This paper will analyse the casestudy based on vitamin juice drink VITHIT, written by Hannah Blair White, NiamhByrne, Aaron Collins, Louise Crowe, Ailbhe Earley and Colin Greene.
VITHIT was createdin 2000 by ex-rugby player Gary Lavin, who later invited international exporterIan O’Rourke to join the company as a co-director in 2007. The paper has been dividedinto three sections. The first details a PESTEL analysis of the company, showingthe effects the external environment has on the industry the business in questionoperates within. The second discusses Porter’s 5 Forces, a study used to establishthe level and severity of competition within an industry and the profitability possiblefor the company, displaying whether improvements can be made in respect to strategiesfor the company.
Finally, the international strategy of the company must be outlinedin the third section, showing the directors’ previous attempts at expansion andtheir plans for the future of the firm. 1. Using aPESTEL analysis, identify the industry in which VITHIT competes and thesignificant influences in the general environment that impact on this industry. The industry in which VITHIT competes inis known widely as the beverage industry, defined as the industry producingdrinks, usually drinks ready for consumption. This industry is very widespreadand can be easy to enter, yet difficult to stand out in. The purpose of a PESTELanalysis is to analyse and monitor the external marketing factors which may poserisks to an organisation. Results of a PESTEL analysis are used for a SWOT analysis,particularly to identify threats and weaknesses.
PESTEL Outline: Political · Differences in regulations between countries · Competitive pricing · Sugar tax in Ireland Environmental · Aseptic Filling Social · Increase in health consciousness · Marketing techniques & strategies Technological · Website’s influence on customers Economical · Celtic Tiger · Recession in Ireland Legal · Sugar tax · Product Labelling PoliticalVITHIT is a non-alcoholic beverage whichbegan its sales within Ireland, meaning it had to comply with both European andIrish regulations and standards while trading. Recommended Dietary Allowance(RDA) in some countries such as Norway meant the drink would require adjustingwhen expanding throughout Europe. Later, when the brand attempted its move intothe US market, it had to reformulate its product to remove L-carnitine, whichis not permitted in the US. (Blair-White et al 2017) In the 2018 budgetreleased by the Irish government towards the end of 2017, a new sugar tax wasintroduced on soft drinks in Ireland.
This new regulation worked in favour ofVITHIT as their sugar content (e.g. 1.3 grams per 100 millilitres in a 500ml bottle of Lean & Green) didnot meet the amounts to be taxed: “Taxof 30 cent per litre on drinks with over eight grams of sugar per 100millilitres will be introduced, along with a reduced rate of 20 cent per litreon drinks with between five and eight grams of sugar per 100 millilitres.” (RTÉ,2017) EnvironmentalMost traditional methods of filling usedin the drinks industry can be harmful to both the environment and the productitself, due to the high temperatures inflicted on the drinks for sterilisationbefore sealing. However, VITHIT utilised a different method, known as asepticfilling. This cool-fill process preserves the vitamins within the drink, alsohaving a positive effect on the environment in the process.
(Blair-White et al,2017) SocialThe social factor was crucial toVITHIT’s success in the beverage industry, as recently there has been a drasticincrease in health consciousness the world over. People in general wish topurchase low-calorie and low-sugar drinks to compliment their gym workouts orsimply in the interest of having a healthy, balanced diet. (Blair-White et al,2017) VITHIT in particular were able to excel even further in this aspect asLavin had a background of fitness and sport in his previous rugby career.VITHIT also attempt to appeal to society using “witty advertising slogans andself-deprecating humour” and by targeting countries with younger mindsets.(Blair-White et al, 2017) These strategies aimed at pleasing consumers areprecisely what is required for the social aspect of this industry. TechnologicalIn the current day in society technologyis pivotal to the survival of any firm in any industry, including the beverageindustry. An attractive website goes a long way in contributing to successfulmarketing of a product, and VITHIT’s own webpage (www.vithit.
com) proves to bemore appealing to viewers than many other sites, such as that of beverageindustry giants Coca-Cola (www.cocacola.ie) and Nestlé (www.nestle.com). Aquick comparison shows that the vibrancy of VITHIT’s aesthetic website triumphsover the others’ cluttered sites. EconomicalWhen analysing economic factorsaffecting the drinks industry in Ireland, one must examine the transition overthe years through the Celtic Tiger to the decline of 2007 and consequently ourlatest recession.
