business research management
Answer the questions in competent college level writing that stays on topic and follows the instructions in min 5 page content labels as topics and answer’s for each of the 4 questions. Please review the intense sample as a guide.
Ocean Cosmetics
INTRODUCTION
In the early 1970s, several Minnesota women who lived on farms close to each other began making a hand cream. The product eventually became known as Farm Hand Cream. It helped soothe and protect their husbands’ and other farm workers’ hands. Close friends asked for and were given the product. Other people also were interested in it and were able to purchase it for a nominal price. Farm Hand Cream was well received.
The process used to produce the cream was both time-consuming and smelly and, as the chemicals became more regulated, it became more difficult to obtain key ingredients. Because of these factors, the women quit making the cream in 1995.
In 2002 a daughter, Carol, of one of the women who made Farm Hand Cream discovered it was possible to use different ingredients and make a cream that was similar to the original one. A business idea was born!
IDEA FORMULATION
At first, Carols thinking was “Let’s make a hand cream and see who will buy it.” She involved her husband and children, as well as her sister. Even her mother was involved (making it a three generation family venture) in the sense that Carol was able to use her mother’s production equipment plus build on her past experiences. The needed equipment was minimal-a large pot to melt and combine all of the ingredients, and a blender to give the cream a thick and light consistency. Her sister helped refine the hand cream formula and identified a vendor who could provide containers for the finished product. Her two older children did much of the production work after school and on weekends in the basement of their home. Given family labor and equipment was used, start-up costs were about $900. From the beginning Carol was concerned about her lack to business experience (she had none) and about what it would cost to get the business up and going. She and her husband did not have much in savings and she needed to keep start-up costs low, below $1,000. She had a backup plan, however, if costs had exceeded $1,000. Carol was quite sure her sister and two other friends would have been willing to contribute capital to the venture.
One topic that had come up at different times since Carols first thought of her product idea was a name for her venture. She and her family discussed possible names with each other, off and on, but they could never agree. They finally decided to have a contest where each person could submit a name and then vote for the best name. The outcome was Ocean Cosmetics.
Carol had both her husband, John, and her sister, Sally, help identify who might need or be interested in the cream. John was a mechanic and used the cream on his hands with success. Further, he gave the cream, referred to now as Ocean Skin Cream, to other people who he thought might benefit from it (local mechanics and farmers) and asked them to take pictures of their hands before use, and after. The pictures showing hands before use, and after, were very positive for minimizing cracking, scaly and/or flaky skin plus removal of discoloration from working with oils and dirt. As such, Carol had established a need for her product among the same group/market that earlier had used Farm Hand Cream.
Sally was also helpful in suggesting market opportunities and even product extensions. One afternoon she said: “Carol, I have two possibilities for you to consider.” Her first suggestion was to include scents in the cream and market these additional creams to groups such as women and teenagers. Carol thought it was worth a try
and added refreshing and fruity fragrances to her cream. She also tried scents with therapeutic traits, including essential oils like lavender (to remedy sleeplessness), peppermint and spearmint (for aches and pains). Early results were encouraging but Carol knew she would have more competition in these markets. Retailers who had helped in the earlier stages were able to talk to customers and find out their preferences. Those who bought the essential oils had asked for larger containers (initially, the only size offered was 4 oz.) to keep more of the cream on hand. Others thought that the fruity scents should be pocket sized so they could reapply at work or school. In response, Carol decided to package her creams in four sizes ( oz., 2 oz., 4 oz., and 8 oz) and in three container shapes.
The other possibility suggested by Sally was a product opportunity, a lip balm, in different scents and flavors. One difficult obstacle that had to be overcome was to find a recipe that would not melt when carried in a customer’s clothing pocket. After some experimentation that involved leaving lip balms in John’s pockets, they found a recipe that stayed firm. This product, called Ocean Lip Balm, showed promise, too, but primarily for women.
One of the areas Carol knew the least about was marketing, including pricing. She pictured her products as selling at higher prices, given their characteristics. One key differentiation feature was that her creams/balms did not contain lanolin to which some people are allergic. An added distinguishing trait was their pleasant fragrances. Also, the ingredients in the creams were all safe and natural. This last trait, in particular, Carol thought was a real strength.
