Top Banner
NOTE ON STUDYING AND LEARNING FROM CASES INTRODUCTION TO CASES The cases featured in this book are representative of real-world problems that managers in different service organizations have to face and resolve. They describe problems from a wide variety of industries in several different countries. Some of the events depicted took place recently, while others occurred some years ago but still contain important lessons and insights for the managers of tomorrow. Unlike methods of instruction that use lectures and textbooks, the case method of instruction doesn’t present students with a body of tried and true knowledge about how to be a successful manager. Instead, it provides an opportunity for you to learn by doing. Dealing with cases is somewhat like working with the actual problems that people encounter in their jobs as managers. In most instances, you’ll be identifying and clarifying problems facing a company or nonprofit organization, analyzing qualitative information and quantitative data, evaluating alternative courses of action, and then making decisions about what strategy to pursue for the future. You may enjoy the process more—and will probably learn more—if you accept the role of an involved participant rather than that of a disinterested observer who has no stake or interest in resolving the problems in question. The goal of case analysis is not to develop a set of “correct” facts, but to learn to reason well with available data. Cases mirror the uncertainty of the real-world environment in that the information they present is often imprecise and ambiguous. You may be frustrated to find that in services marketing, there is no one right answer or correct solution to any given case. Instead, there are often a number of feasible strategies management might adopt, each with somewhat different implications for the future
33
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Page 1: Case Studies

NOTE ON STUDYING AND LEARNING FROM CASES

INTRODUCTION TO CASES

The cases featured in this book are representative of real-world problems that managers in different service organizations have to face and resolve. They describe problems from a wide variety of industries in several different countries. Some of the events depicted took place recently, while others occurred some years ago but still contain important lessons and insights for the managers of tomorrow.

Unlike methods of instruction that use lectures and textbooks, the case method of instruction doesn’t present students with a body of tried and true knowledge about how to be a successful manager. Instead, it provides an opportunity for you to learn by doing.

Dealing with cases is somewhat like working with the actual problems that people encounter in their jobs as managers. In most instances, you’ll be identifying and clarifying problems facing a company or nonprofit organization, analyzing qualitative information and quantitative data, evaluating alternative courses of action, and then making decisions about what strategy to pursue for the future. You may enjoy the process more—and will probably learn more—if you accept the role of an involved participant rather than that of a disinterested observer who has no stake or interest in resolving the problems in question.

The goal of case analysis is not to develop a set of “correct” facts, but to learn to reason well with available data. Cases mirror the uncertainty of the real-world environment in that the information they present is often imprecise and ambiguous. You may be frustrated to find that in services marketing, there is no one right answer or correct solution to any given case. Instead, there are often a number of feasible strategies management might adopt, each with somewhat different implications for the future of the organization, and each involving different trade-offs.

Cases and the Real World

Cases differ from real-world management situations in several important respects. First, the information is pre-packaged in written form. By contrast, managers accumulate their information through memoranda, meetings, chance conversations, research studies, observations, news reports, and other externally published materials.

Second, cases tend to be selective in their reporting because they are designed with specific teaching objectives in mind. Each must fit a relatively short class period and focus attention on certain types of issues within a given subject area. In the real world,

Page 2: Case Studies

management problems are usually dynamic in nature. They call for some immediate action, with further analysis and major decisions being delayed until some later time. Managers are rarely able to wrap up their problems, put them away, and go on to the next “case.” In contrast, discussing a case in class or writing an analysis of a case is more like examining a snapshot taken at a particular point in time. Occasionally, a sequel case provides a sense of continuity and poses the need for future decisions within the same organization.

A third, and final, contrast between case analyses and real-world management is that participants in case discussions and authors of written case reports aren’t responsible for implementing their decisions, nor do they have to live with the consequences. This doesn’t mean, however, that you can be frivolous when making recommendations. Instructors and classmates are likely to be critical of contributions that are not based on careful analysis and interpretation of the facts.

PREPARING A CASE

Just as there is often no one right solution to a case, there is also no single correct way of preparing a case for class discussion or for a written assignment. With practice, you should be able to establish a working style with which you feel comfortable.

Initial Analysis

First, it’s important to gain a feel for the overall situation by skimming quickly through the case. Ask yourself:

What sort of organization does the case concern? What is the nature of the industry (broadly defined)? What is going on in the external environment? What problems does management appear to be facing?

After an initial fast reading, without making notes or underlining, you’ll be ready to make a very careful second reading of the case. This time, seek to identify key facts so that you can develop a situation analysis and clarify the nature of the problems facing management. As you go along, try to make notes in response to such questions as:

What decisions need to be made, and who will be responsible for making them? What are the objectives of the organization itself and of each of the key players in the

case? Are these objectives compatible? What resources and constraints are present that may help or hinder attempts by the

organization to meet its objectives?

Try to establish the significance of any quantitative data presented in the text of the case or, more often, in the exhibits. See if new insights may be gained by combining and manipulating

Page 3: Case Studies

data presented in different parts of the case. But don’t accept the data blindly. In the cases, as in real life, not all information is equally reliable or equally relevant. On the other hand, case writers won’t deliberately misrepresent data or facts to try to trick you.

Developing Recommendations

Now you should be in a position to summarize your evaluation of the situation and to develop some recommendations for management. First, identify the alternative courses of action open to the organization. Next, consider the implications of each alternative, including possible undesirable outcomes, such as provoking responses from stronger competitors. Ask yourself how short-term tactics fit with longer-term strategies. Relate each alternative to the objectives of the organization (as defined or implied in the case, or as redefined by you.). Then, develop a set of recommendations for future action, making sure that these recommendations are supported by your analysis of the case data.

Your recommendations won’t be complete unless you give some thought to how the proposed strategy should be implemented:

What resources—human, financial, or other—will be required? Who should be responsible for implementation? What time frame should be established for the various actions proposed? How should subsequent performance be measured?

CLASS DISCUSSION

In class, you may find that the role played by an instructor when teaching cases differs from that when lecturing. The instructor’s role in case discussions is often similar to that of a moderator—calling on students, guiding the discussion, asking questions, and periodically synthesizing previous comments.

