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Marketing Work Assignment

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Executive Summary
It is important for firms to conduct an analysis through the use of market research before

undertaking any major changes in its business model. As a result of the high competition and

change in consumer trends, Sonoma sales and profits have been reducing in the last few

months. As a result, the company undertook a market research by analysing the macro

environment of the bakery industry in Australia. The analysis helped in identifying various

elements facing the industry, as well as the opportunities and threats experienced in the

industry. Threats include the high operational costs and the high competition in the industry,

while opportunities included the availability of the wide range of products to diversify from

as well as the various markets the business can expand to. The various problems that the

business is facing include price wars which have driven down the prices of bakery products,

inadequate skills to expand into various bakery goods and the high costs of operation.

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Table of Contents

Executive Summary...............................................................................................................................1
1.0 Introduction.....................................................................................................................................4
2.0 The Macro-marketing Environmental Analysis...............................................................................4
2.1 Overview of the Bakery Industry.................................................................................................4
2.2 Factors affecting the bakery industry...........................................................................................7
2.3 Threats to the bakery Industry...................................................................................................12
2.4 Opportunities in the Bakery industry.........................................................................................13
3.0 Problem Definition........................................................................................................................14
4.0 Segmentation, Targeting, and Positioning (STP)...........................................................................16
4.1 Market Segmentation.................................................................................................................16
4.2 Targeting of markets..................................................................................................................18
4.3 Positioning.................................................................................................................................18
5.0 Conclusion and Recommendations................................................................................................19
6.0 References.....................................................................................................................................21

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1.0 Introduction
Sonoma bakery outlets sell $7 handmade organic sourdough batards, as well as eat boules

which are selling out fast. Over the past few years, the sales have witnessed a 15-20% rise

leading to the expansion of the artisan baker to larger premises and open more stores. The

store though, is facing competition from the birth of other artisan bakers in addition to the

cheap house brand bread sold in leading supermarkets. The company reports that the

customers who buy the cheap house brand bread are families, not interested in quality but

quantity. Under the competition in the bakery industry, the company has focused on taking

the market share from other brands in the shelf of the supermarkets and not from the artisan

bakers. However, this has been challenging with the current price wars between

supermarkets and private label breads in the market. The supermarkets have lowered the price

of bread although Sonoma argues that their market segment has not been affected as their

customers focus on quality and are not influenced by prices alone. The following report is an

analysis of the macro marketing environment analysis which Sonoma operates from. It also

involves a problem definition of the challenges and issues facing Sonoma Bakery in the

current business environment. Finally, the report conducts an STP process analysis which

involves segmentation, targeting and positioning strategies which Sonoma Bakery can adapt

in order to secure their market share. This is followed by a conclusion of the major findings

of the report as well as recommendations which firms in the industry can adapt to in order to

gain a competitive edge.

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2.0 The Macro-marketing Environmental Analysis

2.1 Overview of the Bakery Industry

Sonoma bakery sells hand made organic sourdough batards and whole-wheat boules in

Australia. It operates in the baking industry in Australia. The Australian baking industry is

very dynamic and has been undergoing various changes over the last few decades

(Euromonitor, 2010). The industry can be categorised into four groups by basing this on their

business models. These are the corporate plant bakeries, traditional hot bread shops, the

franchised hot bread shops and supermarkets in store bakeries. The following is a diagram

illustrating the classification.

The corporate plant bakers are those bakers that make baked goods and breads for wholesale

delivery, which accounts for the majority production of bread in the market (ABS, 2009). The

existing shops for the hot breads consist of carrying out retail activities at the site in addition

to the manufacturing activities. They rank second in the market production for the bread. The

setting up of franchises for the shops for hot bread shows the tremendous market growth. The

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franchise shops encounter high competition from the supermarkets which have set up store

bakeries for the bread (Christopher, et al., 2002).