Another interesting start-up experience for Carol had to do with product testing. Carol knew from her mother’s past experiences that her products needed to be tested for their capabilities of keeping bacteria from growing in them and, also, for the possibility of causing rashes for which she might be held liable (if a customer with a rash pursued litigation). She used a California firm for testing purposes and her creams were highly rated. Government regulations allow for approximately 10,000 living organisms in a lotion and her creams had ten. When Carol talked with one of the California testers he asked, “Given the highly positive results of your products, have you patented them?” Carol replied to him “No, but you have stimulated me to give it further thought.”
INDUSTRY ANALYSIS
The industry that Ocean Cosmetics belongs to is the skin care industry, specifically the hand creams and lip balms product areas. Six key areas or forces to consider in an industry analysis are: barriers to entry, rivalry among existing competitors, substitute products, complementors, supplier power, and buyer power. The reason it is important to analyze these forces is that they influence a firm’s ability to achieve a profit.
The skin care industry is relatively easy to enter-i.e., it has few barriers to entry. One obstacle is that a product needs to meet government regulations around bacteria level and rash minimization. Compliance tests for these regulations are simple to obtain for a fee less than $500. Other start-up costs include equipment for making the product and marketing (including distribution) costs. These costs are fairly low if a venture starts small. This is the approach Carol took-i.e., she used family labor plus equipment from her mother. If Carol were to increase the size of production runs, additional equipment and production space would be needed. Hiring people to do the extra work would not be difficult since the community she lives in has a labor surplus. Another possibility would be to outsource production to another firm. In either situation, the benefits of larger production runs would be greater economies of scale. Although low barriers to entry benefit Carol’s venture, it also benefits others who have an interest in entering this industry.
Currently many companies are capitalizing on the skin care industry. Some of the firms employ the cost leadership (or cost superiority) strategy, others the differentiation strategy and even others the focus/niche differentiation strategy. Table 1 contains information on Ocean Cosmetics’ likely competitors.
Firms position themselves based on their strengths and often it is either ingredients or price. Burt’s Bees is a strong competitor since its creams are developed from natural ingredients. Further, the firm claims that the ingredients have healing capabilities. Ocean Cosmetics uses natural ingredients, too, and some people use it as a substitute for eczema medications that are typically more expensive. Camille Beckman, with her glycerin-based lotions, is also a potent rival. Both firms tend to be marketed in the same stores as Ocean Cosmetics, and their displays are frequently nearby each other. Crabtree & Evelyn markets many of its items via upper class boutiques. They carry not only lotions but gourmet snacks, candles, and relaxation tools. Mostly, they emphasize a higher quality of life. The Original Udder Balm is more often found in farming supply stores. Because of Ocean Cosmetics’s link with Farm Hand Cream, people tend to confuse Ocean Cosmetics with the Original Udder Balm.
Substitutes for skin care creams include: natural oils, homeopathic medicine, and spa treatments. Natural oils moisturize and soften the skin. Homeopathic medicine, although expensive, can produce good results. Spa treatments can also generate positive outcomes. But not all communities have a spa. For example, the closest spa for Carol is about an hour and a half away. Spas are also expensive, ranging anywhere from $100 to $1000 per treatment, depending on the type of service rendered. Although these products/services are substitutes for skin care creams, they also can be used in combination with creams.
Another area to consider in an industry analysis is complementors. For the skin care industry, complementors are firms that offer products that can influence the sales of skin care products. One example is stores selling soap. In some situations-e.g., gift baskets-soaps and skin care creams are sold together. Other examples are auto parts and gardening supply stores. These businesses can sell hand cream products to people who are looking for gifts for either auto workers or gardeners.
Numerous vendors or raw material suppliers exist for firms producing skin care products. Whenever a large number of suppliers are available, no one supplier can usually exert a high degree of power over a firm that purchases it products. That is, in this situation a supplier can’t usually raise it prices because the purchasing firm can easily switch suppliers. Sage Shipping is one of the many raw material suppliers. Sage has had financial leadership problems in the past but its current owner appears to have the firm back on track. In fact, Sage Shipping has been growing rapidly in recent years. Early on in Ocean Skin Cosmetics life it became a customer of this vendor. Sally recommended Sage Shipping to Carol at that time because it had just started selling scents and it was interested in developing further this aspect of skin care. To simplify her relationships with vendors (i.e., minimize the number), over time Carol has been purchasing more and more supplies from Sage Shipping. In turn, Sage has given Ocean discounts and customized services. Currently, Sage Shipping provides not only Ocean’s hand cream and lip balm ingredients, but also its containers, and its container labels.
