Dissertation MSC Int Marketing

University of East London

BARRIERS TO ENTRY AND MARKET SEGMENTATION IN THE PLUG PLANTS

INDUSTRY OF UK

A dissertation submitted in partial fulfillment of the requirements of

MSc. International Marketing Management Program

SMM 210

By

Shachi Bhatt

0632296London, UK

May 2008

MSc. International Marketing Management Dissertation

ACKNOWLEDGEMENTS

I would like to thank all the people involved with this project.

I am greatly obligated to Mr. John Gammon who provided me with considerable guidance and

motivation

I highly appreciate Mr. Dick, of John Woods Nurseries, Mr. Steggall of Wyevale Garden

Centre at Woodbridge, and Mr. Norris of New Place nurseries for allowing me to interview

them

I greatly appreciate the efforts of all managers at the companies that were approached through

the survey, and thank them for their time.

I thank the Director Mr. Giles of Promar International and Ms. Enon, consultant for sharing

information and guiding me.

I thank the staff at Royal Horticulture Society, Lindley Library, the staff at Westminster

Reference Library and the staff at University of East London Docklands Library for their

services.

Finally I thank my friends and family for their support. This project would not be possible

without them.

Barriers to Entry and Market Segmentation in the Plug Plants Market of UK


CONTENTS

Acknowledgements…………………………………………………………………….I

Abstract…………………………………………………………………………………II

Chapter 1 Introduction………………………………………………………………….1

Chapter 2 Literature Review

Barriers to Entry………………………………………………………………3

Market Segmentation………………………………………………………..24

Chapter 3 Method………………………………………………………………………30

Chapter 4 Findings

Barriers to Entry…………………………………………………………….31

Market Segmentation…………………………………………………….....52

Chapter 5 Conclusion and Recommendation……………………………..69

Appendix A Interviews and Correspondence

Appendix B



ABSTRACT

This project was undertaken to find out what problems a new company that wants to enter the plug plants market in the UK would face, in terms of barrier s to entry and what kind of segment of customers can it target.

It determines which barriers to entry are present in the plug plant market and gives a brief idea of what segments exist in the market and how they can be refined further. To find this out, a combination of primary data through questionnaire and interviews, and secondary data through articles, publications, market research reports etc has been used.

The study finds that out of the variables considered, advertising and product differentiation are not barriers to entry in the plug plants market, and could actually help new entrants while research and development intensity, capital requirements, customer loyalty and competition are significant barriers for new entrants. Pricing and distributor agreements were not barriers either, but require looking at stronger evidence in both.

The study also finds that two segments of consumers of gardening products can be used as a base and creates 2 further sub segments.

The result of this research is specific to the product and the kind of companies surveyed and requires a larger survey to quantify the extent of barriers, and advanced consumer research into the two segments identified.


CHAPTER 1

INTRODUCTION

The horticulture industry in the UK is a diverse and high performing industry well worth over

£5 billion (retail only). It is a significant contributor to UK’s economy and employment.

Keynote (2004), Defra

The industry has been undergoing a slump, but socioeconomic trends in the UK show a

positive outlook for the next few years. Increase in home ownership, increase in an ageing

population with greater leisure time and the advent of the Olympics in 2012 are stated as the

promoting factors to development in the industry (Keynote 2007).

This dissertation seeks to provide an insight into one of the markets within the horticulture

industry which is the Plug plants or young plants market. Also referred to as starter plants,

this product was initially used mainly business to business, but now is being retailed by

garden centers, nurseries etc. and is catching on with certain segment of gardeners.

As defined by Royal Horticultural Society of London, plug plants are young plants or

seedlings grown in single units within cellular seed trays i.e. individual cells of compost. Also

called modules, plugs are a means of planting or potting up seedlings which can be pulled out

with minimal root disturbance.

The paper will try to cover certain aspects of strategy like barriers to entry and segmentation

which potential new firms entering the plug market have to consider. This is particularly

useful for firms sourcing the plugs through exports, because it looks at government

regulation.

Although segmentation and positioning strategy require considerable market data which

cannot be procured, this paper makes a beginning for such survey to be possible in future.


For segmentation and positioning exercise, firms trying to find a strategic position in the plug

plants market need to know the structure of the industry and the various segments. .

“Understanding industry structure is also essential to effective strategic positioning”. Porter M

E 2008. Unfortunately there is a lack of existing published data or market research available.

Therefore, this understanding of the structure of the plug plants market has been drawn up

partly from secondary existing data on the structure of the overall horticulture industry and by

primary data obtained from existing companies. Out of 30 companies approached, 8

companies provided responses through questionnaires. The size of the sample however small

is extremely useful as a pilot study.

The variables looked at are advertising, customer loyalty, research and development intensity,

government regulation, capital intensity, competition, price, distributor agreements,

incumbents possessing advantages due to access to superior access to raw materials and

learning. It is not possible to quantify the height of barriers, but it does shed light on whether

they are barriers or not in the plug plant market.

The kind of customer profiles most suited to purchasing plug plants is presented, and a

suggestion for two smaller sub groups within these segments is presented along with data.



CHAPTER 2

BARRIERS TO ENTRY

Most industries today are characterized by high number of market entrants and equally

high number of exits. “Most businesses seem to fail within the very first year of business, and

the surviving ones fail to gain a substantial market share”. Geroski, Gilbert and Jacquemin

(2001) “BARRIERS TO ENTRY AND STRATEGIC COMPETITION”. Strategic marketing

research has tried to identify the reasons for profitability of businesses in new markets.

There are 2 schools of thought, one that believes that industry structure determines a firm’s

performance. (Porter etc). Porter identifies 5 forces that affect industry structure.

According to Porter, M. E. (2008) if the five forces that shape industry competition are

very strong, then no company makes attractive returns on their investment. Therefore it is

necessary to look at the plug/young plant industry and identify the intensity of these forces. I

have looked at one of these forces- threat of entry. Threat of entry depends on whether

barriers to entry are high or low. If the entry barriers are high, the threat of entry is low, as

potential entrants are deterred. If the entry barriers are low, the threat of entry is high. For a

potential new entrant, barriers to entry affect the potential profitability of the firm, because

they are a part of the industry structure which is observable in the forces. Following this

school of thought, barriers of entry in the horticulture industry in UK would play a significant

part in the firm’s ability to enter and succeed in the plug/young plants market.

Barriers to entry can be defined as “advantages that incumbents have relative to new

entrants” Porter, M. E. (2008).



They are also defined as “Factors that make it difficult or costly for firms to enter an industry

or market" (Charles W.L.Hill, McGraw Hill, International Business, 2001, page 674).

Bain (1956) defines barriers to entry as the advantages of established sellers in an

industry over potential entrant sellers, and that barriers exist when entrants cannot achieve the

same profit level as the incumbent had before the entrant’s arrival.

Porter categories these advantages into seven groups:

1. Supply side economies of scale

For existing firms, lower costs per unit because of large volumes produced, better

terms from suppliers, better technology employed etc are benefits that new comers

have to overcome

2. Demand side economies of scale

Network effects, arising when buyer’s willingness to pay for a company’s products

increases with the number of buyers who also patronize the company.

3. Customer switching costs

Switching costs are fixed costs that arise for a buyer when changing over to a different

supplier.

4. Capital requirements

Facilities/ infrastructure, advertising, start up losses and customer credit.

5. Incumbency advantages independent of size

Knowledge of existing firms of existing firms, brand identity, access to best raw

material, control over geographical territory etc pose a problem for new entrants

6. Unequal access to distribution channels



Incumbents may have tied up or secured the existing distributor channels and maintain

a tight control over them, making it difficult for new comers to use those distribution

channels.

7. Restrictive Government policies

Tariffs and quotas, phyto-sanitary guidelines etc.

Karakaya identifies an exhaustive list of 25 barriers to entry and examines the

importance. The author points out, that barrier to entry are different in industrial and

consumer markets and tries to find out if the underlying dimension of entry in consumer

markets are also present in industrial markets.

Karakaya also suggests consumer- switching costs as a more important barrier to entry.

This includes the psychological risk of switching to a new product or brand and also sunk

costs of switching to a new supplier for example in case of telephone or industrial equipment.

Government policies are also an important barrier to entry in industrial markets

The underlying dimensions to barriers to entry as suggested by the author are firm

specific advantages, product differentiation, and financial requirements of costs of entry and

profit expectation of entering firms.

Other barriers include predatory pricing, intellectual property rights, and inelastic

demand. Porter (2008) also identifies weather and business cycles as forces affecting

profitability in the short run. In the horticulture industry, due to its unique nature, seasons,

weather and timing could affect market performance and also be barriers to entry.

Geroski, Gilbert and Jacquemin (1990) quote Stigler who has identified another barrier-

inadequate demand. “An entrant incurring a higher cost of because it has to produce at a lower

level of output, experiences a cost disadvantage because of demand conditions in the market

and not the existence of a barrier to entry.” So it would be possible to say that inadequate



demand is a barrier to entry according to Stigler’s definition, but inadequate demand is

relative to profitability and should be a disadvantage to incumbents as well. That goes against

Bains’ definition.

Barriers arise both before and after entry. Exit barriers are costs or disadvantages that occur

when a new entry fails or when a firm is leaving the market. An example of that is sunk costs

which arise due to fixed expenditure incurred during entry. Exit barriers in the plug market

are not looked at in this paper but can be a topic for further study.

Other schools of thought (Neo Austrian School) put focus on the firm’s core

competencies as drivers of profitability (Prahalad and Hamel 1990) such as individual firm

differences (Hill C Deeds D 1996) and strategy competence (Pehrsson 2000) as key factors

deciding profitability of a firm. Following this school of thought, the horticulture industry and

its structure would be less important as a driver of success for firms trying to enter the

plug/young plants industry. This school of thought would suggest looking at the new firms’

own resources and uniqueness of a firm’s routines relative to that of its competitors or

incumbents. (Hill W Deeds D 1996).

Therefore the Neo Austrian School would suggest that incumbents have three main

advantages that give it success in the long run which new entrants would have to overcome:

1. Ability to generate the valuable innovations

2. Ability to build barriers to imitation that protect core competency’s from

imitation by rivals

3. Ability to overcome organizational inertia and quickly imitate valuable

innovation by others (Hill, Charles W. L., and David L. Deeds. 1996. "THE

IMPORTANCE OF INDUSTRY STRUCTURE FOR THE



DETERMINATION OF FILM PROFITABILITY: A NEO-AUSTRIAN

PERSPECTIVE)

However these abilities are hard to measure and quantify as they are abstract qualities,

and change over time. Say for example, if we are identifying whether competition is a barrier

to entry in some market.