Trends in the economy

The recent economic meltdown has resulted to a trend of consumers groups going home for

prepared meals which have occasioned a rise in the rise of packaged bread sales. The private

label market has continued to grow over the years, and in 2009, it accounted for a market

share of 8%. The supermarket retailers have marketed aggressively for their private label

products through the use of price discounting and multi pack promotions, especially, for the

packaged bread. The private label is reported to have reached 22% of the total value of sales

in 2009. The private label is also stocking fewer labelled brands in the packaged pastries and

cakes with their share of sales rising to 52% and 35% respectively (Euromonitor, 2010).

Competition among the various onsite operations has been on the rise and this has caused

prices of related products to reduce sometimes to levels that are lower than the packaged

equivalent of bread bakeries from corporate plant. As a result, the market share of onsite

operations has increased while the market share of plant bread has experienced a steady

decline. This has led to the corporate plant bakers to diversify. Other than the bread lovers,

the bread sector involves a wide range of products (Christopher, et al., 2002). These products

include the rolls and buns, flat bread, crumpets, breadcrumbs, speciality bread, buttered bread

and English muffins among others.

The baked goods have grown by 5% in current value term reaching a$5, 383 in the year 2010.

The following is a table illustrating the sale of baked goods by category between 2008

and2010 (Euromonitor, 2010).

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‘000 tonnes & A$ million

Product 2008 2008 2009 2009 2010 2010

Volume Value Volume Value Volume Value

Bread 602.8 $3,057.3 622.3 $3,195.8 639.4 $3,355.8

Bread Substitutes 2.1 $34.9 2.2 $37.4 2.2 $39.4

Packaged /Industrial Bread 311.0 $1,504.3 320.3 $1,572.0 328.3 $1,650.6

Unpackaged/Artisanal 289.7 $1,518.1 299.9 $1,586.4 308.9 $1,665.7

Bread

Cakes 72.5 $839.7 74.8 $872.1 76.8 $912.5

Packaged/Industrial Cakes 13.7 $125.0 14.0 $128.7 14.2 $131.9

Unpackaged/Artisanal 58.7 $714.8 60.8 $743.3 62.6 $780.5

Cakes

Pastries 105.0 $1,045.1 108.4 $1,084.3 110.5 $1,115.0

Packaged/Industrial 15.9 $105.3 16.2 $106.9 16.4 $108.3

Pastries

Unpackaged/Artisanal 89.1 $939.8 92.2 $977.4 94.0 $1,006.7

Pastries

Baked Goods 780.3 $4,942.2 805.5 $5,152.2 826.7 $5,383.3

Source: Euro monitor International

2.2 Factors affecting the bakery industry

There are a number of factors which affect the business environment of the bakery industry.

These include political factors, economic factors, social factors, technological factors, legal

factors and environmental issues. The analysis of the macro environmental elements in the

industry can be conducted through the use of the PESTLE analysis as analysed below.

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2.2.1 Political Analysis and Economic Analysis

The political system of Australia has been stable for many years and this creates a good

business environment to operate in. Having a stable political system enables the businesses

to operate in a good business environment. An unstable political climate threatens business

operations and causes the cost of doing business to increase across the entire industry

(Bhardwaj, 2007). The economic system in Australia has been stable over the years.

However, the country was affected by the global financial crisis and this led to consumers

becoming more conscious of the money being spent and greatly reduced the disposable

income for many families. This also affected the bakery industry as consumers resulted to

purchasing of only the functional products (Jooste, et al., 2007).

2.2.2 Social Analysis

There are a number of social trends and elements which affect the bakery industry in

Australia. These include the trend of consumers being health conscious as well as the aging

population. A misconception among consumers in the 1960s, which linked carbohydrates to

increased body weight resulted in a decline in the consumption of bread among consumer

particularly those who were concerned about their weight. Since the 1980s, there have been

increasing scientific evidence which support the link between a diet and disease. The high-

fibre whole breads have become accepted and more mainstream, as the association between

dietary cancer and bowel fibre has become more recognized (Kotler & Keller, 2006). The

balancing between ensuring the quality of bread in terms of texture, colour, consumer, and

form as well as the take-in the health concerns is required.