The last industry analysis force to be considered is buyer or customer power. Carol’s current customers are retailers who, in turn, sell to end users. She started selling her products in two locations in her hometown, a hardware store and a drug store. Sally, with the help of a friend, identified another customer during Ocean’s first year, a drug store with three outlets in neighboring towns. Sales revenue from these five stores in 2002 was $6,240, but the business didn’t start selling until June. In 2003, one of Sage Shipping’s employees found two leads for Carol. The first lead was a building supply firm with ten stores located in Idaho, Montana and Washington. This chain is currently her biggest customer. Ocean’s total revenue for all locations in 2003 was $25,550.
The second lead from the Sage Shipping employee was that he told his wife about Carol’s products. His wife works for a wholesale firm that distributes cosmetic products to drug stores in the region. Although Carol has talked with her twice and the wholesale firm is interested in distributing her products, she is uncertain what to do.
FUTURE DIRECTION
Two factors contribute to Carol’s indecision about what should happen to Ocean Cosmetics. The first factor centers on the price the wholesaler is willing to pay. Currently her production costs are very low, about 20% of sales. Plus, she ships her products to the retail stores at little cost. Regarding advertising, displays are used in drug stores and the owners/pharmacists are educated on the benefits of the cream so that customers searching for an over the counter skin cream can be referred to Ocean Cosmetics. In the other stores in which her products are sold, only displays are used. Overall, her costs are about 25% of the retail selling prices. The wholesale firm has told her they would purchase her products for 50% of the current selling prices.
A second factor leading to her uncertainty is growth. Carol keeps asking herself: “Should growth be Ocean’s goal?” If she decides to make growth a key goal then she recognizes that, in addition to the wholesaler’s offer, she needs to consider the possibility of licensing the entire operation (production and marketing) to another firm in exchange for a royalty. She has heard of firms getting between a 10% to 20% royalty on sales. This would mean shutting down the family business. This might be for the best, because she reminds herself that a few family fights have occurred! On the positive side, the business has been both a challenge and a learning opportunity for her family. Of course, a third growth option she would need to think about is to grow Ocean Cosmetics by expanding the firm’s current operations. Here, she would hire additional people and acquire the necessary assets to perform the expanded production and marketing activities. Carol would not, in this case, contract with a wholesaler or license her products to another firm. Lately, when she wakes up at night, she finds her mind contemplating these three options.
Discussion Questions
1. You need to do a SWOT analysis of Ocean Cosmetics. You need to make sure to expain all of the relevant points of your SWOT.
2. What do you think is the competitive advantage that the company has? Do you think that this is a sustainable competitive advantage?
3. Carol has reduced the number of vendors with which she does business and is using primarily Sage Shipping. Discuss the positives and negatives of this approach. Is it smart to have just one vendor or it makes more sense to have multiple vendors?
4. Discuss the positives and negatives of each of Carols three growth strategies (expanding the firms current production and marketing operations, employing a wholesaler, and licensing both production and marketing to another firm). Which one is the best? INTENSETechnical Important Business Marketing Information
INTENSE SAMPLE CASE BLOCKERBUSTER & Sample SWOT Document for review only!!
Blockbuster Fights for Survival against Intense Competition
Synopsis:Blockbuster has consistently faced competitive challenges throughout its history. However, changing technology and shifting customer preferences with respect to movie distribution have become Blockbusters biggest challenges to date. Today, the company finds itself trapped in its bricks-and-mortar business model of the past, while strong competitors have emerged to dominate movie distribution via the mail (Netflix), kiosks (Redbox), and online (Apple, Amazon, Hulu, and others). Looking to the future, Blockbusters very survival depends on its ability to adapt to and adopt new technology and marketing practices issues the company has struggled with in the past because of its reactive, rather than proactive, stance toward a rapidly changing market.