By the resource based view, barriers are a way for incumbents to compete, because they

allow the firm to set up resource based barriers such as patents or knowhow; they are

valuable, inimitable, rare and do not have substitutes Barney, (1986) and (1961) and must

contribute to customers perceived value and provide entry into new markets Prahalad and

Hamel (1990) quoted by Yonggui and Ho Ping). Therefore a very competitive industry is a

barrier to entry as it would have more intense barriers as compared to a less competitive

industry. Yonggui and Ho Ping suggest that organizations compete at different levels-

Strategic level, Core competency level, Value chain deployment level and ultimate market

level.

“At the core competence or strategic asset level, firms have to look for strategic position …

seek advantages by way of development of productive knowledge platform, upgrading of core

products based on unique core competence, construction of specific resource position barriers

and accumulation of strategic resources and capabilities.” Yonggui and Ho Ping (2002)

They also suggest that in a turbulent market there are rapid changes, but at the core

competence level, the long term plans are made for the firm to develop and compete; the

advantage of this is that the firm can develop the following

1. Superior product or service attributes

2. Make best use of resources by firms own culture of integration and coordination of its

assets, and good information flow

3. Get superior organizational skills or knowledge Yonggui and Ho Ping (2002)



These could erect barrier for new entrants. However, these differ from firm to firm so not all

incumbents could integrate their resources well enough to pose a barrier, and besides new

entrants can also possess a culture of integration of resources and organizational skills.

Therefore it is not clear exactly how barriers are created by resource based view.

Besides, according to Bain’s definition, advantages of the incumbents such as ‘ability

to generate valuable innovations’ are barriers to entry for new entrants, such as ‘amount of

R&D costs involved with entering the market’ that is much easier to identify and measure.

Besides, according to Porter they are a part of the industry structure as well.

Weighting opinions of both schools of thought, I consider the industry structure view of

Porter, Bain etc as a stronger line of reasoning, because it can be empirically tested and there

is enough research on it.

Whereas the knowledge and resource based view are not very easy to determine and measure.



Quantifying the impact of barriers

Geroski, Gilbert and Jacquemin suggest that height of overall barriers is difficult to

measure because of the interacting effect of the entire barriers together.

Impact of entry barriers on industry profitability and rate of entry has been proven Dean

T, Meyer G. Dale G (1992) .

There is direct empirical evidence between rates of entry and entry barriers. Entry

theory is important for strategic management researchers because it is one of the five forces

that determine the attractiveness of an industry and also the potential profit ability of a firm

within the industry. Strategic group research has addressed the use of entry paths whereby the

height of entry barriers depends upon a targeted strategic group. Strategic group literature

states that strategic groups represent groupings of firms within an industry that pursues

similar strategies with similar resources. Profit variation across groups within an industry

comes from differences in group specific entry barriers also known as mobility barriers.

Entry and entry barriers are also affected by additional factors which are called entry

gateways- factors that benefit or facilitate new entry into the industry. Dean T, Meyer G Dale

G (1992).for example according to them, advertising, R&D intensity and demand growth,

niche dynamism etc.s

One way to quantify the impact of barriers to entry is Bains’ method- comparing

observed entrants with incumbents or counterfactual observations of incumbent’s activities

(Geroski, Gilbert and Jacquemin)

This would require studying the 4 firm concentration ratios, consisting of units sold and

revenues of 4 largest firms in the industry over a period of 10 years or more and compare the

results with concentration ratios of a similar industry. The barriers are then classified into high

(can raise price by 10%), substantial (raise price by 7%) or moderate and low scale (4%) by



their ranking resulting into an equation. However, this approach requires extensive data.

Another criticism of this method is it relies heavily on judgment of researcher.

A method of Orr (also quoted by Geroski, Gilbert and Jacquemin) to quantify the height

of barriers is to ascertain levels of profit which can be kept up by incumbents without

attracting entry.

The premise is that barriers impact profitability in the industry and the rates of entry; and that

high profit does not have much impact on increasing entry in an industry with high barriers,

but it does on industries with low barriers.

All methods of quantification of the height of barriers require deep understanding of

economic theory, and looking at past conditions of the market which involves time and lot of

resources. A possible extension of this dissertation will be quantifying the height of barriers

that will be identified in this paper.

"THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY." Harvard Business

Review 86(1): 78-93.



ADVERTISING AS A BARRIER TO ENTRY

There is a lot of controversy over whether advertising is a source of entry barriers, and it is of

special importance to government regulators. Traditional theory indicates advertising as a

benefit to incumbents…and deters new comers especially small or medium sized firms

because of the costs involved. Bain 1956 suggests that advertising is a way to create product

differentiation, making it a barrier to entry. New entrants will have to spend more on

advertising not only to launch their brand and create awareness, but also to create product

differentiation. It would obviously affect small entrants more than large MNCs ( Pass and

Sturgess Wilson 1994) and firms with a very different offering would require less advertising

spend than a similar or ‘me too’ product. Advertising intensity (Orr) is measured as

Amount spent in advertising in a year

Sales during that year

According to Porter entry is viewed as one of the 5 basic forces that determine

attractiveness of an industry and potential profitability of a firm within that industry. But

some authors like Yip (1982) propose that strategic postures and industry structural conditions

create gateways through which firms enter industries even when barriers are high.

Advertising has been found to be a gateway rather than a barrier, which actually helps new

entrants. Dean T, Meyer G. (1992) “BARRIERS AND GATEWAYS TO THE ENTRY OF

INDEPENDENT FIRMS: AN EMPIRICIAL STUDY OF MANUFACTURING

INDUSTRIES”

Pass, Sturgess, Wilson (1994) suggest that advertising can be a significant advantage to new

entrants because it can be overcome with product innovation or uniqueness. They state that

the real barrier for a new entrant with enough financial resources to launch a product is to find

a product that’s unique enough or superior to existing ones in some way. Concurrent to this,



the research by Karakaya F (2002) examining the importance of 25 barriers to entry in

industrial markets also finds that advertising is one of the least important barriers according to

managers.

Finally the literature leads me to the conclusion that while advertising can help me entrants

carve out a place for themselves in the market by way of efficient positioning and product

differentiation, it still gives incumbents an advantage because they had more time to advertise

and probably did it at a lower cost (since the cost of promotion and advertising is increasing

every year) and consumers were probably more receptive as compared to present. Also

established players have gained a better understanding of what kind of advertising messages

work and have more funds than new entrants. When considering new entrants from outside of

the European UK market the problems of culture will also come into consideration, making

advertising a more likely barrier.

However it would be interesting to find out the view of managers within the industry on the

impact of advertising as a barrier in sale of plug plants and whether they think it is a barrier

or not.



RESEARCH AND DEVELOPMENT AS A BARRIER

Research and development has been cited as entry barrier restricting entry and also

entry facilitator (gateway variable), as it gives new entrants advantage of bypassing other

barriers or advantages of incumbents and gaining markets-hare by leaping in with innovation.

Bain, Porter etc cite R&D as an entry barrier. In the study by Dean T, Meyer G. of

manufacturing industries in published in1992, R&D was proved to be a gateway variable

having the strongest conducive impact on entry decision in the manufacturing industry rather

than being a barrier due to additional capital requirement as traditionally viewed.

Whereas the study by Karakaya F (2002) examining the importance of 25 barriers to

entry in industrial markets finds R&D as the barrier with the 9th most impact on entry

decision- which is a part of firm own advantages.

However, Dean and Mayer’s study is too old to be considered, Karakaya’s study used

a small sample only and besides horticulture market may differ significantly from

manufacturing and industrial markets. They are considered only as there is no study on the

impact of R&D in the horticulture industry.

Mueller and Tilton (1969) as cited by Orr indicate that R&D is an entry barrier

because of the economies of scale advantage it gives. It is obviously easier for incumbents to

invest in new technology or developments because the cost can be spread over the number of

units which are large for incumbents with high market share. However this wouldn’t be a

barrier at all in a market which is highly fragmented with incumbents having very small

market share or are small scale units- as it would not be an advantage to them ( going back to

Bain’s definition) This could be the case in plug plants market- if there are many suppliers

with small market shares. The second way R&D is a barrier is when incumbents have know-

how or patents or as Porter suggests low costs resulting from the learning. Muller and Tilton

measure R&D intensity with this formula:



R&D expenditure in a year OR amount spent on acquiring it

Sales during that year

This study will try to find if R&D is a barrier to entry in the plug/young plants market, similar

to industrial markets as suggested by Karakaya or if it is a gateway variable similar to

manufacturing industry as suggested by Dean and Meyer by looking at what managers think

about innovation.



COMPETITION

Ward M (2000) indicates that agricultural biotechnology scene is becoming intensely

competitive, and the structure of the industry is changing due to the mergers and alliances

such as those by Monsanto acquiring Cargill and Novartis with Gerber. The same maybe

happening in the horticulture industry.

Competition is put at the centre of focus of success and profitability of firms by various

models- Industry structure model (Porter, Bain etc), Game Theory Models, (Shapiro), The

resource based view, and the Knowledge Based view (Prahalad).

But how does competition affect barriers to entry? This is not completely clear because

depending on what definition is used, it may or may not effect.

A practical view taken by regulatory bodies like OECD argue that never mind what the

definition of barriers to entry is, as long as there is something that deters new entrants from

coming into a market or prohibits prices from changing, it is adverse to consumers, and

therefore effects competition

The nature of competition which depends on market structure i.e. monopolistic, perfect

competition etc is affected by how high or intense the entry and exit barriers are. So a market

with very high entry barriers would block out new entry, (Porter’s view) giving the

incumbents monopoly power. Similarly low barriers would stimulate new entry, creating

oligopoly or perfect competition (Campbell, Maconell, Brue). The kind of market structure

would reflect whether barriers to entry are high or low, which will require finding out number

of incumbents and their relative market shares.



The amount of concentration in the industry could also be a barrier to entry. Bain proposes

those barriers are created in markets with high degree of concentration. A study by Walgreen

also proves there is a relationship between firm concentration and profitability in the market

where there are high entry barriers .A market with high domestic rivalry forces incumbents to

create a competitive advantage and innovate, reduce cost, and be more efficient (Porter cited

by Hill 2001). The competitive advantage of these incumbents could be a barrier to entry.

This asks a question: what kind of competitive advantages and are they enough to deter entry?

The study by Karakaya F (2002) identifies competition (Number of firms in the market) as 13

in the list of 25, not as significant a barrier as it is assumed to be. Similar is Magnitude of

market share held by incumbents- 12th.

