Strategic Audit

1.0 PESTEEL Factors (Table 1)
Macro
Drivers
Impact to the Organization
factors
Legal Ethical Ecological Technological Socio-Cultural
Economical
Political
Political party shifts
National budget
priorities
US/SL political relations
Thailand political
stability
Disposable income
per capita
Taxation
Inflation rates
Foreign currency
exchange rates
Increase in
per capita GDP
Interest in
health and fitness
Growth of dual
income households
Languages, Literacy
and education
Population Trends
- Aging population
Social values and
lifestyle shifts
Email, Internet and
Computer penetration
Smartphone
proliferation
Technology
(affordable health
monitoring devices)
Energy, water sources
and waste management
Environmental
Pressure Groups
Green Issues
Moral principals
Business rules
of conduct
Honesty and Integrity
Trustworthiness
and credibility
Taxing
Consumer
protection laws
Health and safety laws
Employment laws
Codes of conduct
Industry specific
regulator interventions
Consumer safety
and MarCom legislation
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Party instability and changes in parliament would hinder the approval of
national policy especially in the health sector which will indirectly affect
semi-urban and rural sales
Compensations through the budget for essential items help stabilize product
price, since Sustagen is classified as an essential item by the government
While the current government is on good terms, an Anti-US government could
drive a negative campaign affecting the product
Sustagen is packaged in Thailand and any instability in the country will severally
affect product availability/shipping
This increases the purchase power and introduces new segments such as
lower/middle SEC B
Import taxes/Duties would affect price
Customer purchasing power would be negatively affected
Increase of the USD will significantly push the product price and adversely
cut-off customer segments
This increases the purchasing power of consumers
A growing health conscious adult segment is the ideal place to build the brand
This increases the purchasing power of consumers
This enables people to realize the importance of proper nourishment and makes
communication activities more productive
The product is trusted by/for the elderly, and will continue to have demand
Increasing belief in energy drinks and quick fixes amongst the young adult
market, the “nourishment” category will take a hit
Gives opportunity to multiple mediums that can help communications reducing
dependency on ATL mediums
constant connectivity with consumers and better understanding trends/habits to
modify/better communication efforts
With more people being health conscious and the advent of health monitoring
devices, advancements in technology will make such gadgets affordable and more
interactive that could be claimed as an area of communication with customers
To maintain a pharmaceutical grade production facility there are high Energy
demands and many aspects of pollution that have to be monitored closely
Constant lobbying by various groups demanding reports on varying subjects
such as Sustainability, Resource sourcing, waste management etc.
Improved production methods make the manufacturing process more sustainable
Strict Code of Conduct and Ethics for Financial officials and Directors
Standards of Business conduct and Ethics for employees and suppliers
Board oversight of ethics programs, Annual election of all directors and stock
ownership requirements for directors
Independent audit committee members and Corporate governance members
Tax reductions by Government due to “Essential Item” classification
Strict laws and authorities require management to keep close tabs on operations
Constant optimization of products, production methods and related resources
to meet health and safety standards
Local unions and government employment demands
Multiple codes of conduct implemented and adhered to.
Health ministry regulations being very tight and obtaining approval a hassle.
Health ministry and consumer affairs authority regulations being strict on the
marketing material released to customers. Violations could lead to being banned.
Marketing Audit
O/T
T
O
O
T
O
T
T
T
O
O
O
O
O
T
O
O
O
T
T
O
O
O
O
O
O
T
O
T
O
T
T
H/M/L
L
H
M
H
H
M
M
H
M
H
L
L
H
H
H
H
M
M
M
L
L
L
M
M
H
M
L
L
L
H
H
1

2.1 SWOT Analysis (Table 2)
Helpful to achieve the objective
Strengths
Strong brand loyalty
Perceived Medical benefits
Strong Distribution Network
Imported Quality Product
Trusted Brand Reputation amongst masses
Listed as Essential Item in National Budget
Opportunities
25-55 Health conscious market
RTD product format (ready-to-drink)
Tax reductions through National Budget
Internal
External
2.2 Key Issues (Table 3)
Powder format of product
Foreign currency exchange rate
Majority of sales through Pharmacies
RTD product format (ready-to-drink)
Marketing Audit
Helpful to achieve the objective
Weaknesses
Consumed by the retired and ill
Internationally the Product positioning targets a wide
variety of age groups
Majority of Sales through Pharmacies
Powder format of product (convenience factor)
Threats
Import Duties and Taxes
Foreign currency exchange rate
Large Advertising budgets with competition
It’s difficult to find the time to make things on a daily basis. Sustagen needs to look at the
availability of alternate methods of consumption.
