The Role of the Environment on the Impact of Product Strategy - Coursework Example

The Role of the Environment on the Impact of Product Strategy Executive Summary Business environment was defined at the outset of the discussion withparticular emphasis on its impact on product strategy. A Singapore-based company named BreadTalk Group Limited was used as a case study in order to illustrate how the environment affects product strategy. Several tools for strategic management analysis were discussed, with particular emphasis on the PESTL model of analysis. SWOT Analysis was also discussed to differentiate it from PESTL model. The PESTL model was eventually used to showcase how environment affects product strategy, using BreadTalk as a concrete example. Each PESTL element was described in relation to BreadTalk’s product strategy. The paper was concluded with a summary of what has been discussed, and a recommendation or two on how BreadTalk Group could further sustain its leadership in the bakery boutique market. 1. Introduction This paper discusses the role of business environment in the formulation of product strategy. Business environment refers to the external conditions surrounding a particular business entity. Its major elements which strategic planning must consider include but not limited to competitors, suppliers, regulatory bodies, business infrastructure, and customers (Robbins et al., 2004:66). Before any business enterprise is undertaken, an environmental scanning must be conducted to assess how such elements can affect the goals and objectives set by such business enterprise. A business enterprise produces a commodity, either a tangible product or a service, which it sells for a profit. In today’s modern world, such a product requires careful planning from the time a product or service is conceived to the time it has been rendered obsolete by competition or technological innovation, taking consideration the prevailing business environment in which the product is to be marketed. How such plan will transform such product into a profit-taking machine is what is referred to as product strategy. In order to illustrate how the environment affects or impacts on product strategy, this paper analyzes the Singapore-based BreadTalk Group Limited, with particular focus on its product management strategy for BreadTalk bakery boutiques. A strategic management tool called PESTL will be used to concretise the impact of business environment on product strategy using BreadTalk as the case in point. This paper is concluded with several recommendations for the BreadTalk Group based on the analysis of its business environment. 2. The BreadTalk Group Limited BreadTalk Group Limited is a publicly listed company based in Singapore (“Rolling in dough”, 2007). Its main businesses are in the manufacture of bakery products, operation of restaurants and food courts, and investment holdings. Whilst the flagship business is the BreadTalk boutique bakeries, it also operates four internationally renowned restaurants in Singapore and 13 food courts in the People’s Republic of China (PROC) (“BreadTalk Group”, 2007). BreadTalk bakeries are currently franchised in eight countries in Asia (“Breaking Bread” 2007), with prospects of further globalizing its operations in the next five years. BreadTalk has 57 wholly owned and operated stores with 24 outlets located in Singapore, 18 in China, and the rest are in Thailand and Malaysia. It also has franchised outlets in Indonesia, Malaysia, the Philippines, Hong Kong, India, Taiwan, Kuwait, and the United Arab Emirates. After a successful product launch in Singapore in 2000, BreadTalk received various offers to enter the international market. However, it deliberately delayed venturing outside Singapore, choosing to focus first on the domestic market until it can perfect the technology to promote its products internationally (“Breaking Bread, 2007). Accordingly, BreadTalk opted for franchising for its international business. This strategy allowed the company to concentrate on building up its brand name in the international market whilst franchisees concentrated on the daily operations of the outlets (“Breaking Bread”, 2007). The international success of BreadTalk has been widely attributed to its ability to adopt innovations and creativity. At least 20 percent of its product offerings are modified to suit local palate, whilst maintaining the 80 percent as signature products (“Breaking Bread”, 2007). 3. Literature Review There are several models for strategic analysis that are used to analyze an organization’s business environment. Among the major ones are the PESTL and the SWOT Analysis. These models dissect causal relationships of elements affecting an organization, with the aim of inducing a set of strategies to achieve its goals or objectives, given such elements in the environment where the organization exists or plan to exist. PESTL is a strategic management tool used to analyze a market segment with which an organization plans to target for its business proposition. It is a variation of the original tool called PEST Analysis, which is actually an acronym for Political, Economic, Social, and Technological Analysis. PESTL is an extended version of the tool, where L refers to Legislative or Legal aspect of analysis (Chapman, 2006). According to Chapman (2006), this tool is even further extended in some versions to include aspects of ecological and ethical nature. But Chapman recommends the use of the original, shorter version of