult for others to imitate the implementation of a marketing program as Mountain View has done. Mountain View’s organized management exploited the resources needed to create a valuable marketing program. The marketing program investment allowed for Mountain View to remain at a competitive parity. Mountain View made initial investments in attaining their own bottling plants and distribution fleets. The investment of their own bottling plants and distribution fleets is valuable because Mountain View is less reliable on outside companies to achieve the efficiency that they demand for their products. These resources, coupled with Mountain View’s nationally award-­‐winning computer technology in both supply-­‐chain management and

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distribution-­‐route management, are not only very valuable, but are rare. With Mountain View being the number five firm in U.S. soft-­‐drink sales, they are competing against the second and top tier firms. This level of competition would lead you to believe that the competing firms also have their own bottling plants and distribution fleets to compete with Mountain View. However, since Mountain View’s operations have won awards for its’ strengths, they have taken the simple task of investing in resources, and made them rare because of how efficient the company has made those resources. The path dependence that Mountain View has taken to make their supply-­‐chain management and distribution-­‐route management award winning makes it hard for other firms to imitate. The insight for Mountain View’s management to organize such advanced computer technology for both supply-­‐chain management and distribution-­‐route management is a testament to the importance that they placed on being a company that gets their products to the customers in the most efficient way possible. A strong resource for Mountain View Beverage over their twenty-­‐five years as a company has been their relationships with suppliers. Because Mountain View has been in the business for twenty-­‐five years, their relationships with different suppliers are quite valuable in securing the right raw materials for their products at the correct price. Mountain View’s socially complex relationships, with their suppliers, are rare to the company. The path dependence that Mountain View has built over the past twenty-­‐five years to have socially complex supplier relationships is costly to imitate for outside beverage companies.

For a firm to have success with suppliers they need to have an organized management team that communicates effectively both to the suppliers as well as with each other in the firm. Over twenty-­‐five years of having experience with suppliers, Mountain View’s communication within their management

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has become a true strength for them. With these three key resources and capabilities, Mountain View is able to maintain, but also surpass the competition in certain ways. Their marketing program is a valuable asset to the firm, but it is not necessarily rare. The marketing program provides Mountain View with a competitive parity in the industry. Mountain View’s supplier relationships that have developed over the past twenty-­‐five years are valuable, rare, and costly to imitate because of the company’s historical uniqueness and socially complex relationships. Mountain View’s operations have won national awards in computer technology in both supply-­‐chain management and distribution-­‐route management. This key attribute that they possess is valuable, rare, and costly to imitate. Mountain View is able to exploit this to make their business more successful. With the proper organization from Mountain View’s management, both the supplier relationships and computer technology can lead to a sustained competitive advantage for Mountain View Beverage to use in making their firm a bigger player in the soft-­‐ drink industry. Mountain View’s management has exploited the full competitive potential of these three key resources and capabilities so that the Mountain View Beverage Company can continue to rise from its already impressive number five position in the soft-­‐drink industry.

Marketing program Bottling plants and distribution fleets Supplier relationships Valuable? Yes Rare? No Costly to imitate? No Exploited by organization? No Competitive implications Competitive Parity Sustained Competitive Advantage Sustained Competitive Advantage

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

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Strategic Choices A) Mountain View is currently pursuing a product differentiation and vertical integration strategy. Twenty-­‐five years ago Mountain View became a competitor in the soft-­‐drink industry and now they are the number five leader in sales. All of Mountain View’s sales fall under one single industry that results in the firm pursuing a limited corporate diversification strategy. This results in Mountain View pursuing a product differentiation strategy. Recently, Mountain View has been focusing their efforts on the organic high-­‐energy drink market. Their product is different than all other products on the market because of the health benefits that the organic energy drink provides, such as vitamins and antioxidants. Mountain View is able to differentiate their energy drinks from the mass energy drink market. Mountain View’s timing of their organic energy drinks, especially Thrive Zero, creates a first mover advantage. There is a cultural trend to be fit and healthy. The company’s organic energy drinks fits the new cultural trend and has distinguished their new product, Thrive Zero, as a calorie-­‐free and sugar-­‐free organic energy drink. Mountain View has a built their company over the last twenty-­‐five years to have a strong reputation in the second tier marketplace. The company is the number five leader in sales and has established a loyal customer base. Mountain View has built strong relationships with its distribution channel agents to distribute the product in local eateries, cafés, coffee shops, and convenience stores that it has been doing over the past twenty-­‐five years. In addition, the firm uses a vertical integration strategy. Mountain View has made sizeable investments by purchasing their own bottling plants in four locations. This purchase vertically integrated Mountain View backward, closer to the beginning of the value chain.