To see if competition significant to deter new entry into the young plants market in the sense

that the industry too concentrated for new small firms to break into the plug/young plants

market first the industry structure and type of competition will have to be found. Also it will

be necessary to identify if competitive advantages exist which cannot be overcome easily by

new entrants.



CUSTOMER LOYALTY

Customer loyalty >is <def> Srivastava, Shervani, & Fahey, (2000) quoted by describe

customer loyalty as a “universally recognized valuable asset in competitive markets”. Shapiro

et all say that loyalty is especially important in markets without switching costs.

Loyalty is value creation beyond the core product offering.It helps a company build a

loyal customer base by enticing them with reward and recognition programs and thus capture

and retain capture market share. (Kumar and Shah 2004)

Noordhoff, Pauwels,Odekerken-Schröder 2004 indicate customer retention can be

created by erecting switching cost (thus creating a barrier to entry) which is constraint based

loyalty, and by creating sincere interest in the consumer to stay with the organization,

diminishing their interest in competitive offerings (Dick and Basu 1994). Dawkins &

Reichheld (1990) as quoted by Kumar and Shah 2004, say that “there is a growing tendency

amongst firms to launch a loyalty program as a defensive marketing strategy” which is very

true, as it seems to be an obvious reaction to competition. Thus it is possible to create barriers

to entry by creating loyalty to products of existing firms, making it hard for new entrants to

induce brand switching and penetrate the market.

The question that arises though is; how do you create genuine and sincere interest?

The aim of Customer Loyalty is in the end, to create profitability by retaining

customers and getting them to spend. Reinartz & Kumar, (2002) say that “in absence of any

clear differentiation or special value proposition, companies often squander valuable

marketing resources attempting to build loyalty that may or may not result in a profitable

outcome”.

Kumar and Shah suggest creating attitudinal and behavioral loyalty in a sustainable

and profitable way leads to a successful positioning in the mindset of a customer, making it



topmost in the buying considerations set and virtually eliminating other brands from the

consideration set. According to Kumar and Shah (2004) customer loyalty managed in a

profitable way gives a company a great edge against competition.

They say this can be done by understanding attitudes of customers through data

capture and customer profiling information to increase attitudinal loyalty and increasing

purchase frequency by using appropriate marketing initiatives aimed at increasing share of

wallet. It will be interesting to observe if companies are using customer profiling information

and using any marketing initiatives to increase purchase frequency or are they simply using

series of promotions etc to increase purchases. Eventually all the profiling information in the

world has limited use as people and attitudes are ever changing and open to influence of

various factors. Meanwhile, there is nothing inhibiting new entrants to use the same initiatives

to capture mind share. So customer loyalty doesn’t seem a likely barrier from this angle.

Schmalensee R 1974 suggests that brand loyalty (and therefore customer loyalty) is not a

barrier to entry. He argues that even though incumbents have brand loyalty and can sell to

inert customers, they don’t significantly impact entry of new firm. On the other hand,

Customer Loyalty was identified as 6th most effecting barrier in the study by Karakaya F

(2002) in the industrial markets. Similar to it is brand identification advantage held by

incumbents that came 14th in the survey.

However Schmalensee rightly points out that he has used a model for testing the

dynamic effect of advertising on demand and but that it does not conclusively prove the

relationship of that effect with high barriers of entry. So even in an industry where advertising

has a huge impact on demand, it doesn’t mean it is an entry barrier. Besides this effect

depends on what model is used. Also the study assumes that advertising and sales promotions

are the only means considered as creating brand loyalty. In reality there are plenty other tools

for creating brand loyalty such as loyalty card programs, more long term reward or



recognition programs, after sales services, POS etc. Karakaya argues that the sample they

used in their own study is limited and may not be completely representative.

Customer Loyalty could be a barrier in some industries and not in others. It is not

known if customer loyalty impacts plug plants or even horticultural market and whether it has

an impact on the purchase frequency as such.

So it is worth looking at whether managers in the plug plants market think customer loyalty is

important to the sale and affects purchase behaviour and if they are using any means of

creating customer loyalty.

However enough evidence there is on customer loyalty as a concept, it still is difficult

to measure. It is measured in terms of probability of purchase, probability of repeat purchase,

purchase frequency, share of wallet, share of purchase, share of visit, and in terms of recency,

frequency and monetary value (Kumar and Shah 2004). But these measures simply indicate

frequency of purchase etc which could be short term… Although it would be difficult to

quantify the extent of customer loyalty in this case as it requires internal data, the evidence of

tools for creating it would be useful to identify if customer loyalty or brand loyalty is evident

in the market.



GOVERNMENT REGULATIONS AS A BARRIER TO ENTRY

Barriers to entry in trade exist in form of government policies and regulations, which

are a part of the larger international treaties between trade Blocs. Governments use tariff and

non tariff barriers to reduce imports protect the domestic market that is thriving. “… all too

frequently an importing nation will take steps to inhibit the inward flow of goods and

services.” Doole, Lowe 2004. This gives a significant advantage to incumbents, especially

long running local firms “the initial aim of a multinational market is to protect businesses that

operate within its borders…give an advantage to companies within the market in their

dealings with other countries of the market group.” Cateora, Graham 2004

Market entry barriers are increasingly hidden and make it hard for new entrants to

anticipate. “Major barriers to trade are increasingly becoming covert” Doole, Lowe 2004.

Onkvisit and Shaw identified 850 ways of governments introducing barriers. Doole and Lowe

classify them into two. The tariff barriers; Import and export tariffs, protective and revenue

tariffs, tariff surcharge and countervailing duties, specific and ad valorem duties, and

different types of taxes- single stage, VAT, cascade tax and excise tax- which are most the

most obvious and impact overall profitability. Then there are non tariff barriers such as

government participation in trade by way of subsidies, administrative guidance and

government purchasing- which directly advantage incumbents. The others are customs and

entry procedures, product requirements, quotas etc.

Cateora and Graham suggest that EU market represents an opportunity for large

multinationals that can market to the EC as a whole or target Pan European segments. This

could work well in favor of a firm exporting plugs from India or other countries in Asia as

they are allowed to move freely within EU once they have been brought into UK. However,

the alternative is equally possible as the incumbents have a greater advantage to move



horticultural produce freely within the EU as well, and most have been trading with large

European producers especially -Dutch firms.

“A major benefit from an integrated Europe is competition at the retail level. Europe

lacks an integrated and competitive distribution system that would support small and mid

sized outlets. The elimination of borders could result in increased competition among retailers

and the creation of worldwide distribution channels”

A significant problem for potential entrants who are foreign companies entering the

UK plug plant market would be informational barriers to entry. The concept of informational

barriers to entry was first suggested by Scherer in 1995.

Consumers would tend to stick to tried and tested and well known brands due to risk

financially and because of disease from imported plants and lack of knowledge/information.

When local brands are already meeting their needs, they would not buy imported plants

because unless they were much cheaper or rare/sought after variety and of better quality.

However, this poses a problem for exporter because they have to provide superior quality and

different product at cheaper price, increasing their costs.

Also they have to credibly prove they are better and that involves more advertising and

promotional expenditure.

. Government subsidies (or lack of) by the governments of exporting companies of the new

entrants would also be a barrier to entry.

In addition to the barriers discussed above, there are others which are not focused on

in-depth.



DISTRIBUTOR AGREEMENTS AND NETWORK EFFECTS

Plants can be considered as experience goods CHECK

Reputation effects are important as relationships with consumers are important for experience

goods. An exporter or any new entrant will have to build a relationship with the consumer

increasing costs and giving incumbents an advantage. Raff H Young-Han K 1999

Competitor’s access distribution channels came in 11th in Karakaya’s survey. What kind of

distributor agreements exists in the plug market and are they strong enough to deter new

entry?

CAPITAL REQUIREMENTS/CAPITAL INTENSITY

Bain describes capital requirements effect as the cost arising large investment outlays

necessary for an appropriately sized plant, difficulty in raising capital, locating and training a

qualified workforce and developing and operating inventories and distribution channels.

PRICING

Low price charged by incumbents came in 10th in the survey by Karakaya

High profit rates was confirmed to be a gateway or promoter as the study found it in the least

3 barriers that impact industrial markets.

INCUMBENTS HAVING COST ADVANTAGES DUE TO ECONOMIES OF SCALE

Demand and economies of scale can be barriers.

Bain believed that economies of scale create an advantage for incumbents because existing

firms had sold their product at a higher price before the new entrants came in, and after entry

the new firms have to reduce price to compete, which means they earn less profit when they

enter as compared to what existing firms did before. Stigler 1968 maintains the opposite



view. He identifies inadequate demand as barrier to entry because, the profits are lower

because the new firms are producing at a lower level of output then the incumbents had, due

to less demand.

Orr indicates measuring the rate of growth of industry output to see if it can be an incentive to

new entrants. He has used this formula

Rate of growth of industry output Q .= 1/3 * Q yr+3 – Q yr

Q yr

Where Q represents value created in the industry during a year. However it is difficult to

ascertain practically the value created in an industry because it requires extensive and accurate

data.

INCUMBENTS POSSESSING STRATEGIC RAW MATERIALS

INCUMBENTS WITH SUPERIOR PRODUCTION PROCESS/ PRODUCT (PRODUCT

DIFFERENTIATION) AND INTELLECTUAL PROPERTY RIGHTS

“There are two generic ways of establishing a competitive advantage, the low-cost

supplier or by differentiating the offer in a unique and valuable way”. (Porter 1980 quoted by

Zineldin 2006)



Market segmentation

One of the objectives of the dissertation is to determine and quantify various segments of the

plug/young plants market in the UK. This would require an understanding of the industry

structure and the barriers to entry as discussed above.

Kotler identifies three steps in segmentation process. The first is market segmentation which

involves dividing the market into a distinct group of buyers based on various characteristics

who will require a separate products or different marketing mix. The second step is

identifying the target segment which is the segment they can serve most effectively or satisfy

the most. The third step is positioning. The selected segments are then profiled using

demographic, psychographic, income based etc variables.

Kotler et all also indicate various levels of segmentation. Contradictory to that is mass

marketing but which can also be considered as a level of segmentation at the lowest level.

“The starting point for discussing segmentation is mass marketing …it creates the largest

potential market with the lowest costs” but also leads to most marketing waste and is least

effective. Customerization is the extreme opposite. It is “the ultimate level of segmentation”

Kotler et al. It is creating segments of one or more customers and marketing ‘one to one’ ie

designing marketing mix tailored to individual need. This would seem to be the most

plausible level of segmentation for potential entrants or exporters in the plug plant market

seeking to target the large retail nurseries or garden centres. This is already being done by

certain incumbents such as John Woods Nurseries that provide contract growing facilities for



landscaping professionals, Kernock Park Plants Ltd offering custom designed live displays etc

homescentsherbs.com a web retailer who does exclusive herbs and scented plants that are not

found with large retailers etc, and wildflowers.com that does rare and non traditional varieties

of ornamentals.