Instead of being a passive note-taker, as in lecture classes, you‘ll be expected to become an active participant in case discussions. Indeed, it‘s essential that you participate. If nobody participates there can be no discussion! If you never join in the debate, you‘ll be denying other participants the insights that you may have to offer. Moreover, there‘s significant learning involved in presenting your own analysis and recommendations and debating them with your classmates, who may hold differing views or else seek to build on your presentation. However, don‘t be so eager to participate that you ignore what others have to say. Learning to be a good listener is also an important element in developing managerial skills.

Occasionally, it may happen that you are personally familiar with the organization depicted in a case. Perhaps you have access to additional information not contained in the case, or perhaps you know what has happened since the time of the case decision point. If so, keep this information to yourself unless, and until, the instructor requests it. (This advice also holds true

Page 4: Case Studies

for written reports and case exams.) There are no prizes for 20/20 hindsight and injecting extra information that nobody else has is more likely to spoil a class discussion than to enhance it.

Each case offers the potential for learning and as the class proceeds you should make notes on important insights. Some instructors choose to review key points immediately following the discussion. Others prefer to wait until several cases have been taught and then compare and contrast the lessons from all the cases in a particular course module.

Page 5: Case Studies

1. LAND ROVER [RESPONDING TO THE CHALLENGES OF GLOBALISATION AND ENVIRONMENTAL SUSTAINABILITY]

Like Hummer and Jeep, Land Rover is a car maker whose roots are in off road utility vehicles rather than passenger cars. For a long while Land Rover only made their pioneering multi-purpose all-terrain utility vehicle but in 1970 their completely radical all-terrain luxury Range Rover created the Sports Utility Vehicle (SUV). When launched in the United States so popular among the rich and wealthy that it became known as the “Hollywood Jeep”. The company’s narrow focus on large 4x4 vehicles seems ill-fitting to a world of high fuel prices and concerns for global warming.

Nevertheless, Land Rover remains profitable and successful, partly because Land Rover 4x4s are real all-terrain vehicles, the products’ cult status with magazines and off-the-road experiences being dedicated to the brand.

To learn more about Land Rover, visit their web site (www.landrover.com) and some of the web sites for Land Rover fans: the Internet Land Rover Club (www.landroverclub.net , Land Rover Magazines (www.landroverenthusiast.com) or the Land Rover Experience (www.landroverexperience.com).

Discussion Questions

1. What is the company doing in response to the challenges of globalisation and environmental sustainability?

2. As a relatively small manufacturer of passenger vehicles, what is the company’s strategy to remain successful and to compete with the global, volume car manufacturers and the numerous new competitors in the SUV (Sports Utility Vehicle) segment originally pioneered by Land Rover?

3. How and why does the company position the Land Rover brand across global markets such as North America, Africa and emerging countries like China?

2. BUILD-A-BEAR WORKSHOP

In 1999, Build-A-Bear Workshop had 7 stores, a website and a dream of providing consumers worldwide with an entertaining and interactive experience that would change the way customized toys and gifts are made. Chief Executive Bear Maxine Clark contacted Voice-Express wishing to create a voice recorder accessory for her teddy bears. Today Build-A-Bear Workshop is a New York Stock exchange company with annual revenues over $300 million, and with over 170 stores in North America and another 12 international stores.

Page 6: Case Studies

Voice-Express sold BABW over 1 million Build-A-SoundTM voice recorders and a growing number of pre-recorded sounds such as ELMO, RUDOLPH and others. Build-A-Sound™ has become a signature offer which, especially during peak holiday seasons, drives the sales of Plush as a personalized gift item.

Voice-Express has provided BABW with an integrated solution for both their traditional retail outlets as well as their web store. Retail customers select a skin -"Choose Me"- then select a pre-recorded or patented Build-A-SoundTM recorder -"Hear Me"- and then proceed to the patented stuffing, stitching and fluffing station before further accessorizing their custom plush toy or gift. Web store guests are given the option of adding a Build-A-SoundTM to their plush, even before they have completed their transaction. Studies have shown that once a prospective customer records a message, they have a sense of ownership in the product and are more likely to complete their purchase.

Although BABW was offered various options for their website customers to record a personal message, they have found that customers feel most comfortable with using a standard telephone with a user-friendly and familiar voice menu which permits the customer to "record," "review," "re-record" and save their message. When the customer chooses to record a message, a pop-up window is launched which provides a toll-free number and BABW's order number to enter. Once the customer has recorded their message the pop-up screen is closed and the customer is right where they left off on the BABW site.

Voice-Express has built BABW their own voice server that is hosted at their Web Store headquarters where they also do order fulfillment. Programming the customer's voice into the plush is just one of the customization processes BABW provides.

Build-A-Bear is leading the toy and gift industry in on-demand customized production and interactive retailing and Build-A-Bear understands the value of products that deliver a personalized voice.

Build-A-Sound is Build-A-Bear's best selling sound even though at $8.00/unit it sells at a $2.00 premium over most of the pre-recorded sounds. Customers are willing to pay a premium for personalization. During gift-giving seasons such as Valentine's Day, conversion rates for Plush purchased with a Build-A-Sound reach 35%.

Page 7: Case Studies

According to Build-A-Bear Workshop Chief Executive Bear Maxine Clark, "Adding this feature is another way for us to make the guest experience on our website as personal and creative as the Workshop experience. We safely tuck the small recorder into the bear...a perfect way to say I love you or to record a unique message such as 'Will you marry me?,' 'You got the job!,' or 'Congrats on your promotion,' just to mention a few. We are very excited to launch this just before Valentine's Day when so many people want to share a special message of love through a stuffed animal. The record-your-own feature has been available in our stores for almost two years and has been very popular from the beginning. We are very happy to be able to provide this option at the same affordable price for the first time to our website guests."

In 2004 BABW began marketing stored value cards which are perfect for busy grownups who want to give their child or niece the opportunity to build their own teddy bear but with few shopping days left before a holiday don't have the time to Build-A-Bear themselves. Since personalized voice drives a large percentage of BABW gift sales, Build-A-Bear ingeniously developed a line of Message HuggerTM Pillows which hold a stored value gift card and a Build-A-Sound so that the gift card comes with a personal voice message from the gifter. If that wasn't enough, BABW included elastic ties on the talking pillows so that the child can build their bear and then attach the talking pillow to the bear and have it deliver the message every time it's hugged.

