Harvard Case - Bhanton Towels: The pricing dilemma of an exporter
"Bhanton Towels: The pricing dilemma of an exporter" Harvard business case study is written by Dominique Turpin, Maria Theresa Manalac, Shweta Pandey, Sandeep Puri. It deals with the challenges in the field of Marketing. The case study is 6 page(s) long and it was first published on : Jul 17, 2022
At Fern Fort University, we recommend Bhanton Towels implement a multi-pronged pricing strategy that balances profitability with market competitiveness. This strategy will involve a combination of value-based pricing, competitive pricing, and cost-plus pricing, tailored to specific product lines and target markets. Additionally, Bhanton should invest in building brand equity through strategic marketing initiatives and explore opportunities for product diversification and innovation to ensure long-term growth and sustainability.
2. Background
Bhanton Towels is a family-owned business based in India, specializing in the manufacturing and export of towels. The company faces a pricing dilemma as they seek to expand their market reach and compete with established players. Despite offering high-quality products, Bhanton struggles to differentiate itself in a crowded market. They are currently using a cost-plus pricing model, which limits their ability to compete on price and potentially hinders their growth.
The main protagonists of the case study are the Bhanton family, who own and operate the business. They are seeking guidance on how to navigate the pricing dilemma and achieve sustainable growth for their company.
3. Analysis of the Case Study
To analyze Bhanton's situation, we can utilize a combination of frameworks:
1. SWOT Analysis:
- Strengths: High-quality products, strong manufacturing capabilities, experienced workforce, family-owned structure with strong values.
- Weaknesses: Lack of brand awareness, reliance on cost-plus pricing, limited marketing resources, potential vulnerability to market fluctuations.
- Opportunities: Expanding into new markets, diversifying product offerings, leveraging technology for efficiency and marketing, building brand equity through strategic marketing.
- Threats: Intense competition, fluctuating raw material costs, currency fluctuations, evolving consumer preferences.
2. Porter's Five Forces:
- Threat of New Entrants: Relatively low due to existing barriers to entry, such as manufacturing expertise and established supply chains.
- Bargaining Power of Suppliers: Moderate, as raw material costs can fluctuate, but Bhanton can potentially negotiate better terms through volume purchases.
- Bargaining Power of Buyers: High, as customers have many alternatives and can easily switch suppliers based on price and quality.
- Threat of Substitute Products: Moderate, as other materials like microfiber and bamboo are gaining popularity, but cotton towels remain a staple.
- Competitive Rivalry: High, with numerous established players and emerging competitors from various countries.
3. Consumer Behavior Analysis:
- Target Market: Bhanton's primary target market is international buyers seeking high-quality towels at competitive prices.
- Buying Behavior: Customers are price-sensitive and prioritize value for money, considering factors like quality, durability, and aesthetics.
- Brand Perception: Bhanton needs to build a strong brand image that resonates with customers and differentiates itself from competitors.
4. Marketing Mix (4Ps):
- Product: Bhanton offers a range of towel products, but needs to explore product diversification and innovation to cater to evolving consumer preferences.
- Price: The current cost-plus pricing model needs to be reevaluated and adjusted to reflect market conditions and value proposition.
- Place: Bhanton relies on traditional distribution channels, but should explore online platforms and partnerships to reach a wider audience.
- Promotion: Bhanton needs to invest in strategic marketing initiatives, including branding, advertising, and digital marketing, to build brand awareness and customer loyalty.
4. Recommendations
Implement a Multi-Pronged Pricing Strategy:
- Value-based pricing: For premium product lines, Bhanton should focus on highlighting the value proposition of their towels, emphasizing quality, durability, and sustainability. This can justify higher prices.
- Competitive pricing: For standard product lines, Bhanton should analyze competitors' pricing and offer competitive prices while maintaining profitability.
- Cost-plus pricing: For specific product lines and bulk orders, Bhanton can continue using cost-plus pricing, but with a focus on cost optimization and efficiency.
Invest in Brand Building:
- Develop a strong brand identity: Define a clear brand message and visual identity that resonates with the target market.
- Strategic marketing campaigns: Utilize a combination of traditional and digital marketing channels, including advertising, social media, content marketing, and public relations.
- Focus on customer experience: Provide excellent customer service, build relationships, and foster loyalty through personalized interactions.