The other levels are segment marketing- grouping customers who share a similar set of needs

and wants, Niche marketing which is more clearly defining the consumer group seeking a

distinct mix of benefits and local marketing and which is making marketing programs tailored

to needs and wants of local consumer groups such as neighbourhoods or individual stores.

Consumer markets are generally segmented by geographic, demographic, psychographic and

behavioral segmentation Kotler et all and also geodemographic segmentation such as those

created by ACORN and PRIZM and other variants pairing different variables such as

Cohorts- a household segmentation created by Looking Glass company Bowen J 1998.

Business markets on the other hand can be segmented with some of the above variables such

as geography, benefits sought, use age rate. Bonoma and Shapiro as cited in Marketing

Management- A South Asian Perspective by Porter et all ( ) suggest the following

segmentation:

Demographic

Industry: which industries should to supply?

Company size: what size companies to trade with?

Location: what graphical areas to serve?

Operating variables

Technology: what customer technologies to focus on?

User or nonusers: heavy users, medium users, or nonusers

Customer capabilities: To target customers needing many or few services?

Purchasing Approaches



Purchasing- function organization: consider companies with highly centralized or

decentralized purchasing- organizations?

Power structure: sell to companies that are engineering dominated, financially

dominated etc.

Nature of existing relationships: To serve companies with which the firm has existing

strong relationships or to go after other new desirable companies. This criterion would

be for companies already operating in the market or in related markets and would not

be used as variable for new entrants

The general purchase policies: how the customer should be served in terms of

purchase deals e.g. lease, contract, sealed bidding etc

Purchasing criteria: to target companies seeking quality, service or price.

Situational factors

Urgency of demand i.e. quick delivery or pre planned longer period purchase- for new

entrants that are exporters; quick delivery would not be an option depending on what

the industry standard is for quick.

Specific application: what applications of the product to focus on.

Size of order: this would be extremely important to consider for new entrant as

profitability would affected by this choice.

Personal characteristics

Buyer-seller similarity

Attitudes towards risk: to serve risk taking or risk avoiding businesses

Loyalty: to serve those customers that has high loyalty to suppliers.

Two authors Macdonald and Dunbar (1998) and Croft (1994) who suggest similar

approach to segmenting the market are looked at. The segmentation process in the



subsequent chapter has used the process described by Macdonald and Dunbar in the book

Market Segmentation- A step by step process.

Porter et al suggest business marketers identify segments through a sequential process. Firstly

macro-segmement to decide which part of the market to serve e.g. end users and then decide

product application. Secondly, micro-segment to identify best customer size etc and finally,

distinguish among customers on basis of price, service or quality.

Two other authors with similar strategies for market segmentation are considered.

Both authors agree that segmentation should start with ‘market definition’- defining the

market in terms of a need.

Macdonald and Dunbar (1998) suggest 2 phases to segmentation process

First phase- develop segments for the market. This is broken down into 7 steps:

1. Market mapping- a flow chart or representation of obstacle course for suppliers to

reach the final consumer- and it depicts points where decisions are made about

competing products and which parties are involved (consumer decision making

model) .Creating a ‘market map’ was also suggested by Croft

Macdonald and Dunbar also suggest an initial quantification of the market map that shows the

volumes or values dealt with by each of the members in the market map as well as the

companies’ suggesting using guesstimates wherever necessary and then including the

companies’ market share at each junction. The inherent difficulty is that when a new firm is

entering the market, they do not have any exiting market share, and the units being sold by

them will be zero, and pinpointing values and volumes dealt with requires extensive market

intelligence. Especially in the case of plug plants market, it is difficult to pin point the exact



volume and value as the supply and distribution chain is fragmented. Besides, plug plant are

used as both intermediate and retail commodity, so a separate market map may be necessary.

The next step is identifying market leverage points, which are junctions where the decisions

are made about which of their competing products or services should be purchased.

Segmentation should occur segmentation should ideally in a junction along the market map

where decisions are made. They suggest first segment the junction furthest away from the

supplier where decisions are made, or in other words the point furthest way from a from the

supplier where the product has a leverage on a decision. In this case (and usually) it is the

consumer. This requires research at a very deep level into attitudes and decision making,

According to the author, drawing a total market map rather than the part you deal with ensures

that you understand your market dynamics properly. This is supported by consumer and buyer

behaviour theories that a consumer’s decision is affected at different points along the buying

process; therefore overall industry view is important for segmentation decision.

2. Customer profiling

Customer profiling is similar to what Kotler et all suggest- find out or outline customers and

group them on basis of criteria like demographics, geodemographics, psychographics,

sociodemographics or a combination, finally arriving at distinct segments. This is really

important if the product is customer specific offering.

3. Purchase options

The authors suggest drawing up lists of what is bought, listing products and services with all

relevant competing products and services, where it is bought i.e. distribution channels how it

is bought i.e. cash, credit cards, redeeming national gift vouchers, direct debit etc., and when



it is bought i.e. frequency of purchase like weekly monthly etc for each segment. These lists

of features are called key discriminating features.

4. Customers and purchases

Micro segments are arrived at by combining consumer profiling information with key

discriminating features to get distinct segments with unique combination of features.

5. Customer needs

This is involves uncovering the needs of consumers in each distinct segment for their

purchases, so that the market can be segmented on basis of overall needs of each segment.

CPI or critical purchases influences are to be identified which is key benefits different from

relatively unimportant ones that critically affect the buying process

6. Combining customers

Combining consumers with similar characteristics using cluster analysis and other

statistical tools. This step involves precise measurement and hard facts.

7. Reality check

Building a segment checklist of final clusters making sure it is differentiated, reachable and

compatible with the company focus.

Second phase-Prioritize and select the segments.



This method of market segmentation described by the authors is a thorough step by step

framework that is useful and logical. It is similar with the idea of Needs based segmentation

which uses need or benefits sought, also suggested by Kotler et al 2007.

CHAPTER 3

METHOD

A combination of desk research and primary data has been used.

Secondary Data

Apart from the reading of literature on barriers to entry and market segmentation, industry reports and government publications from various bodies were used as main basis for this work. To gather insight into trends etc various leading gardening publications such as Kitchen Garden and Horticulture Week from the Royal Horticulture Society were consulted as well as Mintel and Keynote Market research reports. Websites of suppliers and retailers and various associations were also helpful sources of information as well as opinions from reputed Blogs from Kitchen Garden and BBC Gardening were also used as secondary data.

Primary Data

Out of 30 questionnaires emailed, only a small sample of 8 questionnaires was made available to determine perception of managers about barriers to entry in the plug plant market. This is may not be representative of the population and is too small for commercially significant results. However it is extremely useful because it is first hand data and records manager’s perceptions into the plug plant market, and gives valuable insight into the future trend. It also backs up a lot of the data gathered from desk research. A combination of questions using 5 point likert scale, open ended and closed ended questions was used.

Additionally managers from 3 organizations- John Woods Nurseries, New Place Nurseries and Wyevale Garden Centre were also interviewed to obtain information. Excerpts from the interviews along with short history of the organizations are available in the appendix.

Correspondence with a market research company has also been used to back up the conclusion made in this paper.



CHAPTER 4

FINDINGS

Barriers to Entry

Using a combination of secondary data and primary data collected from the questionnaires,

the following results were obtained.

Advertising as a barrier to entry

Advertising (and promotion) is a means of brand building and product differentiation.

Research has found it to be both entry facilitator and in some cases a barrier.

In the Horticulture industry, there is evidence of heavy spend on advertising; £ 19 million was

spent on media advertising in 2006 most of which was on horticultural retails products

Garden centres spend the most on advertising and branding as such. Corporate advertising

accounted for approximately £ 6.3 million in 2006. Garden centres provide a range of other

services apart from plants and gardening products such as cafes, shopping, leisure etc. this is

because gardening as an activity competes with other leisure options like vacation, and night

outs etc for the customer’s share of wallet. (Retailers in the interviews expressed the

“experience provided” by garden centres was more important than anything, even price)

Therefore they have to spend heavily on promoting these services as well as the company

brand not only to differentiate themselves from other similar retailers, but also other leisure

choices. Gardening is sold as a leisure choice and plants are sold not just as commodities

anymore, but as important increment to the status and value of consumer’s houses by way of

garden, or nearly a “fourth room” (Mintel). This is supported by Bain’ theory that advertising

is way to create product differentiation, resulting in barriers to entry.



The primary data collected also reflects the trend of heavy advertising. In figure 1, three out

of eight companies were found spending more than £10000 in advertising. But this includes

advertising the company and all the products.

Amount spent on advertising

13%

13%

24%13%

37%0-5000

5000-10000

10000-50000

50000-100000

over 100000

Figure 1

From the responses collected from the questionnaires, there seems to be a polarization in

advertising spends on plug plants as seen in figure 2 below.

Percentage of annual advertising expenditure on plug plants

49%

13%

0%

0%

38%0-5%

5-10%

10-20%

20-50%

over 50%

Figure 2



Retail nurseries and .garden centres spend much more on advertising and attach more

importance to it. Suppliers on the other hand believe advertising is less important to the sale

of plug plants.

Overall, managers don’t perceive advertising to directly affect the sale of plug plants. As seen

in the chart below, the percentage of the annual advertising spend that the companies allocate

to sale of plug plants is very negligible. It seems that their total advertising spend is more on

overall company image, and then other garden products.

As seen in the below figure 3, neither advertising nor brand of plug plants was considered to

have an impact on sales. This leads me to conclude that advertising is not important directly to

the sale of plug plants, but is more important for corporate brand building. It is the image of

the retailer or supplier overall that affects the products sales.

Perception of impact of Brand Image and Advertising on sale of plug plants

0

1

2

3

4

5

6

7

strongly agree agree indifferent/notsure

disagree stronglydisagree

Brand Image

Advertising

Figure 3

A possible reason why advertising is not important in case of plug plants: plug plants are a

relatively new trend and are a differentiated offering in the first place. Besides, there is

variation in size of plugs and packaging (9cm, 11 cm etc) and the kind of trays or containers

they come in. This becomes a means for differentiation.



Another reason could be that very few of the companies have separate brand for plug or

young plants. They are bundled into categories of plant types and sold under the corporate

brand e.g.

Wyevale, Notcutts etc do this.