Every month we receive heartwarming testimonials from Build-A-Bear customers who have used the Build-A-Sound for wedding proposals, to save a dearly departed's voice or used a Build-A-Sound to provide comfort and support to a friend or family member in need.

Discussion Questions

1. Which of the marketing management concepts best describes Build-A-Bear Workshop?

2. How does Build-A-Bear contrast with traditional toy shops and what accounts for their sales growth in the face of declining toy sales generally?

3. In detail, describe all facets of Build-A-Bear’s product. What is being exchanged in a Build-A-Bear transaction?

4. Is Build-A-Bear likely to be successful in continuing to build customer relationships? Why or why not?

5. Will Build-A-Bear transfer from the few markets in which it now operates into successful franchises across Europe? Why and how does Build-A-Bear need adapting to work in your national market?

Page 8: Case Studies

3. NESTLÉ: SINGLED OUT AGAIN AND AGAIN

The availability of nutritious and life-sustaining infant formulas is relatively recent. Until the late 19th century, there was virtually no safe alternative to breastfeeding and few infants not breastfed by their mother or a wet nurse survived the first year. Appallingly, in London in the early 1800’s, only about 10 percent of non breastfed infants survived their first year of life. At the turn of the 19th century, not being breastfed meant almost certain death for infants. In 1867, Henri Nestlé developed the first commercial infant food, which was made of dried cow’s milk, combined with cereals and sugar. This responded to the need for a safe substitute for breast milk when a baby could not be fed at the breast. Yet Henri Nestlé never intended his invention to compete with breast-milk. In his "Memorial on the Nutrition of Infants" printed in 1869, Henri Nestlé wrote: "During the first months, the mother's milk will always be the most natural nutriment, and every mother, able to do so, should herself suckle her children." Today, infant formula is the only product recognised to be a suitable breast-milk substitute by the United Nations Codex Alimentarius Commission, the international food standard setting body.

Beginning of a public controversy over the marketing of breast-milk substitutes

The debate over the marketing of breast-milk substitute in developing countries entered the public sphere in 1973 with the publication of “The Baby Food Tragedy” – an interview with two child nutrition experts – by The New Internationalist.

However, the controversy did not boil over until the publication in 1974 of a pamphlet, “The Baby Killer”, by the British organisation War on Want. This pamphlet was widely distributed and translated. In particular, a German left-wing student organisation, Arbeitsgruppe Dritte Welt (Third World Working Group), published the same year a translated and altered version under the name “Nestlé tötet Babies” (Nestlé kills babies).

Nestlé sued the organisation for libel. Although it won the court case in 1976, the publicity around it contributed to making the pamphlet known in the United States and elsewhere.

At the same time, Nestlé continued to review its marketing practices in developing countries. In 1974 and 1975, Nestlé revised the contents of its educational and informational materials to strengthen the emphasis on the importance of breastfeeding and to remove advertising or promotional material. By 1976, Nestlé was phasing out infant formula mass media advertising, and by 1978, this was withdrawn in all developing countries.

In addition, the International Council of Infant Food Industries (ICIFI) was created by Nestlé and seven other infant formula manufacturers in 1975. A code of ethics was adopted to guide companies’ marketing and advertising practices.

However, scientific evidence was pointing out to a more complex issue. Dana Raphael, Director of the Human Lactation Center of Connecticut, was one of the first scientists to hold infant

Page 9: Case Studies

formula manufacturers responsible for high infant mortality rates in developing countries. Yet, in 1976 after a two-year study which observed how infants were fed in 11 different cultural settings around the world, she found that in the cultures studied a decline in breastfeeding was not a major part of the problem. In some, breastfeeding was still universally practiced. Most importantly, the study showed that mixed feeding was common: infants were breastfed but were also given other, and inappropriate, foods from a very early age. A WHO/UNICEF two-year Collaborative Study on Breastfeeding revealed the same patterns in 1979.

The Nestlé Boycott

On 4 July 1977, the newly formed Infant Formula Action Coalition (INFACT) started a consumer boycott against Nestlé and demanded the end of infant formula promotion. They also lobbied U.S. Senator Edward Kennedy, chair of the Subcommittee on Health and Scientific Research of the Committee of Human Resources, to hold Public Hearings on the infant formula issue.

The Public Hearings took place in May 1978. In July, Kennedy met with representatives from the industry, including Nestlé, to determine what to do next. At the request of the Infant Council of Infant Food Industries, and with a support letter from Nestlé, Kennedy asked the director general of the World Health Organisation (WHO) to sponsor an international conference to discuss the issue and come up with an international recommendation for marketing infant formula in developing countries.

In 1979, Nestlé developed internal guidelines limiting advertising and sales promotions, curbing free samples and supplies, spelling out the content of informational materials and ending all financial incentives for health professionals to sell formula. In the same year, WHO and UNICEF held a meeting on Infant and Young Child Feeding.

The International Code of Marketing on Breast-milk Substitutes

In May 1981, the World Health Assembly (WHA) adopted the International Code of Marketing of Breast-milk Substitutes.

Nestlé announced its unilateral implementation of the WHO Code in developing countries in March 1982. It was the first company to implement the Code across its entire operations in developing countries, through the Nestlé Instructions on the implementation of the WHO International Code of Marketing of Breast-milk Substitutes.

In May, an independent audit commission, the Nestlé Infant Formula Audit Commission (or Muskie Commission because it was chaired by former Secretary of State Senator Edmund Muskie) was charged by Nestlé with the responsibility for ensuring compliance by the company’s field offices with code provisions and the company’s own instructions. By October 1982, consultations with the Muskie Commission led to a thorough revision of Nestlé Instructions.

That year, the Methodist Church voted against joining the Boycott and The Washington Post withdrew its editorial support for the Boycott. In January 1983, the American Federation of

Page 10: Case Studies

Teachers withdrew its support for the Boycott. Support for the Boycott waned quickly in the course of 1983. In 1984, following talks between the WHO, UNICEF, Nestlé and Muskie Commission, the activist groups end the boycott.