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In recent time, the market has witnessed a reduction in sodium levels, and an increase in fibre

content in bread; this is in addition to maintaining partially hydro carbonated fat contents and

low saturated fat. The rapid advancements in technology has caused the salt content to be

lowered to 400mg/100g and even lower, which is not feasible without change in consumers

preference where the sugar contents permits a low sodium content, which can be around

380mg/100g of flat un-leavened breads (Eisingerich & Bell, 2007). The levels of access to

information and knowledge about health and diet have increased in the society. Consumers

are increasingly becoming health conscious and are recognizing the role of health conscious

consumption and attaining optimal health. Consumers are increasingly taking a greater

personal responsibility of individual and family health by purchasing more nutritious

products, which are heavily reliant on the information about the products. However, research

illustrates that individual respond to gradual receptions, whereby, the impact of taste is not

very obvious (Jooste, et al., 2007).

Another social trend which is affecting the bakery industry is the aging Australian population

with an increased level of self funded retirees. Further, as a result of the global financial crisis

and its effects of disposable income, retirement savings among others have affected the

bakery industry at major levels. As a result of the aging population, individuals are very

focused on eating healthy and nutritious foods and as such a need for the industry to promote

production of health bread. Further, individuals are faced with a lower level of disposable

income and this means that they are opting for more functional goods and products

(Euromonitor, 2010). As such, there is a need for the bakery industry to undertake a

functional form of marketing and production of functional bakery products (Kotler, 2002).

2.2.3 Technological Analysis

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After the WWII, there were high technological changes such as automation of many

processes. The technological changes resulted in the development of quality control and fully

automated bakery plants. As a result, small bakeries were unable to fully compete with large

bakery plants. The advancement in technology has resulted in the rapid reduction in

production times, which is facilitated through the introduction of rapid dough process. For

instance, the CBS-Systems ERP solution is a program whereby bakeries can manage all their

business activities on a high level and acquire competitive advantages by optimisation of the

various business processes. The following is an illustration of a bakery using the CBNS-

System ERP in its bakery.

(CBS, 2014)

The Bread Research Institute came up with an approach to lower the preparation time for

dough; this process was referred to as the rapid dough process and it involved the use of

additives to enhance oxidation. The processing techniques in addition to packaging led to

bread staying fresh for numerous days and as such raising its shelf life. The utilization of the

pre-mixed flours, dough and automated equipments and enabled bread manufacturers to

specialize and compete with large producers, in addition to allowing for a continuous supply

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of bread (Bhardwaj, 2007). Furthermore, the online stores, whereby, consumers can purchase

their baked goods have increased over the years. The overseas market for baked products has

increased in recent times, especially in the speciality lines. For instance, the overseas market

for Christmas cakes and wedding cakes has increased exponentially. This provides a new area

of competition of the bakery industry (Bhardwaj, 2007).

2.2.4 Legal Analysis

In the Australian business environment, the infrastructure costs are high especially in terms of

the high rent in the shopping centres. The high costs of conducting business pose a threat to

the industry. The rental and legislation tenancy agreements which dictated opening and

closing times have a huge impact on the baking industry. The operating hours in large

shopping centres, especially, on public holidays are usually combined with penalty rates.

Further, the consumer regulations concerning the administrative workload create challenges

to the small bakeries because of increase in prices. The autonomous retail bakeries also

encounter issues of the increasing operational overheads, which include the increase in the

workers minimum wage and inadequate suitable sites from the slowdown in the development

of shopping centre (Christopher, et al., 2002).

2.2.5 Environmental Analysis

There is an increased public outcry for efficiency and sustainability in the production process.

This has led to firms focusing and making consideration on various environmental issues, for

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instance energy efficiency. In the bakery industry, there has been an increased focus on

energy efficiency and reductions in the green house gas emissions. In the year 2003, a project

was undertaken to establish and how to use a bakery Mascot in demonstrating the energy

efficiency of a best practise for bakeries. The project illustrated a 32% saving in the energy

costs annually, as well as a 48% reduction in green house emissions annually. The project

illustrated such best practice elements such as refrigerator, oven efficiency and hot water

supply, and environmental practices such as minimisation of waste, renewable energy

sources, and water conservation (Ries & Trout, 2006).