“Suppliers are finding it hard to promote their brands and products to the end consumer on a

national basis. In the growing stock sector there are few brands and consumers mostly go by

company names or much product is unbranded”. (Mintel 2007)

Some companies like Kinder gardens however, operate brands for plug plants which are well

positioned e.g. Kinder starter plants, the main brand for plug plants and

KinderKidz- plug and young plants aimed exclusively at children and

are accompanied with informational sleeves, leaflets and a support

website.

Therefore Plug plants could be better branded and positioned to the advantage of new

entrants. Advertising could prove to be an entry facilitator rather than a barrier.


KinderKidz SeedlingsKinderKidz Starter Plants

Starter


Customer Loyalty

As discussed previously, one way to figure out if customer loyalty could pose a barrier to

entry is to see if managers think it affects purchase behaviour of plug plants. Also what tools

are they using to create customer loyalty?

The evidence for loyalty programs is clearly seen from the responses of incumbents. Also

observed is various campaigns like Wyevale’s Old Barn garden centre which held a scarecrow

competition in the local west Sussex area as a part of the chain’s national “get growing

campaign” indicating strategic CRM to build relationship, inform and communicate at the

“welcome stage” and the Monkton Elm garden centre in Somerset launching a campaign for

customers to swap old plastic net pots and trays of plug plants for vouchers and recycling

them commercially or giving to growers indicating that CRM is also being practised at renew

and reactivate stages (Pickton and Broderick)

There is evidence of suppliers and retailers using various means to create loyalty which are

depicted in table 1 below.

Table 1 Most Popular CRM Tools ranked in order of preference

This shows the most popular tools among

managers, both suppliers and retailers.

Clearly, incumbents are making use of consumer

or customer profiling information to understand

the attitudes and motivations. As suggested by

Dick and Basu (1994), it is important to

understand the customer. E.g. the companies are

using the Food miles issue and Buy Local Trend


Catalogues

Customer Database and profiling

Newsletter/Email

Sales Promotions

Support for technical problems

Staff training at shop floor

Loyalty cards/points

Personal account managers

Merchandising/advertising

allowances

Dealer incentives (not used)

Buybacks (not used)


to capitalize on the changing attitudes of consumers to mass marketed products. (Keynote

2004)

They also use effective segmentation and market research to understand trends and

behaviours. Many organizations like Horticulture Trade Association and Commercial

Horticulture Association provide market intelligence to support the suppliers. Suppliers are

becoming increasingly sophisticated and professional especially to meet the technical and

commercial pressure from major retailers (Promar 2004)

Retail companies conduct bespoke market research in addition to the available market reports

from various associations. They use websites, mailing lists from catalogue requests etc loyalty

cards and redemption of vouchers and tokens to capture costumer profile information e.g. The

National Garden Gift Vouchers (NGGV) which are immensely successful voucher system

operated by the Horticulture Trades Association. The spending patterns etc are mapped giving

not only profiling information but also sales tracking information; like they actually

significantly increased spending by twice the amount, directly increased the purchase

frequency

(55% of buyers make special visits to redeem them) and stockists of the vouchers make more

sale over and above the voucher redemption 70% of the time. (Keynote 2004 pg 68)

Catalogues are the most widely used (and most important to suppliers according to trade

interviews) form of loyalty creation, because they provide extensive data on the companies

products, knowledge or technical information needed especially in this case e.g.

Equally important for both



Varieties of sales promotions aimed at specific segments and tailored to their needs are done

by both suppliers and retailers. Websites and Search engines advertising are equally important

for both suppliers and retailers, while email newsletters, clubs and blogs, gift cards and

discounts are popular among retailers

Most of the branding and promotion is below the line. e.g. Wyevale gives consumers over age

60, a 10% discount on purchases, operates a gardening club with 10£ membership p.a. giving

10% off all year round, does door drops in certain locations 4 times a year with £20 worth of

offers etc. “ Below the line promotions are popular”(Mintel 2007). The reasons for this could

be that the customer base is relatively concentrated and well mapped, and also to cut the costs

and increase effectiveness of advertising.

Training and support at the shop floor and online in case of retailers is important as it is used

to create differentiation through service.

Trade Bodies play an important role in brand communication and promotion. For example the

GIMA Garden Industry Manufacturers Association and the HTA are responsible for a very

successful increase in footfall at Garden Centres.

They also play a part in important shop window shows and exhibitions. Trade shows and

exhibitions form a central plank of many manufacturers’ promotional activities- such as the

BBC gardeners’ world Live, Chelsea Flower Show or Earls Court DIY and Garden Centre

Show. (Mintel 2007)

In case of online retailing, reputation and brand name of large retailers play an important part in winning trust online. The smaller companies rely on independent evaluators like Safe Buy and ISIS (Internet shopping Is Safe). These are administered by Institute of Directors and Institute of Marketing, and the IMRG-Interactive Media in Retail Group.

From the primary data collected, most of the managers said that brand image of the plug

plants did not have much impact on their sales, but the overall company reputation does

impact sales.



Brand Image Vs Company reputation

0

1

2

3

4

5

6

7

Stronglyagree

Agree Indifferent/notsure

Disagree StronglyDisagree

Brand Image

Company reputation

Figure 4

Thus lack of overall company reputation and brand image could pose a barrier to entry in the

plug plant market, but can be overcome by effective CRM strategy.

Competition as a barrier to entry

Competition in the horticulture retail sector is intense and showing concentration of

market share among major few, like the global automobile industry. Vertical and horizontal



integration is taking place within the industry. Large and powerful retailers like Dobbie’s,

Wyevale and Nottcutts are undergoing major restructuring. The suppliers end is still

fragmented, but the retail end is showing consolidation

Wyevale Group (revenues over £75 million and now has 121 garden centres) which

had initially only garden centers has purchased several smaller nurseries mostly which are

family run like Heighley Gate garden centre owned by Lishman family that has a turnover of

£9 per annum which indicates vertical integration. It has also bought Blooms stores for £30

million which are departmental retailers, Sanders garden world, Old Barn, owned by Graham

Spears having a turnover of £ 4.6 and 3 stores of Peter Barratt (Horticulture Week 6/3/08 and

diyweek.net) all of which are horizontal integration.

Tesco has acquired Dobbies garden centers chain, which indicates the major multiples

have arrived. This corresponds to a mintel forecast that ‘instagardeners’ are the fastest

growing segment and want gardening as a quick and easy process, more for its fashion

statement and status associated with owning a garden. Therefore supermarkets will be a

favored distribution channel in the coming few years. At the moment the mail order and web

retailing are more popular channels, and this is partly because of the nature of the product- it

can be easily posted.

Another example can be seen in the purchase of plug/young plants supplier WJ-

Findon by Ball Colegrave. This purchase will allow them to strengthen their position in the

market and have more control over the supply chain. This indicates that incumbents are

already using strategic positions in the industry to deter any new entry

Another form of horizontal integration on the supplier side is large retailer Notcutts

Garden centre divesting its nursery business to concentrate on the garden retailing. John

Wood Nurseries, acquired by Notcutts in 1879, bought the nursery arm of the firm in a

management buyout last year. This indicates that suppliers are consolidating to satisfy



patterns of behavior in emerging retailers- high volumes, standardized product in terms of

quality and reliability, and low price.

However, another argument says the traditional keen gardeners will keep the trend of

small suppliers and outlets alive. Expert Mark Hutton says “UK garden retail sector will

change in the coming seven years. Customers and will move away from mass merchandising

focused on price because aging baby boomers turning 70 will be the wealthiest old people so

far and will be active in their retirement. Also the digital generation is less enamoured by

conglomerates and so niche retailing will be in” Horticulture Week 20/3/08.

Overall the situation could lead to the industry eventually monopolized by the large

firms, and either leads to shut down of small and local suppliers or suppliers merging or

forming strategic partnerships, and the remaining finding a unique competitive advantage

and adopting a strategy of niche marketing.

Examples:

This conclusion is supported by the evidence in a report published for the National

Horticulture Forum. The report reflects that there is an overall consolidation in the industry

and large suppliers will be better equipped to serve consolidating distribution channels. This

means overall greater profitability and eventually cut throat competition.

Thus, competition is a barrier to entry in the plug plants industry and incumbents will use

strategic alliances to block out new entry.

Government Regulation as a barrier to entry

There is an evidence of both tariff and non tariff barriers in the plug plants market.



NON TARIFF BARRIERS

Organizations such as Defra which work within the larger international trade agreements set

by countries impose several restrictions on import of any live material into the country. This

represents a barrier to entry; the cost, time and manpower involved make it a complex enough

process to deter entry.

The procedure for commercial import of live plants into UK seems akin to bringing a person.

The evidence of complexity is seen in Plant Health Division of Defra regulations. ‘The plant

quarantine, import and export arrangements, and plant and seed certification, are implemented

via the Plant Health and Seeds Inspectorate (PHSI) for all plants, including commercial

nursery stock, private imports and freight shipments in England and Wales’ (Long, Inches,

Treseder 2006).

Certificate: A Phytosanitary certificate is required for almost all type of plant and live

material outside of the EU for commercial purpose. It is defined by Defra as “a statement that

the plants or plant produce or products to which it relates have been officially inspected in the

country of origin (or country of dispatch), comply with statutory requirements for entry into

the EC, are free from certain serious pests and diseases, and are substantially free from other

harmful organisms”.

Passport: Most plants can be freely traded and moved between the EU except some. All other

plants from third countries require “plant passports”.

Registration: Additionally all traders EU or NON EU have to be registered with the HM

revenue and customs under the Plant Health Order 2005. The importer has to also provide a

pre arrival notification to PHSI (http://www.opsi.gov.uk/si/si2005/20052530.htm#25)


http://www.opsi.gov.uk/si/si2005/20052530.htm#25


Soil Import: bringing in soil is prohibited, and requires a soil import license where plants are

involved. This will require that the company exporting plugs use artificial soil or soil

substitute, which represents a barrier of technology and cost.

Inspection: even though phytosanitary certificate is there, the plants will be held for period of

3 months. After that, they are subjected to further government checks which are chargeable.

The consignments of first time importers will be subject to random checks at landing site OR

nursery at the discretion of the authority.

The government also recommends growers keep them separate for 3 months after they are

imported from all other local plants. this poses a considerable barrier as plugs have to be sold

to large garden centre’s within certain time so that they are the recommended size etc. also

this creates a problem of storage and maintenance within the UK which would escalate costs

and wipe out competitive advantage for small Non EU exporters.

