Marketing Management

Final Project

The Marketing Strategy for a Small Community-type Organic Food Store

Instructor：Dr. Charles Trappey

Students： 961002 Maggie Lai

961029 Harriet Ha

952011 Marten Tsai

Date：June 5, 2008

AbstractThe trend of organic market was introduced. Then, the interviews of Black-Sheep and Li-Ruhn were illustrated. We analyzed the interview results in details. Finally, the conclusion was that environmental consciousness and healthy concept were very important in organic market. Chain stores and internet sales could be Black-Sheep’s partners to spread the two issues. Black-Sheep should enhance their customer loyalty and increase their male customers to survive in the competitive market.

I. INTRODUCTIONBlack-Sheep is a community-type organic food store. In this report, we will use our collected data and BCG Array to explore the organic market trend first. Then, two interviews are illustrated, including Black-Sheep’s (community-type) and Li-Ruhn’s (chain-type). We compared the two stores’ characteristics and analyzed their relationships. In the third part, we did 4P analysis for the two stores and made a break-event evaluation for Black-Sheep. Finally, we made a conclusion.

The organization of this report is as follows. Research motivation and organic food market trend are explored in Chapter 2. Chapter 3 illustrated the two interviews and made a comparison in the end of the chapter. Chapter 4 analyzed the two store’s 4P and Black-Sheep’s break-event. Finally, our conclusion was illustrated in Chapter 5.

1.1 Research MotivationFigure 1.1 showed the global organic agriculture area in 2005 and 2006. It was easy to find that more developed area has more organic agriculture area. Moreover, Figure 1.2 [1] showed the organic agriculture area in Taiwan from 1996 to 2006. Ten times of the area were increased in the 10 years. However, more than ten times of the organic food stores were opened. Chain stores [2-4] and internet sales [5] were great threats to a small community-type organic food store. It motivated us to explore the survival way in the very competitive environment.

Figure 1.1 The global organic agriculture area

Figure 1.2 The organic agriculture area in Taiwan

1.2 Research MethodThe marketing research process shown in Figure 1.3 was used as our method. In order to define the problem and research objectives, we used the key word, organic food, to google relative articles in the websites and explore the thesis in Electronic Thesis and Dissertation System (http://etds.ncl.edu.tw/theabs/index.jsp). Then, we developed our research plan to focus on community-type organic food stores. After implementing the research plan, we intended to obtain information to assist community-type organic food stores to develop their marketing strategies to compete with bid chain stores. Therefore, we would interpret and report our findings in the end.

Figure 1.3 The marketing research process

II. ORGAIN MARKET TREND2.1 The Introduction of Organic AgricultureOrganic agriculture is one kind of system management methods that improve and strengthen the health of agricultural ecosystem. Increasing bio-diversity, promoting biological circulation, and improving the biological activation of soil are included in organic agriculture.

The management operation should emphasize in utilizing resource and material within the local farm, least using outside material of the farm. Moreover, the control measures should be suitable for the surrounding area. The organic agricultural production system shall get rid of the use of chemical material. For example, chemical fertilizer, agriculture chemical, animal drug, seed with gene improvement, antiseptic, and radioactive rays should be avoided.

The central idea of organic agriculture lies in regarding agricultural production management system as a part of the whole ecosystem. It should adopt the material and the method that can improve the ecological balance. The basic goal is to let the soil, living beings, the plant, animal, and mankind coexist.

2.2 BCG MatrixBefore we used BCG (Boston Consulting Group) approach shown in Figure 2.1 to analyze the current status of organic market, we would like to illustrate it first. On the vertical axis, market growth rate provides a measure of market attractiveness. In the same way, relative market share serves as a measure of company strength in the market.

Figure 2.1 The BCG Growth-Share Matrix

2.3 Organic Market TrendForm Table 2.1, we found the organic agriculture area increased as time went by. In the other word, the supply increased in these years. Fortunately, the demands were also increased in these years as environmental consciousness and healthy concept were issued. In the following, the current status of the organic food market was analyzed with BCG Array as shown in Figure 2.1.

Originally, relative market share is an index of a company’s strength in the market. But, here we defined the relative market share as how much percentage organic food occupied all the food market. We did a survey in super markets and found organic food had its own block but the area is small compared to the market space. Therefore, we called organic food had low relative market share. As for the market growth rate, it can be observed from the number of organic food stores. The rate is definitely high. Thus, organic food shall be in question mark right now. It is low-share business units in high-growth market.

