Strategic Management: Case of Heineken

EXECUTIVE SUMMARY

Beer is one of the largest consumer products in the beverage industry. Currently, Heineken is one of the strongest brands of beer within the beverage industry. However, strategic management is needed for the company to increased their market share and improve their sales. Strategic management can be defined as the setting of objectives, analyzing the external and internal environment of a business, evaluating its strategies and ensuring that the strategies are implemented in the organization. It involves a systematic analysis of the business factors that are associated with competitors, customers, and the business itself that serve as a basis for the creation of optimum management practices. Strategic management can only be achieved by the creation of an effective framework that allows for planning. Some of the strategic theories analyzed in this paper entail the porter generic forces, porter five forces, and cultural challenge in global expansion. 

KEY AREAS IN RESEARCH

            The purpose of this research is to create the right strategic direction for the company Heineken that would enable it to gain a competitive advantage in the end. The study will therefore start by looking at the different aspects of the business that make it to have a huge market share. This therefore involves looking at the operations of the company. One of the major advantages of the company is that it has served in the market for a very long time, close to 170 years, and has therefore established a good brand. In addition, the company uses unique promotional initiatives and advertising methods that make it to stand out (Heineken n.d).  

            The next area involves looking at the company’s competitive advantages. This involves doing research on the aspects of the business that make it unique (Slack 2015). This area will focus on the company’s strength such as its huge capital base that can enable it to navigate from one strategy to the next with ease. The research then entailed focusing on the challenges of the business that hinders it from achieving its full potential in performance. (Freeman 2010).  Another key area of the research will be to identify the different strategic models in which the company can use to determine its market share and develop new strategies that will be significant for the future (Li, et al., 2016). The identification of the strategic models will offer a deep understanding of the different ways in which the company can apply change. The application of these models will form the basis for the formulation of a strategy that will lead to recommending that the company might consider in the long run.

Company Background

            Heineken is one of the world’s leading breweries that was started more than 160 years ago in Amsterdam (Heineken n.d).  The company majorly in beers; it is the number one producer in Europe, and the second importer of beers in the USA. In addition, the company has more than 100 brewery plants in more than 70 countries around the globe. Very many advantages in the beer industry are enjoyed by the members including the fact that beer sales are projected to increase in the near future owing to the projected increase in the number of consumers. In addition, among the alcoholic drinks, many drinkers as opposed to other drinks take beers. One of the biggest challenge is that the alcohol and drug industry in most countries is coupled with many restrictions that limit the ability of the players to exercise their maximum potential (Ashenfelter, Hosken and Weinberg 2015).

 

HEINEKEN STRATEGIC MODELS

            The main aim for discussing the strategic models of a company is to determine the different requirements and trends that will ultimately account for the success of the company. Several business aspects revolve around the strategic models including the competitive aspects, the customers, and the input resources that are needed for the business to gain a competitive advantage (Hollensen 2015).  The technical requirements on the other hand are the requirements that enable a business to gain a competitive position in the market. Thus, the analysis of the internal and the external environment of the company will facilitate coming up with actions that the company will use before forming a strategy. In addition, they will form as a basis for the creation of the different actions.

Michael Porter Generic Strategies

In order to analyze the situations that affect or may potentially affect the company, theories such as the porter generic strategies, cultural challenges in global expansion, and the porter five forces are essential. The benefit of applying these strategies will help the company to achieve its competitive advantage and outdo their rivals within their line of business. Operating a successful firm requires a combination of good human power, finance, accounting, marketing, logistics, productions, and proper distributions. In order to maximize the use of these resources, a firm must craft a proper strategic direction. The models that can be applied by the company entail cost leadership, differentiation, and focus. The Porter generic strategy model is illustrated by the diagram shown below.

Cost Leadership: In the above arrangement, the cost leadership strategy helps the company to focus in standardizing their products and avail them to their customers at a low cost. In this manner, the company will be in a position to attract the companies who are price sensitive. The customers who were previously buying the same products from the competitors will switch to low cost product. With the low cost strategy, the company will record an increase in sales and gain a large portion of the market share. By selling large volumes of products, the company will be in a position to gain significant profits in the market. The low cost strategy is effective in scenarios where the market is very price sensitive and would easily go for low cost products and services. In such market, the customers rarely focus on the brand, but put more emphasis on the price. When the company has the capability of maintaining the low cost strategy, it can easily drive other competitors out of the market and this will reduce the overall market competition. For the low cost strategy to be effective, the company should come up with products that cannot be easily substituted. If such products can easily be substituted, then the low cost strategy may not withstand the test of time. Before applying the cost leadership strategy, the company needs to ensure that the total cost of its whole value chain is lower than that of its competitors. To achieve this, the company needs to reduce the cost of production and ensure that the value chain activities are more efficient than those of the rivals.