However, at the end of 1988 two new activist organisations, Action for Corporate Accountability (ACA) in the U.S. and Baby Milk Action (BMA) in the U.K., re-launched the Nestlé Boycott. One issue remained for these activist groups: “infants who have to be fed on breast-milk substitutes” and for whom free supplies were permitted by the Code. The boycott received very limited attention in the U.S. and disappeared in 1990. In the U.K., the boycott continued with the backing of the Church of England.

Latest developments

By 1989, Nestlé had published a “Plan of Action for Infant and Young Child Feeding” where it committed to end all free and low priced supplies of infant formula in developing countries except for the limited number of infants who need it.

In 1994, activists published a report entitled “Breaking the Rules” on alleged violations of the WHO Code by manufacturers. Nestlé investigates and responds to each allegation. In the same year, the Church of England suspends its support to the boycott.

In 1996, Nestlé stopped providing health care facilities with free supply of infant formula in most parts of the world.

In 2001, the World Health Assembly adopted resolution 54.2, which states that exclusive breastfeeding should be recommended for the first 6 months of life. Nestlé has unilaterally taken the decision to market infant cereals in developing countries from 6 months of age.

In 2004, Nestlé refined its internal Nestlé Instructions and developed and implemented a global management system to ensure compliance with the WHO Code across all Nestlé’s operations. This includes Nestlé Policy and Instructions, Nestlé WHO Code Management System, an Internal Ombudsman procedure as well as internal and external audits.

Discussion Questions

1. Was and is Nestlé’s and the other IFM members’ marketing of infant formula ‘unethical and immoral’?

2. Is it the case that ethical standards should be the responsibility of organisations such as WHO and UNESCO, and that the sole responsibility of firms is to work within the bounds set?

3. Is Nestlé just unlucky or did its actions precipitate its being singled out by activists? Is the activists’ focus on Nestlé unjust and itself dangerous? What accounts for Nestlé’s continuing in the infant formula market despite the protests?

Page 11: Case Studies

4. Did Nestlé benefit from confronting the activists directly? What other forms of action are available to the company? Should firms withdraw from legitimate markets because of the justified or unjustified actions of pressure groups?

5. The WHO code is a recommendation to government. Is it Nestlé’s responsibility to operate according to the national legislation of any given country, or to follow WHO’s recommendation to that country? Do international bodies setting international standards, such as WHO and UNICEF, have a moral responsibility to make those standards clearly understood by all parties and to demand action by national governments to enact them?

6. How should Nestle respond to the threats from the General Synod? Since Nestle claimed sales increased after the Nescafe boycott in 1991, should it just ignore the problem?

4. STARBUCKS

Headquartered in Seattle Washington, Starbucks Corporation is a premium coffee retailer offering a wide selection of hot and cold beverages, fresh food, premium ice cream, merchandise, and entertainment. Starbucks opened its first location in 1971 at Seattle’s Pike Place Market. Although Starbucks closed approximately 600 underperforming stores this year, it still operates more than 16,000 stores worldwide with over 11,000 stores in the United States. (Herman, 2008). Each store varies its product mix depending upon the size of the store and its location. Larger stores carry a broad selection while smaller stores offer a more limited selection.

The product strategy of Starbucks can be summarized by the company’s vision statement. As stated on its website, the company’s vision is to “establish Starbucks as the most recognized and respected brand in the world and to be the premier purveyor of the finest coffee in the world”. Starbucks has strong global brand recognition which is built on a solid reputation for premium products. The company is well known with consumers for making high quality beverages, food and associated goods. Starbucks takes pride as being recognized and respected as the top coffee store in the world. The atmosphere of its stores is what keeps customers coming back. The stores are designed where customers can get in and out quickly or stay and enjoy the camaraderie. Starbucks does not mass advertise. Most of their marketing is done by word of mouth, and in supporting local events within the communities where their stores are located. As Howard Schultz, the CEO of Starbucks states: At Starbucks, we have integrated ourselves in a way that is very different than selling a cup of coffee. We have an emotional relationship with our customers. It’s not one thing, but a lot of things. It’s not good enough to have a good ad, but everything you do helps complete the circle…the packaging, the community involvement, the service all help build that emotional connection. Starbucks has created very loyal customers who continue to return to Starbucks. These

Page 12: Case Studies

customers are willing to pay four dollars for a cup of coffee. The average Starbucks customers are middle to upper class, working adults. Also, there are a lot of college students who are extremely loyal to Starbucks as well. “These students will go to Starbucks, spend their money on drinks and hang around to do homework or meet with friends, turning Starbucks into a social meeting place”. Starbucks also offers kid-friendly drinks such as the Frappuccino. The company does not directly market to this customer base, but their coffee appeal reaches all generations.

Before Starbucks was available nationwide, the option for gourmet coffee was limited. One option was to go to a gourmet café, which usually did not stay open for extended or early hours of the day. Another option was to pick up a cup of coffee from a local gas station or from a fast-food restaurant in which it could not be specifically blended to the customer’s preference. Starbucks saw this opportunity and fully captured the market with a quality drink and a social environment. Starbucks is the first mainstream coffee shop that allows customers to dictate how their coffee should be made. Customers can choose a product that is fine tuned to their exact specifications.

Starbucks has distinguished its product based on quality and image. The company is ranked as one of the world’s 50 most valuable brands. Starbucks has done an amazing job establishing an emotional connection with its customers and is able to promote loyalty to its brand. When carrying a Starbucks cup, the customer feels like they belong to an elite social class. Starbucks has paralleled its branding with the actions found at any Starbucks across the world. The company differentiates its new products based on their unique features and brand image. They have an excellent company vision, which they stick to, which in turn assists their brand image. Starbucks’ image has been achieved not only through this and their massive global entrance, but through their ability to provide honest quality service.

