Report on VITHIT’s strategy and the industry in which it competes by Mykola Babiy Introduction. Vithit is currently the fastestgrowing brand in the soft drinks industry in Ireland. With over 850,000 casessold in Ireland last year of their flagship product, which is a 500ml ‘hybridhealth’ beverage consisting of ‘water, tea, juice’ and a ‘hit’ of vitamins (Blair-White et al 2017). Gary Lavin and Ian O’Rourke, the two co-founder meticulously examined thesoft drinks market both in its domestic market Ireland, and all externalinternational markets which specifically include “Iceland, Norway, Sweden, Holland, US, Spain…Sloveniaand Hungary” andof course the UK (Blair-White et al 2017).
Throughout the examination of these markets VITHIThad to find suitable and sustainable methods of penetrating and adapting to allthe different industries. Along with this there was an endless amount ofcompetition, as O’Rourke mentioned in an interview “Anything that is low calorie…and up-and-coming.” (Blair-Whiteet al 2017). It’s very interesting to see how VITHIT was at the rightplaces at the right time during to emerging trend of health-consciousness amongconsumers, which occurred a few years after the recession when Irish economy hadbegun recovering and was slowly improving.
In this introduction I will be goinginto detail about the soft drinks industry in which Vithit operates, thecompetition which Vithit competes against and finally the internationalisationstrategy which the company adopts. All three of these specific areas plays anextremely important role in the functionality of the corporation and itsprogress. The soft drinks industry and its influences. The soft drinks industry will beanalysed using a Pestle analysis in order accurately identify the details ofthe industry in which Vithit operates. All six factors of the Pestle analysishave a significant impact on the industry, these factors include: political,economic, social, technology, legal and environmental (Frue, K. 2017). Pestle analyses have tremendous advantages asthey help with the “idea phase, product development , product launching ,content marketing strategies, and other factors to increase success.” (Frue, K.
2017). It is a very cost effective way of analysing an industry as all it coststo carry out is time. PoliticalPopular trends have a large impacton the soft drinks industry and soft drinks are creating healthier options inrecent years, such that have zero sugar and less calories for example. This isdone not only to appeal to health-conscious buyers in the recent times, butalso to abide to newly proposed policies and laws to improve the quality ofbeverages and also to avoid the sugar tax that has yet to be imposed in theyear of 2018. It is clear that brands that heavily depend on sugar will suffer,unlike natural juice brands such as Vithit, “Tax of 30 cent per litre on drinks with over eightgrams of sugar per 100 millilitres will be introduced, along with a reducedrate of 20 cent per litre on drinks with between five and eight grams of sugarper 100 millilitres” (RTE News2017).
It has been a common trend in many different economies in the world toimpose these new regulations and legislations against sugary drinks in order toultimately benefit the public, in turn making the general public most aware ofthe health benefits of reducing sugar consumption. An article online outlinedthat “the global soft drinks industryhas faced unprecedented scrutiny from public agencies and regulators over theimpact soft drinks have on global health. Further excise taxes on soft drinksare likely over the forecast period, as brand owners urgently transition theirportfolios towards healthier options.”(Euromonitor 2017). There is a beneficial and positive motive behindthe government imposing the sugar tax.
Primarily it hopes to reduce theconsumptions rates of sugar in the Irish economy which they hope will furtherreduce obesity and overweight individuals in the economy. As a whole this doesn’t seem like such a major problem, however obesityand being overweight “is a clinicalcondition that can contribute to the risk of developing a preventable long termchronic disease.” (Department of Health 2016). All this backlashagainst sugary drinks recently has shifted demand to soft drinks which containa low amount of sugar and incorporate natural juices and flavours, rather thandepending on sugar to appeal to consumers, “As the selling price ofcompetitor’s sugary offerings are likely to increase to levels comparable withVithit’s, sales for Vithit are expected to rise.