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B) The value of product differentiation is based on the ability of the firm to neutralize its threats and/or exploit its opportunities. Consumer’s needs and demands are constantly changing based on the emerging culture and environment trends in the market. Mountain View has been able to anticipate these culture trends and created unique products that fit the needs and wants of its consumers. Mountain View’s new energy drinks are pursuing product differentiation. These products help reduce the threat of new entry because potential entrants do not want to have to pay the cost of not only entering the market, but the costs of Mountain View’s product differentiation advantages. A potential new entrant would have to assume the costs of customer switching costs because of a positive reputation, socially complex distribution channel relationships, first mover advantage, and the health benefits of the product itself. The threat of rivalry is reduced because Mountain View is pursuing their own unique niche of energy drinks, while another energy drink company may go after another target market. Mountain View has the potential to reduce the threat of substitutes with the introduction of Thrive and Thrive Zero. Organic, healthy energy drinks have the potential to create customer-­‐switching costs from soda pop and juices to these beverages. However, consumers’ prior knowledge of Mountain View’s reputable brand when confronted with seemingly endless options will generally persuade them to purchase Mountain View’s products because of the familiarity. Mountain View can reduce the threat of suppliers because they are able to pass off the costs to their loyal customers if the supplier decides to raise the prices of the raw materials. If customers want the exact product that Mountain View offers, buyers must buy the product, which reduces buyer threat.

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Mountain View’s product differentiation is not a rare strategy. Rival firms can find ways to make their energy beverages or other soft-­‐drinks healthier by adding the stevia leaf, amino acids, antioxidants, and vitamins. If firms want to create a similar beverage, and have a creative organizational strategy to create new products, firms will be able to duplicate this product. The product complexity may be costly to duplicate if the other firm does not have the means to purchase the raw materials, or there is a high threat of supplier. The first mover advantage, positive reputation, and socially complex distribution channels are usually costly to duplicate. First mover advantage is costly to duplicate because it is difficult to recreate a firm’s history. It is very difficult to duplicate a firm’s reputation because it’s path dependence, trust, and the socially complex relationships with its customers and suppliers. Reputations are not built overnight and take years to make. Distribution channels are costly to duplicate because of the socially complex relationships. Mountain View’s organizational structure while implementing product differentiation focuses on cross-­‐functional product development teams. These teams are willing to explore new products to exploit. One of the functional teams took on the creative short-­‐term plan to launch Thrive Zero. This was the new, innovative organic energy beverage. The value of a vertical integration strategy can be broken down into three components: threat of opportunism, firm capabilities, and flexibility. The soft-­‐drink industry has moderate to high levels of integrated and computerized supply-­‐chain management, which allows for highly automated and efficient bottling and production processes. To avoid the threat of opportunism in the bottling and production process, Mountain View made a