In addition to its numerous franchises and licensed locations, customers can also find Starbucks in grocery stores, shopping centers, airports, bookstores, and hotels. Next week, Starbucks will open its first store in Portugal. Starbucks also has several joint corporate ventures with major suppliers and distribution channels. For instance, in 2006, Starbucks announced an expansion of relationship with Kraft to distribute Starbucks coffee into retail channels in Canada and the U.K. In that same year, Starbucks partnered with Pepsi-Cola North America to roll out Starbucks hot vending machines where a latte is heated on demand for customers. Through its numerous partnerships with grocery stores, franchises, record labels, and outside vendors, Starbucks has the opportunity to expand its brand name to places it may not usually be seen.

In 2001, Starbucks started to offer the Starbucks Card. This is a store value card for customers to use and reload. The company has created an opportunity to improve customer service, shorten lines and make a customer’s visit at Starbucks quicker and more convenient. In 2003, Starbucks launched the Starbucks Card Duetto Visa. This card blends the functionality of a regular Visa card along with a reloadable Starbucks Card. The next year,

Page 13: Case Studies

Starbuck launched a Hear Music media bar with a CD burning service in select stores. Recently, Starbucks launched mystarbucksidea.com on their website. This allows the customer a place to post and share ideas about Starbucks. Some of the suggestions include: Italian cream soda, seasonal ice creams, pumpkin spice syrup, and chocolate chip muffins. This site is open to all visitors who register.

There are many competitors in the coffee industry. Starbucks needs to be aware of what is going on in the competitive markets they serve. The company should push to be the first mover in order to compete against this potential market threat. Starbucks must invent new products to stay ahead of such competitive tactics. If Starbucks has the chance of preventing a competitive company from being the innovator, it must do so by being the innovator itself.

Discussion Questions

1. What has suddenly made people across the world willing to pay three to four times more for a cup of coffee than they used to?

2. Is Starbucks another McDonald’s? How similar and different are the two companies?

3. Evaluate the strengths, weaknesses, opportunities and threats of Starbucks. How are the trends of health concerns, the ageing population and anti-globalisation likely to affect the continued growth of the company?

4. What factors accounted for Starbucks’ success in the early 1990s and what was so compelling about its value proposition? What brand image did Starbucks develop during this period?

5. How has Starbucks changed since its early days?

5. TOYOTA HYBRIDS

Environment and hybridCompanies that develop, produce and sell automobiles cannot avoid environmental issues. Preventing global warming and reducing the use of limited fossil fuels are closely related to basic vehicle performance and are high-priority issues for all companies. Further enhancing the environmental performance of automobiles will contribute to the development of sustainable motorization. Against the backdrop of dwindling petroleum resources and the company’s desire to help reign in global warming, Toyota has been actively developing various new technologies that help achieve energy security and diversify energy sources.

One solution developed by the company to address these issues is the widespread use of internal combustion hybrids. Hybrid systems combine an engine and a motor to distribute drive

Page 14: Case Studies

power efficiently and recover kinetic energy during deceleration, converting it to electrical energy for storage in a battery, which greatly improves fuel efficiency and makes cleaner exhaust emissions possible. In addition, hybrid technologies can be adapted for fuel cell vehicles and are key technologies for the development of the ultimate eco car.

Looking ahead to 2010 and 2020, fuel quality in developing countries will improve with the elimination of lead and sulfur, making the introduction of low-emission vehicles possible. At the same time, older vehicles will be replaced, and it is expected that exhaust emissions issues will be largely resolved. Consumption will increase as a result of growing populations and higher standards of living, presenting further questions concerning the reduction of CO2 and the supply and demand of energy.

A leap of faith

Early in the 1990s, Toyota sought to answer two important questions: “What are the requirements of motor vehicles for the 21st century?” and “What sort of vision must Toyota have to meet the challenges of the new era?” To answer these questions, the company assembled staff members from various departments to develop a totally new type of vehicle. The group was driven by the notion that a vehicle for the 21st century must set an example by offering solutions to natural resource and environmental issues. At the same time, these solutions could not interfere with convenience and comfort. They set a target of a 50 percent increase in fuel efficiency (1.5 times that of existing vehicles). Akihiro Wada, a Toyota executive vice president at the time who was responsible for the project, felt that this was inadequate: “Fifty percent is not good enough. Our fuel efficiency improvement target must be 100 percent (2.0 times that of existing vehicles).” The team’s first plans were drastically changed, as the initial technologies being considered would not be capable of reaching this level. Radical innovation was required.In January 1994, a full-fledged project began. By the end of 1994, the group realized that a hybrid system that Toyota had been developing in a separate project over the last few years might provide the power train for a new type of car. The team’s work was unveiled in October 1995, at the Tokyo Motor Show in the form of a car featuring two power sources: a highly efficient gasoline engine and an advanced electric motor. However, the project team was still faced with many challenges in attaining the goal of 100 percent energy efficiency improvement. Related technical issues, such as battery performance and power source management, still had to be improved several-fold. It took two years, numerous test vehicles, and a great deal of effort before this goal was reached.

Scaling it upIn January 1997, Toyota declared the start of the Toyota Eco Project. As part of this effort, Toyota decided to tackle the international challenge of reducing CO2 emissions in order to prevent global warming and accelerated the development of a hybrid vehicle with the goal of achieving twice the fuel efficiency of conventional vehicles. Then, in March of the same year, Toyota announced the completion of a new power train called the Toyota Hybrid System (THS) for use in passenger vehicles. This power train combines a gasoline engine and an electric

Page 15: Case Studies

motor and does not require external charging. This system also achieves nearly twice the fuel efficiency of conventional gasoline engines. THS was first installed in Toyota’s Prius passenger vehicle and introduced to the Japanese market in December 1997 as the first mass-produced hybrid passenger vehicle in the world. In 2000, after further improving THS, overseas marketing of the Prius began.

Building on the ecology-focused THS, Toyota has developed the concept of Hybrid Synergy Drive. Based on this concept, Toyota has developed a new-generation Toyota hybrid system called THS II, which achieves high levels of compatibility between environmental performance and power by increasing the motor output by 1.5 times, greatly boosting the power supply voltage and achieving significant advances in the control system, aiming for synergy between motor power and engine power.