Sustagen is made in the USA and packaged in Thailand before being shipped to Sri Lanka.
Increases in FOREX rates adversely affect the affordability of the product.
This creates a restriction to advance the brand towards the 25-55 market, as they continue to
see it as medication rather than a nutritional supplement.
The competition has powder in sachets and boxes/tins. They also possess RTD packs that
have now become the largest part of their sales volume.
2.3 Critical Success Factors (Table 4)
Distribution Network
Every competitor in this market needs a strong, widespread and speedy distribution network
to make sure stocks are available whenever customers want it.
Product Consumption Options
With todays fast paced world people need optional methods of consuming their favourite
beverage at any time of the day and in their preferred condition (hot/cold, pure/mixed).
Reputation
Nutrition isn’t a matter taken lightly and the reputation of the company behind it and
especially the brand carry a significant weight age.
Heritage
If your parents drink it, and your grandparents also drank it, then you are assured that this
company is trusted and responsible in everything they say and do.
2.4 Product Life Cycle (Figure 1)
2.5 Rodger’s Diffusion Curve (Figure 2)
Introduction
Stage
Growth
Stage
Maturity
Stage
Decline
Stage
The
Chasm
Revenue
Sustagen
Relative % of customers
Time
Maturity Stage
Sustagen has been in the market for close to 70 years and
currently is the cash cow for Mead Johnson in Sri Lanka.
Even without any consistent advertising the brand sells
130,000 to 150,000 tins a month effortlessly.
Although the product is the most expensive when compared
to its competition (Viva, Horlicks and Nestomalt)
government tax reductions and low profit margins per unit
bring it to the customer at the lowest possible price.
Even though the profit margins per unit are low, the volume
sold brings in significant profits to the company.
All in all Sustagen’s heritage and strong brand loyalty keep
sales at a constant and currently, even keeps the competition
stable with no major fluctuations in the market.
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In order to recover the brand from decline (on PLC), the plan for
the brand includes the introduction of a 1 litre RTD format of
Sustagen at price of Rs.500.
To attract Innovators/Early adopters
The 1 litre pack is intended to be launched at A grade supermarkets
such as Keells Super and Arpico Supercentres. Promotional
activations at WTC lobby and also fitness activity groups such as
Zumba, Cross-Fit, Swimming Academies etc. After the sales trend
has been observed over a reasonable period of time.
To attract Early majority pragmatists
An ATL and BTL campaign will be run to attract/appeal to the TG.
DJ endorsements on Drive-time radio shows, product placement on
TV health and fitness programmes including sales promotions for
Keells Nexus, Arpico Privilege and Cargills Loyalty members.
Time
2

Marketing Audit
2.6 7 P’s of Marketing in relation to Sustagen (Table 5)
Product
Price
Low fat nutritional formula specially formulated to deliver the appropriate ratios of vitamins, minerals
and other nutrients
Pharmaceutical grade product manufactured in the USA and packaged in Thailand
Available in Vanilla and Chocolate flavours
Packaged in an air-tight tin for increased security
Sustagen is the most expensive (highest priced) amongst products within the category
Importing, logistics and distribution are constantly in flux due to the dollar conversion rate which in-tern
affects the product price.
“Essential Item” classification by the government assists in receiving tax reductions and duty concessions
by the government
Place
The distribution of the product is managed by A Baur & Co. Currently the product is mostly
available at Pharmacies contributing to its perceived medical benefits. It is also available at
A grade supermarkets belonging to the Keells, Cargills and Arpico chains.