III. INTERVIEW RESULTSPin-Hsien Wu discussed three organized organic consumer fields in his master thesis in July 2005. Based on his research results, we would do further research on the differences between chain stores and community-type stores. Then, we would illustrate the interviewed Li-Ruhn and Black-Sheep in this report.

3.1 Li-RuhnLi-Ruhn means the neighborhood is beautiful in Chinese. It practices concerning health, earth, and lives through the interaction of producers and customers. In 1997,

Tse-Xin Organic Agriculture Development Foundation was established. In 1998, Li-Ruhn Business Shared Limited Cooperation was found. Their mission is to strive for people’s health and the earth’s lives.

Due to high prices, organic food is not easy to attract customers’ attention. Li-Ruhn popularized organic food through free conference. They sponsor many conferences every year until now. As more and more people love organic food, Li-Ruhn has 54 stores in Taiwan now.

As a non-profit business, Li-Ruhn put much effort in develop new products, such as germ cookies, hand-pulled noodles, and stream instant noodle. Li-Ruhn also sells its products to other stores. The head clerk told us Li-Ruhn would like to focus on the difficult part. If other stores could sell the products well, they will not compete with them. Instead, they would try to find other parts that others did not do.

Figure 3.1 Li-Ruhn interviews

3.2 Black-SheepBlack-Sheep is located in the front of the main gate of the old NCTU campus. The store has run for 12 years. Their distinguishing feature is the space design of the store. Black-Sheep put paintings and sculptures in the store as shown in Figure 3.2.

From the interview, we obtained the information that about 80% of their customers were females. They sell various products, including organic vegetables, fruits, beverages, rice, and machines with health concept. Their price was between 25 NT and 40,000 NT.

Figure 3.2 Black-Sheep interview3.3 Comparison Our detail interview questions were attached in the appendix. Here, we did a summary for the comparison of Li-Ruhn and Black-Sheep in Table 3.1

Table 3.1 Comparison of Li-Ruhn and Black-SheepStore Name Black-Sheep Li-ruhnLocation Hsin-Chu city Around TaiwanType Community ChainProperty of the organization

Profit Non-profit

Number of stores 1 54Space size 900 square feet 1440 square feetNumber of clerks 2 3 and some volunteersOpen hours Monday to Sunday 08:30 ~ 21:00 Monday 12:00 ~ 21:30

Tuesday to Saturday 10:00 ~ 21:30

Main customers Occupied females Conference members and occupied females

Number of suppliers About 40 More than 40; having their own brand

The business process of Li-Ruhn and Black-Sheep was shown in Figure 3.3. Black-Sheep did not have self-develop product so we marked that part in yellow color. As for the other parts, Black-Sheep and Li-Ruhn have the same process. Organic stores

tried to obtain high quality organic products and then sell to their customers. Most of the products were from contracted cooperation farms. Some were certified oversea organic products. Moreover, certification mechanism is very important in organic market. For the details, please reference Appendix II.

Figure 3.3 Business process

IV. DISCUSSION4.1 4P AnalysisIn order to do Black-Sheep’s SWOT analysis, we compared the two stores’ 4P in Table 4.1.

Table 4.1 4P analysis of Li-Ruhn and Black-SheepBlack-Sheep Li-Ruhn

Product Organic commodityFacility with health concept

Organic commodityOrganic cotton

Price 25 NT ~ 40,000 NT(beverages ~ water cleaner)

12 NT ~ 1,200 NT(jelly ~ organic tea)

Place Near old NCTU campus Near NTHU campusPromotion Introduced by current

customersReligious groupSponsor conferences

4.1.1 ProductBoth Black-Sheep and Li-Ruhn sell organic food and commodity, such as vegetables,

milk, and breakfast. However, Li-Ruhn sells self-developed products. They tried to find what customers would need and then find a manufacture to produce them. As for Black-Sheep, they sell products with healthy concept that Li-Ruhn does sell.4.1.2 PriceBlack-Sheep’s product price is from 25 NT to 40,000 NT, while the product price of Li-Ruhn is from 12 NT to 1,200 NT. In Black-Sheep, the product with 25 NT is beverage and the product with 40,000 NT is water cleaner. As for Li-Ruhn, the product with 12 NT is jelly and the product with 1,200 NT is organic tea. All the high price products in Black-Sheep are the healthy concept machine that Li-Ruhn does not sell.4.1.3 PlaceThe two stores’ places are very similar. Black-Sheep is just in the front of the main gate of the old NCTU campus. As for Li-Ruhn, the neighborhood is with NTHU campus and elementary schools. In other words, both Black-Sheep and Li-Ruhn are in the academic district. Most people in the area are with high education and high salary such as professors. They are also the people who would like to pay more for their health and the environment.4.1.4 PromotionBlack-Sheep’s promotion is through friends. In other words, it is their customer loyalty. However, Li-Ruhn was founded by Tse-Xin foundation. Most of their customers are from their foundation members or their religious group members.4.2 Black-Sheep’s SWOT AnalysisSWOT analysis shown in Figure 4.2 was utilized to evaluate Black-Goat-Horse’s strengths, weaknesses, opportunities, and threats. In the end, we would also give our suggestions as this report’s conclusions.

