Harvard Case - Molto Delizioso: Pricing and Profits Following Brexit Devaluation
"Molto Delizioso: Pricing and Profits Following Brexit Devaluation" Harvard business case study is written by Farok Contractor. It deals with the challenges in the field of International Business. The case study is 4 page(s) long and it was first published on : Mar 30, 2017
At Fern Fort University, we recommend that Molto Delizioso adopt a multi-pronged strategy to navigate the challenges posed by Brexit devaluation. This strategy involves a combination of pricing adjustments, cost optimization, product diversification, and expansion into new markets. By implementing these recommendations, Molto Delizioso can mitigate the impact of the devaluation, protect its profitability, and capitalize on new opportunities in the international market.
2. Background
Molto Delizioso, a successful Italian food manufacturer, faces a critical juncture following the UK's exit from the European Union. The devaluation of the British Pound has significantly impacted the company's export revenue, threatening its profitability. The case study highlights the complexities of international business and the impact of globalization on a company's operations. The main protagonists are the management team at Molto Delizioso, who must navigate the turbulent waters of exchange rate risk and global economics.
3. Analysis of the Case Study
The case study presents a complex scenario that requires a multifaceted approach. We can analyze the situation using the Porter's Five Forces framework to understand the competitive landscape and the Value Chain Analysis to identify areas for improvement.
Porter's Five Forces Analysis:
- Threat of New Entrants: The entry barriers in the food industry are relatively high, but new competitors from emerging markets could pose a threat.
- Bargaining Power of Buyers: Supermarkets and retailers have significant bargaining power, potentially forcing price concessions.
- Bargaining Power of Suppliers: The bargaining power of suppliers, such as raw material providers, could increase due to currency fluctuations.
- Threat of Substitutes: The threat of substitutes from other food manufacturers or alternative food options is moderate.
- Competitive Rivalry: Competition in the food industry is intense, with established players vying for market share.
Value Chain Analysis:
- Inbound Logistics: The devaluation could impact the cost of importing raw materials, requiring a review of sourcing strategies.
- Operations: Manufacturing processes may need optimization to reduce costs and maintain efficiency.
- Outbound Logistics: Distribution costs could increase due to currency fluctuations, necessitating adjustments in logistics strategies.
- Marketing and Sales: The company needs to adapt its marketing campaigns to address the changing consumer landscape and potentially target new markets.
- Service: Maintaining high-quality customer service is crucial in a competitive market.
4. Recommendations
- Pricing Adjustments: Implement a strategic pricing policy to mitigate the impact of devaluation. This could involve:
- Price increases: Adjusting prices to reflect the increased cost of production and maintain profitability.
- Product differentiation: Developing premium product lines with higher price points to appeal to discerning customers.
- Value-based pricing: Focusing on the perceived value of the products rather than simply cost-plus pricing.
- Cost Optimization: Identify areas for cost reduction across the value chain, including:
- Sourcing optimization: Exploring alternative suppliers or negotiating better terms with existing suppliers.
- Manufacturing efficiency: Streamlining production processes and implementing lean manufacturing techniques.
- Logistics optimization: Improving route planning, inventory management, and warehouse utilization.
- Product Diversification: Expand the product portfolio to cater to new market segments and reduce reliance on the UK market. This could involve:
- New product development: Introducing innovative products that cater to evolving consumer preferences.
- Line extensions: Expanding existing product lines with new flavors, formats, or packaging.
- Private label opportunities: Exploring partnerships with retailers for private label products.
- Market Expansion: Explore new markets with growth potential, particularly in regions where the Euro is strong. This could involve:
- Exporting to new markets: Identifying and targeting new markets with high demand for Italian food products.
- Establishing subsidiaries: Setting up local operations in key markets to enhance market penetration.
- Strategic alliances: Partnering with local distributors or retailers to gain access to new markets.
5. Basis of Recommendations
The recommendations are based on a comprehensive analysis of the case study, considering the following factors:
- Core competencies and consistency with mission: The recommendations align with Molto Delizioso's core competencies in food manufacturing and its mission to provide high-quality Italian products.
- External customers and internal clients: The recommendations aim to address the needs of both external customers and internal stakeholders, ensuring sustainable growth and profitability.
- Competitors: The recommendations consider the competitive landscape and aim to differentiate Molto Delizioso from its competitors.
- Attractiveness ' quantitative measures: The recommendations are expected to improve profitability and generate positive returns on investment.
6. Conclusion
By implementing a strategic combination of pricing adjustments, cost optimization, product diversification, and market expansion, Molto Delizioso can navigate the challenges posed by Brexit devaluation, protect its profitability, and capitalize on new opportunities in the global market. This approach will require a proactive and adaptable management team, capable of leading the company through this period of change and uncertainty.
7. Discussion
Other alternatives not selected include:
- Merging with a larger competitor: While this could provide access to resources and economies of scale, it could also result in loss of control and potential cultural clashes.
- Focusing solely on the UK market: This would be a risky strategy, as the UK market is facing economic challenges.
- Doing nothing: This would likely lead to declining profitability and market share.
The recommendations are based on the assumption that Molto Delizioso has the necessary resources and capabilities to implement the proposed changes. It is also assumed that the global market for Italian food products will continue to grow, providing opportunities for expansion.
8. Next Steps
- Conduct a thorough market analysis: Identify potential new markets and assess their attractiveness.
- Develop a detailed cost reduction plan: Identify specific areas for cost optimization and implement measures to achieve savings.
- Develop a product diversification strategy: Identify new product opportunities and develop a roadmap for their launch.
- Develop a market expansion strategy: Identify target markets and develop a plan for market entry.
- Implement a communication strategy: Communicate the proposed changes to stakeholders and address any concerns.
By taking these steps, Molto Delizioso can position itself for long-term success in the face of global economic uncertainty.
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Case Description
When the June 2016 referendum on the United Kingdom's withdrawal from the European Union, or Brexit, resulted in a vote to leave, the managing director of the U.K. subsidiary of Italian coffee-machine maker Molto Delizioso, SRL, faced a scenario that affected many international firms and their subsidiaries. The U.K. subsidiary imported and paid for coffee machines in euros, but when it sold these items in the United Kingdom, the revenue earned was in pounds. The devaluation of the pound after the Brexit vote affected both the company's revenues and costs and, therefore, its profits. Molto Delizioso's managing director had to decide what to do about pricing after the devaluation of the pound caused an increase in the cost of importing his gourmet coffee machines. If he kept prices the same, profits would go down significantly. Should he raise the prices he charged to the customer? And if so, by how much?
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