2.3 Threats to the bakery Industry

Human resource personnel in the bakery industry consists of workers who do not have

sufficient skills and this has an effect on the diversification efforts in the industry as well as

efforts to gain a competitive advantage over the imported goods. The labour costs include the

penalty rates costs for the holidays and the extraordinary hourly provisions are also a

challenge to the industry. This is amidst commonality prices which remain stable as a result

of the promotional and price discounting activities which are aggressively used by both the

branded manufactures and the private brand retailers. As such the commodity prices in the

industry cannot be increased from the high costs of the production process (Christopher, et

al., 2002).

The products price war in the market, especially, among major supermarkets poses a

significant threat to the industry. The price war among the various retailers in the industry

poses a significant threat on competition in the industry. For instance, the price war has

resulted in the decrease in level autonomous retail bakeries who in 2009 had maintained

dominance with 64% of the market share. The wars in the prices have led to a drastic

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reduction in the market share held by the retail bakers operating independently; this had led

to a reduction in their sales volumes. The independent bakeries operate under reduced profit

margins, and the reduction in sales across the industry would result in many retail bakeries

going out of business (Kotler & Keller, 2006).

Another challenge to the industry is that it focuses primarily on the domestic market with the

sales from the exports having less than 1% of the turnover in the industry. In the 2001-02

exports, bread and its related products were valued at $4.9 million. The perishable natures of

the bread products, as well as economies of scale and logistics are the main threats to the

industry. However, frozen dough as well as pre-baked products is emerging as an export

opportunity especially to the Asian markets (Euromonitor, 2010). From the period between

1997-1998, there has been a yearly increase of 31% in the value attributed to the exports.

2.4 Opportunities in the Bakery industry

Despite the threats facing the bakery industry, there are a number of opportunities for growth.

First with the advancement in technology and the wide use of the internet, firms in the bakery

industry can diversify their markets to include having online stores, whereby, consumers can

order products from their websites and the products are delivered to their homes. This will

greatly reduce their costs for such elements as distribution and also meet the current trends in

consumer ship, whereby, consumers are leaning towards online purchases (ABS, 2009).

Related products include the frozen products such as cakes, pastries, breads and pizzas. The

following is graph showing varied products in the frozen products category.

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As Further, the bakery products provide an extensive range of bread and its related products

which firms can diversify to. These range from the various types of breads, different types of

cakes and different types of muffins among others. The firms can also venture into exporting

of bakery products to various markets. For instance, the Asian market provides an

opportunity to expert certain bakery products and half cooked dough among others

(Eisingerich & Bell, 2007). An area with opportunity is the frozen product category with the

current global market share growing steadily and expected to rise over the next few years.

The frozen products can be exported as well as utilised domestically and as such an area of

growth for Sonoma (Euromonitor, 2012). The following figure illustrates the global market

for frozen products.

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3.0 Problem Definition

Sonoma, as evident in the introductions focuses on selling handmade organic sourdough

batards and whole-wheat boules. The company operates in the bakery industry in Australia.

As illustrated in the macro environmental analysis, the industry is very competitive with

various sections of the market offering diversified products and services. This has led to firms

such as Sonoma to rethink their marketing strategy and evaluate a new way of doing things so

as to be able to remain competitive in the market (Kotler, 2002). The challenges facing the

firm includes inadequate bakery skills to diversify into a wide range of bakery products,

structural challenges with regards to the high cost of operations, the price wars from the

major supermarkets leading to low priced bakery products in the market and the threat of

focusing on one form of market (Ball, et al., 2004).

In the past few years, the supermarkets operating in the country have engaged in price wars

which have forced the prices of bakery products to reduce significantly. The price wars by the

majority supermarkets also pose a threat to the baking industry. The raging wars with regard

to the market prices affect the independent bakers negatively, in a field that they had

dominated up to the year 2009, with a market share quoted at 64%. These raging price wars

based on price for bread by the leading supermarket stores has led to a sales reduction in

many of the bakeries who operate retail stores. There is likelihood for many of the

independent retails stores for bakeries being run out of the market as the sales go down due to

the low profit margins (Kotler & Keller, 2006). For instance, Woolworth’s price cuts from

15% to 85% and the other major supermarkets swiftly followed suit. This price cut together

with the onsite bakery at the stores has led to the supermarkets taking a huge market share in

the market (Bhardwaj, 2007). ). The price producer indexes in Australia for 2014 are shown

in Appendix 2.