Figure 4.2 SWOT Analysis

4.2.1 Black-Sheep’s StrengthThe boss runs the store by herself. She was a mental consultant with 12-year experience in organic market. Her profession wins customers’ loyalty. Besides, the boss’s experience helps her handle the stock very well. Therefore, Black-Sheep has good stock management.

4.2.2 Black-Sheep’s WeaknessCompared with chain stores, their stock is low. It is not easy for Black-Sheep to ask for lower price. Moreover, it is difficult to develop new products by themselves since the low stock.

4.2.3 Black-Sheep’s OpportunityMore and more people notice the importance of environment and health. The two issues help organic market develop very much. In addition, many food stores in Hsin-Chu offer manual delivery. Black-Sheep could cooperate with the stores to offer manual delivery. It would increase their sales in male customers.

4.2.4 Black-Sheep’s ThreatChain stores and internet sales are Black-Sheep’s biggest threat. However, crisis is also the turn-point. The two threats could also help them popularize organic food. So the most important thing for Black-Sheep is to discriminate the market.

4.3 Black-Sheep’s Income StatementThe boss did not want to discuss their income statement with us. But she gave us the rough expense per month for her store. The bold italic part in Table 4.1 was the information the boss gave us. The gross profit was evaluated about 30%. Then, the whole income statement was calculated as Table 4.1. Their sale revenue per month was about 690,000 NT, and the net income was about 200,000 NT per month. In other words, their annual net income was about 2,400,000 NT.

Table 4.1 Black-Sheep’s income statementItem Expense IncomeSale revenue 690KPurchasing cost 400KRental 33KUtilities 6KSalary 50KMiscellanea 1KTax 0KSubtotal 490KNet income/Month 200KNet income/Year 2400K

V. CONCLUSIONIn our study, we found environmental consciousness and health concept were very important in organic market. Chain stores and internet sales may be Black-Sheep’s partners to spread the two issues, not competitors. Instead, enhancing their strength and develop their opportunities were what Black-Sheep has to do right now. Therefore, increasing their customers’ loyalty and their male customers was the best way to survive in the competitive market.

REFERENCES[1] Taiwan Organic Agriculture Information Center

(http://info.organic.org.tw/supergood/)[2] http://www.li-ruhn.com/front/bin/home.phtml[3] http://www.yogihouse.com.tw/[4] http://www.orangemarket.com.tw/[5] http://eshop.organic.org.tw/supergood/front/bin/home.phtml[6] Pin-Hsien Wu, “Organic Food, is it Ecological or Economical? An Analysis of Three Organized Organic Consumer Fields”, master thesis of National Chiao Tung University, July 2005

Appendix I Interview Questions1. What is the motivation of opening an organic store? Do you have any different

ideas?2. How do you give a name to your store?3. How many customers do you have in a day? What percentage of old customers?4. Have you thought of market discrimination5. Where are most of your customers from? How much are percentage of your

customers in the neighborhood?6. How many clerks in your store?7. Do you consider internet sales? Or do you consider home delivery?8. Have you achieved break-event point? How many years did you spend?9. How about your customers’ job and gender?10. Do you offer membership? 11. Do you have hot season or cold season?12. How about your open hours?13. How often do you ship your products? How do you control the quality?14. How much do you pay for rent, utility, and employees?15. How much do you pay for purchasing products?16. When did you start to run the store? How much did you invest in the beginning?17. Do all the products pass the organic certification?18. How about your stock mechanism?19. What is the highest price? And what is the lowest price?20. How do you arrange employee’s training?

Appendix II Certification Mechanism of Organic products in Taiwan

The certification mechanism is shown in Figure A1. Council of Agriculture authorizes Taiwan Accreditation Foundation (TAF) to verify and accredit four associations to do certification process, including Mokich Okada International Association（MOA） , Taiwan Organic Production Association（TOPA）, Tse-Xin Organic（TOAF）, and Taiwan Formosa Organic Association（FOA）.

Figure A1 Certification mechanism of organic products in Taiwan