Automobiles of the futureAutomobiles of the future must increase both environmental and safety performance, while significantly increasing driving performance. The conventional approach to reaching these goals has been to increase output and torque by increasing engine displacement or using supercharging. However, this approach decreases fuel efficiency, making it difficult to achieve both environmental performance and power. By using the Toyota Hybrid System (THS), however, the Prius is able to achieve high levels of both environmental performance and power.THS, which is a series parallel hybrid, contains a power split device that splits power into two paths. In one path, the power from the gasoline engine is directly transmitted to the vehicle's wheels. In the other path (electrical path), the power from the engine is converted into electricity by a generator to drive an electric motor or to charge the battery.

This unique configuration achieves idling stop, stopping of the gasoline engine while the vehicle is running, running of the vehicle using the electric motor, motor assist at any speed, and highly efficient energy regeneration, without using a clutch or transmission. This is achieved through the use of a motor having large low-speed torque and large output.

Expanding sales of hybrid vehiclesToyota believes that promoting the widespread use of vehicles with high environmental performance is the mission of automobile manufacturers who are serious about addressing environmental issues. Widespread use will require the introduction of hybrid vehicles into popular market segments. The vehicles themselves must be products that can sell well. No matter how good the environmental performance, customers will not purchase vehicles that sacrifice driving performance.

With the recent launch of the two hybrid SUVs, Toyota’s hybrid lineup now includes a total of nine vehicle series. Toyota aims to sell one million hybrid vehicles by 2010 and plans to launch new hybrid vehicles in the future. The Lexus brand GS-HV is scheduled for launch in 2006, and applications will be extended from compact cars to SUVs and high-end sports sedans. The applicability of hybrid technology is broad and can be used not only on gasoline vehicles, but

Page 16: Case Studies

also with diesel and alternative fuel engines, and is even effective in *Direct Injection 4-stroke Gasoline Engine combination with fuel cell technologies. If the hybrid system can increase performance regardless of the energy source, it will remain a core technology in the development of the ultimate eco car.

Discussion Questions

1. What microenvironmental factors affect the introduction and sales of the Toyota Prius? How well has Toyota dealt with these factors?

2. Outline the major macroenvironmental factors – demographic, economic, natural, technological, political and cultural – that have affected the introduction and sales of the Toyota Prius. How has Toyota dealt with each of these factors?

3. Evaluate Toyota’s marketing strategy so far. What has Toyota done well? How might it improve its strategy?

4. In your opinion, what are the advantages of Toyota’s early entry into the hybrid market? What are the disadvantages? Have Toyota jumped too early into an expensive technology that has had its day?

6. Nokia: Ovi

Is it a phone? No! Is it an MP3 player? No! Is it an Internet company? Yes, it’s Ovi!

Nokia has positioned itself as an Internet company with an announcement of an online music service designed to compete against Apple’s iTunes. Smaller operators may wish to use Nokia’s service, Ovi, but larger ones may develop their own. Mobile music sales have failed to gain traction because most consumers sideload music from their computers to their mobile handsets. Nokia’s services division will now be one of three core businesses and will likely include other services too.

Discussion Questions

1. Why is Nokia making this sudden change into becoming an Internet service provider rather than a maker of mobile phones?

2. What are the dangers in making such a large shift and how do Nokia’s strengths help overcome them?

3. Why might Nokia have decided to use the separate brand name Ovi rather than using a name based on Nokia?

Page 17: Case Studies

4. Nokia has been particularly successful in providing mobile phones for the business market. Will these professional devices sit easily alongside Ovi?

5. How does Nokia’s strategic shift change the competitors and products with which the company is competing and how strong is it in these markets?

7. FLYING HIGH AT RYANAIR

Loved and hated by Europeans, Ryanair had become one of the most successful airlines in the world. In spite of its exclusive focus on European routes, the airline ranked #11 in the world on operating profit and #2 on operating margin in 2005. Its CEO, Michael O’Leary, had been rewarded handsomely for his efforts, holding a net worth of €636Mi – just a shade behind rock band U2 in the Sunday Times “Rich List” for Ireland.

Yet Ryanair was a paradox. To quote The Economist in 2007ii: [Ryanair] is hugely successful. It has brought flying within the reach of people of the most limited means. It has helped to change the economic prospects of neglected parts of Europe by bringing passengers and their money to underused provincial airports. But at the same time Ryanair has become an epitome for appalling customer service, misleading advertising claims and jeering rudeness towards anyone or anything that gets in its way.

Brief History

Ryanair was the brainchild of Tony Ryan, a former executive with the Irish national airline, Aer Lingus, who grew wealthy as a broker placing surplus aircraft on behalf of airlines around the world. Ryanair started in 1985 with one 15-seat aircraft ferrying passengers betweenWaterford, a tiny airport about 90 minutes from Dublin, and London.

In the following year, Ryanair obtained a license to fly from Dublin to London. Aer Lingus, which held a monopoly on this route, protested in vain against the granting of the license, setting the stage for years of bitter competitive conflict. In 1986 about 800,000 passengers flew on the Dublin-London route, typically paying about £200 for a return ticket for a one-hour flight. With a long history of emigration there were many Irish residents in the UK, but they tended to travel home only for special occasions, such as family weddings or funerals. In May 1986 Ryanair announced that it would charge £99 on its inaugural flight, prompting Aer Lingus to slash its price to £95 – and prompting Ryanair, in turn, to drop its price to £94.99.

The ensuing years were turbulent, to say the least, as Ryanair faced fierce competition from established airlines in the form of savage price cuts and lobbying to governments and the emergence of other discount airlines. By 1990, Ryanair’s fare on the Dublin-London route had fallen to £59; in 1999, it was £19.99; and in 2005, Ryanair offered a fare of 99p to 100,000 passengers in celebration of its 20th birthday. In May 2007, Ryanair offered a free seat

Page 18: Case Studies

giveaway to 1 million passengers and a guarantee that no other airline could match its fares. Through this time, Ryanair’s passenger traffic grew dramatically and had reached 50 million passengers on 571 routes across 26 European countries by 2007. The airline survived the Gulf War in 1991, the aftermath of Sept 11, 2001 and dramatic oil price increases, all of which created severe problems for the industry. By 2007, its route network covered most of Europe and the International Air Transport Association (IATA) reported that Ryanair was the largest international airline in the world in terms of passenger traffic.