Themes:Changing technology, changing consumer preferences, competition, competitive advantage, product strategy, services marketing, pricing strategy, distribution strategy, nonstore retailing, customer relationships, value, implementation
Blockbuster has recently been described as a dinosaursome say a dinosaur on life support. What a dramatic change from the companys peak only a few years ago. In 2005, Blockbuster, Inc. sat at the top of the global home video rental industry. However, that dominant position has quickly eroded in the face of stiff competition on a number of fronts. Until recently, Blockbuster dealt with a change in competition fueled by changes in technology and consumer preferences. Whether it involves movies delivered via mail, cable on-demand, or online, Blockbuster has struggled to figure out the best way to compete against Netflix, Apple, Amazon, cable providers, and a host of online services. Most recently, Blockbuster has faced a different form of competition from Redbox and its vending-based solution to movie distribution. Blockbuster now finds itself in the unenviable position of having to compete on both price and convenience. As more and more consumers move to these and other types of movie distribution services, Blockbuster has become trapped in its bricks-and-mortar business model of the past.
Blockbusters History
Blockbuster started in 1985 as a small entrepreneurial venture. David Cook sold his computing services business and started a handful of computerized video rental stores. Then in 1986, he transformed his company into Blockbuster Entertainment. As the company showed strong growth and potential, investors eyed the company as a potential investment opportunity. One of these investors was Wayne Huizenga, who in 1987 brought the company a large financial boost ($18 million) and a vision to expand the company into the largest video rental company in the United States. By the end of 1987, Huizenga bought full interest in the company. In three years Huizenga took the company from 130 stores to 1,500 stores. The growth included the acquisition of Major Video (175 stores) and Erols, which was the third-largest U.S. video rental chain at the time.
Early Expansion
In the 1990s, the company maintained a very aggressive expansion and acquisition program. Blockbuster expanded into the music industry when it acquired Sound Warehouse and Music Plus in 1992. These acquisitions allowed the company to develop the Blockbuster Music component of its overall business. While this was taking place, the company also expanded internationally. One of its largest international moves was the purchase of Cityvision, which provided Blockbuster with 875 stores throughout the United Kingdom. Then in 1993, Blockbuster made its next expansion move with the acquisition of the Spelling Entertainment group. This provided Blockbuster with key industry access. Huizengas final visionary action before moving on to other entrepreneurial ventures was the handing off of Blockbuster to Viacom, which created the Blockbuster Entertainment Group.
The mid-1990s were a tumultuous era for Blockbuster. From 1994 to 1997, Blockbuster experienced frequent turnover in upper management and a repositioningchanges that almost proved fatal to the company. When Huizenga stepped down as CEO, Steven Berrard filled the vacancy. Berrard stayed on as CEO until 1996 when he left the company and joined forces with Huizenga. Then Bill Fields stepped in from an executive position at Walmart. Fields brought with him the Walmart persona and immediately started repositioning Blockbuster from a rental format to a retail sales format. During this repositioning, Fields closed 50 of the music stores and moved the corporate headquarters from Florida to Dallas, Texas. Some members of the upper management group opted not to follow the company to Texas, creating critical vacancies in the company. Fields resigned from his position in 1997.
Back to Basics
In a lifesaving move, Blockbusters board brought in John Antioco as the next CEO. After a review of the company, Antioco immediately repositioned the company back to its traditional competitive advantage in home entertainment rentals. In doing so, Antioco reformatted the stores as rental facilities for movies and games. He retained minimal retail sales component but focused all promotional efforts on the rental industry. To improve the competitive advantage of the company, Antioco renegotiated contracts with movie studios. Traditionally, movie rental companies were required to pay large sums of money per copy of a movie (as much as $120). Antioco developed a revenue-sharing approach that allowed Blockbuster to obtain more copies of a movie (paying a smaller fee) but sharing with the movie studio a royalty per rental. This provided Blockbuster with the ability to develop an availability guarantee for new releases through a larger inventory holding.
The next major strategic change Antioco instituted was the harvesting of the Blockbuster Music component of the company in 1998. This finalized the transformation of Blockbuster back to a focus on the movie and game rental industry. When Viacom spun off a partial interest in Blockbuster in 1999, Antioco restructured the company into three operating units: retail, e-commerce, and database and brand marketing. This new operating structure allowed Blockbuster to be on the forefront of innovation as DVDs had solidly replaced VHS tape in 2001.