Ad-hoc promotional initiatives have been conducted throughout the past years and mainly
been “recycled” material from the last proper advertising campaign done in 2010.
Promotion
Localized “town-storming” is conducted by the sales teams on a monthly or bi-monthly
basis in the effort to engage with locals and promote the product.
The sponsorship of Sports events and especially school sports meets are leveraged on to
get the sampling truck on location and drive product sampling.
People
Process
The main people that interact with the customer are Pharmacists, Shop Owners/Assistants and Medical
Professionals. Since there is very little customer engagement from the firm, Mead Johnson trains the
distributors team on a quarterly basis while also conducting educational seminars for Pharmacists and
Medical Professionals on a one-to-one basis or through their relevant professional bodies. Educating the
shop owners/assistants are conducted by selected members of the distributor’s team.
First-time customers will initially be told about Sustagen when consulting a medical professional, who would
suggest the consumption of the beverage to regain strength from an ailment. The customer could purchase it
from the nearest pharmacy or supermarket without the hassle of a medical prescription. While instructions for
preparation and nutritional information are printed on the tin, added information about health and wellness
are available in the tin in the form of a insert/leaflet.
Physical Evidence
The main source of information for the TG is their physician or the pharmacist with occasional posters.
The only identifiable physical evidence is the iconic white tin with the light blue patch that says “Sustagen”.
2.7 Stakeholder Map (Figure 3)
Shipping and
Logistics
A. Baur & Co.
(Distributor)
Saatchi & Saatchi
(Ad Agency)
Customers
Banks
Shareholders
Management
Customs Department
Local Staff
Health Ministry
Media Houses
Public
2.8 Mandelo Matrix (Figure 4)
Level of Interest
Heritage
Saatchi & Saatchi
(Ad Agency)
Local Staff
Health Ministry
Shareholders
High
Customers
Management
A. Baur & Co.
(Distributor)
Shipping and
Logistics
Low
Public
Banks
Media Houses
Customs Department
Low
High
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3.0 Porter’s Five Forces of Competition (Table 6)
Marketing Audit
Threat of New Entrants: Low
(many high and moderate impact factors exist that reduce the threat of new entrants)
Impact
Impact
Existing customers have strong brands and loyal
High (-)
Strong multi-national/international backing with existing
customers which will make it difficult for a new entrant.
brands. Reduces new entrants who can get such backing.
Med (-)
Distribution networks of existing firms are well
The top firms have had continuous brand presence for
established and spread islandwide. New Entrants will Med (-) over 3 decades. New entrants will need many years to Med (-)
not be able to achieve this in the short to medium term.
gain that heritage factor.
Intense price competition has reduced industry
profitability and less likely to attract new investors.
Tedious Health ministry certifications and approvals.
Navigating ministry politics would deter new entrants.
High (-)
Med (-)
Every brand currently claims the benefit of Energy,
Strength or Nourishment. New Entrants won’t have a
point of differentiation.
Med (-)
Bargaining power of
suppliers: Moderate
(a very balanced dependency
on the supplier)
Distributor reputation and
heritage influences customers
Diversified portfolio
of distributor
Islandwide network of
dealers within the
distributors reach
Close ties with the national
government, through the
import of fertilizer and
export of cinnamon
Impact
Med (+)
Med (+)
Med (+)
Med (+)
Industry Rivalry: Very High
(strength of rivals keep
the market highly competitive)
Handful of established
competitors
Aging population contributing
to slow, but steady industry
sales growth
Very large volume and ad
spends of competition
Main rivals connected to
Multi-national Organizations
Impact
Med (-)
High (+)
High (-)
High (-)
Bargaining power of
customers: High
(many factors that increase
consumer power)
Multiple optional seller points
Customer has option of
switching products and even
switching to Medically
recommended products
Perception of Medical befits
Government classification as
“Essential Item” makes Price
increases have a minimal
effect on sales
Impact
High (+)
High (+)
High (+)
Low (-)
Substitute products are at a much higher price
and lower sales volume.