Whereas, established players that have long standing relations with DEFRA and other bodies

and have a reputation for good import practises find it much easier to deal with the regulators

“We (as a part of Notcutts Ltd.) had long standing good relations with the regulators, and a

good track record of following the procedures etc. In the early years, we went through

difficulties too and even had to completely destroy large shipments. We know our way

around the importing procedures now, which makes it easy for us to bring things in” Mr

Malcolm Dick, John Woods Nurseries

“We have no problem with import procedures and we are prominent player in exports of plug

plants etc... and don’t find government regulations a problem. The real problem for us is that

we are cannot serve export markets, especially Pan European because of the pound” Mr

Norris, New Place Nurseries



It is interesting to note that most of the categories of plug plants that can be imported for the

commercial horticultural trade fall under the prohibited category and require a separate

license to be issued by the PHSI. This is another evidence of non tariff barriers.

TARIFF BARRIERS

There are also tariff barriers in form of duties and licenses etc .The EU operates a CAP or

common agricultural policy regime where the community is protected from low priced

imports from nations outside the EU. The main tariffs are discussed below:

Specific customs duty: There are specific customs duties based on weight of the product,

which are changed annually.

Ad valorem charges: set annually, based on value of the consignment

Countervailing charge: when the value of imported plants falls below the set price; not printed

and can be set up at a short notice

Other safeguard charges are set up at short notice when the government deems necessary.

“The EU may introduce a charge on imported CAP goods under the safeguard measures

where cheap or excessive imports threaten EU production of a similar commodity.” Defra

The tariffs and quota etc vary with variety of plug plants and the stage of life it is in. ( the

younger the better)

R&D AS A BARRIER TO ENTRY

“Agriculture input industries are becoming more like pharmaceutical or chemical industries; increasingly based on research and development, and the effective marketing of new products rather than production.” Ward M, 2000 EMERGING COMPETITION POLICY ISSUES IN AGRICULTURAL BIOTECHNOLOGY.

The same is happening in the horticulture industry. Helping increasing levels of R&D is the industry structure of plug plants or horticulture industry as a whole for that matter. The greater the consolidation of distributers, the more economies of scale and greater profitability for large suppliers who can deal with big fish like TESCO; because it means more funds can be allocated to R&D.


Figure 5, Illustration Promar International 2004


The main R&D will be in the areas of reducing cost of producing plug plants- especially labour and energy.

“Cost and margin pressure, new technology and labour costs are first tier concerns, followed by energy, distribution costs and consumer trends- which are the most pressing

other problems for growers in the industry” (Promar 2004).

This was evidenced in the visit to John Woods Nurseries which made use of technology like automated forklifts that pick up rows of plants and transport them, conveyer belts, automated potting machines etc. Other developments like using biodegradable pots/trays that merge into soil reduce the need to transport back and sterilize the traditionally used plastic trays and lead to better performance of plugs as the root structure is preserved better.

R&D will also be intense in providing better quality and more reliable varieties of plug plants. The companies spend on propagation of new varieties through different techniques in horticulture, from low cost traditional techniques like graphting to higher cost techniques of tissue culture etc many of which are developed through years and years of techno-commercial experience and trail and error. Technical know how and the overall learning in production area leading to low costs and better performance are areas of R&D. This indicates that R&D is a significant barrier to entry.

New entrants will have to acquire this know how either by strategic partnership with existing growers, by purchase of the technology or by investing their own funds in R&D.

In the below diagram which compares the importance attributed to each barrier in the plug plants market innovation, quality and differentiation are the leading factors that are important to managers and that indicates R&D is crucial.



0

1

2

3

4

5

6

7

Quality ofProduct

Popularity ofvariety

Innovation Differentvariety

Brand Image Companyreputation

Relationshipwith suppliers

Relationshipwith

distributers

COMPARISION OF VARIOUS BARRIERS

Figure 5



Product differentiation

Product differentiation seems to be at the very top of the managers minds. The respondents were

asked to rate the importance of the following on a 5 point likert scale.

As expected, quality of product is the most important criteria affecting sales of plug plants. In case

of suppliers, they are expected to deliver a reliable service, not just a product (Giles J 2008, NHF

summery email) in terms of plants. Retailers will pressure suppliers even more now due to

consolidation and evidence of that is seen in Homebase which set guidelines to its suppliers to meet

strict criteria in term of quality and service.( Horticulture Week 6/3/2008)

Strongly agree Agree Indiffernt/not sure Disagree Strongly Disagree

Likert Scale

Barrer to Entry- Product Differentiation

Quality of Product Popularity of variety

Innovation Different variety

figure 6

Product differentiation by offering a unique product and more value added offering overall will lead

to successful entry and subsequent capture of market share. “… They need to differentiate



themselves from other growers/nurseries already well established in the marketplace by offering

something different, something original…” (Enon E 2008, consultant)



Popularity of variety with the buyer and different variety are both equally important and to some

extent contradictory. Presumably, introducing new varieties and new products is a risky proposition,

and it has to be new, but has to work with the consumers. Expectation of retailers like Gerald

Ingram MD of Planters Garden Centre is that suppliers “look at what a retailer can sell and work

backwards”

The above two points indicate that product differentiation will be an entry facilitator for new

entrants rather than a barrier to entry. With a differentiated offering, which is both unique and well

researched/ tested, new entrants can easily enter the plug plants market.

The following are some examples of incumbents that used innovation to stand out of the crowd, and

created a whole new market.

Kernock Park Plants.

Their brand “INSTAPLANT” which uses plug plants is a service of providing custom designed

carpet bedding, wall display, and 3D displays using live plants in any design the customer orders.

This is an interesting application of the product which allows customers to create displays that

would otherwise require skill of professional landscapers and artists at a very high cost. Kernock

Park Plants has managed to fulfill a niche effectively by extending the core offering with value

added service.

Plant Connection Ltd. And others

Provides plug plants in different sizes suited to different need of gardeners: generally the smaller

plugs are preferred by price sensitive consumers and the larger plugs and ready plants suited to busy

consumer who has less time and knowledge of gardening. Additionally, compost specially suited to

growing the plants is available, and is effectively cross sold.

Small Plug Standard Plug Large Plug Young Plant Ready Plants



Pricing

“Consumers are relatively price insensitive and care more about the experience of coming to the

garden centre and of buying the plants” Gordon Steggall of Wyevale garden centre at Woodbridge

However the responses collected from questionnaire suggests that managers feel that price

significantly impacts the sale of plug plants indicating that new entry could lead to incumbent

reducing prices to keep new entrants out.

Large retailers want low prices (Enon E 2008) and to keep wholesale pricing simple and expect

large discounts for advance orders or early purchases. (HW 6/3/2008). As such with increasing

costs in the industry, large players like TESCO and Sainsbury will pressure for uniform timely

delivery and low cost. This represents a possibility for new incumbents of competing on price, but it

will require them to provide at a significantly lower cost than incumbents who already are

increasing capability to reduce costs by increasing automation and standardization. “There is no

need trying to compete with the growers/nurseries of the most popular plants because they know

how to mass-produce them and sell them cheap to retailers” Enon E 2008.

Figure 7

Price

13%

62%

25%

0%

0%Strongly agree

Agree

Indifferent/not sure

Disagree

Strongly Disagree

Solely competing on Price therefore is not a very good entry strategy; it is more likely that

incumbents will use price as a barrier to deter new entry.



Capital intensity

It was found that entry into plug plants market will require considerable investment, if a entry

mode of direct investment is taken. The following innovations and technological capabilities are

being used by incumbents in the market indicating capital intensity can pose a problem for new

entrants.

automated seeding machines which take up the mechanized task to planting seeds/

cuttings into each cell of a tray and Robotic vision to monitor the gaps in trays and fill

them, monitor quality and growth of plugs

Digital vision for measuring tree canopy/crops of bedding or pot plants in the nursery,

by image analysis for grading and crop monitoring ( Spencer Gunn, HW)

humidity and temperature controllers, which respond to climatic conditions in the

nursery or green house and automated ventilation

poly-tunnels of greater efficiency in terms of letting in selected spectrum of light such

as the polythene film technology (HW)

Advances in Plug plants containers, modules or trays e.g. biodegradable, using gel

instead of soil when posting/delivering etc

The quality of production and efficiency is a result of the kind of advances described

above. Most of the managers perceive that superior production method or technique for

delivery gives them a competitive advantage over competitors, and new companies.


Competitive Advantage

42%

16%5%

37%

Superior production orTechnique for delivery

Access to Raw Material

Low price

Wider range


Figure 8

Therefore there is capital intensity in the plug plants market in terms of production and

supply which can be a barrier to entry.

Incumbents possessing strategic raw material

As Porter theorized, Other barriers to entry observed by Karakaya were incumbents with

cost advantages due to knowledge resulting from learning curve, incumbents with

relatively easy access to raw material or possessing strategic superior raw material.

It was observed that access to superior raw material is perceived strongly as a barrier to

entry by all the suppliers and therefore incumbents possessing strategic superior raw

material is a barrier to entry in the plug plants market.

Strongly agreeAgree

Indifferent/not sureDisagree

Strongly Disagree

Access to Raw Materials

0

0.5

1

1.5

2

2.5

3

3.5

4



Figure 9



Incumbents having knowledge due to learning curve.

Knowledge of production process shows polarization because the sample included garden

centres and web retailers who don’t require knowledge of production process as they only

purchase the plants. But the suppliers agree on importance of knowledge of production

process and it is notable that most producers or growers have been operating in the market

for over 50 years on an average. Therefore, knowledge of production process is a barrier to

entry in plug plants market.

Figure 10

0

0.5

1

1.5

2

2.5

3

Stronglyagree

Indifferent/notsure

StronglyDisagree

Knowledge of production Process

Knowledge ofproduction Process



Relationships with suppliers and distributers

0

1

2

3

4

5

6

7

8

Strongly agree Agree Indifferent/not sure Disagree Strongly Disagree

Relationshipwithdistributers

Relationshipwith suppliers

figure11

The relationship with suppliers and distributers in the plug plants market showed no

significant strength because of the uncertainty expressed. This means that either the agreements are

not strong enough to keep out competitors, especially new entrants or that they don’t pose and

advantage for incumbents in any significant way. Therefore as there are no strong links to

distributer agreements, they are not a barrier to entry. At the moment retailers buy from within the

fragmented supply chain for plug plants, but they are interested in long term partnerships ( HW

6/3/2008) with firms that can be one-stop shop for their needs and meet all their criteria (John

Woods Nurseries) . New entrants don’t face barriers of distributer agreements



MARKET SEGMENTATION

In order to shed light on the structure of the industry, and recommend possible segments for new

entrants, a process of segmentation is followed based on the procedure described in MacDonald and

Dunbar’s Book Market Segmentation, a step by step guide. It also takes into consideration the

recommendations obtained from primary data through open ended questions and opinions of

industry professionals.