Differentiation Strategy: This model allows the company to produce differentiated products by maneuvering their design, brand image, technology, features, and customer service, among others. Before differentiating the products and services, the company needs to study the customer needs to determine the feasibility of such differentiated products. Initially, the company can decide to charge a higher price for the differentiated products to help them gain increased customer loyalty. Opportunities of developing the differentiated products can be crafted anywhere along the value chain or marketing activities. In most cases, differentiated strategies are successful in a market with many buyers and the products have several ways to be differentiated. In addition, the differentiation strategies are effective in markets where the rival firms use similar approach and the buyer’s needs are diverse.

Focus Strategy: The focus model allows a company to effectively supply a particular group of customers. This can be achieved by the firm offering their products to niche groups that will give them maximum benefits. Also, the firm can achieve a focus strategy by offering the products and services to niche customers at best value more than their rival can manage. Focus strategy will be achieved by the firm narrowing their markets to specific geographic location, particular group of customers, and particular product line. When the focus strategy can be pursued in conjunction with cost leadership and differentiation strategies, then there will be more chances of success. The focus strategy is highly effective in market characterized by different niches and segments.

Porter Five Forces

Bargaining Power of Supplies:  The bargaining power of the suppliers is the beer industry is low as most of them are farmers. In addition, the raw materials used in the production are abundant; the bargaining power of the suppliers is low. The other major supplier of Heineken is the Heye Glass Company that supplies the company with bottles. In order to secure their interest in the bottle manufacturing, the Heineken decided to acquire a 33% stake in the company. Eventually, this lowered the bargaining power of the supplier with respect to supplying Heineken with bottles. Therefore, the bargaining power of the suppliers is generally low for Heineken.

Bargaining Power of Buyers: There are very many players in the beer industry. In this regard, the buyers have many choices as there are many companies offering several brand of beer. With the availability of choices, the bargaining power of the buyers is high. For Heineken to survive in the industry, they need to offer a strong brand of the product to their customers.

            Threat of New Entrants: The threats of new entrants in the brewing business is becoming high with each passing day owing to the projected growth potential in the demand of beers in the global arena. Many businesses that associate with alcoholic products are also opting to switch into the beer business due to the high demand of beers in relation to other alcoholic products. In addition, many alcoholic products have in the recent pasts have been constantly under scrutiny due to high levels of contamination of their drinks due to the production of counterfeits (Vrellas and Tsiotras 2015). Thus, the chances of increased competition in the near future in the brewing business are expected to rise.

            Threat of Substitutes: The threat of substitute in this industry is also high. This is because, due to the changing preferences in the tastes of consumers, other businesses may opt to create for the consumers products that would suit their preferences and lifestyles. In addition, due to the many aspiring companies to enter into this business, a variety of products is expected in the market therefore making the threat of substitute to be high.

             Competitive Rivalry: Currently, Heineken is better positioned in the industry as they control almost one third of the market share in Europe. The company has achieved economy of scale in their operations and is likely to make profits when they come up with effective strategies. The good news is that the beer market is growing very fast and more opportunities coming up for the company to exploit. As the competition stiffens, the competitors will try to attain a larger control of the market share. However, Heineken is better placed to enjoy the economies of scale and produce differentiated products that will help them secure their place in the industry.

Cultural Challenges in global expansion

In global expansion, a business is likely to encounter cultural challenges. In most cases, consumption of different products and services is linked to the culture of the place. To succeed in a foreign country like China, a western company must understand that they cannot employ the same business model. In this regard, they need to change their business model to adapt to the new environment. Asian consumers are greatly influenced by their traditions and would consume products that are linked to their culture. Due to this, the business strategy in Asia does not necessarily conform to the western strategies. The cultural challenge in managing global business goes deep to the human resources functions. Unlike the western culture where the management tends to delegate businesses, the Asian culture is more accustomed to hierarchical management structure. Such differences can potentially result into tensions between the management and their subordinates.