Explore Product Diversification and Innovation:
- Expand product lines: Introduce new product categories, such as bathrobes, bath mats, and kitchen towels, to cater to diverse needs.
- Focus on sustainability: Develop eco-friendly products made from organic cotton or recycled materials to appeal to environmentally conscious consumers.
- Embrace technological advancements: Utilize AI and machine learning to optimize manufacturing processes, improve product quality, and personalize customer experiences.
Leverage Digital Marketing Strategies:
- Build a strong online presence: Develop a user-friendly website and optimize it for search engines (SEO).
- Social media marketing: Utilize social media platforms to engage with customers, build brand awareness, and drive traffic to the website.
- Email marketing: Build an email list and use targeted email campaigns to promote products, share updates, and nurture customer relationships.
5. Basis of Recommendations
These recommendations consider the following:
Core Competencies and Consistency with Mission: Bhanton's core competency lies in manufacturing high-quality towels. The recommendations focus on leveraging this strength while expanding product offerings and building brand equity, aligning with their mission of providing quality products and achieving sustainable growth.
External Customers and Internal Clients: The recommendations are based on understanding the needs and preferences of international buyers, who are price-sensitive and value quality and sustainability. They also consider the needs of internal stakeholders, such as the Bhanton family, who seek profitability and long-term growth.
Competitors: The recommendations consider the competitive landscape and suggest strategies to differentiate Bhanton from its rivals. This includes building a strong brand, offering competitive pricing, and exploring product innovation.
Attractiveness - Quantitative Measures: While specific financial projections are not provided in the case study, the recommendations aim to enhance profitability by optimizing pricing, improving operational efficiency, and expanding market reach.
6. Conclusion
Bhanton Towels has the potential to achieve sustainable growth by implementing a strategic combination of pricing, branding, product diversification, and digital marketing initiatives. By embracing a value-driven approach, investing in brand building, and exploring new opportunities, Bhanton can establish itself as a leading player in the global towel market.
7. Discussion
Alternatives Not Selected:
- Maintaining the status quo: This would likely lead to stagnation and a decline in market share as competitors gain ground.
- Aggressive price cutting: While this could attract price-sensitive customers, it could also erode profit margins and damage brand perception.
- Focusing solely on online sales: This could limit reach and potentially create logistical challenges, especially for international markets.
Risks and Key Assumptions:
- Market fluctuations: The global towel market is subject to economic and political factors that can impact demand and pricing.
- Competition: New competitors could emerge, disrupting the market and requiring Bhanton to adapt its strategies.
- Consumer preferences: Evolving consumer preferences, such as a shift towards sustainable products, could necessitate adjustments to product offerings.
8. Next Steps
- Conduct thorough market research: Analyze competitor pricing, consumer preferences, and market trends to refine the pricing strategy and product offerings.
- Develop a comprehensive marketing plan: Define target markets, messaging, and channels for branding and advertising campaigns.
- Implement a digital marketing strategy: Develop a website, optimize it for SEO, and engage in social media marketing and email campaigns.
- Invest in product development: Explore new product categories, sustainable materials, and innovative designs.
- Monitor performance and adjust strategies: Regularly track key metrics, such as sales, market share, and customer feedback, to identify areas for improvement and adapt strategies accordingly.
By taking these steps, Bhanton Towels can navigate the pricing dilemma, build a strong brand, and achieve sustainable growth in the global towel market.
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Case Description
In April 2022, Bhanton Towels (Bhanton), an export-oriented company in the Philippines, received an order from AliTex Enterprises (AliTex), China. One of Bhanton's major customers in Europe had just cancelled an order for 200 metric tons (MT) of towels because of the Ukraine-Russia conflict. Since the conflict was a case of "force majeure," the cancellation terms could not be negotiated. These two events presented Bhanton's management with a major dilemma; the company needed additional orders to achieve its monthly production targets of 2,000 MT for May and June 2022. However, the low price requested for the order from AliTex could potentially have a long-term impact on the company's profitability and reputation in the market. It might also affect its relationship with key accounts like Walmart in the US and IKEA and Sainsbury's (in Europe) if they were to hear of it. AliTex offered Bhanton an opportunity to enter new markets like Australia, Canada, China and New Zealand. Could the company sell its towels at ₱190 per kg to AliTex. And if not, what was the minimum possible rate? The company was also exploring other potential sales and customer acquisition strategies to increase its monthly sales volume by 1,000 MT and reduce dependence on retail customers.
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