” (Blair-White et al 2017). Thisgrowing momentum of the health-consciousness movement is yet anotheropportunity for Vithit to take advantage and drastically increase sales. EnvironmentalIn recent years, businesses and organisations arefocusing much more attention on the environmental impact their business have.
It’s clear that consumers tend to fend off and boycott business engaging inenvironmentally damaging operations, according to the Ethical ConsumerismReport 2012 “boycotts have gone up 123 percent over 2010-2012” againstcorporations that are harmful in some way towards the environment (Coles, H.2012). This acts as a big indicator for all businesses to become moreenvironmentally friendly and also encourages them to point out and shamecompetitors who openly abuse the environment. Vithit chose to exploit this ideaof environmentally-conscious consumers simply by producing a product that has afraction of a carbon footprint compared to its substitutes; “Vithitspecifically decided to use aseptic filling because of its environmental andproduct packaging benefits.
An aseptic fill removes the need to heat the liquidand so a thinner plastic can be used in bottling.” (Blair-White et al 2017). By reducing the plastic required per bottleVithit appeals greatly to consumers.
LegalEven inthe soft drinks industry there are legal laws by which businesses andorganisations must abide. Each country has different laws which makes itdifficult to globalise and exploit economies of scale as products have to beadjusted to respect the laws and regulations set in the given country. The USis one of the most populated countries in the world with a current approximatepopulation of 325,869,363 (World Population Review 2017), and most businessesoutside of the US consider the US to be a good market to enter in order tobenefit from the large amount of consumers and the potential economies of scalewhich can be exhausted. In order for Vithit to enter the US market they had totailor their product and make slight adjustments to their formula to avoid any potentiallawsuits, “reformulating it to remove L-carnitine, which is not permitted inliquid products in the US.” (Blair-Whiteet al 2017). Ultimately even such a slightadjustment will drive up the cost of production for Vithit, however it’s aprice they’re willing to pay as the market they will reach is so vast and fullof promising returns. SocialSoft drinks trends shift purelybased on what the consumer wants.
As mentioned several times throughout thisanalysis, in recent times healthiness is the focus in many countries. This isnot only pushed by the government and its policies, but also by the consumer.The power of the consumers is underestimated by many companies and this turns aroundto bite them in the long run (Fray, K. 2017).
It’s extremely important todefine the socio-economic class to which your target market belongs, Vithit onthe contrary decided not to specify a target market and in turn neverspecifically had a set class of which their consumers will consist of. In the provided case study, itsmentioned that “its market is very mixed, comprising both higher and lowerincome socio-economic classes. Management believed that if Vithit succeeded insuch a mixed market, it would enjoy success in more affluent ones.” (Blair-Whiteet al 2017).
This reinstates the tacticalyet unforeseeable method Vithit adopted. They’re confident that their productwill perform well in both a poor or rich economy and with this data andobservation they can further globalise their product, not stressing that thesocio-economic class will affect their sales in a major way. Competition.
There are five forces that drivecompetition according to Michael E. Porter, who was a Harvard Business Schoolprofessor. They include: Threat of new entrants, power of supplier, power ofthe buyer, threat of substitution and competitive rivalry (Porter, M. 1979). Thesecan be applied to almost all industries, and are very beneficial to identify.
Threat of New EntrantsSince Vithit were one of the firstto latch onto the healthy drinks trend they had a solid foundation when timeactually came around to make some revenue. This however didn’t stop new entrants from entering the market as it wasclear that some big money could be made from this new category of consumers. Someof the most common brands that come to mind are Vitamin Water, Innocent, andall of the heavily sugared soft drinks such as Coca-Cola, Fanta, Pepsi etc.also have to be taken into account although they aren’t specifically part ofthe healthy drinks trend. Statistically speaking, “In 2016, Vithit was thefastest growing soft-drinks brand in Ireland” (Blair-White et al 2017). Thisconfirms that Vithit have had a successful 2016 in terms of growing brandawareness. Power of the SupplierVithit has a wide range of productswhich helps the suppliers attract the customer in store through what IanO’Rourke referred to as the “rainbow effect” (Blair-White et al 2017), this is beneficial to both Vithit as theirsales surge and also to the supplier as they then have a product that sellsgenerating revenue. Having the option of so many different appealing productsreduces the possibility of the consumer switching to a cheaper alternative suchas Innocent Smoothies, or Coca-Cola.