 

  

SWOT Analysis  

            Strength: One of the strengths of the company comes from the fact that it is a global brand. The company has served for more than a century thus has created a strong image within the markets. In addition, serving for a longer time in the markets creates a sense of security from the customers, which in the long run achieves their loyalty. In addition, the company uses strong advertising and promotional initiatives that has helped it to create strong brand equity throughout the world, which has been reflected in its high sales. The company also has differentiated products that ensure that the different tastes and preferences of customers are satisfied using its products. Another important factor is that since the company has served for a long time thus able to create a good relationship with the supplier (Olavarrieta 2015).

Weaknesses: The beer market in Europe and United States is at high risk of negative impact of financial crisis, taxation, and smoking bans. The other weakness comes from the ability of the company to maintain their corporate values and image considering how some people perceive alcohol. On the other hand, Heineken is susceptible to imitation of their products due to their strong brand perception.

Opportunities: Due to recent wave of mergers and acquisition in the beverage industry, the company is better positioned to acquire and merge with strategic partners. There is a huge potential for the company to come up with differentiated products. One of its opportunities is that there are still untapped markets in Asia and Russia where the government restrictions on the consumption of alcohol are not as tight as in Europe. Owing to the fact the company has a huge capital base due to its size, it may opt to invest in this areas thus compensating for the threat of the growing restrictions in Europe, which forms part of its huge market share. Finally, the company stands to benefit from the increased number of beer consumers.

            Threats: The Company also faces a threat of new mergers and acquisitions in the brewing companies, which is facilitating the expansion of small companies making them larger than its size. The company is threatened by the every changing laws that are meant to regulated alcohol consumption. In addition, the increased negative perception toward the alcohol consumption can negatively affect the company. Finally, the tastes and preferences of alcohol consumers change at a very high rate and this may negatively affect the sale of their branded products.

Bowman Strategic Clock

            The other tool that will be used in analyzing the competitive advantage of the company include the Bowman’s strategic clock. This tool is effective in the illustration of type of strategy that the company might apply basing on its size, structure and other outside force among other factors. Different strategies are named in this tool including the differentiation or low value strategies. For low value, the production of the products and the costs is low. Businesses in this category focus on maximum production basing on the fact that low valued products when sold in bulk produce profits in the end. This is true, however, it is very effective in companies that have already established themselves and act as monopolies in the markets. In addition, it is effective in industries where the standards of the produce do not matter depending on the preferences and tastes of the consumers. The company has served for a long time. In addition, it acts like a monopoly in most parts of Europe and may thus opt for this strategy. However due to the changing tastes and preferences of the consumers, producing low valued products will result to the loss of its market share. In addition, since the company has already established a reputation with the consumer of its good products, focusing on low valued products will drive the loyalty of the consumers down that will eventually lead to a loss in markets share.

            The company may focus on the hybrid method that entails producing products that are moderately differentiated and have low prices (Ghobadian, et al., 2016). This can be the best strategy to be used by the company since the moderate differentiation can be used to lure consumers into buying its products. However, it may not guarantee it a strong competitive advantage in the long run due to threats of new entrants and substitutes in the market. The best strategy will be to focus on differentiation to produce different products that would suit the lifestyles and the different tastes and preferences of the consumers.

STRATEGIES

Expand to Asia

Currently, Heineken is mostly concentrated in Europe. However, there is room for opportunities in Asia, especially in China and India. The younger populations in Asia are beginning to adapt to the western way of life and this spells an opportunity for Heineken. In addition, the middle class in Asia have rising levels of disposable income that would make them consume more beverages. It has been estimated that the Asian beer will grow to $202 billion within the next 4 years and this is a huge opportunity for the company to exploit. In China, the demand for beer is estimated to grow by 7.9% annually (Jenkins, 2015). By venturing in Asia, Heineken stands a better chance of controlling a huge stake in the Asian beer industry. On the other hand, more women in Asia are beginning to consume alcohol as they slowly but steadily adopt the western culture. Heineken can take advantage of this by increasing their production of light beer with low calorie contents in order to capture the growing Asian market. In order to enter into the new market, the company can partner with established players to help them distribute their products.