Equal quality standards of substitute products
in manufacturing and packaging
Threat of Substitutes: Moderate
(increased costs of substitute products and high cost of switching for buyers)
Impact
Med (+)
Med (-)
Switching costs to buyers is high since substitutes
are specialty products
Limited manufacturing expansion abilities and
inability to import while remaining competitive
Impact
Med (+)
Med (+)
4.0 McKinsey 7 S Framework (Table 7)
Strategy
Structure
Style
Skills
Staff
Systems
Product Differentiation strategy used to curtail the barriers of price control.
Tall Organisational structure with a majority of independent corporate directors together with well-defined roles
and responsibilities who direct the regional heads, who in-turn direct the market heads with each region.
Autocratic leadership style that is not only seen in the head office
but also practiced in the regional offices amongst the management.
Highly scientific approach across the network with the added advantage
of the Mead Johnson Pediatric Nutrition Institute.
Awards and incentives together with knowledge sharing forums and
strict guidelines of roles, responsibilities, conduct and ethics.
Intrinsic operational, resource management, HR, network monitoring systems to better improve the
manufacturing operations of Mead Johnson are further extended to the education/update of healthcare
professionals through resource systems.
Shared Purpose
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High levels of Honesty and integrity across staff, management and directors
including strong drive to achieve the company’s vision in all aspects.
4

4.1 Six Market Model (Table 8)
Marketing Audit
4.2 BCG Portfolio Matrix (Figure 5)
Customer
Market’s
Internal
Market’s
Referral
Market’s
Influence
Market’s
Recruitment
Market’s
Supplier/
Alliance
Market’s
Customer perception of the product being a medical formula
especially beneficial for the elderly and recovering patients
Very strong corporate values and heritage factors at
A Baur & Co. restrict major changes to the product
Over the decades the product has got stronger and actually
seem to have survived so far due to the referral markets
Recommendation from Doctors’ continues to fuel the belief
that the product has medical properties
Old fashioned persona and
company work culture deters young recruits
The trust and heritage factor of A Baur & Co
has helped leverage the product in the local market
Enfagrow Stage 3
Stars
Sustagen
Cash cows
Sustagen School 6+
Enfamil Stage 1
Speciality Products
Question marks
Enfamama
Enfagrow Stage 4
Enfamil Stage 2
Dogs
4.3 Strategic Group Map (Figure 6)
4.4 Stakeholder Expectation Analysis (Table 9)
Heritage
Sustagen
Horlicks
Viva
Nestomalt
Product Consumption Options
4.5 Sources of Competitive Advantage (Table 10)
Superior Product Benefit
A Perceived Advantage
Low Cost Operations
A Legal Advantage
Superior Contacts
Superior Knowledge
Scale Advantages
Offensive Advantages
Sustagen
Horlicks
Nestomalt
Viva
Mead
Johnson
A. Baur & Co.
(Distributor)
Banks
Shipping and
Logistics
Customers
Saatchi & Saatchi
(Ad Agency)
Shareholders
Local Staff
Management
Customs
Department
Health Ministry
Media Houses
Public
Shared Profits,
Increased Sales Volume
Interest,
Use of Products (OD, Bank Guarantee)
Smooth delivery,
and clearance
Product Quality,
Value
Working close on future plans,
Advertising Production Spend
Dividends, Capital Growth
Sound Investment
Overseas Opportunities, Job Satisfaction,
Security, Compensation
Compensation,
Prestige, Power
Taxes,
Duties
Product Quality,
Truthful Product Benefits
Continuous Advertising Spend
Employment,
Preservation of the environment
4.6 Financial Performance Analysis (Table 11)
Asset Utilization
Ratios
Profitability
Ratios
Investment
Ratios
Liquidity
Ratios
Stock Turnover
Debtor
payment period
Creditor
payment period
Net working capital
as % of sales
Fixed asset ratio
3.05 12 months 18 months 33.74 1.01 1.10 0.23 0.84
Return on Sales Gross margin Net Margin Profit before interest
and tax (PBIT)
Return on capital
employed (ROCE)
USD 89.8 mil 64.3% 16.1% USD 936.2 mil USD 173.7 mil
Earnings per Price to earnings Dividend Dividend cover Dividend yield
share (EPS) ratio (P/E ratio) per share
USD 3.28 22.4 1.65 2.10 2.3
Current ratio Quick ratio Solvency ratios Gearing ratio Times interest
covered
2.1 1.69 0.25 0.01 14.4
Sales per
unit of assets
Return on
Investment
6.6%
Profit per
unit of assets
Value added
ratios
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5

5.0 Competitor Capabilities Analysis (Table 12)
Marketing Audit
Distribution Network
Product Consumption Options
Reputation
Heritage
