Case Study on "Strategic Choices"

Case Study 4 pages (1177 words) Sources: 6

[EXCERPT] . . . .

Smuckers

Using Porter's generic strategies, Smuckers has a differentiated strategy. The company sells to the mass market, utilizing national distribution networks and a wide variety of retail channels. Smuckers also seeks to charge premium prices for their products, in particular when compared to generics. This means that the differentiated strategy is being followed. Firms adopting this strategy tend to have the following strengths -- access to research (product development), strong sales and marketing and a company reputation for quality and innovation (QuickMBA.com, 2007).

This differentiated strategy is supported by the company's branding strength. The Smuckers brand has a long history dating to the 19th century. The company's products are far from the premium of their respective categories, but they are positioned at the high end of the mass market. This is primarily due to heavy brand promotion. Among the identified strengths of Smuckers was their brand equity, which is the result of this promotion and of the company's long track record. The brand strength attracts customers, secures distribution channels and allows for premium pricing over competing products of similar quality.

Smuckers has also engaged in a growth strategy based on acquisition. The most recent acquisition was that of Folgers (Bhattarai, 2008). This acquisition increased the size of the company dramatically. Revenues increased from $2.5 billion in fiscal 2008 to $3.7 billion in fiscal 2009 as a result of the acquisition (MSN Moneycentral, 2010). The strategy of growth by acquisition is sound for a couple of reasons. The first is that it plays to the company's strength of diversification. Smuckers carries a wide range of products, which allows it to develop economies of scale in distribution and synergies in both marketing and merchandising (for example, Folgers coffee complements Smucker's breakfast-oriented spreads).

The strong history of Smuckers' brands also indicates that the company largely operates in mature markets. The Folgers acquisition and the other smaller acquisitions that Smuckers has made in recent years supports the differentiated strategy because the company is building a portfolio of brands that are essentially cash cows. These are brands that appeal to the mass market and are relatively inexpensive to produce but yet can command premium prices. Most brands in Smuckers' portfolio follow this model. The company's core products are mature, which means that there is little room for organic growth, but acquiring similarly mature brands builds the company's portfolio of cash cows.

The chosen strategy of Smuckers, however, does leave it exposed in some ways. One weakness is that the company is exposed to foreign currency and commodity price risk. Key inputs are subject to price increase that Smuckers may not be able to pass along to its customers. Moreover, the company has a fairly limited degree of geographic diversification. Smuckers has extensive operations in Canada, but has a limited presence outside of North America. The firm's strategy leaves them particularly vulnerable, therefore to the threat of economic downturn or commodity price increase. These twin threats can reduce income and increase costs. The current Smuckers strategy leaves the company with little defense against these threats. While this has yet to cost Smuckers in terms of revenue declines, the risk remains unchecked as a result of the current strategy, which is focused on product line diversification rather than geographic diversification. In particular, the emphasis on complementary products fails to reduce these risks in any significant manner.

The Folgers acquisition subjects the company to risk associated with global coffee prices at a time when coffee supplies are being reduced due to changing climatic conditions and economic… READ MORE

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