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transaction specific investment to purchase their own bottling plant. The firm reduced their threat of suppliers by vertically integrating backward by purchasing the bottling plant. Currently, Mountain View has not vertically integrated into business activities where they possess rare, valuable, and costly-­‐to imitate capabilities. Therefore, Mountain View has moderate flexibility. The firm is able to alter its strategic choices. The firm has been able to add different types of soft-­‐drinks to their product line. Mountain View is able to explore new destinations to transact their raw materials and place their end product if they so chose. In addition, the firm has company sales representatives, independent agents, and the website to distribute their product that allows for high flexibility. Vertical integration is rare when few competing firms are able to create value the same way as Mountain View. The investment of the four major bottling plants for Mountain View is not a rare transaction specific investment. The soft-­‐drink industry has a moderate to high level of integration in their supply-­‐chain management. With inventory issues in the soft-­‐ drink industry, many companies find it in their best interest to invest in their own bottling and production plants. However, the computer technology that Mountain View uses in its supply-­‐ chain has won national awards. The equipment purchased for the Thrive Zero is rare to Mountain View as well, as it allows the company to have high flexibility in adapting product can sizes on the production line. The firm’s bottling technology is rare to their company. Mountain View’s efficient bottling plants are rare and costly to imitate. This is because of the rarity of the supply-­‐chain technology that is used in the bottling plants. Competitors will have a difficult time directly duplicating

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Mountain View’s bottling plants. Beverage companies are able to duplicate other forms of bottling plants, but will not have the same competitive advantage as Mountain View. The company’s vertical integration organizational structure involves product differentiation. The CEO, or top management, must resolve conflicts that reside in the firm. Mountain View decided to resolve a conflict by making a transaction specific investment to purchase a bottling company C) Cultural trends, low interest rates, and an uncertain economic climate shape the future general external environment of the beverage industry. Without any alliances, Mountain View is currently able to leverage its capabilities, manage opportunism, and exploit flexibility because they were the first movers to manufacture and sell a sugar-­‐free and calorie-­‐free organic energy drink that provides vitamins and antioxidants. It is important that Mountain View remains as flexible as possible as cultural trends change, interest rates remain low, and uncertainty looms. An immediate alliance would not be suitable for Mountain View in this case, as there is no suitable partner that would be helpful to the company. Given this, Mountain View is best off continuing to currently rely on their internal development and wait for a possible merger, licensing agreement, or even a divestment of the Thrive Zero brand in the next five to ten years as one of the “Big 2” would have even more efficient production and distribution channels. By remaining vertically integrated and by avoiding long-­‐term contracts, Mountain View is able to maintain its value, rarity, lack of imitability, and organization. After all, if Mountain View’s resources are valuable, rare, costly to imitate, and well organized. There is no

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need for a second strategy in the short-­‐term. However, in the long run, it would be best for Mountain View and Thrive Zero to remain open for deals with the “Big 2.” These may include licensing agreements, distribution agreements, explicit contracts, or even acquisitions. Among these, a distribution agreement would likely be the most successful for two reasons. First, a distribution agreement would reduce per item distribution costs, as one of the larger firms would handle distribution more efficiently. Next, a distribution agreement would give Thrive Zero more shelf presence in more locations across the map, even internationally. Keep in mind that these are only distant future possibilities. For the meantime, it is best for Mountain View to maintain its product differentiation and vertical integration strategies as Mountain View currently possesses valuable, rare, costly to imitate, and well-­‐organized resources described above that allow them to leverage their current capabilities, manage their threat of opportunism, exploit their flexibility, and ultimately maintain a sustained competitive advantage. Strategy Implementation The Mountain View Beverage Company sets itself apart from the competition with its use of product differentiation and vertical integration to gain a competitive advantage in the soft-­‐drink industry. For Mountain View to successfully implement their strategy moving forward, the company needs to have quality organizational structures, management control systems, and compensation policies. The use of a U-­‐form organizational structure allows Mountain View to have cross-­‐ functional teams that can be innovative with their ideas on improving product differentiation. To exploit opportunities in the soft-­‐drink industry, Mountain View must form teams of

