The industry of olive oil is very competitive globally. There are large manufacturers of olive oil in Italy, Greece and Spain. One of the most popular producers is the. In Australia, olive oil is widely used, although they import most of their olive oil products, there also some supermarkets that produced their own olive oil. It was predicted that in 2008, the quality of produced olive oil will only be surplus. That is why, in Australia, producing their own local olive oil to replace the imported olive oils is seen to be the solution to the problem. However, this solution will sacrifice the pricing and distribution of their olive oil products. This study aims to analyzed the above mentioned problems and hopefully, will come up with comprehensive recommendations to its solutions using the concepts and marketing strategies.
I. Case Background
Olive is considered to be the most essential for the diets of the health conscious people. According to some researchers, people in Greece and Southern Italy lived long and healthy lives. Illnesses such as heart disease were almost not popular among them, unlike in many Western countries. Aside from these benefits, olive oil has monosaturated fats, researchers are now discovering that it is more advantageous when it comes to the dozens of potent, anti-oxidants and related compounds. Olive oil also gives more flavors to food especially extra olive oil.
There are well-known brands from Italy although Spain is the largest producer globally. While, is produced by the well-known, there are no dominating brand globally especially in USA, UK and Australia, the major supermarkets in this country have their own olive oil that dominates the industry locally. Australian manufacturers, like Group, developed brand and distributed in the local market.
There are 1200 million olive trees in the world and 2.5 million tons are produced every year, and 50% of these are extra virgin. European Union and Tunisia produce 85% of the oil. According to the Olive Oil Council, the UN-authorized production is funded by the EU and predicted that by 2008 there will be 126,000 tons of world surplus which means 4% of the over all production.
In Australia, production will be proportioned to the consumption in 2006. Most manufacturers are exerting their efforts to produce extra virgin and will sell it for per 500ml. These oils will be of high quality however it is strong flavored and dark in color, not the kind the consumers buy.
II. Case Issues
According to the case, the following issues were identified:
· Production is forecast to move into a surplus quality by 2008.
· Australia has imported most of their olive oil.
· Price will be the problem if home-produced oil replaces imported oil.
· Olive oil consumption is considered to be a commodity and it is sensitive to price and promotion.
· Current olive oil prices in Australia are not motivating the consumers.
· Short term consumption prospects for olive oil in Australia and extra virgin olive oil will most likely take up some of the share of the other quality of olive oil.
The SWOT Analysis of the company is made to show the companies potential against new entrants and its advantages over them.
- strong brand association
- nationwide coverage
- unique products and ingredients
- growing profit, earning and dividend growth
- sound reputation of quality products
- ability to expand to supply base to meet sales
- good product and market knowledge
- strong market research team.
- seasonal downturns (summer)
- high product wastage
- poor peak time control
- decline in traditional staples of olives
- late delivery / arrival times
- diversification (selling extra virgin olive oil in supermarkets)
- plans to sell extra virgin olive oil locally and globally
- increasing adoption of market research
- future outlook to include seating
- possibility to extend to pre-order foods
- hot weather
- increasing health cautious society
- increasing cost of ingredients
- bad media coverage of olive oil industry
- increased concern for hygiene
- increased government regulations in relation to hygiene and contents of ingredients.
The business of olive oil is successful because based on its BCG analysis, the following benefits were achieved over the years.
· Financial Stability
Financial stability is crucial especially in the pursuit of research and development activities. In the olive oil industry, it is important to remain updated with the latest technological developments that can be used to improve production to be able to stay competitive in the market.
· Excellent Product Performance and Price
Manufacturing best olive oil products comes as a result of well-funded research and development activities. The strong performance of these products in the market could also be linked to their cost-effectiveness. However, the company has to be aware of the positioning in terms of process so as to maintain satisfactory profits margin and remain competitive in the market.
· Effective Distribution of Products
High brand awareness among the buyers has created the need for aggressive marketing, and access to strong distribution channels is critical for the introduction of new olive oil products.
· Economies of Scale and Scope in manufacturing and research and development arising from its numerous facilities situated in the worldwide.
· Unique Quality Technology
The olive oil company should commit to research & development activities have always been one of its top strategies to remain competitive in the market.
· Differentiated Products
Through the production and marketing of differentiated products originating from their research and development activities, the olive oil company is able to create its own firm-specific advantages. The continuous pursuit of research and development processes enables the company. to produce a steady stream of originally differentiated products which makes it difficult for competitors to find substitutes. Because of this differentiated approach, the company. is able to market their products worldwide, which enables them in turn to maximize the returns on research and development expenditures (, 1997).
There is definitely a need to reconcile both the inside-out and outside-in capabilities. While the olive oil company business strategy involves focusing on the results of the B.C.G. analysis with market position following its resource base, the company will be put into a disadvantageous position should it choose to neglect both the macro as well as industry environment. Therefore, the company has to be aware of the latest technological changes, as well as changes in political, economic, legal and even demographic trends in order to develop the outside-in capabilities, such as market sensing, customer linking, channel bonding and technology monitoring (2002).
BCG Matrix of the Company
The olive oil company can be considered as a cash cow because it distributes extra virgin olive oil to its consumers and equipped with new innovative olive oil products such as salad dressings and other famous delicatessen in Australia. At the same time the company can also be considered as Stars because they put a lot of efforts to increase the awareness of their consumers to the positive effect of using extra virgin olive oil to their health.