Sustagen: total 5 Horlicks: total 5 Nestomalt: total 5 Viva: total 2
-2 -1 0 1 2
-2 -1 0 1 2
-2 -1 0 1 2
-2 -1 0 1 2
-2 -1 0 1 2
-2 -1 0 1 2
-2 -1 0 1 2
-2 -1 0 1 2
-2 -1 0 1 2
-2 -1 0 1 2
-2 -1 0 1 2
-2 -1 0 1 2
-2 -1 0 1 2
-2 -1 0 1 2
-2 -1 0 1 2
-2 -1 0 1 2
5.1 Competitor Response Profile (Figure 7)
6.0 Porter’s Generic Strategies (Figure 8)
4. Future Goals 1. Current Strategy
Repeated improvement of the
nutritional formula
Create new packaging types
Competitor Response
Continuous push for alternative
product consumption options.
Drive to convert blended consumption to pure consumption
Expansion of production line and volume
Close association with national sports bodies
Market Scope
Narrow Target Broad Target
Lower Cost
Cost Leadership
Cost Focus
Competitive Advantage
Differentiation
Differentiation
Sustagen
Differentiation
Cost
3. Assumptions 2. Capabilities
Reduced taxes on import of raw materials
by government to encourage local
manufacturing/production
Special tax benefits to multi-national
organizations to encourage production
and increase employment opportunities
Storage facility able to retain goods for
15 days of stock cover.
One of the largest distribution, dealer and
resource sourcing networks in the island.
Strong arming the competition with the
strength of earning in excess of
Rs.30 Billion.
Sustagen, throughout the decades, through
their marketing communications, pricing
and other brand activities shows forth a
very clear, overall strategy of Differentiation.
While being clearly available to the masses
and being a product with nutients that
support a person of any age or health level,
it is still sold at a premium price and is sold
at pharmacies and only A grade
supermarket outlets.
6.1 Porter’s Value Chain Analysis (Table 13)
Support Activities
Firm Infrastructure
Accounting, Legal, Financial Management
HR
Employees, Staff Ethics Programmes, Employee Incentive Programmes, Staff Training and Workshops
Research and Development
Research through Mead Johnson Pediatric Nutrition Institute
Procurement
SAP global supplier management system, IBM Procurement and Accounts Payable services
Inbound Logistics Operations Outbound Logistics Marketing and Sales Services
Raw materials
management
system with
real-time POS
data notifying
potential
out-of-stock
situations
Streamlined
manufacturing
process, Regional
packaging facilities,
Overall Internal and
Independent quality
control teams active
throughout the
production process,
packaging and
point of sale
Dispatch and delivery
of products in bulk to
regional packaging
facilities, Dispatch and
delivery of specialty
products to select
niche markets
Customer education
efforts, Order Taking,
Regional and Single
market Promotional
Activities, Global,
Regional and single
market quarterly sales
and promotions
evaluation and analysis,
market research efforts
Online health,
nutrition and
pediatric
educational
resources
together with
a global helpline
Margin
Primary Activities
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Marketing Audit
7.0 Building Your Company’s Vision by James C. Collins and Jerry I. Porras (Table 14)
Core Ideology
Core Values
Core Purpose
- Passionate pursuit of continuous improvement in all we do
- Uncompromising commitment to scientific rigor and product quality
- Unwavering integrity in every relationship we have and action we take
- An environment of openness, respect and high performance
To nourish the world at every Stage of Life
Envisioned Future
BHAG
Vivid Description
Become the world’s #1 brand for babies’ and children’s nutrition
We will invest in science to manage global research programs, from clinical studies
that address safety and efficacy, to basic research on specific bioactive components
in human milk. We will work understanding the significance of the trust placed in
us by parents, and will offer them ongoing reassurance about the uncompromising
and rigorous quality standards to which we hold each and every facility, production
line, employee and product. In addition, we will help parents make sense of feeding
issues and common nutrition questions to support them in providing their children
the best start in life. We will foster and develop strong relationships with
organizations in academia, public health, pediatric medicine, dietetics and
child care to collaborate on initiatives that positively impact the wellbeing of
children. We will always help bring experts from various fields together to support
continuing education seminars and materials for healthcare professionals and make
sure this work gets the latest research to those caring for children around the world.