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There is also intense competition that the company encounters from the mushrooming artisan

bakers. The artisan bakers are offering the same products both in price and quality and thus

posing a direct competition for the company. The Sonoma bakery has a business model

which focus on customers who value quality over other elements such as price. As such they

have focused on producing high quality products which they sell to clients who love value for

their money and are just not looking to feed their families. This has allowed the company to

continue being competitive over the years as the consumer trends illustrates a change to

buying more nutritious and healthy foods despite the prices of these products been high. As

such, the company has been able to compete successfully with the cheap house brand bread,

which was sold in major supermarkets such as Woolworths, Aldi, and Coles. However, the

rise of other artisan bakers practicing a similar business model is also significant. This has led

to the company looking to rethink its strategy and develop a strategy which will secure its

competitiveness (Euromonitor, 2010).

The figure above indicates the proportion of bread exported products from Australia to the world.
http://grdc.com.au/Research-and-Development/GRDC-Update-Papers/2011/04/What-the-world-
wants-from-Australian-wheat-what-our-customers-are-telling-us

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Another problem facing the company is the focus on one single market. In order to be

competitive it is crucial for a company to diversify its market. This can only be done by

understanding its market and understanding the needs of the consumers. With the high

competition various firms in the bakery industry, it is thus important for Sonoma bakery to

conduct an intensive market research and develop a new business model which will secure its

productivity (Buchanan, 2007).

4.0 Segmentation, Targeting, and Positioning (STP)

4.1 Market Segmentation

Market segmentation refers to the categorisation of the market into distinct group of

customers who have identical needs and product, in addition to service requirements. Market

segmentation has the objective of consolidating the scarce resources and gains a competitive

advantage. Through segmentation, the elements of the marketing mix are designed so as to

fulfil the needs of the numerous markets segments. There are two approaches which can be

undertaken when segmenting markets. The first is the breakdown method which adopts the

position that the market involves customers who are essentially the same, and as such

involves identifying groups who share particular differences. The second method is

recognized as the built-up method which argues that the markets involve customers who are

all have varying needs and as such the task is to recognize the similarities. The break-down

method is the most widely used approach (Bhardwaj, 2007).

Through segmentation, a profile criterion is applicable and it involves an analysis of the

demographics encompassing age, gender as well as social economics. This is based on the

levels of income and the classes held in the society as well as the physical location. The

psychological approach is another criterial used to classify the segments attributable to the

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consumer markets through the consumer attitudes and perceptions. This was also penned on

the gains that the customers got from their products and brands of choice. The other aspect is

the behavioural approach to segmentation which encompasses the usage and purchase of the

products as well as the product possession. (Appendix 1 is a representation of the consumer

consumption trends in Australia for the year 2014). There are a variety of strategies

applicable for market segmentation in the bakery industry (Eisingerich & Bell, 2007)

The image above indicates an overview of the bakery market in Australia.

http://www.roymorgan.com/findings/5853-who-will-win-bread-wars-201410072253

4.2 Targeting of markets

The second section of the STP process is the targeting of markets which entails targeting the

different segments that have been undertaken. Once a market is identified, the firm need to

select an approach to target its market segments. There are different marketing approaches

which can be undertaken. These include differentiated, undifferentiated, and concentrated

customised target marketing approaches. Undifferentiated approach involves perceiving the

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market as a single mass-market with only one marketing strategy being adopted for the entire

market (Kotler, et al., 2008). A differentiated targeting approach entails realizing that there

are numerous markets segments and as such a different marketing strategy is conceived for

each segment. A concentrated marketing approach concentrates on a few strategies and

market segments. A customised targeting strategy focuses on each customer. Sonoma should

utilise a differentiated targeting markets for its various market segments (Jooste, et al., 2007).