Effective Marketing Strategy

The craft beer marketing is a billion dollar industry and good marketing will results into increased sales and improved brand loyalty. The push marketing may not successfully work for the business due to the nature of the industry. The new marketing strategy should entail incorporating the consumers into the marketing and making them feel like they are organically discovering that what they are consuming is worthy (Talbot, 2015). However, effective marketing strategy is should be executed without diluting the authenticity of the product and tarnishing consumer relationships. The ambitions to expand the product line should be carefully aligned with the product brand.

The major findings of the research

The main challenge main challenge of the company is staying a head of the competition to maintaining its market position. The threat of the new entrants that is much stronger than the company poses a huge risk to the leading position of the company. Thus coming up with the right strategy is imperative for its future success. Using the resource based theory therefore, the company can focus on transforming both its resources and capabilities into a strategic advantage (Bromiley and Rau 2015). One major advantage of the company is that it is a global brand having a very good image in many countries worldwide. Penetrating the untapped market will be an advantageous move of the company.

For instance, in places where there are minimal restrictions by the government, the company might use its proper promotional initiatives to create a long lasting image. Focusing only on Europe and the US limits the potential of the company since most of these areas are coupled with too much restrictions and potential upcoming stiff competition (Brenner et al., 2015). Another strategy is that due to the fact that most of its production costs are minimal, the company might focus on producing highly segmented differentiated products that would suit the needs of everyone in the society including the social classes and the less privileged. The company may also decide to focus on innovation, which would in turn reduce the prices of the commodities in the long run while at the same time improve their quality (Chen, Delmas and Lieberman 2015). In this case, the company should observe what the competitors are doing to come up with the right strategies. For instance, now that many companies are focusing on merging to increase their sizes, the company might decide to focus aggressively on acquisition that would increase it size making it hard for its competitors to surpass it. The strategy of acquisition by the company might entail acquiring small national companies in developing countries that would enable it to increase its market share globally. The company many also watch for trends in production in different firms, focus on their and try to implement the same in a different way.

Conclusions

            One important factor about the development a strategy is that the formations of strategy affect directly the production and the operations of a company. Production and operations involve the conversions of the inputs into the outputs. However, before the conversions, several factors should be put into considerations. For instance, the level of competition in the markets, the number of substitutes and the position of the firm in the industry should be considered (Bozarth and Handfield, 2015).

            In monopolistic environment, these factors do not pose a huge threat to the well-being of the company. However, under normal circumstances, the factors detect the necessary steps in which a company should take to continue remaining functional. It is however important to note that even in these monopolistic environment, different threats cannot be assumed because it is necessary to develop a backup plan before the risk happens. In addition, managers who live in denial tend to experience more impacts than others. Thus, for a company like Heineken, focusing in the external and internal environment factors helps in influencing the operation of the company. In this case therefore, basing on the relationship between the competitive factors and the operation and production management, the company may focus on production of highly segmented and differentiated products. In addition, it may focus on expansion into some of the areas with untapped potential or lower government restrictions (Mellahi and Frynas 2015).    

The group discussion

Group discussions hypothesized as some of the ways that enabled individuals to gain a wide range of knowledge. True to that, the group discussion enabled me to gain knowledge and deeper understanding in the various areas of strategic management. Initially, I could not make a connection between analyzing the competitive advantage of the business with the formulations of strategies. Through the group discussions however, I was able to make a connection. The discussions enabled us to develop a step wise manner of integrating the different tools in strategic model including the TOWS, SWOT and Porters Five Force model to come up with the right strategy for the company.

            The group discussion were important in highlighting the different aspects of the business that make it unique such as its brand equity, its strong brand its serving period within the markets. These factors served as a basis for the creation of its strategies. Looking at the in depth analysis of the company by the different group members enabled us to be able to define the company clearly and thus come up with the right directions in which it can follow. It is through the group discussions that were we able to establish a connection between the production and operation management and external and internal aspects of the business. The contributions from the different group members provided insights on how the competitive aspect of the business can influence its operation and production. It was also through this that companies decide to change the operation or production  strategies to suit the changing needs of the market or to be able to develop a competitive advantage in the long run.

            Lastly it was through the contribution of every member of the group that we were able to understand the importance of formulating a strategy for a business. The formulation of a strategy enables a business to remain focused on its goals while at the same time using its strength in maximizing the available opportunities in the market, which eventually results in growth and expansion.

 

Bibliography

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