Not all of Antiocos changes during this time were successful. In 2001, Blockbuster attempted to partner with Radio Shack by providing store space to sell necessary equipment to renters. This was a short-lived relationship as Radio Shack pulled out in 2002 and accused Blockbuster of limiting access to customer information. This was a mutual dissolution as Blockbuster accused Radio Shack of selling unnecessary items to customers and thus negatively impacting the image of Blockbuster in the eyes of the consumer.
Blockbuster Evolves
By 2002, customers demands for home entertainment had evolved beyond traditional movie rentals. In a letter to Blockbuster shareholders, Antioco stated, In 2002, we again began to change the way we do business to capitalize on the changes in the home entertainment marketplace brought about by DVD and introduction of the nextgeneration game platforms. The mission for Blockbuster was to become the complete source for movies and games. This led to the purchase of Game Station (a retail format specializing in electronic games) and an expansion of the gaming section of the stores to include equipment sales and rentals. To stay competitive, Blockbuster also purchased a chain of movie trading stores and an online company called Film Caddy. Antioco also recognized the threat posed by the growing popularity of rent-by-mail formats such as Netflix. And, not forgetting the international component of the company, Blockbuster began testing a nonsubscription online rental with a postal delivery approach in the United Kingdom.
By 2003, Blockbuster had launched its rental subscription program, which allowed subscribers to rent an unlimited number of movies during the subscription period (there were limitations within the program). Through this program, subscribers no longer had to worry about the extended viewing fees to which renters were subject. The company also continued to expand and improve on its in-store concepts, especially in the DVD and electronic game sections. Finally, Antioco continued to emphasize the importance of the e-commerce component and the Blockbuster.com website. During this time, the main function of the website was to provide potential renters with movie, promotion, and feedback information. Although contemplating entering the online rental market in the United States, Blockbuster did not make the jump during 2003.
Blockbuster was able to capitalize on the home entertainment growth trends during this time. Game software sales in the United States grew from $5.8 billion to $6.2 billion. The movie rental sector was growing at 7 percent annually and was expected to be a $1.1 billion industry by 2008. While Blockbuster continued to improve its rental subscription programs and the movie and game trading components, the companys critical move was the launch of its online movie rental program in 2004. This strategic move was a reaction to the burgeoning level of competition in alternative movie rental options. However, Blockbuster did not want to abandon its flagship in-store offerings, so the company gave online subscribers two free in-store rentals (movies or games) each month. This program was designed to overcome customer complaints about having to wait for online movies to arrive. It was also seen as a competitive advantage against Netflix.
Another Change in Command
Antiocos term as CEO came to an abrupt end in July 2007 after he clashed with the board of directors over his compensation package. In a swift and decisive move, the board of directors enlisted James Keyes to replace Antioco. Keyes was the turnaround artist for 7-Eleven (CEO from 20002005) and had entered retirement after the sale of 7-Eleven in 2005. Keyes came on board with two clear initiatives. First, he wanted to use technology to transform Blockbuster into a dominant force in both the in-store and online formats, thus making content more readily available. Second, he wanted to change the image of the company from being a rental shop to a content shop.
The environment Keyes stepped into was not a comfortable one. In 2006, Blockbuster closed 290 stores and planned to close another 280 in 2007. Financially, Blockbuster and Keyes were under the gun: The companys stock price had fallen from a high of just over $26 in 2002 to $4.30 when Keyes took over. Under Keyes, store closings continued. After closing 217 stores in 2007 (less than projected), the company planned to shutter another 167 stores in 2008.
Changing Movie Distribution Technology
Since the creation of home entertainment systems, technology has played a leading role in the evolution of the movie industry. For example, the growth of home theaters created a change in the competitive environment. A study by the Pew Research Center reported that 75 percent of adults prefer to watch movies at home rather than go to a theater. The study also reported that half of adults watch at least one movie per week via DVD rental or pay-per-view. This increase in home movie watching was largely a result of vastly improved and less expensive home theater Changing Movie Distribution electronics and the readily available access to movies through movie rental chains or pay-per-view cable and satellite services. The result has been challenging for the traditional movie theater business, where ticket sales have declined dramatically in recent years.