4.3 Positioning
Positioning refers to the means by which the products can be differentiated from one another

in order to provide a reason for the customers to buy. It involves the physical attributes and

the second on the brand and development of a brand for the customers. Positioning involves

providing the product offered to the market. There are a number of positioning and

repositioning strategies which the company can use for its products. In re-positioning for

instance, Sonoma can change the way the product was communicated to the original market.

It can also involve changing the target market and delivering the same product to the market.

Further, both the market and the target market can be changed. For instance, Sonoma can

change its products to biscuits and also change the market to providing the products to

various distribution channels such as ones based supermarkets and other shops (Buchanan,

2007).

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The image above indicates how Sonoma differentiates its products to fit the cookie market

segment.http://www.starkinsider.com/2011/10/sonoma-find-moustache-baked-goods-

pumpkin-whoopie-pies.html

5.0 Conclusion and Recommendations

In conclusion, the analysis on the macro environment of the bakery industry and the problem

identification helped the firm in identifying opportunities for growth and the threats facing

the industry. The STP process will also be instrumental and assist in developing a marketing

strategy for the firm. Marketing objectives should be derived from the corporate objectives. It

is important for the market to develop marketing strategy which is guided by the business

environment facing the firm as well as the marketing strategies (Macintosh, 2009).

An integrated approach must be followed through the utilisation of segmentation, targeting,

and positioning commonly referred to as STP approach. The technological advancement and

arrival of the internet led to opportunities for new business models. Companies and firms

with large and profitable segments have had to re-evaluate their approach. Further, business

facing challenges in the markets with the increased competition also needed to revaluate the

approach and develop a business model which would utilise the business opportunities

available (Buchanan, 2007). The rise in the application of the STP process has been

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necessitated by the persuasive nature of the markets that are already mature, and the

diversification of the consumer needs. This is anchored by the capacity of a company to foray

into the specialised markets. In order to recognize new product opportunities, it is essential to

extend suitable communication and positioning strategies and how to effectively allocate

resources to the key marketing activities (Kotler & Keller, 2006).

Due to the challenges facing Sonoma in the bakery industry in Australia, there is a need for

the organisation to commission for segmentation Research needs to be done to enable them to

re-scope their marketing strategy. The company operates in a highly dynamic environment

and as such, the research should be a continuous process with regular intervals to ensure that

the company keeps in touch with the various changes in the market. STP refers to three

capacities which involve segmentation, targeting, and positioning (Ries & Trout, 2006). The

benefits of Sonoma conducting the STP process entails enhancing the competitive position of

the company by offering focus and direction of the marketing strategies, which includes new

brand differentiation, product development, in addition to targeted advertising. Additionally,

the company will be in a position to recognise the prospects for growth in the market through

targeting the new customers as well as the market segments with growth potential and new

users (Eisingerich & Bell, 2007).

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6.0 References
Anderson, J.C. & Narus, J.A. (1990), “A model of distributor firm and manufacturer firm

working partnerships”, Journal of Marketing, vol.54, no.1, p. 42–58.

(ABS) Australian Bureau of Statistics, (2009), Apparent Consumption of Foodstuffs,

Australia, cat. no. 4306.0, ABS, Canberra.

Ball, D., Coelho, P.S., Machás, A. (2004) "The role of communication and trust in explaining

customer loyalty: An extension to the ECSI model", European Journal of Marketing,

Vol. 38 No.: 9/10, p.1272–93

Bauer, H.H., Grether, M. & Leach, M. (2002), “Building customer relations over the

internet”, Journal of Industrial Marketing Management, vol.31, no.2, p. 155–163.

Bhardwaj, D. (2007), “Relationship Marketing in Context to the IT Industry”. The Journal of

Business Perspective, vol.11, no.2, p.57- 66.

Bloemer, J., de Ruyter, K. and Wetzels, M. (1999), “Linking perceived service quality and

service loyalty: a multi-dimensional perspectives”, Journal of Marketing, Vol. 33 No.

4, p.1082-106.

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Appendices

Appendix 1: Consumer consumption trends in Australia 2014.

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Appendix 2: Price Producer indexes for Australia in 2014.

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