III. Case Analysis
In the case of the extra virgin olive oil industry, there are multinational competitors based in Italy, Spain and EU. However, these companies cannot sustain the consumption of olive oils globally and will lead to low quality oils in two years. That is why Australia is trying hard to produce high quality olive oils for national consumption. The relationship of the case issues is simple, using the law of supply and demand, there is a very large demand for high quality olive oil, then there should be more large supply of high quality olive oil.
In terms of ingredients, olive oil uses approximately millions of olives. For each ingredient, there should be many suppliers globally. In addition, due to its strong relationships with suppliers, the company became the first in adopting a number of new technologies around the world.
Competitive advantage has always been an issue in business. The olive oil industry issues can be analyzed using five forces model. An industry is a group of firms that market its products closely substituted from each other. According to (1980), some industries tend to become more profitable and competitive than the others, hence, an existing industry such as the Extra Virgin Olive Oil should always remember that their industry will only survive by utilizing a strategy that would enhance the competitiveness of the business. Using Five Forces Model, the analysis of the industry sector of the Extra Virgin Olive Oil will be analyzed .
New Market Entrants
Five Forces Model includes threat of entrance of new industries. Primarily the goal of the Extra Virgin Olive Oil is to establish a position in the olive oil industry and to become a company that would always be competitive in the marketing arena. Extra Virgin Olive Oil is considered as a small company in the olive oil industry, that will compete with large companies like Unilever, and other olive oil manufacturers from EU and, Italy and Spain is not necessary unless the one who will handle such company will have the strategy to outgrow them.
It is said that the conditions and the present arrangement in the olive oil supply market largely determines the extent in which effective competition can be achieved. The bargaining power of a supplier could be a threat for the profit of the company, and Extra Virgin Olive Oil should be very much aware of it. In this manner, Extra Virgin Olive Oil is should try to have a good contract with its supplier. Herein, the company should make it sure that they are also benefited in the said contract while the suppliers enjoy the agreement with them (1989). In this kind of business, there is only a limited competition in the olive oil supply market. The company must avail their olive oil resources from local suppliers in Australia. This limited competition in the olive oil supply market illustrates a major obstruction to competition in terms of olive oil market.
The company should dominate the extra virgin olive oil in the Australian market. This means that the company should stay top of the competition among other olive oil company at least in Australia. The company should enjoys its competitive position in the region and still trying to sustain its competitive advantage among its rivals.
’s also include in his model the concept of the bargaining power of Buyers. Hence, the Extra Virgin Olive oil secure that their clients and customers in all aspects will be satisfied for the quality products they provide. Specifically, the company has focused their marketing approach on the demands and needs of the buyer for an energy source that satisfies the and heavily positioned their products in this segment . The company should also use their environmental responsibility as a good public image to make the company more appealing to their customers. The competitive aim of the company is to do significantly a better job of providing what buyers are looking for and, thereby enabling the firm to gain competitive advantage and out compete rivals within the marketplace (, 2003).
Threats of substitutes
In terms of threats and substitutes, although the company is aware that there were threats for substitute products, specifically now that technologically advanced materials are used to find new sources of oil which is more environmental friendly, the company still have the assurance that their quality service and the satisfaction they give to their clients and customers will hinder any substitutes to have their way.
The new olive oil products should be introduced by the company will be a plain, extra virgin olive oil. This new product will be named as Extra Virgin Olive Oil once it is already launched. As observed from both the desk and consumer research, new olive oil ideas will be supported by a huge market, increasing the possibility of a successful product launch. Another rational for developing this olive oil product is based on the company’s aim to meet the needs and wants of the customers (1990). The olive oil seems to be a major choice among consumers, particularly among women respondents. The preference for olive oil serves as the gatekeeper when deciding on what olive oil to buy. Thus, by concentrating on this particular gatekeeper, the chances for the success of the new product will be increased.
Another factor that motivated the company to create this new product idea is the increasing awareness of local consumer on the importance of healthy eating. When healthy food choices are taken into consideration, olive oil normally do come into mind. The company intends to make their consumers be aware that by creating a product that suits consumer palate and good for the health. This aim can be achieved through the use of olive oil in their other food products and delicatessen as the main component.
The package will be designed in a way that will represent the product’s image as healthy, creating a strong appeal to the adult female target market. The selected combination of colours for this product will be white and blue to reflect attractiveness, with the addition of a beige colour to represent its olive oil content. The product will be manufactured in 250 ml and 500 ml packages.
The price recommendation for the new product is based on the research done for consumer price preference as well as the calculated costs that will entail the product production, promotion and distribution. For the pricing aspect, the company proposes a .50 and .00 price values for the 250 ml and 500 ml Extra Virgin Olive Oil packages respectively. The products will be distributed through the company’s extensive network of wholesalers and retailers. Specifically, the product will be distributed initially on the through supermarkets, big and small retail stores, and sweet and gift shops as well as in other related establishments found nationwide.
The communication strategies that will be used by the company in launching Extra Virgin Olive Oil will be an integrated approach of three marketing approaches: print, television and the internet. These three approaches were selected as the company believes these are the strategies capable of attaining faster market response.
Print. The new product of the company will be advertised using print media by means of newspaper and magazine advertisements, billboards and posters.
Television. A television commercial will also be launched by the company as a means of marketing strategy. Basically, the concept of the commercial will feature female adults and the product. The main idea is to emphasize on the good taste and healthy content of the product.
Internet. One of the recent and most effective communication strategies in marketing is the internet. By means of the company’s own official website, the new product can easily be advertised and put on sale. Moreover, internet marketing will be a useful tool for the company in preparation for international distribution. By measuring and evaluating the response of international consumers of the company regarding the new product, the company will be able to determine the right time to market the product on the global level.