Case Study Solution – Sampl e for How to Solve a Case Case – Ajanta Packaging Start wi th facts given in the case in bull et points. If SWOT, Porter, Porter, Ansoff Ansoff i s asked in the questions g iven at the end then ex planation becomes essential. essential. If they are not a part of the questions given in the end, then you may substantiate ubstantiate your solution wi th any of them, if you find them relevant. In this case, case, all the three are a part of questions questions,, so expl anation has been included. ASSI GNMENT GNMENT QUESTIONS QUESTIONS 1. 2. 3. 4.
Discuss the major major character chara cteriistics of the glass-bottl glass- bottlee industry industry in Indi India. a. Pa ckaging. g. Conduct Conduct a SWOT analysis analysis and Porter’s P orter’s five force forcess analysis analysis of Ajanta Packagin What should should be Ajanta Packagin Pa ckaging’s g’s strategi strate gicc objectives objectives whil while consideri considering diversification? Suggest Suggest STP (Segmentation, (Segmentation, Targetin Ta rgeting g and a nd Positioni Positioning) ng) for Ajanta Pa ckaging ckaging to increa increase se its PETP ET bottl bottlee busi business. ness.
ANALYSIS 1.
Discuss Discuss the maj or characteri stics of the the gla ss-bottle s-bottle indu stry in India.
User Segments Segments Large buyers in each segment Buyers are quality quality-consciou -consciouss Increase Increa se in the use use of other forms f orms of packaging materials materials Aesthe Ae sthetics tics gaining gaining importanc importancee Demand De mand is highly highly seas se asonal, onal, espec es peciall ially y for products such suc h as soft drinks drinks Industry
Dominated Dominated by a few large large players players in each eac h segment Caters Cate rs to a few large players players in each eac h segment Plants locate located d close to user industries industries Long credit periods in the industry Industry Industry affected affe cted by incre increase ased d use of PET bottles bottles in user segments
1.
Conduct a SW OT anal ysis ysis and Porter’s five forces a nalys nal ysis is of Aj of Aj an ta Packa Pac ka gi ng .
SWOT (Strengths, (Strengths, Weaknesses Wea knesses,, Opportuni Opportunities, ties, Threats) Threats ) A SWOT analysis analysis can c an be an effective eff ective tool tool for analyzi analyzing the current curre nt scenario of Ajanta. Ajanta.
Strengths (Internal) Regarded as one of the primary glass -bottle suppliers. Net sales realization yields are good (excellent distribution network). Able to offer just-in-time supply to customers via marketing offices (low lead times). Quality-focused, customized and timebound packaging. Loyal customers (90 per cent of orders are from repeat customers). Good products and professional expertise, coupled with a wide range of products. Opportunities (External) Packaging industry has estimated compound annual growth rate of 3.1 per cent; India’s industry has grown 15 per cent over the past few years. Growing middle class and urbanization with changing consumer patterns. Increased use of flexible packaging.
Weaknesses (Internal) 95 per cent of business is from glass products (overreliance). Rising operating expenses. Slipping profit margins because of price sensitivity.
Threats (External) Product substit utes for glass, such as PET. Growing PET-bottle market is effectively shrinking glass-bottle usage. Increased competit ion due to shrinking market for glass packaging. Increased inflation has negative impact on raw material cost. Reduction of duty on imported spirits and wine. Pharmaceutical industry is moving towards substitute packaging and away from glass.
PORTER’S 5 FORCES ANALYSIS
Industry Rivalry (High)
Bargaining Power of Buyer
Threat of Substitutes (High)
Industy (Glassbottlepackaging Industry)
Threat o New Entrants
Bargaining Power of Suppliers (Low )
Porter’s five forces analysis
The five forces model developed by Michael E. Porter identifies and analyzes five competitive forces that define any industry. It allows an organization to discover opportunities and threats within the market, and can be used with regard to the packaging industry in India.
Threat of New Entrants (Low)
In its current business model (95 per cent glass), the threat of new entrants in the glass -packaging industry is low. Many companies are recognizing the decline of the glass-packaging industry and diversifying. As such, Ajanta should maintain a certain percentage of its product portfolio in glass and charge a premium. This is also an opportunity to strengthen its presence in the glass-packaging industry. On the other hand, there is a huge threat of new entrants coming into P ET packaging. Hence, the threat of new entrants can be considered low for the glass-bottle-packaging industry.
Industry Rivalry (High)
There is very high industry rivalry because of the shrinking market for glass packaging. Ajanta has found its competitors targeting the remaining glass bottle customers. This has led to intense price wars between companies, which has pressured Ajanta to increase its operating costs to target profits.