VITHIT existed as a company throughout all of this, and theirprofitability during the recession was greatly significant to the firm’ssuccess. According to the case study, “when the financial crash of 2007 began,the business was thrown into serious jeopardy and hit an all-time low.”(Blair-White et al, 2017) Ultimately it was Lavin’s partnership with O’Rourke(2007) which saved the company during the recession, due to his innovations inthe marketing and distribution sectors of the business. LegalThesugar tax implemented by the Irish government and how it affects the beverageindustry would fall under the ‘legal’ category of PESTEL as well as ‘political'(mentioned above). Also included in this section would be advertising laws,product labelling and safety and consumer protection. VITHIT are as transparentas can be, displaying every ingredient present in their products on the label,which is not always the case in the industry.
2. Using thePorter 5 Forces framework assess the forces driving competition in theindustry. ‘Porter’s 5 Forces’ is a framework usedto analyse the different levels of profitability and competition withindifferent industries, and was devised by Michael Porter in 1979.
It dividesinto five sections, with the initial four leading into the final factor’Intensity of Rivalry’. In the words of Business News Daily(www.businessnewdaily.com, 2017), “the fiveforces model looks at five specific factors that help determine whether or nota business can be profitable, based on other businesses in the industry.” Threatof New EntrantsThis force examines how easy it is fornew entrants to enter into the industry in question.
If an industry is quiteeasy to set up a company in, this will lead to a depletion in the percentageshare of the market held by existing firms. ‘Barriers to entry’ are whatprevents new businesses from setting up, and can include scarcity of necessarymaterials, economies of scale and well known brands. This said, the beverage industrydoes not contain many barriers to entry as it is relatively simple to obtainthe materials needed to create the product, as well as the possible variancesin beverages being so diverse. However there does exist a number of existingprestigious soft drink brands today, making it extremely difficult for acompany like VITHIT to achieve success and receive acknowledgment.
As well asthis, the new ‘health craze’ sweeping the globe may be creating a market niche,allowing new entrants into the market easier. Powerof SuppliersAlsoknown as the bargaining power of suppliers, this force investigates the easewith which the suppliers to firms of a particular industry can raise the pricesof supplied materials, thus reducing profits made by the firms. Factors such asthe scarcity of specific necessary materials and the number of suppliers willinfluence profitability within an industry heavily. Clearly a smaller number ofsuppliers results in them having more power over businesses, converselybusinesses benefit from having many suppliers. It seems that the availabilityof the raw materials needed to make VITHIT’s juices and not all that scarce,meaning their suppliers would not gain much control over the company. Powerof BuyersThebargaining power of buyers deals with how much control the buyers of theproduct have over the industry’s prices and such, similar to the bargainingpower of suppliers. A scarcity of buyers means companies will depend on thosewho are buyers of the product, and this then makes these buyers extremelypowerful.
On the other hand, a multitude of buyers gives the firms themselvesalmost total control over their own selling prices. Early in VITHIT’s days,Lavin employed only three sales representatives and sold to very few retail stores,giving these stores control over his business. (Blair-White et al, 2017)However, after much growth and establishment of the brand he succeeded inregaining this power by capturing the attention of numerous buyers. Threatof SubstitutesSimilar products existing both inside and outside an industrythat can be used in place of a company’s products pose a threat. Therefore, wemust examine the size of the threat posed by these substitutes, in relation tothe cost of switching, both immediate and long-term, as well as the consumer’sinclination to change. While the magnitude of the beverage industry means thatthere are many substitute products available, I personally do not feel thisforce threatens VITHIT in the foreseeable future, due to the numerous uniquefactors incorporated into their drinks. Primarily their low sugar content andsmall number of calories (15 calories per ‘BOOST’ drink as of 13/01/18, whilethe official website requires updating, quoting 16 calories) are quiteattractive characteristics for their main target market, the health-conscious.This will help to keep current customers purchasing the product on a regularbasis.
Intensity of Rivalry’Rivalry’or ‘competition’ simply refers to the number of competitors existing within amarket which could threaten the sales of the firm under analysis. Whencompetitive rivalry is low the firm will have greater power to accomplish whatis necessary to achieve higher sales and ultimately higher profits. When thisrivalry is high, price wars can unfold between companies, which will only harmcompanies individually. VITHIT deal with its competitors in slightly unorthodoxways, shown in the case study given (Blair-White et al, 2017).
