Danone in Turkey
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Danone in Turkey
marketing management
Magdalena Malecka | EMBA 19 | October 2018
Situation Analysis
economic crisis
As of 2002, Turkey is coping with one of the most significant economic crises in the history of the country. The fragility and instability of the Turkish banking sector resulted in downsizing of the business sector which consequently caused galloping unemployment. Households income decline negatively and significantly affected consumption which affected top line growth.
Analysis of current state
- CHALLENGES:
- Declining trend on sale volumes
Economic crisis negatively affected consumption. The overall sales volume of all brands declined by 11 % compared to 2001 and nearly 40% compared to 2000 [1]. Most of the loss was generated by significant decrease in sales of local brands’ white products (sales volume of Tikvesli Ayaran which is third most popular Danone’s brand dropped by 35% YoY). The drop-in sales of already existing products was only slightly offset by introducing a new brand: Danone Flavoured yogurt.
Compared to 2001, only 3 brands noted increase in sales volume: Milk & Others, Food Services and Flavoured Yogurt. However, comparing sales in 2002 and 2000, only Danette performed better than two years ago.
- Devaluation of local currency
The local currency lost 1/3 of its value against the US dollar, following a sharp devaluation. This impacted production cost of imported brands: Petit Danone and Danette brands from Europe.
- DANONE’S MANAGEMENT RESPONSE
The strategy that was implemented by the management was a blend of cost reduction and price increase (profit management):
- Downsizing organization by 35 %.
- Closing unprofitable sales regions and platforms
- Introducing tight control measures in the distributor network
- Freezing industrial investment plan
- Cuts in marketing and promotion and sales budgets
- Prices increase across portfolio (average 60% increase in year 2001 and further 30% in year 2002)
Danone’s strategy resulted in high decrease in volumes as products were no longer available and affordable. Consequently, this resulted in financial losses and shrinking market share (especially in white products such as plain yogurt, ayran, milk) .
Substantial reduction of headcount has also negatively impacted the company. Studies shows that downsizing firms were twice as likely to declare bankruptcy as firms that did not downsize. There are surely positive aspects in short term but in long term it puts firms on a negative path which makes bankruptcy more likely. It seems like the management did not take into account loss of expertise and potential. I will discuss briefly suggested measures in the section below.
- MARKETING STRATEGY RECOMMENDATION
Current strategy implemented by Danone’s management is passive and does not create a competitive advantage in a long term. In a changing environment, such as in Turkey in 2002, Danone should use proactive strategies and continue investing in marketing. It is scientifically proven that companies that keep or even increase spending during a recession do not make any significant losses, on the contrary they make profit and gain market share much faster after the downturn than the companies that cut their costs.[2] Moreover, economic downturn could even be treated as an opportunity. If Danone continues investing, it can strengthen its position on the local market and gain competitive advantage against competitors both during the recession as well as afterwards[3].
Regarding headcount reduction, studies recommend that management should ensure that valuable human resources are not jeoparadised. Management should first consider temporary measures such as bonus cuts, hours reduction or lower wages across the organization. There is no information in the materials that would indicate that this step has been taken.
In sections below I will adjust the marketing mix and implement a proactive marketing strategy.
Portfolio Analysis
Target Segments
Advised strategy is to strengthens already strong position in the middle/upper class. According to Market shares and Numeric Distribution[4]Danone has the highest ratio of Value to Volume Ratio (VVR) among all competitors which implies a strong brand value for customers and is a differentiation among other diary products (Danone products are perceived as high quality goods).