Since there aren’t many health drinkssubstitutes to Vithit, the suppliers can’t negotiate to harshly with Vithit toreduce the price as they need to provide the consumers with what they want. Power of the BuyerHere itis important for Vithit to ask how easy it is for buyers to drive their pricesdown (MindTools). The customer exerts power through being able to simplyswitch to a cheaper alternative, or by having certain preferences in mind.Since Vithit has many buyers, specifically in 2016 they had “over 20 millionunits sold” (Blair-White et al 2017), they have some sort of power over the buyers as”power increases if you have many customers.” (MindTools). In other words, thebuyer doesn’t have such a large impact on the product if they don’t like it insome way and purchase their competitor as this one loss of a sale accounts forsuch a small percentage of overall sales. Threat of Substitution One of the main differentiatorsVithit has to the competition is the ‘aseptic fill’.
This differentiates themfrom competitors and solidifies their position in the market in terms of beingsubstituted (Blair-White et al 2017). Having a very specific mode of production howevermeans that they don’t havemuch bargaining power when it comes to producers, as what they were demanding isvery specific and unavailable to produce in Ireland. In an interview Ian O’Rourke mentioned how specific their process ofproduction is for the main Vithit 500ml products, “It’s anaseptic fill, which is cold fill, and it’s very technology dependent. Vithit don’t have preservatives in the drink so you either do ahot fill like pasteurisation but the bottle has to be a very thick and uglyone.
This one is aseptic so it goes in cold, but it’s in a sealed environment so it takes out all the bugs. Youcan’t do it in Ireland, it’s very specialised technology so you do it in the UK” (Blair-Whiteet al 2017). This once againre-instates the idea that Vithit have a unique process and it’s unlikelysubstitution will occur. Competitive RivalryThe fast growing recent health trendin Ireland has displayed an emergence of many new health drinks in the Irishmarket (Blair-White et al 2017). Vithit has clear intentions of dominating itsdomestic market and in order to do “intensified its marketing and PR efforts.” (Blair-White et al 2017). Inorder to attract younger customer’s social media becomes a key tool, and Vithit”has a strong online presence on Facebook, Instagram and Twitter.
” (Blair-White et al 2017). It’sclear that Coca-Cola is one of the main competitors as they dominate almost everysoft drinks market worldwide. The have an extensive soft-drinks portfolio ofSprite, Fanta, Powerade, Simply Orange and one of Vithit’s biggest UScompetitors which is Vitamin Water. (Coca-ColaProduct Description).
The soft drink industry in saturated at such a level thatCoca-Cola being one corporation has “more than 3,500 beverages and 500 brands” (Bhasin,K. 2011). Vithit are dominating their domestic market as they do “about 850,000cases in Ireland.” (Blair-Whiteet al 2017). This is incredible as Irelandhas an approximate population of 4.75 million people (CSO 2016).
Internationalisation.The question on whether Vithit is amultinational or global corporation is simple to answer if we incorporateTheodore Levitt’s definition of both. Levitt outlined that a multinationalcorporation operates in a large number of different countries and adjusts itsproducts and practices in each at high relative costs. “Global corporationsoperate with resolute constancy, at low relative costs, as if the world wereone entity; they sell the same thing in the same way everywhere.” (Levitt, T.1983). Vithit being the multinational corporation tailors their soft drinks formulato each different market to appeal to the laws and regulations as well as theconsumers, this drives up production costs, however appeals to consumers andrespects countries governmental laws.
