This is a report that is focused on identifying an evaluating the future strategies that can be applied by the A2 Milk Company (A2MC). These strategies are aimed at ensuring the establishment and sustenance of competitive advantage in the future market space.
A2 Milk Company is a New Zealand Company established in the year 2000. It was founded by Dr. Corran MacLachlan and Howard Peterson. Although the company was founded in New Zealand, it currently has its headquarters in Sydney, Australia.
The company’s main product is the A2 Milk variety. The A2 Milk is a variety of milk that only contains the A2 protein (Monika, Manishi, Ranjit, Bishnu, & Balwinder, 2012). The A1 protein in milk is essentially the β – casein protein (J S & Woodford, 2017) . The milk produced by the A2 Milk Company does not contain the β – casein protein. The dairy cattle in the western world (Europe, Americas, Australia and New Zealand) mainly produce milk that has higher concentration of A1 compared to A2. This is in contrast to dairy breeds in Africa and Asia that produce milk with higher concentrations of A2 compared to A1. Dr. Corran MacLachlan managed to develop and together with Howard Peterson, commercialize a genetic test that would determine whether a cow would produce A1 or A2 milk.
The major argument fronted by A2 Milk Company is that regular milk with higher concentrations of A1 had health implications ranging from heart attack and autism to diabetes (Milan, 2017). The health aspect was a key selling point for the company’s products, looking to offer healthier alternatives to regular milk. This is especially with the recent global surge in the pursuit of healthy living.
The company’s main markets are Australia, New Zealand, China in Asia, The United Kingdom in Europe and the United States of America.
A2 Milk Company’s major strategic priority is product differentiation. The company offers a product, A2 Milk variety, which other companies in the dairy industry don’t offer. This affords them a competitive advantage and a market monopoly in the A2 milk niche in the dairy industry. In recent time however, the large global dairy companies have expressed the interest and intention of entering the A2 Milk production niche. These dairy companies include; Nestle, Lactalis, Mengniu, Fonterra, Dairy Farmers of America and Danone.
In observing the strategic performance of A2 Milk Company and its environment, we will apply the Porter’s Five Force Model (Porter, 2008). This Model analyses the strategies employed by an entity using five key elements, these are: Competitive Rivalry, Threat of New Entry, Threat of Substitution, Buyer Power and Supplier Power (Ireland, Hoskisson, & Hitt, 2008).
In terms of the Competitive Rivalry, A2 Milk Company has had very little competition in the market niche for the A2 Milk. Up until this point, the biggest competition for the firm has been the regular milk that contains A1. It has had to establish the niche market by convincing the consumers on the benefits of the A2 Milk variety. This was achieved by research carried out by Dr. Corran MacLachlan prior to the establishment of the firm as well as after its establishment. According to the research carried out, the A1 protein present in regular milk had health risks, this has however been challenged by counter research carried out by numerous agencies in Australia, New Zealand and Australia. Despite the results from the counter research, the sales of the firm have not been adversely affected as shown its growth margins.
The recent interest that the large global dairy companies have been showing on the A2 Milk variety exposes the firm to the threats of new entry. Global Dairy companies are no longer looking at the A2 Milk as a brand associated with the A2 Milk Company, but rather as another dairy product that can be produced alongside the regular milk. The profits that A2 Milk Company has had over the years plus its success in the listing at the ASX has shown the profit potential in the niche.
The only threat of substitution that A2 Milk Company has faced is the regular milk. The A2 Milk itself has gained acceptance by being a substitute to the regular milk. The firm has relied on research, mainly in-house, to back the health benefits of A2 Milk. This has however been a subject of contention, with other agencies discrediting the findings made by the firm on the potential health hazards of the A1 protein contained in the regular milk. This remains a potential threat, continuous discrediting of the firm’s findings may affect consumer confidence.
The firm was founded on the rationale of exploiting a market niche of health conscious milk consumers. This niche has however considerably grown over the years. The rise in chronic lifestyle diseases has been a key contributor to the increase in the niche. More and more people are looking for healthier alternatives for their diets. This increase in the niche has reduced the buyer power, leaving the firm in a prime position to dictate the market prices.
A2 Milk Company relies on dairy farmers in Australia and New Zealand for the A2 Milk that they use for producing their various milk products. The fact that any farmer’s cow is only a genetic test away from determining its eligibility to produce A2 milk, gives the firm control over the supply chain. This hence mean that the supplier power is reasonably low for the firm.
In order to come up with strategy recommendations for A2 Milk Company going forward, we will apply the Porter’s Generic Strategies Model (Tang, 2014). This will involve observing the potential recommendations in three main categories: Cost Leadership Strategy, Differentiation Strategy and Focus Strategy (Gamble, Thompson, A.J, & John, 2010).