Business Model

Ryanair’s business model was very simple: it offered the lowest fares possible to passengers. It managed to accomplish this through a relentless focus on costs. However, the airline was careful not to compromise safety and as of early 2008 had an accident-free record. Ryanair was Europe’s first discount airline and benefited greatly from the emergence of “open skies” deregulation across that continent. It modeled its strategy on that of Southwest Airlines in the US; O’Leary was one of several airline executives who made the pilgrimage to Dallas in the early 1990’s to learn at the feet of Southwest’s founder Herb Kelleher.

Cost Control

Ryanair’s tight cost control was the backbone of its low-price strategy. As a result of this cost focus, Ryanair had by far the lowest costs in Europe, about 40% lower than its closest competitor. The major elements of its cost-control strategy were: 1. The Use of Secondary Airports. Ryanair typically did not fly to the major “hub” airports in Europe, but instead to secondary airports which were often located some distance away from major city centres. For example, Ryanair advertised flights to Frankfurt but flew to Hahn, about 125 km away, and similarly used secondary airports near London, Brussels, Hamburg and Stockholm. In negotiations with secondary airports, often located in economically depressed areas, Ryanair bargained hard for low fees. 2. Rapid Turnaround. Ryanair maximized the utilization of its aircraft by turning around its aircraft in 25 minutes, considerably faster than the industry average. This was facilitated by the lower traffic at secondary airports, and allowed Ryanair to keep its planes in the air about 30% longer than the typical carrier. 3. Point-to-Point Routing. All Ryanair flights were point-to-point, i.e. did not connect with other flights. This avoided the costs associated with passenger and baggage transfer. 4. Aircraft. Ryanair flew a single aircraft family, the Boeing 737, and thus simplified the maintenance process. Its largest aircraft order was placed in 2001 after September 11, when there were significant bargains to be had. The aircraft themselves were “no-frills”: they were ordered without window blinds, reclining seats, headrests or seat pockets. 5. Fuel. Fuels accounted for a substantial part (23%) of costs and unlike other carriers, Ryanair had a policy of not applying fuel surcharges. Fuel requirements were typically hedged for 12 to 18 months. 6. Service. There were no free snacks or drinks on Ryanair flights. These were supplied by third-party caterers who paid Ryanair a flat per-flight fee for the privilege of selling these items to passengers. Ryanair also charged passengers for checked baggage. Ryanair also had a rigid no-refund ticket policy that helped minimize administrative costs: the airline was also famous for pocketing the fees and taxes paid by “no

Page 19: Case Studies

shows” for its flights – about 8% of passenger traffic – a practice that earned €7.5m in 2003. 7. Staff and Overheads. Ryanair’s staff were non-union, and subject to tight cost control measures. Pilots and cabin crew received lower salaries than their counterparts in other industries but received significant variable compensation: crew, for instance, received commissions on on-board sales. Staffs were forbidden from charging their mobile phones at work and at one point O’Leary suggested that employees take pencils from hotels rather than use new ones at work.

Service

Flying on Ryanair was truly a no-frills experience. Where traditional airlines provided extensive services on board, Ryanair eliminated snacks, newspapers, food and beverages. There was no business class or frequent flyer club. However, Ryanair was a pioneer in “unbundling” these services: instead of receiving them free, passengers could buy snacks and newspapers on board. In 2006, Ryanair also introduced a charge of €5.00 (€2.50 if booked in advance) for checked baggage and a further €8/kilo for baggage in excess of the 15-kilo limit. Among the many further revenue-generating services were on-board gaming, rail tickets and travel insurance. On the positive side, several features of Ryanair’s operation provided superior service to passengers. Ryanair consistently beat its competition on punctuality and missing bags passengers with Ryanair were almost always assured of getting to their destination on time with their luggage.

On the other hand, Ryanair was notorious for its brash approach to customer service. The airline fought and lost several court cases that made it the poster boy for bad service: one action was brought by a disabled passenger against Ryanair for its policy of charging a fee for wheelchairs; another by Ryanair’s millionth passenger, Jane O’Keefe, who received a “free flights for life” coupon, only to find that the airline subsequently restricted the prize to one flight per year. Ms. O’Keefe claimed that she received a torrent of abuse from O’Leary when she called his office to complain. Ryanair’s “no refund” policy also extended to adverse incidents: in the case of delays or cancellations due to weather or equipment problems, passengers could expect to receive no hotel accommodation or meal vouchers, let alone a refund. Ryanair staff had been known to simply close the check-in desk and leave in such situations, and O’Leary himself was known for yelling four-letter words at any passenger who dared ask for a refund. In a poll of 4,000 travelers by the travel site Tripadvisor, Ryanair was voted the “least liked” airline in the world. The main complaint was unfriendly staff, followed by delays and poor legroom.

Competition

Ryanair faced competition from traditional carriers such as Aer Lingus and British Airways, other discount carriers such as easyJet, and charter airlines that focused on package tours. Traditional carriers had tried, for the most part unsuccessfully, to launch their own discount operations. British Airways’ discount carrier, Go, was forced to shut down in the face of fierce price cutting from Ryanair, and in 2003, Ryanair acquired KLM’s discount operation, Buzz. Discount operators were closest to Ryanair’s business model, but had difficulty matching its low costs. A top

Page 20: Case Studies

executive of easyJet, its primary discount competitor in the UK and Europe, reported in 2005 that profits were below par as a result of fierce competition from Ryanair. Some charter operators were morphing into discount airlines, offering seats independent of holiday packages. One of these, Air Berlin, offered a comprehensive frequent-flier program and hot meals on longer flights.

Ryanair had never pulled its punches in pricing to eliminate competition, and its advertising – developed in-house – reflected a similarly aggressive approach. In what had once been a cozy industry, Ryanair shook up the competitive landscape with publicity stunts and ads that directly attacked competitive airlines. On one occasion, O’Leary arrived at Luton airport in a WW2 tank and led his “troops” in a chant of “I’ve been told and it’s no lie, easyJet’s fares are way too high”. Samples of Ryanair’s advertising are shown in Exhibit 5: many of these ads shocked both the industry and segments of the public, generating more notoriety for Ryanair. In response to the “Mannekin Pis” ad shown in Exhibit 5, Sabena successfully sued and Ryanair was ordered to discontinue the ad immediately and publish an apology. Ryanair used the apology for further price-comparative advertising.

