1. Case review:
Although it has achieved great success in other part of the world, the Danone and its Evian bottled water brand are facing significant pressure while handling the U. S. market. Following the cola giants Coke and Pepsi setup their own water in bottles brands, Dasani and Aquafina, Danone is the number four in the U. S. market with only a 3. 5% market show in 2001.
Danone is facing two main problems when working with the U. S. market. Firstly, the U. S. customers do not agree to the premium on the Evian brand, they care less about the kind of the water in bottles and favor cheaper water like Aquafina or Dasani. Then, the distribute system in U. S. market is quite different from that in Europe.
To perform a strategy because of its further business in the U. S. , Danone made the first agreements in Apr 2002 with one of its most powerful competitors Coca-Cola to let Coke take demand of the Evian brand in THE UNITED STATES. Coca-Cola will help Danone within the syndication and market performance, and will get incentives in return of the annual sales progress of Evian bottled water. The second agreement taken in June 2002 is principally about both companies declared a jv. Danone will contributes permit for use several value brands and development facilities, while Coca-Cola will pay cash for possession interest and provide management. Coca-Cola must help achieve a guaranteed earnings level; however, the penalty is not yet determined.
The alliance of the two companies provokes debates about whether it's ways to improve sales condition or it is a sign of Danones' unofficial quit from the U. S. water in bottles market. What is the right decision for Danone remains to be proved.
2. Why Evian's market talk about in the U. S. stored falling after the cola giants start their bottled water brands in the late 1980s?
The Japanese strategist Kenichi Ohmae developed the 3C's Model suggested three main players that are necessary for successful business strategy: the corporation, the client, and the challengers. (Kenichi Ohmae, 1982)
When discuss the competitors, Coke and Pepsi who sell purified water that avoid extra handling and carry costs, enjoy much lower cost than Evian does. Meanwhile, their circulation systems are well toned thanks to their successful operating on other beverage such as cola. The result is that they can have their cheaper products on more cabinets quickly. Furthermore, as Coca-Cola, Pepsi and Nestl are well-known companies throughout the America, not only their products' quality are guaranteed, but also their bottled water brands do not need too much advertising.
For the customer part, in the Western market where Danone has achieved great success, the customers understand the variations between glacier-sources water and purified drinking water or plain tap water. They are willing to pay the high quality price to get the regular quality and taste of bottled water. However the U. S. customers appear to disregard the classifications of bottled water, and they are extreme price-sensitivity, their first choice is usually the cheapest normal water on the store cabinets.
Obviously, the Danone Organization itself did quite few when facing the hard situation. The company was not ready for the entrance of cola giants at the start. The former achievement within other area of the world especially in European countries makes the company blind worship its "Danone business formula" and refused to change its business strategy to fit the U. S. market. Also, Danone didn't introduce its innovative products which are extremely popular in the Western european market, and few marketing activities such as advertises are talked about to unveiled to encourage the U. S. market accept the "glacier high grade".
3. Positive and negative sides of Danone's strategy of operating business alone in the U. S. market.
Generally speaking, one advantage of "going it by itself" strategy could it be will help keeping the business's nationwide, historical and family pride. The following will analyse the pros and disadvantages of two parts of this remaining one single business entity strategy respectively.
The first part is to confess that the Evian brand is not a U. S. market head but a niche product which is a high-end prime bottled water with the label of "health". As the U. S. bottled water market determines the market head by price and logistics, Evian must make full use of its characteristics of unique pristine features to provide higher-margin product for specialised customers who understand and appreciate the purchase price premium of water in bottles which includes better source of information and quality. Such customer can be created by purposeful marketing and advertising. Although group size of the customers might be not big, the sales earnings can be guaranteed by the higher sale price. Plainly, segmentation will help the company target its strategy but the development of broad-brand collateral might be inhibited.
The second part is going to place its locally-sourced spring and coil water compete keenly against the "Big Three" of the U. S. bottled water market in the mid-market which has high sale size and is also price-driven. This course of action sounds a good way for Danone to have the lost market talk about back in the U. S. The defect of this strategy is that large amount of investment need to be paid for acquiring the creation facilities and distribution systems, the cost-recovery, however, would have a very long-time. Because the result of compete keenly against Nestl and cola giants in the U. S. market aren't so lucidity or even positive, this plan is unsuitable for Danone. Besides, control large number of new employees for creation and distribution would be another problem for the business.
4. The result of Danone give up the whole U. S. bottled water market.
The impact of keeping Evian brand only as a distinct segment player in the U. S. market has been cited before as only a smaller group of specific customers will be considered as goal, and Evian will be redefined as a high-end premium bottled water in the market.
There are a great many other effects of Danone's getting away from the U. S. market.
Firstly, since there is no report of loss in the American market, it continues earning money for the business though not as much as other market does, abandon the U. S. market means the business will lose the market share and profit from the marketplace.
Secondly, the company has to deal with assets and employees that will no longer working for the corporation. Since there are just a few potential buyers for these resources, powerful purchasers can lessen their cost of purchase. Thus the business may are affected a sizeable damage on that.
Thirdly, going out of the U. S. market might be considered a negative sign to other marketplaces and its stakeholders that the business is unable to take care of such a profitable market. The direct result may think about its share price that will experience a significant fall. What is more, the exiting strategy will blemish the worthiness and goodwill of both Evian brand and the Danone Group and it is not good reports for the company's business in other market.
Finally, once leave, the re-enter to the marketplace will be much tougher. While remain in the market helps maintain the long-term opportunities for the business, it is really problematic for any external company to discover a chance to get in and make money.
5. Comment on the joint ventures with Coca-Cola.
Clearly, the joint projects with the cola giant have many advantages. To be specific, since the Danone's strategy and market method cannot meet the needs of the U. S. market, shifting the marketing and syndication control to an organization that has more success experience is sensible. With the help of Coke with the marketing and delivery, Danone's products can get a sizeable upsurge in sell. Besides, as Coca-Cola take charge of those Danone's business in the America, the preserved resources including marketing and managing expenditures and human resources can be placed into other market segments which are more likely to gain success. Furthermore, the Evian's brand image of "high-end" will be retained according to the online marketing strategy of the joint projects. In other words, to remain the organization and its products in the U. S. market with the sales volume growth warrant provided by Coke is a safe game for Danone.
However, there are some unreasonable factors within the joint ventures. First, as is described in the case, no punishment of Coke's unable to achieve the sales assurance is unclear, what if the Danone products keep getting rid of market show? Second, as Coca-Cola gets 51% of the ownership, Danone's recommendations might be so vulnerable while making important decisions. Besides, there seems to be an overlap between Coke's water in bottles Dasani and Danone's Danone brand planting season water, so that it is doubtful the cola large is willing to perform the sale development of its joint ventures partner's at the trouble of its products.
In sum, the co-operation with Coca-Cola is the most ideal way for Danone when managing the U. S. market, however the result might not so ideal because of these internal and external (i. e. financial and market changes) uncertainties.
Ohmae, K. (1982). Your brain of the strategist : the skill of Japanese business. NY: McGraw-Hill.
Kotabe, M & Helsen, K. (2008). Global marketing management. Hoboken, NJ: John Wiley & Sons, Inc.
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