It states that”O’Rourke identified the consumer preference for wider bottles”, contrasting tothe traditional skinny bottle design as seen with many common drinks such asFanta and Sprite. Following their venture into the United States, VITHIT sawmuch competition in the healthy aspect of the drinks market present beforehand,examples including Bai, VitaminWater and Honest Tea. However, I believe theycan succeed in attracting attention using the unique traits they alreadypossess. 3.
AssessVITHIT’s strategy of internationalization in the light of your analysis. In order to expand the brand name ofVITHIT and generate further revenue on the back of recent their success, Lavinand O’Rourke wish to implement a carefully thought out plan ofinternationalization and spread their company all over the globe. Currently thecompany operates in sixteen markets worldwide (Blair-White et al, 2017),although they may look to increase this number in the future. As the businesshas previously seen success in their attempts at growth, it seems likely moresuccesses will follow. Lavin’s first effort at spreading toother countries failed, as he had tried to sell the product in the UK, theNetherlands and Belgium with “no proper market entry, distribution orpromotional strategy.
” (Blair-White et al, 2017) This was before O’Rourke joinedthe firm in 2007, and this failure truly showcased Gary Lavin’s lack ofexpertise in the area of business. It was decided after O’Rourke came upon thescene that the intelligent strategy to take before internationalization wouldbe to secure a greater share in the Irish market, and only then would theyconsider expansion. This plan would be crucial to the success and profitabilityof the company in the years to come.
Lavin’s own words on the matter: “Ithought I was going to take over the world over-night… I pulled the businessback and secured Ireland.” (Blair-White et al, 2017) The ‘health trend’ began to infiltrateEurope, particularly the UK, around 2010. The trend was most prominently seenamongst the younger generation (teenagers and young adults), and this meant acertain increase in potential customers for VITHIT. Seeing that the Americantrend had finally begun to flourish closer to home, Lavin seized theopportunity and in 2011 moved to the UK.
This was an intelligent venture forthe business, as it allowed him to fully focus on marketing his productthroughout London. Eventually he succeeded in catching the attention of Tesco,and from there he gained a foothold in Britain, beginning the company’sinternationalization. After this they moved on through Europe, and even beganto sell in South Africa, UAE and Bahrain. Another quote from Lavin reveals thestrategy that was underway: “we’re growing carefully – not just firing it atevery country and seeing what lands.” (Blair-White et al, 2017) This was indeeda step up from the earlier efforts at selling in Dutch and Belgian markets,which did not receive proper planning and so failed. The product did require some tailoringto specific countries, a factor which must be considered when devising astrategy for internationalization. For example, when stocking of VITHIT beganin the Nordic countries, the product had to be reformulated in order to accountfor the lower vitamin RDAs (Recommended Daily Allowances) in these countries.(Blair-White et al, 2017) This kind of product tailoring may also have to occurdue to government legislation or local preferences, as was the case in SouthAfrica where the goods were repackaged in slim cans to better appeal to thelocals.
The product was also being sold specifically in countries with ‘youngmindsets’, a strategy which proved a wise decision as this was deemed thereason for VITHIT’s success in Iceland, selling 300,000 units to its populationof 330,000. This was building on the belief that the ‘health craze’ was mainlypossessed by the younger community. This displayed the fact that Lavin had nowestablished his target market, possibly showing a readiness for globalisation. Finally, VITHIT set their sights on theUnited States. What once started as a small Irish business founded in the heartof Dublin now wished to conquer the biggest market on our planet. The potentialfor success there was certainly present – Europeans already perceived Americanhealth drinks to be ‘watered down’ juice drinks (Blair-White et al, 2017),meaning Lavin could use the ‘genuinely healthy’ aspect of his product toattract customers. The plan as they reached America was to take each state andtreat it individually, as they had done with each country in Europe.
Thisslowed down the process but made the expansion deliberate, permitting a strongposition to be gained in every state before moving on to the next. To dateVITHIT have established a presence in 6 American states. However, muchcompetition exists already in the US, with big products such as Bai, HonestTea, or the well-known brand VitaminWater. Because of this, VITHIT attempted todifferentiate itself from other companies by highlighting its ‘hybrid healthelement’, as well as adding more to the range of products available with the introductionof ‘Immunitea’ and ‘Vitalitea’.