UNIVERSITY OF SOUTH AFRICA DEPARTMENT OF MARKETING AND RETAIL MANAGEMENT POSTGRADUATE DIPLOMA IN MARKETING MANAGEMENT STRATEGIC MARKETING MANAGEMENT (STB400V/2010) ASSIGNMENT 02 “Evaluation of the Possible Growth Strategies that Amarula could follow in order to achieve a double-digit growth in volumes in the next three years” Presented by Mr. B. Banyishayi Student No: 35124857 July 2010 2 1. INTRODUCTION In this assignment I will evaluate the possible growth strategies that Amarula could follow in order to achieve a double-digit growth in volumes in the new three years.
Amarula was initially launched as a clear liqueur in October 1983. However, its appeal was limited and in 1989, the decision was made to extend the product line with a cream based version, called Amarula Cream. It was a runway success and before long, Amarula was the only variant on the shelves. Amarula cream is one of South Africa’s most successful exports. Not only does it dominate the local market, it has also been a resounding success in a number of international markets. One out of every two bottles finds its ways to foreign stores.
It is particularly strong in markets such as Canada, Germany and Brazil. Concerning growth, Amarula has been a success story in both the local and international market with impressive growth figures being delivered year after year. With strong growth in global sales, 81% since 2000, Amarula Cream in continuing to maintain its strong position in the global creams arena. One of the objectives of Distell (Amarula’s parent company) is to grow Amarula to become a leading global brand.
Siobhan Thompson, Global Business Development Manager of Amarula, says the overall global success of the brand can be attributed to several factors, including the brand’s unique taste derived from the marula fruit that is found only in sub-equatorial Africa; its versatility when sampled on its own, as a cocktail or used as an ingredient in food preparation, as well as its ‘African heritage’ brand story that differentiates it from its competitors.
Amarula has shown tremendous growth since its introduction and despite a number of negative factors emerging in the South African and global markets, there is still plenty of room for further growth. (Cant & Machado 2008:187-197). Let’s evaluate now some possible growth strategies that Amarula could follow in order to achieve a double-digit growth in volumes in the next three years. 2. POSSIBLE GROWTH STRATEGIES THAT AMARULA COULD FOLLOW There are five ways Amarula could follow in order to achieve a double-digit growth in volumes in the next three years.
These include growth in existing products markets; growth through product development; growth through market development; growth through diversification and growth through integration. 2. 1 Growth in Existing Product Markets With this strategy, an organization tries to find growth by looking opportunities in its current market and with its current product portfolio (Du Plessis et al. 2006:265). 3 There are three major options that Amarula could adopt to do this: 2. 1. 1 Increase the current market share:
In this instance, Amarula should tries to gain market share either at the expense of competition or by drawing a greater proportion of the new consumers entering the market (Du Plessis et al. 2006:265). To increase the current market share Amarula should accomplish two important tasks: (1) retain repeat product (Amarula Cream) from its existing customers, and (2) continue to capture the major portion of sales to the growing number of new customers entering the market for the first time. 2. 1. 2 Increase the quantity of product usage
This implies that Amarula should understand the underlying reasons for purchase and should convince consumers that more of the product should be used (Du Plessis et al. 2006:266). Amarula could introduced lowalcohol cream, instead of 17% alcohol, they can reduced it to 13% for instance, to enable consumers to drink more than a pint of Amarula cream. 2. 1. 3 Increase frequency of usage This could entail merely reminding customers to use Amarula cream more, or generating new opportunities for them to use Amarula Cream. This can be encouraged by emphasizing the benefits of regular or frequent usage.
For instance, in Brazil, where Amarula Cream is a popular drink in bars and clubs and is drink over ice (Cant & Machado 2008:188); by an integrated marketing communication strategy, Amarula could motivate a greater rate of consumption by telling its customers that they can also consume the Amarula cream at home and with friends. 2. 2 Growth through Product Development Product development can include the development of new product features, new-generation products and new products for existing markets (Du Plessis et al. 2006:267). 2. 2. 1 Development of new product features This occurs when features are added to current products.
Amarula could modify it product by changing the color, motion, order, form or shape of the Amarula bottle ; or they can substitute or add other ingredients, processes, or quantity of alcohol in Amarula cream. 2. 2. 2 Development of new-generation products: The computer and software industries are good examples of industries in which there is pressure to maintain an up-to-date product range. 2. 2. 3 Development of new products for existing markets: Here Amarula should look for complementary products that can be offered to the existing customer base without cannibalizing Amarula cream sales. 2. 3 Growth through Market Development Generating growth through market development means looking for new markets to which to sell an existing product range. One way for an organization to do this is to expand geographically. A second option is to find new market segments by analyzing the current segmentation variables used, and perhaps even analyzing how the completion segments its (Du Plessis et al. 2006:269). Geographical expansion for Amarula can be attempted by targeting new countries where Amarula cream is not yet marketed.