The Future

From its scrappy beginnings as an upstart, Ryanair had become a world aviation leader. It had accomplished this in the face of fierce competition from established players and new discount operators, industry-wide shocks that put several competitors out of business, and a host of bureaucratic obstacles. In 2006, Ryanair launched a hostile takeover bid for its arch-competitor, Aer Lingus, stating on its website, “In October … we made an all-cash offer for the small regional airline, Aer Lingus”. The bid was ultimately rejected, but Ryanair continued to hold 25% of the shares in Aer Lingus. In 2007, O’Leary indicated that a new long-haul airline, RyanAtlantic, would be launched in 2009. As remarkable as Ryanair’s meteoric rise was its sheer nastiness with customers, bureaucrats, suppliers and anyone else it dealt with. Yet the airline’s success flew in the face of conventional wisdom that customer service was critically important in this industry. In effect, O’Leary adapted everything about the Southwest airlines model except customer service, and there was no sign that this approach was about to change.

Discussion Questions

1. What is stimulating the growth of budget airlines and what explains the economics behind Michael O’Leary’s claim that Ryanair could soon be flying people around Europe for free?

2. What allows Europe’s new budget airlines to keep their costs down and which operator has the advantage?

3. Does the Internet have a distinct role in the budget airlines’ operations?

Page 21: Case Studies

4. How does the European Commission’s claim that Charleroi priced their landing fees and handling charges too low for Ryanair square with ELFAA’s claim that it is low-cost airlines that have allowed regional airports to thrive profitably? How do you think the regional airports arrived at their fees and charges?

5. What is the likely impact of easyJet’s style on pricing when applied to cinemas? Could a similar pricing approach apply in other circumstances when price and demand do not match, such as major sporting events, rock concerts and inner-city parking?

8. GIORDANO: POSITIONING FOR INTERNATIONAL EXPANSION

Giordano is Simplicity, Simple Solutions for simple needs. It all starts with a vision “To be the best and biggest World Brand in Apparel Retailing” World Brand is a strategy articulated by CEO & Chairman, Peter Lau on what Giordano should be as a company to achieve the vision. He defines World Brand as, “A World Brand is different from a global brand, it has no center, knows no national borders, cross-cultural and is owned by local consumers. It is a truly "Think Global, Act Local" scenario. Koreans should feel that Giordano is their Korean brand. Chinese should feel that it is their Chinese brand. Australians should feel that it is their Australian brand. And so on so forth. But all have a cosmopolitan, international and contemporary touch - timely, never outdated.”

Giordano International was founded in Hong Kong in 1981 and is now one of the worlds leading international retailer of apparel and accessories for men, women and children. From its beginnings as a manufacturer of casual clothing in the 1970s, Giordano has developed into one of the world’s most renowned, apparel retail brands. By focusing relentlessly on its five corporate business values of Quality, Knowledge, Innovation, Service and Simplicity (Q.K.I.S.S), Giordano has grown from its single Hong Kong store in 1981 to the present network of over 2,000 stores in the Middle East, Asia, Australia, India, Eastern Europe and North America.

Giordano International has received numerous accolades over the years, including service excellence awards from local and international bodies worldwide. It has also been recognised on an international level for its corporate governance and Giordano’s global success story has also featured as a Harvard Business School case study. “To make people feel good and look great” This straightforward mission has served the Giordano Group well since 1981 in guiding its growth from a manufacturer of casual clothing into a leading international retailer of apparel and accessories for men, women and children. By providing attractive everyday fashion in a comfortable environment, it has built a family of brands synonymous with quality, value and customer service.

Giordano embodies the contemporary lifestyle choices – simplicity in design and quality in substance. Its total commitment to superior service and outstanding quality and value has enabled the company to successfully execute on its multiple-market and multiple-brand strategy. It has successfully established retail operations in over 40 countries worldwide while

Page 22: Case Studies

continuing to develop and grow the brands Giordano, Giordano Concepts, Giordano Ladies, and Giordano Junior, each with its own individual market positioning and retail identity.

The brand’s offering of timeless, relevant and easy to mix and match apparel has proved popular for all age groups and nationalities, demonstrating the global appeal of the brand. The heart of the Giordano system is that it is totally customer responsive. Information, speed and simplicity are the key components driving the entire operation. By keeping things simple, operations are streamlined and this allows for speed which in turn allows the creation of value, because time is money and by keeping matters consistently simple, Giordano can offer customer the convenience of knowing where to get their basic apparel problem solved. This is service.

Giordano has a unique model in retailing across the world – as it owns and operates most of its stores and only works on the Franchising route if the Franchise partner matches the same passion as Giordano’s Vision, Mission, Values, Brand and Culture. This helps it to inculcate its values across all its employees and directly to the customers. It also helps it to maintain standards and consistency across the stores and operations. Most international brands have appointed different distributors and franchisees in each country and at times this has led to different modes of practice and inconsistencies in service, policies, price and merchandise.

It is perhaps this core value of simplicity that has kept the company going. The company has weekly meetings with all its employees and store operators, where the key aspects are discussed and new initiatives are discussed. Staffs are regularly sent to attend training programs, seminars as well as visits to our markets and their experience is shared with everyone. Operational transparency, information and knowledge sharing has helped the company to imbibe its values across all levels in the organization.

A study of Giordano shows that it is just not important to come up with great apparel to succeed – it is also equally important to have a focus – especially when your operations span across several countries. For Giordano the simplicity focus has really worked wonders.

Discussion Questions

1. Describe and evaluate Giordano’s product, business, and corporate strategies.

2. Describe and evaluate Giordano’s current positioning strategy. Should Giordano reposition itself against its competitors in its current and new markets, and should it have different positioning strategies for different markets?

3. What are Giordano’s Key Success Factors (KSF) and sources of competitive advantage? Are its competitive advantages sustainable, and how would they develop in the future?