STEP 1: CREATING A MARKET MAP

The structure of the industry is depicted below in a diagram. However it is difficult to quantify due

to lack of information. The flow of goods through the channel from suppliers to end users is

represented by arrows. Details about each channel member follow.



The suppliers

It is known that almost 50% of the supply side units own only 1 hectare of land suggesting that the

supply side is highly fragmented and ranges from large wholesale nurseries to small nurseries and

specialist

nurseries, family

businesses and

corporate owned

subsidiaries.


45%

35%

DIYs

6%


The total number of suppliers which includes nurseries, independent growers, farms, and allotments

engaged in growing vegetable, horticulture and other nursery products is 4570.

Out of that according to Horticulture development council only about 1800 are commercial

businesses with an annual turnover of more than £50000. (A CASE STUDY ANALYSIS AND

OVERVIEW OF THE UK HORTICULTURE PRODUCTION INDUSTRY FOR NATIONAL HORTICULTURE

FORUM)

Out of that, an approximate figure of 700- 1000 nurseries for horticulture exist in the UK according

to Horticulture Trade Association estimates.

Source Promar International

The retailers




According to this organizations estimate, the garden centre and retail nurseries account for 78% of

distribution of HNS in the retail market. But the retail sales of plug plants accounts for only 2% of

the total retail market in 2003, but it increased by 22% over the previous year, which is a very

significant increase; indicates that retailers will buy more young plants, as consumer demand for

them continues to grow.

The retail side is much more concentrated and showing furious merger and acquisition activity. The

entry of giant retailers indicates this industry will become furiously competitive. HTA estimates

98% of all retailers in UK are member of the organization- totalling 700. Therefore an estimated

720 small and large retailers exist.

They consist of retail nurseries and garden centres.

The leading garden centre chains operating are Wyevale (largest), Notcutts, Hillier etc



Garden centres are a preferred channel for overall horticulture products, but second in importance

for plug plants. Garden centres evolved out of nurseries in most cases and developed new revenue

streams such as catering facilities, leisure and entertainment, pet products and attractions.

DIY stores

There is increasing shift towards DIY leaving less market share for garden centres in horticulture

retail products other than growing stock. DIY stores are instrumental in increasing sales among

younger consumers who prefer products that are focused on lifestyle, instant solutions, projects etc

and are high on promotions and heavy advertising. This channel is suited for consumers who don’t

have much knowledge of horticulture. Therefore they would be suitable for larger plugs and young

plants that can be positioned as easy to grow.


Mail order companies and web retailers



Even though the data is old, it at least indicates that mail order is the most significant channel of

retailing young plants followed by garden centres and nurseries. This form of retailing is relatively

price sensitive and is best suited to customers who lack time for visiting other outlets and want to

shop from home. The specialist horticulture mail order channel is especially suited for small

products like seed, plug and young plants.

The share from mail order is now being taken by web retailers.(Enon E 2008)

Rise in online retail trade from 26% between 2001 and 2006 was strong factor influencing the success of online retail garden centers. Online retail sales accounted to about £46.6 billion in 2007, which was an increase of 50% over the previous year. The horticulture trade association figures indicate that majority of gardeners in UK are internet users and internet usage is particularly high among marginal gardeners identified as key drivers or future growth in the sector. This has led to a rise in web-only retailers in the past two years that pose a threat to traditional bricks and mortar retailers.

Web only retailing is lacking and in its infancy because there are still problems in technology order processing and how to actually deliver the products. Because of online retailing 2 clear trends arise

One is that customers prefer buying from an online retailer that has a strong brand image in the market; this indicates a strong incumbent advantage.

The second is that in online retailing even though there are less costs for the company there are problems when items are to be returned and also problems in case of a delivery of several different products or for special kind of items. Also online retailing lowering products costs will mean that consumers will compare quality rather than price of plants.

That is a rising trend among companies like Garden and Leisure Group GLG., which have both garden centers and online retail sales to offer online, products such as bare root trees and plug plants which they do not stock or offer in nurseries. They procure the plug plants from another company which directly sends the plugs in specially packaging on their behalf. This indicates that online retailing is an important factor affecting the structure of plug plants market. It allows Retailers to have a large and diversified product portfolio without having to actually invest in production, maintenance or storage.

It also poses a problem for suppliers catering to web only retailers because they would not commit to quantities as they would have to buy according to online demand and cannot store them but would still want low costs. [McEwan G. 2008 PROFITING FROM INTERNET SALES Horticulture Week]

Influencers



“Overlooking the role of independent influencers in the market can result in loss of sales

opportunities.” McDonnell and Dunbar

As suggested by them, the role of influences can stretch to other members along the distribution

chain such as distributors retailers etc..

Theories on buyer behaviour indicate that in a buying decision process the final decision is often

influenced heavily by individuals, reference groups, experts, consumer associations etc.

In the horticulture industry and therefore plug plant industry, the role of the horticulture trade

association as an influencer is apparent. For example,

The horticulture trade association claims credit behind the move to alter the Sunday trading act for

the garden industry. A bill has been passed to amend law of 1994 to let garden centers operate for

extra hours on Sunday which could lead to an increase in 10% in sales which translates into extra

turnover of millions of pounds for garden centers. (HW:date)

Other association’s like the National Society of Allotment and Leisure Gardeners and the Royal

Horticultural Society also are influencers.

The influence of media on all members of the industry is significant. Several publications such as

the Kitchen Garden published by Morton’s media group Ltd., Horticulture Week and the Gardening

Which? Various blogs and websites play an important role as influencers on the consumer buying

decision process. Internet seems to be the most important communication medium between

consumers and retailers.

“ Gathering information on hobbies and interests and products and services remain second only to email as the most popular online activity and it was particularly popular among ‘keen gardeners’ which indicates that websites have potential to turn information into sale.” [McEwan G. 2008 PROFITING FROM INTERNET SALES Horticulture Week]

TV is also an important medium. It is important for popularizing gardening and serve as a tool for trends setting Eg The Good life from 1975-78, The Alan Tishmarsh Show, BBC gardening, etc.



Segmentation decision.

The exporting firms or any new entrants have three options:

1) Targeting retail nurseries or large garden centres providing young plants as value added

product

The Garden centres demand a hard bargain from suppliers and expect the standard low cost,

high quality reliable delivery, and the additional aspect of highly differentiated offering with

value added service like sales and technical support- services on phone and online, especially at

weekends (HW 6/3/2008) extensive and well prepared POS display and promotional material,

reliable and well trained company representatives to set it up (Wyevale interview). They will

buy in large and steady volumes. To serve this segment, the new entrant has to be prepared to

invest heavily in production capacity and delivery systems.

2) Targeting suppliers side wholesale nurseries, mail order or web retailers with plug plants as

starter plants or intermediate good, as a an alternative to producing it themselves

This requires extensive marketing at a very strategic level. The new entrant will have to prove

their reliability and be able to convince the incumbents, and overcome barrier to entry in form

of competition. The new entrant has to be able to compete on cost and quality.



3) Targeting end users with plug or young plants as finished product.

Macdonald and Dunbar suggest segmenting at the point furthest away from the manufacturer

where decision are made about competing products. The competing products for plug plants are

seeds and potted plants (Mintel 2004)

Two hypothetical products in plug plants or young plants are considered, and a possible

segment is identified below.

Segmentation of consumers

Step 2 Who Buys

Mac Donald and Dunbar and Kotler et al suggest group consumers into homogenous groups using

various variables. The consumers of plug plants would have similar traits to consumers who

purchase other gardening products, so an available segmentation of gardeners in the UK by Mintel

has been used.

A Mintel survey has classified the UK consumer base into 11 distinct segments on the basis of

demographic, psychographic, income, lifestage, ACORN classification, media and internet habits as

variables through nationally representative surveys of 2096 adults over sixteen during April 2007.

This can be found in the report Gardening Review UK 2007.

The two largest groups of gardeners are at Polar opposites in terms of attitude towards gardening.

Gardening enthusiasts are the kinds to do gardening happily all the year round. (Mintel 2007)

They generally pursue gardening as a hobby and take it quite seriously. They have a lot of

knowledge about horticultural products and prefer to grow their own plants and be as involved in it

as possible. It is assumed that this segment consists mainly of traditional gardeners as defined by



Keynote market research report 2004 because of their similarity. Some traditional gardeners don’t

buy plug plants because they would prefer to grow it from seed themselves and are price sensitive.

The Gardeners out of necessity segment on the other hand preferred doing only what is absolutely

necessary. They would not want to invest more in their gardens and probably would be hard to

motivate into trying new products because they are not interested in gardening and not suitable for

plug plants.

The other segments are fair weather gardeners those who do gardening only in good weather and

summer or spring. They would be most affected by weather changes and cannot be a dependable

customer base.

Fledgling gardeners are a segment would do some gardening but are novices and would like to

know more. They very often don’t have time to do gardening due to work and family commitments.

This segment is the most suitable for plug plants because plug plants can be positioned as an easy to

grow and requiring relatively less care. This segment would expect more in terms of service like

information on how to grow etc. but on the whole, they can be persuaded to buy more. This can be

taken as an “preliminary segment” as described by Macdonald and Dunbar.



Gardening Review - UK - September 2007 - Gardeners by Type

21

20

16

11

10

85

Gardening Enthusiast, ie gardeningas a hobby all year round

Gardener Out of Necessity, ie only dowhat is absolutely necessary

Fair Weather Gardener, ie only dogardening in good weather or duringsummer/spring

Fledgling Gardener, ie do basicgardening but would like to do/knowmore

Garden Helper, ie not the maingardener but help to do gardening

Spick and Span Gardener, ie keepgarden clean and tidy but don't enjoyit

Makeover Gardener, ie give theirgarden an instant makeover bybuying plants, pots etc

Values are percentage of overall 2096 adults surveyed.

Step 3

The third step described in the segmentation process is breaking down the segment into the

purchase components of what, where, how and when. Here they are arrived at by looking at various

brochures of companies and their websites.

This gives us key features which are in practice arrived at by listening to customers and observing

their buying behaviour. Key discriminating features are used to identify consumers’ benefits. The

key discriminating features with presented below are arrived at through observation require refining

by carrying out a separate consumer research.

What is bought:



Product characteristics- Traditional varieties, popular new varieties, experimental new varieties

Or herbaceous, flowering non flowering bedding or perennial vegetable shrubs climbers trees bamboos ferns



Size- small plugs under 5 cm height, which need replanting into glass house or conservatory, larger plugs of 5-12 cm which are ready to be potted into pots and beds, young plants from 8cm onwards, available in containers of up to 1 litre.