7.1 Organisational Culture through the Cultural Web (Table 15)
The Paradigm
Rituals & Routines
Stories
Quarterly Review meetings in every region
Bi-weekly conference calls with the regional head
It is rumored that heirs and family of founder Edward Mead Johnson, Sr.
attempted to sell the company without the consent of the shareholders or
board directors and were then banned from holding control of the company.
Symbols
5 star accommodations for senior regional staff while a maximum of 3 star accommodation
for lower ranking regional staff
Mac books for senior regional staff while PCs for lower ranking regional staff
Special visiting cards for North American representatives
Power Structures
Thailand calls the shots for the region since they have the highest sales
India organizes their own advertising material completely unrelated to the regional
idea due to having the largest potential market
Organisational Structures
Job Designations
Levels based on work experience
Key Decision makers based out of the USA
Control Systems
Head office (USA) and regional have a very liberal approach to work and deadlines,
while the local office has an overly eager nature to please their foreign counterparts
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7

7.2 Components of Mission (Table 16) 7.3 Segmentation (Table 17)
Marketing Audit
Strategic Intent
To be the world’s leading Nutrition Company
Mission
To nourish the world’s children for the best start in life
Company Values
- Passionate pursuit of continuous improvement in all we do
- Uncompromising commitment to scientific rigor and
product quality
- Unwavering integrity in every relationship we have and
action we take
- An environment of openness, respect and high performance
Distinctive Competencies
- Scientific and medical professionals (dietitians, nutritionists,
molecular scientists etc.)
- Research and Development to continuously upgrade products
- Manufacturing, packaging and distribution through a global
network
Competitive Positioning
In-house research facility, Mead Johnson Pediatric Nutrition
Institute, to gain a competitive edge
Market Definition
Middle class parents in developing countries
SEC
Family Life
Cycle
Warner Index
Generations
Current Position
7.4 Target Marketing Strategy
Undifferentiated Marketing
SEC A and B
Empty Nest i and ii
Upper-upper, Lower-upper
and Upper-middle
Baby Boomers
For the entire life of the brand in the local market, the tin
of Sustagen powder has remained as the one and only
method of consumption. Whoever you are or whatever
your requirement is for the product, Sustagen’s
undifferentiated marketing approach gives one products
to every market.
7.5 Positioning Strategy
Benefit Driven Positioning Strategy
Sustagen’s brand positioning for many decades was based
on the benefits of the product which was about making
people Nourished and Energized after drinking it. This
continues to be used as the brand positioning strategy
advocating that it not only gives energy but also more
importantly nourishes consumers.
7.6 Ansoff’s Growth Matrix (Figure 9) 7.7 Perceptual Mapping (Figure 10)
Markets
New Existing
Existing
Market
Penetration
Strategy
Sustagen
Products
New
Sustagen
Distribution
Network
High
Horlicks
Nestomalt
Low
High
Sustagen has operated within the same market
segment, offering the exact product for nearly a
decade with no changes even to the packaging.
Many strategies over the years has been to
increase purchasing from the existing customers
while also poaching customers from other
competitors. With the increase in the elderly
population of Sri Lanka, Sustagen has worked
to convert non-users, within the same segment,
to users of the product.
Viva
Low
Product
Consumption
Options
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8