Vithit incorporated “mild tailoring ofboth the product and their marketing campaigns in different countries.” (Blair-White et al 2017), this deemed to be extremely useful as Vithit tothis day performs well in many different markets where consumers have specific tastesand preferences in relation to their soft drinks, for example “in South Africa,Vithit was repackaged in slim cans to appeal to local preferences.” (Blair-White et al 2017). One of the initial two co-founders,Ian O’Rourke, had a lot of experience conducting business internationallytherefore he knew what needed to be done in order to successfully penetratemarkets all over the globe. O’Rourke talked with Gary Lavin the latter of theco-founders about the previous brand name ‘Vitz’ and said it sounded too “germanic”which was off-putting an unsuitable for internationalisation. Instead, “Vithitis a nice short term, it says exactly what it does in the bottle.
It also cantravel across cultures and across languages, which is important” (Blair-White et al 2017). This was the very first step to creating themultinational corporation they were setting out to build. One ofVithit’s most successful markets is Iceland as the number of bottles sold in2016 was 300,000 which may not seem like much, until we consider the populationsize of 330,000 in Iceland (Blair-White et al 2017), to further solidify my point the ratio of bottlessold to population size is 1:1.1. This is incredible and one of the reasons thedrink is so successful in Iceland is because the Icelandic population really doenjoy the drink and truly want it, “You’d see on the social media all thelagoon pictures, there are rappers up there, Icelandic supermodels love it,tweeting about it.” (Blair-White et al 2017).
Paul Graham who is one of the co-founders ofSilicon Valley’s most well-known seed accelerators for start-ups, coined apowerful mantra which goes “Make something the people want.” (PaulGraham 2008). It’s evident through this example that Vithit really did provideIceland with a product they really wanted, and in return Vithit are enjoyingcurrent and foreseeable revenues from this one market.
After looking at how successfullyVithit won over consumer’s in Iceland, its believable that Vithit carry out avery critical and specific analysation over which markets they should enter,and more importantly which markets to steer clear from. Gary Lavin mentioned thattheir market expansion plans are very pernickety, “we’re growing carefully –not just firing it at every country and seeing what lands.” (Blair-White et al 2017). When Vithit set its eyes on the US as a potentialmarket, knowing the scale of “Vithit’s success in the European market”, they agreedupon a conservative approach, not to “go out all bells and whistles.” (Blair-White et al 2017). Their ‘conservativeapproach’ consisted of a plan to “treat the first state like a country” (Blair-White et al 2017), thiswas very intelligent as most of the markets Vithit previously entered were afraction of the size of the US. Vithit have successful experience with enteringsmall scale markets.
Conclusion. The soft drinks industry is seeinglarge shifts and changes due to consumer consciousness and changing tastes andpreferences. A recommendation I would make to Vithit would be to try increasetheir brand loyalty in order to get consumers to repeat purchases rather thanhaving to constantly attract new customers.
This will also allow Vithit tosustain profits and maintain the market share. This could be achieved throughsolid and persistent marketing campaigns, similar to Coca-Cola’s and Pepsi’s. Afew years back statistics showed that “Diet Coke had the second highest brandloyalty of all the soft drinks competitor’s brands” (Zeigler Paper 2006). Based on previous concepts I’ve mentionedin this report, Vithit are performing exceedingly well in their industry of ‘softdrinks’. It’s important that Vithit continue to make smart and specific choicesabout the markets they plan on entering.
This will save them time and energy asthe product will potentially flourish with minimal marketing rather than enterevery large market, one after the other hoping that it sticks and the peopleenjoy the product. Markets who are late on global trends are good examples ofmarkets to avoid. Ian O’Rourke mentioned that they avoid “the likes of Germanyand France”, two huge markets, however these are “price conscious countries withdifferent flavour profiles.” They also tend to be fairly behind on trends blossomingin other countries around them, “France is at least 5 years behind on trends.” (Blair-White et al 2017). All inall, Vithit are dominating in the industry of ‘healthy’ soft drinks and willcontinue to do so if they stick to their roots with regards to market selection,eliminating competitors, and being an environmentally conscious organisation. Bibliography.
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