Hbs Case Simla Dairy
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KEY MANAGEMENT ISSUES
Shimla Dairy is not among the current leading players in the market. The market leaders (Britannia) production capacity per day is almost 50 times that of Simla Dairy. With nearly 29 varieties of products, Shimla is now trying to increase the product line further. The company currently has 2 plants one at Shimla and the other at Kiarighat with a total capacity of 10000 litres of milk processing. With the Cheese industry slanting towards the growth phase, there is expected to be high increase in the competition, both from the domestic and the foreign players. This gives rise to number issues which concern the management. Which are as stated below:
Currently, the company lacks of focus as it has a diverse product line with too many varieties of cheese products. With so many products it cannot be sure to decide as to which market segment to target in order to take the advantage of the growing market.
The current Production Capacity is Low to face the upcoming competition-The dairy currently produces 10000 liters of milk per day even after 30 years of presence in the market. This will certainly affect the chances to take advantage of the current growing market and to manage the consumption cycles of the industry. The question of whether to decide on the expansion of production capacity: With an incredible growth expected in the industry, the issue that the management faces now is, whether to increase the production capacity or not. This is very much needed as the expansion of production capacity will equip the company to supply and cater to the demand as well as attain economies of scale, which can be used as a competitive advantage against the new entrants. However, this calls for capital investments on the assets required for expansion.
Another key issue here is to decide which market segments to target and enter into as Shimla Diary should now needs to focus its efforts on certain market segments and cater to their needs based on the level of profitability and attractiveness that segment offers.
Another issue which needs to be addressed is to Build the Brand Equity of the company: The company is very small and not figure among the top players in the industry. It had never invested on any marketing expenditure to promote itself and just relied on word of mouth. The company had published some flyers and a brochure recently and also started providing refrigerators with the name Shimla Dairy highlighted to stores which most of the big players were practicing it ever since. As a result of this it had low brand equity and that needs to be pulled up to make its mark and sustain its growth.
Less or No Emphasis for Marketing strategy and Product positioning- Since the market is growing, it is an obvious fact that there would be a lot of new entrants which would stiffen the competition. To stand still against al such threats the company needs to formulate marketing strategy which answers the issues of pricing, promotions, advertising and distribution. The company needs to pay a lot of attention to integrate its product into the customers daily life which would help the company in penetrating certain niche consumer segments.
Less or No Emphasis for Marketing strategy and Product positioning- The lacks Strategy in positioning its product to take advantage of the growing market as they will now have to focus on positioning the product to certain niche segments as the Indian cheese industry is expected to grow at a steady rate. With such growth potential in the industry it is necessary to position the product appropriately to take full advantage of the growth potential.
Need for proper management cash flows and funds required for further expansion- Shimla Dairy is growing at a very high pace of 15-20 % which more twice the growth rate of industry To capture the new growing industry, the company needs to expand its production capacity which needs fund inflow . It is evident in the case as the company goes for overdraft facility to fund the wages and incur the cost of storing excess stocks plus new facility expansion requirements. Managing cash flows posed a major problem as the peak production of cheese was done in the months directly opposite to peak sales season. The fluctuation in cheese sales resulted in heavy dependence on the banks.
RECOMMENDATIONS
Increasing the current production capacity: The company is expected to grow by 25% with the increase in demand for cheese. This means that the company, for its production has to source more milk, increase its processing & production capacity and market the product more effectively. With the growth in the industry the company can expect a greater demand for its products for which the company would have to expand its production capacity. This would require setting up new plant and increasing the production capacity of the existing facilities
Establish Brand Equity by implementing new marketing strategies- The Company must reposition itself as a superior brand with specialty products which cater to specific consumer segments with varied and effective marketing initiatives. This can also be done by having a brand ambassador for the milk products. This involves high marketing expenditure but surely has more returns. They need to create awareness about different varieties of cheeses offered. There by helping them in cross selling and up selling to the household consumers.
Focus on products which would yield high profitability and narrow down the current Product line- The company should