PEST Analysis, since “it puts more pressure on strategic appreciation and analysis than a longer list of headings” (Chapman, 2006). SWOT is another strategic management tool which is mainly used to analyze an organization’s internal and external environment, as against PESTL which considers more of its external environment. SWOT stands for Strength, Weaknesses, Opportunities, and Threats. These four elements refer to the internal and external factors which an organization is facing, and with which strategic directions must be carefully planned in order to attain its organizational goals. PESTL and SWOT analyses can complement each other by conducting PESTL first, which analyses the external environment, then conducting a SWOT, which assesses both the internal and external environment (Chapman, 2006), relating how the company’s own resources can be used to maximize opportunities in the environment and minimize cost. 4. The Impact of Business Environment on Product Strategy Product strategy hinges on the nature of the product itself, particularly on the nature of its product life cycle (PLC). According to Kotler (Kotler et al., 1996:428), a product’s life cycle is indicated by its sales history, which follows an S-shaped curve in a graphical presentation, where “distinct stages” represent the four stages of a PLC. These products are identified as introduction, growth, maturity, and decline1. Kotler emphasized that each stage requires specific set of strategies since each stage has its own unique opportunities and challenges to address. Defining such strategies in a particular stage of a product’s life cycle needs careful analysis of the prevailing business environment where the product is sold. It is therefore important that at each stage of PLC, differing sets of strategies are tactically employed to maximize profit potentials and minimize cost implications. Each set of product strategies considers the business environment where the product is sold vis-à-vis the product characteristics at each stage and the resources available to the firm. PLC analysis also helps marketing managers to plan alternative product strategies to face the different challenges at each stage of the product.2 Using PESTL Analysis on BreadTalk’s bakery business, the impact of the environment on product strategy can be illustrated as follows: Political Environment – More outlets in China than in Taiwan There are about 18 owned and operated outlets of BreadTalk in Mainland China, whilst in Taiwan, which is considered by Mainland China as its renegade province, there is only one outlet, which is not even owned by BreadTalk, but only a franchise. International Enterprise (IE) Singapore, a government agency which advises Singaporean businesses overseas, has taken note of such geo-political considerations. In 1996, IE Singapore even reported of “…a period when relationships between the two countries at the political level cooled down a bit” (Chan, 2005).3 There are three reasons why Taiwan would have been a logical choice for expansion. Dr. George Quek, owner of BreadTalk, had his humble beginnings in Taiwan4. His business partners in his first major enterprise in Singapore were all Taiwanese (Leo, 2005). As a company preference, BreadTalk “prefers to own-and-operate” outlets where they are familiar with the territory (“Breaking Bread”, 2007), and Taiwan is a familiar territory to Mr. Quek. Is it not a wonder then why no outlet in Taiwan is company owned-and-operated, but just a franchised outlet? Being supported by the Singapore government just like any Singaporean firm doing business abroad, BreadTalk would have probably considered the geo-political implications of doing business in Taiwan, deciding to limit its outlet to one franchise in Taiwan and putting up a number of outlets in the Mainland China instead. Economic Environment - Trendy shops in upscale, urban markets In 2005, BreadTalk opened its first outlet in Hong Kong (“Kneading its Way”, 2005), “seeing huge potential in the city’s food and beverage market.” But aside from taking advantage of the receptiveness of Hong Kong consumers to novelty products such as boutique bread, the move was also strategic. The product strategy is to create brand awareness in Mainland China whose huge economic potentials have been luring foreign investments. Such a strategy produces two desired effects: successful expansion in the Hong Kong market, and creating brand awareness for the Mainland, which is a more lucrative market. Accordingly, Dr. Quek (“Kneading its Way”, 2005) admitted that The launch in Hong Kong will play a strategic role in our overall business development in the region. The Hong Kong market is watched closely by Chinese mainland consumers. Our presence in Hong Kong will help create higher brand awareness in the mainland - one of our key target markets. Social Environment - Halal products for the Moslem market Dietary restrictions based on “religious food practises” are widely observed in Asia (“Religious Food”, 2000), which is home to many Islamic countries. The practise of observing Halal, which is the Islamic dietary law, is widely respected. BreadTalk, for its part, has to adjust some of its bakery product offerings to cater to the Moslem market. Whilst Pork Flosss is a bestseller in Singapore, the same product cannot be offered in Indonesia, Malaysia, Kuwait and the United Arab Emirates, where eating of pork is forbidden. In Kuwait, BreadTalk “used halal mixes and created new recipes at its Kuwait outlet” (“Breaking