Reference no: EM133906728

Assignment:

Prayuth Confectionaries, a Bangkok's typical homemade light foods, such as sweets and snacks, were prepared and packed hygienically to add variety to the Bakeries' offerings. These foods were outsourced not from Bakeries but from small, home-based units, which provided a decent livelihood in many homes. BAB insisted on products that had enhanced quality, without the use of artificial colours, taste enhancers, or harmful preservatives.

The First Production

Sinamoang started the new venture using second-hand machinery with a 40-kilogram capacity, enabling the company to make 5,000 standard cakes per day.

Investment and Expansion

Next, an investment of THB20 million enabled Sinamoang to set up a fully automated, general-purpose cake manufacturing unit that could produce different varieties of sweets, including cakes, and to leverage the advantages of large-scale production. Prayuth's plant had the capacity to produce approximately 65,000 standard cakes a day , though the capacity of the plant varied based on the type and size of the cakes made. Standard cakes, such as plum or tea cakes, could be made more quickly than Juicy Cakes, which required a longer bake. Juicy Cakes was Prayuth's brand name for his specialized cakes, as the taste of Juicy Cakes differed from all other comparable standard cakes in the market.

Despite huge capacity build-up in the plant, cake sales were seasonal for many entrepreneurs. For Juicy Cakes, the two months of sales in December and January reached a total of THB12.5 million for approximately 55,800 cakes. The average sales per month at times other than this peak season were THB200,000-250,000 for all types of cakes .

The Challenges Ahead

The promoters had invested THB20 million, and the Bakery's capacity was not being used. With so many cakes on the market across so many distribution channels, Sinamoang found it difficult to fine-tune the trade-off between a product-based strategy and a place-based strategy. Product positioning and reach were critical.

Packaging

Juicy Cakes had special packaging that increased the shelf life to 90 days, almost double that of their competitors. When designing the packaging, Sinamoang's priority was to ensure taste preservation during storage, which would keep Juicy Cakes ahead of its competitors in taste, freshness, and shelf life.

Sourcing Ingredients

Most of the high-quality supplies, which needed to be ordered three to six months in advance, were stored in freezers set at -18 °C.

Cake Characteristics

To stay relevant, the couple researched competitive products and flavours, as the cake market was saturated with just 10-15 popular flavours. At Prayuth's Confectionaries, flavours with foreign origins, such as hazelnut, blueberry, and strawberry, were carefully customized to appeal to the cultural taste buds of Bangkok for better acceptance and demand. Juicy Cakes were positioned differently from comparable competitor standard cakes. The ice cream cake was a niche market product.

Prayuth's Confectionaries' competitors in the ice cream cake market were brands such as Baskin Robbins8 and Cold Stone Creamery.

Pricing

The price of each cake was based on its demand and perceived value in the market. Prayuth's Confectionaries expanded its product development after considering different trends in the industry at locations as far away as Bangkok, Phuket, and Chiangmai. Sinamoang adopted a full-cost approach to capitalize on higher-than-normal profits on every batch produced, and the firm sold superior-quality products as part of its branding efforts. Indeed, the manufacturer's ability to match a product's taste to its customers' expectations was critical to creating higher perceived value.

Direct Sales

The firm had approximately 3,000 direct customers who ordered cakes from the factory premises either by telephone or e-mail, and the number of direct customers was growing. The comparable cost of retail sales for the same weightage was THB250.

Hypermarket Sales

Hypermarkets in large malls accommodated Juicy Cakes within the mall. Forty per cent of the retail price of the products was paid as commission to the hypermarket, and a one-time admission fee of approximately THB5,000 per product was charged at the time of entry. If the product failed to generate a specific amount of business within the mall, the product had to exit the business.

Distributors

Despite being a strong product with reasonable brand recognition, Juicy Cakes had a low bargaining position with distributors, who enjoyed higher market power. Furthermore, poor distribution and reach had put Juicy Cakes under pressure many times when the product was in high demand but unavailable. He related many instances when the distributors had procured the product in bulk from the manufacturer but did not deliver the product to retailers and customers. Additionally, the distributors had engaged in unhealthy conflict with the manufacturer, citing instances of poor quality and product demand.

However, the positive side of the manufacturer-distributor relationship was that the manufacturer would not take back the sold product from the distributor under any circumstance.

SALES DEPENDENT ON PLACE: A CONCERN

Juicy Cakes were not available to customers due to poor distribution and branding strategies leading to negative word of mouth publicity. After paying in full , the distributors took the shipment directly at the factory gate. The end customers of the cakes had limited, indirect visibility of Juicy Cakes through the distributor. Sinamoang confessed that despite having been in business for quite some time, the firm faced a difficult situation regarding the trade name, which had adversely affected the company's marketing and branding efforts.

According to the trademark authorities, «Juicy Cakes» could be registered as a trade name only after completing at least three years of sales with invoices. Initially, Sinamoang had not fully understood the need and importance of having a trade name for product branding efforts.

ONLINE SALES PORTAL

He recalled that, in his multi-product distribution and sales centre, customers had demanded home delivery due to the inconvenience of travel. Anong convinced Sinamoang of the need for a multi-device compactable online sales portal to address the needs of small customers and distributors. Sinamoang felt that when the customer did not need immediate delivery, the Juicy Cakes could be couriered directly from the manufacturing point. But if the delivery requirements were immediate, then the distributor nearest to the customer could deliver the product on the same day for a small charge.

According to Sinamoang, the local distributor needed to optimize the delivery workforce based on daily delivery requirements.

COMPETITIVE POSITIONING

This general-purpose production facility made approximately 200 different varieties of Bakery items, including cakes. The products were then transported to the store by the manufacturer.

THE WAY FORWARD

Although the firm was highly profitable, cake was a seasonal product, and the capacity of the production plant was grossly underutilized. Juicy Cakes were a strong product, but they were disconnected from the market's needs and customers' aspirations.

Questions:

1. Explain the short-term and long-term challenges that arise in regular business settings.

2. Explain the interdependence among the 4Ps (Price, Product, Place, Promotion) and its relation with cost.

3. What should the company do related to their positioning and the company's business model for competitive advantage.

4. What are the issues related to capacity building for scale advantage and its short falls.

5. if you are the founder, how you see the the company's excess capacity and how to utilize it throughout the year.