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advertising specialists, marketing specialists, public relations specialists, and so on in order to effectively come up not only with new ideas for products but also new ideas for communicating with their loyal consumer base. Additionally, because Mountain View has vertically integrated itself by attaining their own bottling plants and distribution fleets, they have asserted that their U-­‐form organizational structure must be comfortable making decisions when to vertically integrate responsibilities of manufacturing, marketing, or any other facet of Mountain View. Throughout Mountain View’s twenty-­‐five year history, they have had to possess a strong U-­‐ form organizational structure in order to become the number five firm in the soft-­‐drink industry. Since Mountain View has been going forth with their product differentiation and vertical integration strategies, their management control systems need to fit accordingly. For the firm to be successful in their product differentiation, management needs to have broad decision-­‐making guidelines, but also managerial freedom within these guidelines. Mountain View managers need to have constraints on their decision making so that the decisions made stay consistent with the firm’s overall mission and objectives. At the same time, these constraints cannot become so narrow that the creativity behind the product differentiation becomes stifled. Furthermore, a major management control in any vertically integrated firm is the budgeting process. Mountain View needs to go through the budgeting process taking consideration of the views of the functional managers so that they understand them, accept them, and do not feel as though they need to overemphasize short-­‐term behavior simply because they are easy to measure. It is also important in such a vertically integrated firm that there are internal management committees that serve as management control devices. These committees would serve to keep track of both the short-­‐term and long-­‐term process in teams,

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as opposed to only the CEO evaluating the progress of the firm. The final key in implementing Mountain View’s strategy successfully lies in its compensation policy. The fact that Mountain View uses product differentiation is hinged upon the contingency that there needs to be an abundance of creativity and a fair amount of risk taking in the firm. Mountain View needs to reward those who take risks, and make sure not to punish those who experience failures from those risks taken. If the firm punishes those who try and fail, then employees will shy away from voicing their ideas. Creative flair needs to be rewarded, because that next idea very well could be the idea that pushes forward Mountain View’s next big product. The main task for the CEO in implementing a vertical integration strategy through compensation policy is to see what kind of employee behavior is necessary to create a sustained competitive advantage and then decide on the correct compensation policy based on that decision. Mountain View needs to compensate their employees in a way that persuades them to take risks with potential significant upside. Employees will be more motivated to take risks and follow through with those risks if their compensation is tied to the firm’s performance. Stock options or stock grants are more firm-­‐focused ways to compensate employees rather than cash bonuses for individual performances. In conclusion, Mountain View’s strategic decisions for vertical integration and product differentiation have provided the company with a sustained competitive advantage. Mountain View’s organizational policies will increase employee creativity, and will continue to create products that are rare to the company. Mountain View’s Mission Statement and Objectives

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should be involved in all strategic decisions of the company to guarantee complete satisfaction and alignment.

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Strategy Appendix

J2-­‐A (General Environment)

Technological Trends: -­‐Self-­‐chilling can -­‐Stevia leaf

Demographic Trends: -­‐Suburban youth, college students, young urban professionals -­‐15-­‐40 years old

Specific International Events: -­‐Events overseas (Paraguay) -­‐Regional Recessions

Cultural Trends:

MOUNTAIN

VIEW

-­‐Health movement

-­‐Organic/active -­‐Internet trend

Legal and Political Conditions -­‐Global Country regulations -­‐State legislative for soft-­‐drinks

Economic Climate: -­‐Health of economy small impact on demographic

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J2-­‐B (Porter’s Five Forces)

Threat of Entry: *High threat -­‐Energy Market Doubled -­‐Similar Demographics -­‐Similar Aesthetic Appeal

Threat of Suppliers: *Moderate Threat -­‐Inventory Issues +Path Dependence/Socially Complex -­‐Unique Raw Materials

Threat of Rivalry: *Moderate level +86% US Markets +Top 5 Firm in US sales -­‐7th largest player in domestic organic energy drink market

Mountain View: Medium Threat

Threat of Substitutes: *Moderate threat -­‐Wide Range of Beverage Options +Product Differentiation-­‐Unique Product Satisfaction

Threat of Buyers: *Low threat +Socially Complex/Path Dependent +Product Differentiation-­‐Pay Premium Price

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