Now, evidence is mounting that a similar fate is awaiting the traditional movie rental industry. Several of the major movie production companies have now opted to bypass the theater experience and instead promote a selection of their movies directly to the home viewing audience. Consequently, movie distribution is slowly moving more toward a direct model where customers can access movies via on-demand services or via broadband downloads. This trend creates an interesting relationship between the movie studios and the movie distribution channel. Through increasing disintermediation (bypassing theaters and rental chains), movie studios stand to increase profit margins dramatically. Of the various movie distribution methods, many experts believe that broadband distribution stands to gain the most traction with customers. Broadband technology did not really gain steam until 2000 with the widespread access to high-speed Internet services in millions of U.S. households. Now, as broadband speeds have improved, customers have the ability to quickly download full-length feature films. The same is now true of handheld devices such as iPods and smartphones.
The increasing capabilities of ever-improving broadband technology caught the attention of the movie industry. In 2002, five major Hollywood studios (MGM, Paramount, Sony Pictures, Universal, and Warner Bros.) created Movielink, LLCan online service that offered both sales and rentals of movies from their vast libraries, plus movies from Disney, Miramax, Artisan, and others. Movielink customers could rent movies by downloading them to their computers. Movies remained on the hard drive for 30 days or until they were activated (rented movies could not be burned to a DVD). Once activated, a movie could be watched as many times as possible within 24 hours. Rental prices started at 99 cents, but most new releases rented for $4.99. Recognizing the importance of the online market, Blockbuster acquired Movielink in 2007 after the studios realized they lacked the expertise needed in the retail business. By December 2008, Movielink had been fully incorporated into Blockbusters product offerings.
Competition Forces Blockbusters Hand
Many companies have danced in and out of the movie rental industry since the 1980s. When Blockbuster was first formed, the competitive market consisted of many small local and regional entrepreneurial businesses. Major players such as Walmart dabbled in the industry but didnt stay long. From 2005 to 2007, Blockbuster faced increasing competition, primarily from Movie Gallery and Netflix. To remain competitive, Blockbuster fine-tuned its rental program and introduced a no late fee policy. This strategy became a legal nightmare for Blockbuster when a barrage of lawsuits followed over the language and the fine print of the rental contract.
To further promote its online service and create a more efficient service, Blockbuster began online rental order fulfillment through 1,000 of its local stores. This change in fulfillment process allowed the company to get to customers in remote locations in an expedited nature. By the end of 2005, Blockbuster had approximately 1.2 million online subscribers, with a goal of reaching 2 million subscribers within the next year. To further entice new subscribers, Blockbuster changed its tactics by giving new subscribers a free movie or game rental each week (rather than two per month). Through these changes, Blockbuster was attempting to integrate click-and-brick to create an image and level of service that Netflix was unable to duplicate. Today there are at least 21 major competitors in the sales and rental industry that compete with Blockbuster. These include major retail firms such as Walmart, Target, Best Buy, Amazon, and Time Warner. In the rental sector, Blockbuster continues to face intense competition from Movie Gallery, Netflix, Redbox, Hastings Entertainment, and a variety of online-only services such as Apple, Amazon, and Hulu.
Movie Gallery
It is ironic that Movie Gallerythe number two company in the movie rental industrywas also founded in 1985 in a manner similar to Blockbuster. Through the acquisition of Hollywood Video, Video Update, and Game Crazy, Movie Gallery peaked in 2005 with 4,800 stores (owned or franchised) in the United States, Canada, and Mexico (all stores in Mexico were closed in 2008). Before its international expansion, Movie Gallery focused on small communities with little or no competition. However, Movie Gallerys growth forced the company into very intense competition with Blockbuster. This rivalry came to a head in 2004 when Movie Gallery successfully outbid Blockbuster in its $1.2 billion acquisition of Hollywood Entertainment (i.e., Hollywood Video). Unfortunately for Movie Gallery, the Hollywood Entertainment purchase was the root cause for its bankruptcy filing in 2008. Movie Gallery moved into online rentals via its acquisition of VHQ Entertainment of Canada in 2005. Today, Movie Gallery owns or franchises 3,300 stores located throughout the United States and Canada. The company has experienced a decrease in revenues and recorded losses for the previous four years of operation. Their current focus is on expanding the gaming component of the company rather than their movie rental business.
Netflix
Intense competition from Netflix was a main reason that Blockbuster dropped its latefee program in 2005 (a shift that led to a $400 million loss in revenue for Blockbuster). Netflix, with over 10 million subscribers, touts itself as the largest online entertainment subscription ser