Volume- 24 to 50 cell trays for plugs fewer than 5 cm, 6 -12 cell trays for plugs over 5cm, small individual containers for young plants

where Online mail order retail nursery or Garden centre DIY store

when spring/summer fall/winter all year

how credit ( loyalty card, customer account) or no credit,: tills, online payment, telephone orders, payment on delivery

Consumer profiling and who buys what

From the characteristics of the segment in from the Mintel report, which are fairly representative

of the population, the following segments are created keeping in mind a hypothetical product

assigned to each. According to MacDonald and Dunbar, after getting a profile of consumers for a

preliminary segment, this should be matched up to a list of key features of the product, here a list

of key features is matched up with the profiling information availed from the Mintel reports to

give us two possible segments, The rich garden lover and the busy gardener.

Their profiles are presented here as a summery. The details can be found in the appendix

Assuming that the population of UK household owning a garden represents the number of total

consumers for gardening products, we can arrive at a figure for the total fledgling segment as


65


approximately 4554000 {11% of total number of UK adults who own gardens or allotments

41407000 (Keynote 2004) } and 8695000for the gardening enthusiast segment. Total 13249000

(in ‘000)

Gardening enthusiast Fledgling Gardener

Demographics % %

All 21 11

Men 18 9Women 23 13

25-34 12 1635-44 13 2045-54 21 1155-64 34 665+ 34 7

The fledgling gardener and the enthusiastic gardener represent the two initial segments that hold

most potential for selling plug plants. They have gardens, enjoy gardening and would willingly do

more if they could, have an income and lifestyle that makes plug plants suitable to them. They are

further split into two segments, the rich gardener and the busy gardener.

For further segmenting these groups, we define a group with certain variables that will make them

best to high differentiated, value added product A.

The plug plants of larger size at least above 5cm in case of plug plants and 8 cm in case of young

plants and higher value varieties. They trays with smaller number of cells would be preferred in

case of fledgling gardener, who is a new inexperienced gardener, in both rich gardener and busy

gardener segments.

The Busy Gardener would prefer distribution channel of mail order or web retailing while the rich

gardener will prefer going to a garden centre, and spending considerable time and money in

leisure activity there.


66


The Rich Gardener

It includes consumers from the two initial segments with these characteristics:

WOMEN

Both men and women in the “rich garden lover” are from the gardening enthusiast or the fledgling

gardener segment and can be sold a high value product A, but women will more likely buy

growing stock and are keener on large decorative plants than men, who prefer gardening products

like tools and mowers.

Men prefer having allotments to gardens and both men and women in age group 35-44 or older

age groups of over 65 have a large garden. (Keynotes 2004)

Marital status: Gardening Enthusiast

Fledgling Gardener

Married 23 12Single 13 8Widowed/divorced/separated 27 9

Age of own children in household: Aged 0-4 12 15Aged 5-9 17 21Aged 10-15 12 17Any 0-15 13 17No children 24 9

Working status: Working 17 13Full-time 17 13Part-time 20 15Not working 16 9Retired 34 7

AGE 35 TO OVER 65

This should include consumers within Fledgling gardeners segment who are still young. They are

more likely to learn quickly and take interest in hobbies and activities especially those between

ages 35-44, as they are young people starting their own families, and want a nice place for their


67


kids to play and also like to entertain. The fledgling gardener is married and has kids between 1

and 10 years. They will buy more plug plants because they wouldn’t have time to grow it from

seed.

In the gardening enthusiast segment, the group of consumers who are more likely to be

single/separated, children have grown up and moved out and has plenty of time for himself/herself

and is older. The gardening enthusiast is retired living on savings/pensions/ and probably has

retirement plans and investments and the fledgling group is busy working part time or full time

Gross annual household income:

Gardening enthusiast

Fledgling Gardener

Under £15,499 22 7£15,500-24,999 22 12£25,000-34,999 18 12£35,000-49,999 20 21£50,000 or over 19 15

INCOME OF OVER £35000

Consumers in both group with incomes from 35000£ pa, as they would buy high value products,

or would prefer rare or different varieties that cannot be obtained from traditional retailers and

supermarkets. This is particularly useful incase of an entrant with a niche marketing strategy.

Larger plugs, especially herbaceous and shrubs or vegetables would do well, according to the

responses received from the questionnaire.

Household tenure:

Gardening Enthusiasts

Fledgling Gardener

Own outright 32 9Buying home 17 14Renting 16 9


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OWN A HOUSE OR ARE BUYING

Aim for the section of consumers from fledgling group just buying or looking for houses, and

gardening enthusiast who mostly own theirs, as they will be willing to make considerable

investment in their gardens.

Daily newspapers: Gardening Enthusiasts

Fledgling Gardener

Daily Express 30 10The Mirror 23 9The Daily Telegraph 27 12The Guardian 22 22Daily Mail 32 10The Sun 14 11The Times 28 9Broadsheet readers 25 13Mid-market tabloid readers 30 9Popular tabloid readers 17 10

BEST REACHED THROUGH BROADSHEET AND MID MARKET TABLOID.

Gsrdening enthusiasts reads mid market tabloids daily mail and daily express and watches a lot

more TV then the fledling group that reads mostly the Guardian and some other broadsheets.

Gardening Enthusiast

Fledgling Gardener

TV region: London 21 8South 18 14Anglia/Midlands 23 10South West/Wales 22 14Yorkshire/North East 23 13North West 20 12Scotland 15 8

ACORN group: Wealthy Achievers 24 13Urban Prosperity 18 12Comfortably Off 25 15Moderate Means 21 7Hard Pressed 15 7

Technology users: Internet users 17 13Broadband users 18 12Satellite/cable/ digital TV 20 12Mobile phone users 20 12

Internet usage: Heavy (10+ hours/week) 17 11Medium (4-9 hours/week) 15 13Light (up to 3 hours/week) 19 14


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Commercial TV viewing: Heavy (6+ hours/day) 16 6Medium (2-5 hours/day) 21 11Light (less than 2 hours/day) 23 14


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CHAPTER 6

CONCLUSION AND RECOMMENDATIONS

The scenario in the plug plants market can be summed up as below:

1. There is increasing levels of consolidation at POS and trend of very small number

of large retailers with lot of clout like in the fruit or vegetable markets, where 80%

of markets are controlled by 4-5 seller account for nearly 80% of the market. The

same applies for suppliers of plug plants who are at the moment still fragmented,

large in number, low in volumes. This is changing fast, and many small suppliers

are being squeezed out of existence.

2. Consumers are splitting into extremes-

those who will buy high value items and those who will buy low value

items

those who do gardening because they enjoy it and those who do it because

they are forced to

those who want highly differentiated products( different varieties and sizes

in case of plug plants) and value added services (care instructions,

packaging, recommendations, participating with other gardeners, good

experience while shopping) and those who want basic product at low cost

those who spend a lot of time shopping for plugs and other growing stock

products in outlets like Garden Centres and DIY stores and those who have

no time and buy through mail order or online


71


Those who have knowledge about gardening/pursue it as a hobby and those

who do it for status, for increasing property value, or as a quick fix décor

project

3) The horticulture industry, including the suppliers of plug/ young plants is plagued by high

costs and affected by consumer trends, housing market situation, global warming and

weather and costs for doing R&D are high. Plug plant growers are seeing increasing

automation in production, therefore there is high capital intensity

4) There is lack of branding effort and low amount of advertising for plug plants specifically.

They represent a very small chunk of the whole horticultural pie

5) For a new established entrant, overcoming barriers to entry in form of competition, R&D

cost and customer loyalty will pose a daunting challenge. However a strategic approach to

entry could make or break their chance of success.

6) Effective advertising and product differentiation could be major entry facilitators

7) Apart from competition from the incumbents in the UK market, new entrants will have to

face challenges from euro markets especially established players like Netherlands who are

global leaders, and Spain etc who are emerging low cost suppliers. The EU poses an

opportunity in terms of supplying other European countries in the Union if new entrants

can overcome currency disparities (M Norris, New place nurseries) and cultural and

governmental regulation barriers( Keynotes 2004)


72


Looking at the above scenario, the following recommendations as to what to produce and how to enter the market are made:

The entry decision should take into consideration market characteristics, companies’

capabilities and degree of commitment and involvement by the management (Cateora and

Graham 2005).

In light of the barriers to entry identified and the structure of the market, the following

recommendations for entry decision are made.

Small incumbents both suppliers and retailers competing on price wont be able to survive-

will be wiped out by large suppliers and large retailers in the coming few years. Shrinking

customer base taken over by larger retailers and pressures on the industry in terms of costs well as

small family businesses not finding successors are reasons for closure and sell out of many

nurseries e.g. J Bradshaw and Sons in Kent, 98 year old nursery recently announced that it would

sell out to a independent garden centre owner who will turn it into a garden centre and the owners

will opt for retirement. This is one of the many examples observed in the industry; many other

nurseries and small garden centers are closing down

This opens up a strategic entry mode for new entrants where the management is committed to invest directly into the UK market and can raise available funds. This entry strategy is for the high risk taking businesses that have considerable understanding of the UK market and can cope with cultural differences and are prepared to face exit barriers in terms of sunk costs.

Another means of entry that hold tones of opportunity is strategic alliances like joint venture and licensing. The obvious concern here is finding the right kind of partners- they should be sincere, fit well with each others organizational culture and the partnership should be mutually beneficial.

Certain suppliers or grower groups identified in the market research report of Promar International represent the ideal partners for a strategic alliance:

Realists


73


This group of companies is flexible, aware of the need to become more proactive and market responsive. They already carry out R&D as a part of business strategy to response to market demands.According to the report these growers are more likely to co-operate in ventures with each other or the Pioneers, in order to capitalise on their specialisms. I extend this idea by saying these companies, and pioneers are likely to cooperate with new entrants or players in other international markets, and have a global partnership

Pioneers

They are industry leaders, both large-scale or niche players, who have strong relationships with marketing companies, retailers and other major players. They are extremely responsive to the market conditions and consumer needs.

Further research is required to find out the profiling information on these groups so that they can be targeted effectively. The new entrant can successfully enter into a partnership with producers of these groups, and overcome problems of production and delivery, payments, control and management issues etc caused in strategic alliances (Cateroa and Graham 2005). As a result barriers to entry can be overcome and the firm can penetrate the markets and retain market share by introducing itself with suitable offerings.


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Dissertation MSC Int Marketing

Documents

plug market

plug plants market of

young plants market

plug plant market

entry3 market segmentation

plug plants industry

considerable market

market research reports