Bread”, 2007). Technological Environment – Total Branding Solutions BreadTalk’s over-all concept is technologically aided to sell a lifestyle to working professionals5, aiming to elevate bread-buying to an exciting shopping experience (“BreadTalk Total”, 2004:12). Dr. Quek who is largely responsible for BreadTalk’s design concept, said that (“BreadTalk Total”, 2004:13) BreadTalk was established with the aim of popularizing and elevating the ‘bread eating’ concept to a ‘bread culture’ level. The product is the life of the company which they had to constantly innovate and come up with new ideas. And true enough BreadTalk has successfully established itself as an international brand in less than five years, earning itself the Design for Asia 2004 Award for total branding solutions (“2004 Award”, 2004). Technological innovations have, for sure, ensured that BreadTalk sustains its market viability by establishing “strong brand equity.” According to Victor Lo (“BreadTalk Total”, 2004:13), one of the judges in Design for Asia award, “the company has applied design strategically, giving thought to products, services, shop fronts, and graphic communication.” BreadTalk products are what one can consider as products “where technology is an integral part of product performance” (Cateora 1996:394) Legislative/Legal Environment - Proprietary products of BreadTalk Being the market leader in bread boutiques in the region, BreadTalk is jealous of its intellectual property rights (IPRs). It has made huge investments in its design concept, and its hip, “new-to-the-world”6 bread products are one of the most creative in the bread industry. It is therefore logical that BreadTalk avail of all legal protection available to protect against infringement on its IPRs. Accordingly, BreadTalk has been registered as a trademark in 30 countries, with more pending applications in 60 countries (“Breaking Bread”, 2007). 5. Conclusion and Recommendations BreadTalk Group Limited has already established a strong foothold on the food business sector in Asia. The phenomenal growth of its bakery boutiques offering designer bread product lines has attested to an excellent product strategy skilfully executed to either seize business opportunities or placate any adverse impact of the environment on its operations. From such an excellent product strategy BreadTalk was able to build an international brand name earning numerous recognitions and awards for itself. Marketing successfully such product lines for the Asian market, where bread is not the staple food, is a feat in itself. Unlike the European or the North American market, where business environment from country to country presents a more or less homogeneous characteristics, the Asian market is more heterogeneous from country to country, and therefore requires careful planning in terms of product strategy. The PESTL analysis has therefore become more useful and relevant in analyzing the Asian environment, in order to come up with winning product strategies for the BreadTalk Group. Whilst everything seems to be pointing to a sustained business success of BreadTalk’s bakery boutiques in the long run, it must continue to strengthen its research and development effort in order to maintain its leadership position in the market. BreadTalk must also maintain its product quality through continues monitoring of franchised outlets to ensure that product standards are properly observed. Finally, success has the tendency to produce complacency. In today’s competitive world, success should only serve as a motivation to strive more towards product excellence. 6. Bibliography 2004 Award Winners. 2004. Design for Asia Award. 29 November. [Online]. Available: http://dfaaward.com/eng/dfa2004_award.php [16 May 2007] BreadTalk Group Ltd. (BRET: Singapore Exchange Securities Trading). 2007. BusinessWeek. 16 May [Online]. Available: http://investing.businessweek.com/ research/stocks/snapshot/snapshot_article.asp?symbol=BRET [16 May 2007] BreadTalk Total Branding Solution. 2004. Design for Asia Award. [Online]. Available: http://dfaaward.com/download/DFAA_Brochure_Part2.pdf [16 May 2007] Breaking bread at home and abroad: It’s not just talk. 2007. EnterpriseOne. 01 April [Online]. Available: http://www.business.gov.sg/EN/CaseStories/ case_overseas_breadtalk.htm [15 May 2007] CATEORA, P.R. 1996. International marketing. Unites States of America: Von Hoffman Press, Inc. CHAN, C.P. 2005. Beyond Singapore. January 31. [Online]. Available: http://www.iesingapore.gov.sg/wps/wcm/connect/resources/file/eb32e64d8503f18/IE_TES_China.pdf?MOD=AJPERES [15 may 2007] CHAPMAN, A. 2006. PEST market analysis tool. [Online]. Available: http://www.businessballs.com/ [15 May 2007] CRAWFORD, M. & DI BENEDETTO, A. 2006. New product manamement. Singapore: McGraw-Hill Kneading its way into the Hong Kong market. 2005. Hong Kong Trader. 28 June. [Online]. Available: http://www.hktrader.net/200506/inward/inward-breaktalk200507.htm [16 May 2007] KOTLER, P., SWEE H.A., SIEW, M.L. & CHIN, T.T. 1996. Marketing management: an asian perspective. Singapore: Prentice Hall LEO, K.C. 2005. Singapore success stories: Dr. George Quek. 16 March. [Online]. Available: http://www.stoneforest.org/chutzpah/george_quek.html [16 May 2007] Religious food practices. 2000. AsiaRecipe.Com [Online]. Available: http://asiarecipe.com/religion.html [16 May 2007] ROBBINS, S.P. & COULTER, M. 2004. Management. Singapore: Prentice Hall Rolling in dough. 2007. 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