The cost leadership strategy involves s firm’s ability to reduce the cost of production without affecting the returns or quality of output product. This strategy mainly depends on the technological capability of a firm to simplify its production processes thereby making the production cheaper. A2 Milk Company has the advantage of being in the A2 Milk industry for a longer period of time. This gives them a head start in the technology as well as enough knowledge and experience to simplify the production processes. This together with the fact that research is one of the firm’s key competences positions them well in handling the threat of new entry. The firm should therefore dedicate more resources to research that would simplify the production processes.
Given that the A2 Milk is already a differentiated product from the regular milk, it would be hard for A2 Milk Company to exploit any advantage of differentiation. Despite this, the firm may decide to invest in creating a new product line that would be different from what it has been producing. This would help the firm in differentiating within the niche.
A2 Milk Company may also apply a Cost Focus Strategy. Since the firm is the biggest firm in the A2 Milk industry niche, it can decide to produce low cost products that would attract new customers and help in retaining the usual customers. This would present a barrier for entry for any company looking to venture into the A2 Milk industry niche. Caution should be taken however, this strategy may work for small and mid-sized companies but not necessarily for large companies.
This report is going to consider three nonfinancial measures and two financial measures for evaluating the above recommendations. The nonfinancial measures are: Innovation, Churn and Market Share. The financial measures are Arithmetic Return and Total Shareholder Return.
The innovation is basically the ability of a firm to successfully release new products into the market (Anthony & Johnson, 2008). The innovation will measure the success of the firm in producing and introducing into the market the new low price products meant to create a barrier to entry.
The churn refers to rate at which an entity is able to retain its customers over a given period of time (Galetto, 2017). The churn will measure the effectiveness of introducing a differentiated product and new low price products have managed to prevent customers from seeking alternatives from the new companies venturing into the A2 Milk niche.
The market share refers to the percentage of the total available customers that a firm has (Farris & Neil, 2010). This measure would evaluate the overall success of all the recommendations. Although the market share for A2 Milk Company is poised to decrease with entry of other companies into the niche, the rate and amount of the decrease can however be controlled by applying the above recommendation. The market share would give an indication of the success rate of the recommendations.
The arithmetic return is the average returns of a firm over different periods of time (DiGrande, Zajac, & Nolan, 2010). Calculating the arithmetic return before and after the market entry of the other companies, would provide information on the net performance of all the above recommendations.
Assuming the reinvestment of the dividends into a business, the resultant annual growth in capital would represent the total shareholder return (Robert, 2009). This similar to the arithmetic return would be crucial in evaluating the collective performance of the above recommendations. Calculating this measure periodically would give a trend of how the recommendations are performing.
Conclusion
In conclusion, despite the head start enjoyed by A2 Milk Company by being among the pioneers in the A2 Milk Industry niche, a lot needs to be done to ensure that the entry of the large global dairy companies does not affect their returns.
The firm in general, should invest more on research and technology enhancements. This will help the firm in developing faster and simplified production processes, producing differentiated products and also in producing new low price products.
These measures will give the firm a competitive advantage over the new entries into the industry niche, thereby securing the firm’s profits.
References
Anthony, S. D., & Johnson, M. W. (2008). Innovator’s Guide to Growth. Havard Business School Press.
DiGrande, S., Zajac, J., & Nolan, T. (2010). Break Up or Shake Up.
Farris, P. W., & Neil, B. T. (2010). Marketing Metrics. New Jersey: Pearson Education.
Galetto, M. (2017). What Is Attrition Rate.
Gamble, A. A., Thompson, J., A.J, S., & John, E. (2010). Crafting and Executing Strategy . Boston: McGraw-Hill Irwin.
Ireland, R. D., Hoskisson, R., & Hitt, M. (2008). Understanding Business Strategy: Concepts and Cases. Cengage Learning.
J S, C. J., & Woodford, K. (2017). A1 beta casein milk protein and other environmental predisposing factors for type 1 diabetes. Nutrition and Diabetes.
Kiechel, W. (2010). The Lords of Strategy. Havard Business Press.
Milan, D. (2017). a2 Milk Digested Differently to Conventional Milk. agresearch.
Monika, S., Manishi, M., Ranjit, K. S., Bishnu, M. P., & Balwinder, J. K. (2012). Milk Proteins and Human Health: A1/A2 Milk Hypothesis. Indian Journal of Endocrinology and Metabolism .
Porter, M. E. (2008). The Five Competitive Forces That Shape Strategy. Havard Business Review.
Robert, S. (2009). Portfolio Constrution, Management, and Protection . Mason: Cengage Learning.
Sirajuddin, O., Ibrahim, A. H., & Jamali, H. (2017). Five Competitive Forces Model and the Implementation of Porter’s Generic Strategies to Gain Firm Performances. Science Journal of Business and Management.
Tang, D. (2014). Introduction to Strategy Development and Strategy Execution. Flevy.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download