Alternatively, geographical expansion can occur within a country. It’s even possible for Amarula to develop a new market for Amarula cream by adjusting the product’s packaging or expanding the product’s distribution channels. 2. 4 Growth through Integration Growth can also be generated through integration, which is the combination of various levels of a distribution system so that they work together under the control or ownership of one organization. The various independent levels now work together as one independent system (Du Plessis et al. 2006:270).
In forward vertical integration Amarula could move downstream with respect to product flow, such as a creation of Amarula cream retail outlets. Backward vertical integration could occurs when Amarula moves upstream towards its suppliers or raw-material sources. For instance, Amarula should invest in developing its own marula tree farms to ensure the availability of a specific quality and type of marula. Another form of integration is horizontal integration. For instance, Amarula could take over its competitors which could result inn growth in sales or market share. 2. Growth through Diversification Diversification can be described as entering products/markets that are different from those in which an organization is currently active. There are two different types of diversification –related and unrelated. ? ? Related diversification occurs when an organization develops internally or acquires another organization that has products and customers common to its current business. Unrelated diversification refers to expansion into unrelated fields in which there are no commonalities between the new business and the current one (Du Plessis et al. 2006:271).
Amarula should know that diversification is a high-risk growth strategy, largely because both the products and the market are unproven territory for the business. Though trailblazing emerging products and markets can be exhilarating, it can also be terrifying given the fact that neither the business nor anyone else can rely on prior experience for reassurance. 5 3. RECOMMENDATION At the end of the day, what is every business trying to do? Grow. More customers, more sales, positive cash flow, larger deal sizes, higher volume, more billable hours, justication for higher prices, ect.
Why business are looking growth? Because if they are not growing they are shrinking. People are in business to build or create something bigger than themselves. That said, I will recommend the following strategies, which I think would be most effective for Amarula to achieve a double-digit growth in volumes in the next three years. This strategies consist of: ? Increasing the current market share: we recommend this strategy because it will help Amarula to increase its current market share by reaching new customers (1) with its existing offering (Amarula Cream) or (2) developing a new offering. Increasing quantity of product usage: by default Amarula will increase the quantity of product usage when it increases the number of clients and frequency of purchase. But Amarula can also increase the number of units sold by understanding how to add value to Amarula Cream. ? Increasing frequency of usage: the quickest path to increase the frequency of usage for Amarula it as easy as possible its existing customers to do business with them repeatedly. Another way to look at this is providing additional customer value-and ultimately building customer loyalty. ? Growth through market development should be also a good strategy.
Market development is a growth strategy where the business seeks to sell its existing products into new markets. Amarula have many possible ways of approaching this strategy, including: (1) new geographical markets, for example exporting the Amarula cream to new countries; (2) new product dimensions; new distribution channels or different pricing policies to attract different customers or create new market segments. 4. CONCLUSION In summary, I did evaluate the possible growth strategies that Amarula could follow in order to achieve a doubledigit growth in volumes in the next three years.
These include growth in existing products markets; growth through product development; growth through market development; growth through diversification and growth through integration. I did recommend the following strategies: increase the current market share; increase quantity of product usage; increase frequency of usage and growth through market development, which I think would be most effective in order for Amarula to achieve a double-digit growth in volumes in the next three years. 5. BIBLIGRAPHY Cant, MC & Machado, R (eds). 2008. Marketing success stories. 6 edition. Cape Town: Oxford University press. Colin E. Jan & Michael J. Thomas (eds). 1998. Strategic marketing: A practical guide for designing and implementing effective marketing strategies. Oxford: Butterworth Heinemann Du Plessis, PJ, Jooste, CJ, Strydom, Jw (eds). 2006. Applied strategic marketing. 2 edition. Sandown: Heinemann. Gross, S. Schroeder, A. (Eds. ) 2007. Handbook of Low Cost Airlines – Strategies, Business Processes and Market Environment, Berlin Orville C. Walker, jr, Harper W. Boyd, jr & Jean-Claude Larreche. 1998. Marketing strategy: Planning and implementation. 3 edition. Boston: McGraw-hill th rd nd th Roger J. Best. 2004. Market-Based management: Strategies for growing customers value and profitability. 4 edition. New Jersey: Pearson. Prentice Hall