Bargaining Power of Suppliers (Low)
Suppliers have less power, as they are fragmented and spread globally. With multiple suppliers, power resides with Ajanta Packaging. Also, the supply of glass-bottle packaging has relied largely on returnable bottles. With the decline in the use of glass bottles, there is a glut of supply, in the form of a floating stock of approximately one billion bottles valued at INR6 billion. This could be seen as an advantage for the company, but it also shows how much the industry has moved away from glass. Threat of Substitutes (High)
The threat of substitutes for Ajanta’s glass products is very high. As discussed in the ca se, customers and industries are moving towards other packaging materials that are lightweight, tough, easy to use, have better shelf lives and are easy to stack, such as PET bottles, Tetra Pak and aluminium cans. In addition to the major threat from PET bottles, Tetra Pak has been well received because of its low environmental impact. Bargaining Power of Buyers (High)
Buyers have strong power and influence over glass bottles, which are typically seen as commodity products without much value added. Also, many substitutes are available for the buyers in different industries. Many buyers are also increasingly moving to new packaging like P ET and Tetra Pak, and this is further increasing buyers’ negotiation powers. Many customers have re -negotiated their deals with Ajanta to get better pricing (see Exhibit TN-2). 2.
What shoul d be Ajanta Packaging’s strategic objectives whil e considering diversification?
One way of analyzing the different strategies that Ajanta may use to grow the business is with Igor Ansoff’s 1 matrix. This matrix deals with the prospects of offering existing and new products within existing and/or new markets and the levels of risk associated with ea ch. Ansoff’s matrix proposes four alternative marketing strategies:
Market penetration: This strategy recommends market penetration by selling glass bottles in existing markets, usually by increased promotion, price reductions or better routes to market. Product development: This strategy involves developing new products for the packaging industry and placing them in the existing markets of Ajanta. Market development: This strategy suggests taking existing products and selling them in new markets. The export of glass bottles in international markets can be an option for Ajanta Packaging. Diversification: This strategy involves developing new products like PET bottles and promoting them to new markets and new customers at the same time. Diversification is usually considered to be the riskiest strategy, as the business has to expand into areas outside its core activities and experience as well as target a new set of customers in many cases.
the following strategic objectives that Ajanta should achieve while considering any diversification plans: Decrease overreliance on glass products over time The main objective of the diversification plan for Ajanta Packaging should be to decrease overreliance on its glass business. Currently, 95 per cent of its business is glass -based. As the packaging industry moves to advanced and better packaging, Ajanta should consider launching new products to reduce its dependence on glass bottles. Here, the company can also explore different product innovations to stay relevant and modern for its customers. Maintain good customer relationships and undertake product innovation The company has always maintained a high standard of customer relationships and should strive to retain its high percentage of repeat customers (90 per cent). The company could achieve this by analyzing its customers’ portfolio of products and packaging options available and then exploring different product innovations in packaging to retain its customers and get more business from current customers. Increase the sales volume of glass bottles In contrast to the option of decreasing overreliance on glass products over time, Ajanta also has the option of increasing the sales volume of its glass bottles by targeting more customers in the current industry. The company can follow a market/product development strategy to get more business from its current industry and from new customers. This strategy can also be useful in getting orders from new customers for other products that Ajanta Packaging has on offer. Utilize current and proven distribution networks to gain an advantage over competitors Ajanta Packaging has a proven distribution network with good net sales realization numbers and good lead times. This is an asset and the company should utilize this in its diversification strategy. Its distribution network can be strengthened to manage the distribution needs of its new PET portfolio. And where overscaled for the distribution of glass, operations can be reworked to be lean and efficient for new PET products. Synergize marketing and logistics teams on diversification plans and new product portfolios It is very critical to synergize the marketing and logistic teams in the diversification strategy. Ajanta’s four marketing offices across India should be on board with the any strategy. Marketing policies should also be updated to reflect the new objectives of its product portfolio. some of the following plans:
The company can also help its main customers in their transition from glass to PET packaging. It should offer higher incentives for PET products instead of glass. Switching customers from glass to plastics should be pursued; the company is involved in PET now. Do not participate in intense price wars for glass. Instead, introduce customers to economical PET alternatives.
3.
Suggest STP (Segm entatio n, Targeting and Positio nin g) for Aj an ta Pa cka gi ng to inc re ase its bu sin ess of PET bo ttl es.
Segmentation
Pharmaceutical industry Soft drinks industry Indian Made Foreign Liquor (IMFL) industry Fast-moving consumer goods (FMCG) industry.
Also, these segments can further be divided into types of products they need:
PET bottles Cans Glass Flexible packaging Aluminium foils and blisters.
Targeting targeting the pharmaceutical industry- the pharmaceutical industry’s growth over the last two decades and the expectations of it becoming a US$15,490 million industry by 2014. Also, the Indian packaging industr y is estimated to be worth US$23 billion and growing at a rate of 15 per cent annually. Ajanta already has a good presence in this industry and can further strengthen its position. targeting the FMCG and IMFL industries to increase its presence in these markets. targeting of the IMFL industry- negatives can be- as the liquor market still has the majority of its packaging in glass. Assuming that the government will reduce the levy on imported liquor, local manufacturers will need to compete harder, which could leave Ajanta with very little scope for PET packaging in this industry.
Positioning Positioning is the act of designing a company’s offering and image to occupy a distinct place in the minds of consumers. Ajanta can position its PET-bottle business on the basis of attributes such as good products, excellent service quality, cost-effectiveness and offering timebound and customized packaging solutions. These attributes, coupled with a wide range of products and a good distribution network, have provided Ajanta with competitive points of difference to position itself as a preferred supplier in the target market.
