Lion Nathan Breweries and the China market
Q1. The Porter's Five Forces concept is a unique and powerful tool for determining the position of a particular business with respect to its competitors. The Five Forces is very significant as it helps to analyze both, the strengths of the current competitive position and the strength of the position in which the organization is considering moving into China market (Porter, 2008). Lion Nathan or LN was an international brewer basically with presence in two countries Australia and New Zealand. LN operated in these countries with a portfolio of over 50 brands and more than 10 breweries. In the year 1993, LN due to stagnation in the New Zealand market looked to go overseas and the most lucrative market it came across was that of China. Threats of New Market Entrants The Porter’s Five Competitive Forces reveals that, regardless of the backdrop of Chinese economic boom, the Chinese beer market possesses numerous concealed dangers for a new entrant like Lion Nathan. High competition in the China beer industry possesses a great threat to the Lion Nathan move to in invest in the market. Plenty of traditional brands for example baijiu are prevalent. In addition, other western alcoholic beverages such as hard liquor and wines are a threat to any new entrant in the market. Barriers to entry will obstruct Lion Nathan Company’s goals since it is relative a newcomer in the market. On the other hand, in Australia the consumers love to experience new alcohol drinks but by their own brand, since they trust it very much. This implies that there are no major problems in the beer market with respect to new entrants in Australia as compared to China.
The threats of substitute products The consumer could easily switch to another brand of his or her choice if the prices were raised or they may stop consuming beer altogether. Thus, it can be inferred that threat of substitutes was looming large in China market. On the other hand, switching from one brand to another for example from beer to cider, or ready to drink spirits and availability of substitutes is very also very high in Australia. Bargaining power of Buyers The buyer’s bargaining power is extremely high following the heavy competition from the newcomers in the market among the patchy distributors and wholesalers. As a result, it leads to lower profits and low margins for newcomers in the alcohol market. Nevertheless, the distributors and the wholesalers are forced to lower their prices. Also, the buyer’s switching costs are low following other domestic, foreign and competing brands. Beer was considered a beverage in the country and was available in vast quantities there was no one major beer brand. Consumers had a great choice of available brands and beer was readily available almost anywhere. Therefore, it can be implied that the Chinese beer market had a strong bargaining power amongst the buyers. Buyers could choose from several available brands. On the other hand, the buyer’s bargaining power in Australia is low compared to China this is because the customers in this market are brand loyal implying that they are .willing to pay anything for their product. Bargaining power of suppliers The supplier’s bargaining power is low. This is because most of Chinese customers are not brand loyal and the costs of switching to other brands are not high. Therefore, the restaurants have the upper hand in stocking whatever beer brand they like because customers don’t care about the brands they order. However, in Australia the supplier’s bargaining power is higher compared to China and this is because companies fluctuate their prices more often with respect to prevailing market conditions.
The degree of competitive rivalry between the suppliers With the vast industry growth the rivalry is deemed to heighten thus paving a path for a cutthroat rivalry. Competition in the industry is rising rapidly following the increased domestic brewers and foreign JV partners in the industry. Generally, rivalry in the China beer market is observed to deepen thus posing a great challenge to Lion Nathan. On the other hand, rivalry in Australia still stands high following the competition in the industry especially from Fosters Company. For instance, LNC is said to engage in a bitter war for market share with foster’s company thereby coming up as the loser. The market share for the company decreased from 46% to 40%. Key Implications for marketing strategies The key implications for the marketing strategies for Lion Nathan in China are that it is the most attractive market for a brewery company like LN and it would help the company immensely to rebuild and expand in the international markets. On the other hand, the key implications for the marketing strategies for Lion Nathan in Australia are that it is a highly concentrated market and there is huge potential for profit making over there. LN should enter the Australian market strategically. It should forge an alliance with the small players and gradually look to overtake the two majors. Q2. LN’s research identified the Yangtze River Delta as the best region for its entry into China. This was simply because the delta was a region with high population, high relative growth and high relative wealth. LN’s entry strategy was to take a small, measured step in to an existing brewery and then build on the experience. The current marketing strategies of LN are to become the leading brewer in the Yangtze River delta and the market leader in the Shanghai-Nanjing corridor by the year 2000. LNC’s strategy to operate in China was updated in 1997 with input from the international strategy specialist consultancy firm McKinsey and Co. This involved LNC’s five point strategy for market leadership in the mainstream beer segment including developing a differentiated brand portfolio including premium and mainstream brands and selling premium beer outside the delta region. One of the key marketing strategies used by LNC is the target market strategy. LNC has strategically shown their interest in China’s five major cities in the Shanghai-Nanjing corridor. The company was greatly interested with a small region as its target market in China. The region selected had consumers with a high alcohol drinking habits and the main aim of investing on this area was to gain a market share in the important Shanghai market (Bradley, 2007). In addition, the company also applies the competitive strategy which has been key in its growth and development both in Australia and China. The company ensures that by providing its consumers with quality brands which meets their needs and preferences. Brand diversification is one of the strategies which the company applies to boost its competitiveness both in China and Australia. For instance, the company has developed a variety of successful brands in Australia. Nevertheless, LNC in China has now developed more than fifty brands. The main for this is to provide its customers with a wide range of alcohol brands thus increasing its competitive edge relative to the other competitor companies (Ashok etal, 2010). Moreover, LNC also makes use of product branding as a key marketing strategy. This strategy has been important for the company in ensuring that it produces high quality premium beers. In addition, it has been crucial in helping the company to come up with other competitive brands in the market. For instance, it added four major global brands in its portfolio viz. Taihushui, Rheineck, Carbine and Steinlager. LNC was aware of the fact that to maximize its return on investment and profits in China, it must make its presence felt in the premium beer portfolio. Thereby, it prepared a strategy to forge into an alliance with an existing premium beer brand. Motivated by the desire for high performance, the corporate team at LNC initiated a project in 1996 to capture best practice and apply it universally across its business. O’ Mahony who joined LNC in 1991 led this way and it was named as the ‘Lion Nathan Way’ (Clark, 2001). These formed the core marketing strategies of LNC during its stay in China. Furthermore, the company is well known for applying the acquisition strategy as a move to gain market share both in Australia and China. For instance, the company acquired 50% of Australia’s national brewery owned by Bond Corp in 1990 among others helped the company increase its market share. On the other hand, the acquisition of the Taihushui brewery in Wuxi in 1997 also played a role in increasing the LNC market share. Finally, LNC has also made use of market communication strategy with an aim of creating brand awareness, delivering product information to the customers, product attributes, and advance positive brand or company image. The company does this through the use of modes such as advertising and event sponsorship. The company is well known for regularly examining the effectiveness of its advertising strategy (Bradley, 2007). Lion Nathan has meant several changes in its operations recently with an aim of improving its performance. For instance, the company introduced different varieties of beer for different niche markets. This is because different brands were made for different classes of people. For example, Taihushi a mainstream beer for blue-collar workers and Rheineck for blue and white collar markets. This meant the company to meet demands of every customer regardless of his or her social class. In addition, LNC differentiated its brand portfolio amongst premium and mainstream categories as selling premium beer was only profitable in the Delta region. The main aim to impose this change in its operations was to cut the cost and thus increase the profit of the company. Furthermore, the company changed its operating tactics by entering international market in Yangzte River Delta in China. This move was aimed at expanding its territory thus encouraging its growth. LNC choice Yangzte River Delta because of its high population and high per capita income is one of the most prosperous regions of the country. The company if enters this region and gets a stronghold of the market could make its return on investment profitable and attain an above equilibrium position. Finally, LNC acquired various companies in 2008 namely Iconic Tasmanian brewer J. Boag & Son, and Cumulus Wines thus developing Lion Nathan wine which also featured its own wine brands. This move focused at increasing competitive edge and also helping the company to its market share.
Q3. Lion Nathan Company marketing strategies applied in the Australian market is almost the same but it also differs greatly. First, in China LNC is applying more of promotional and communication strategies for example advertising as compared to its home market in Australia. This is because the company has not well developed in the China market as in Australian market. Nevertheless, high competition in China market requires strong communication strategies as compared to the Australian market where the company has a high market share China (Clark, 2001). . In addition, branding strategy for its products differ in both Australia and China. In China LNC brands its products with respect to the attitude whereas in Australia it brands its products with respect to its business name. This is because the company is more developed in the Australian market thus by using its name it is able to communicate the presence of the product. However, in China the company is a newcomer and thus it finds it difficult to use its business name which is not well known thus it focus on attitude branding. Furthermore, China having more cultural practices as compared to Australia, LCN is more focused on providing the China consumers with products which suit the various cultures in the country. However, in Australia the cultures do not differ very much following the population of the country as a result, most of the products provided by the company in Australia are more like the same (Clark, 2001). Finally, the LNC’s brand diversification strategy is well developed in Australia than in China. In Australia, the company has developed very many alcohol brands and it is still in the process of doing so. This is accelerated by the consumer behavior of its customers in Australia which show great interest for new brands. LNC is also using the same strategy in China but it is still taking time to catch up.
Ashok, R., Gauzente, C. & Tinson, J., (2004). Marketing strategies: A twenty first approach.
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Porter, M., E. (2008). The Five competitive Forces that Shape Strategy. Harvard Business Review. Accessed on 2 September 2013 available at http://hbr.org/2008/01/the-five- competitive-forces-that-shape-strategy/