Harvard Case - When Better Doesn't Pay: The Case of Ecuadorian Roses
"When Better Doesn't Pay: The Case of Ecuadorian Roses" Harvard business case study is written by Fabrizio Noboa, B. Tom Hunsaker, William E Youngdahl. It deals with the challenges in the field of Strategy. The case study is 9 page(s) long and it was first published on : Jan 1, 2019
At Fern Fort University, we recommend that Ecuadorian rose growers adopt a multi-pronged strategy to address the challenges of the increasingly competitive global flower market. This strategy should focus on business model innovation, strategic alliances, and sustainable practices to achieve sustainable competitive advantage.
2. Background
This case study focuses on the Ecuadorian rose industry, a sector that has experienced rapid growth in recent years. However, the industry faces increasing competition from other flower-producing countries, particularly Colombia, and pressure from consumers demanding higher quality and ethical sourcing. The case highlights the challenges faced by Ecuadorian rose growers, including price pressure, rising production costs, and the need to differentiate their products.
The main protagonists are the Ecuadorian rose growers, who are struggling to maintain profitability in a competitive market. They are faced with a dilemma: continue to focus on producing high-quality roses at a lower price, or invest in innovation and differentiation to command premium prices.
3. Analysis of the Case Study
To analyze the situation, we can employ various frameworks:
1. Porter's Five Forces:
- Threat of New Entrants: High, due to low barriers to entry and the availability of land and labor in emerging markets.
- Bargaining Power of Buyers: High, as buyers (florists, retailers) have many suppliers and can easily switch.
- Bargaining Power of Suppliers: Moderate, as suppliers of inputs (fertilizers, packaging) are relatively concentrated.
- Threat of Substitutes: Moderate, as other flowers, artificial flowers, and alternative gifts can substitute for roses.
- Competitive Rivalry: High, due to many players, price competition, and limited differentiation.
2. SWOT Analysis:
Strengths:
- Favorable climate: Ecuador's climate is ideal for rose production.
- Low labor costs: Ecuador has a relatively low cost of labor.
- Established infrastructure: Ecuador has a well-developed infrastructure for flower production and export.
Weaknesses:
- Price competition: Ecuadorian growers face intense price competition from other producers.
- Limited differentiation: Many Ecuadorian roses are perceived as being undifferentiated.
- Dependence on external markets: Ecuadorian growers are highly dependent on export markets.
Opportunities:
- Growing demand for flowers: Global demand for flowers is expected to continue to grow.
- Focus on sustainability: Consumers are increasingly demanding sustainable and ethical sourcing.
- Innovation in technology and marketing: New technologies and marketing strategies can help differentiate products.
Threats:
- Climate change: Climate change could disrupt rose production.
- Economic instability: Global economic instability can impact demand for flowers.
- Competition from other producers: Competition from other producers is increasing.
3. Value Chain Analysis:
The Ecuadorian rose industry's value chain includes:
- Input suppliers: Fertilizers, pesticides, packaging, etc.
- Rose growers: Production, harvesting, and packaging.
- Exporters: Logistics, shipping, and distribution.
- Retailers: Florists, supermarkets, online retailers.
- Consumers: End users of the roses.
4. Business Model Innovation:
The Ecuadorian rose industry needs to explore business model innovation to differentiate itself and capture higher margins. This could include:
- Direct-to-consumer sales: Bypassing intermediaries and selling directly to consumers through online platforms.
- Subscription services: Offering recurring deliveries of roses to customers.
- Value-added services: Offering additional services such as personalized messages, gift wrapping, and delivery scheduling.
- Premium product lines: Developing unique rose varieties, colors, and scents to cater to niche markets.
4. Recommendations
1. Embrace Sustainable Practices:
- Implement environmental sustainability initiatives to reduce water and energy consumption, minimize pesticide use, and promote biodiversity.
- Obtain certifications like Fair Trade and Rainforest Alliance to demonstrate commitment to ethical sourcing and responsible practices.
- Develop eco-friendly packaging and reduce transportation emissions.
2. Foster Strategic Alliances:
- Form strategic alliances with retailers, online platforms, and logistics companies to expand market reach and access new distribution channels.
- Collaborate with research institutions and universities to develop new rose varieties and improve production processes.
- Partner with NGOs and social enterprises to promote community development and improve working conditions.
3. Invest in Innovation and Technology:
- Implement technology and analytics to optimize production processes, track inventory, and improve logistics.
- Utilize digital transformation to enhance marketing and customer engagement through social media, e-commerce, and personalized communication.
- Explore AI and machine learning to predict demand, optimize pricing, and personalize customer experiences.
4. Focus on Brand Building and Differentiation:
- Develop a strong brand identity that highlights the unique qualities of Ecuadorian roses, such as their beauty, fragrance, and sustainability.
- Implement marketing strategies that target specific customer segments and communicate the value proposition of Ecuadorian roses.
- Utilize social media to build brand awareness, engage with customers, and create a sense of community.
5. Enhance Corporate Governance and Transparency:
- Implement corporate governance practices to ensure ethical business conduct, transparency, and accountability.
- Establish clear organizational values that prioritize sustainability, social responsibility, and customer satisfaction.
- Foster a culture of leadership development and empower employees to contribute to the company's success.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations align with the core competencies of Ecuadorian rose growers, such as their expertise in rose production and their access to favorable growing conditions. They also support the mission of achieving sustainable growth and creating value for all stakeholders.
- External customers and internal clients: The recommendations address the needs of external customers by offering higher quality, more sustainable, and differentiated products. They also cater to the needs of internal clients by creating a more efficient and rewarding work environment.
- Competitors: The recommendations aim to differentiate Ecuadorian roses from competitors by focusing on sustainability, innovation, and brand building.
- Attractiveness ' quantitative measures if applicable: The recommendations are expected to increase profitability by enhancing efficiency, reducing costs, and increasing revenue.
6. Conclusion
By embracing a multi-pronged strategy that focuses on business model innovation, strategic alliances, and sustainable practices, Ecuadorian rose growers can overcome the challenges they face and achieve sustainable competitive advantage. This strategy will require a commitment to innovation, collaboration, and responsible business practices.
7. Discussion
Other alternatives not selected include:
- Mergers and acquisitions: This could be a way to gain market share and economies of scale. However, it can be costly and risky.
- Cost leadership: This could involve focusing on lowering production costs to compete on price. However, it can lead to commoditization and limit differentiation.
Risks and key assumptions:
- Implementation challenges: Successfully implementing the recommendations requires strong leadership, commitment, and effective communication.
- Market volatility: The global flower market is subject to volatility, which could impact demand and prices.
- Technology adoption: The success of technology-driven initiatives depends on the ability to adopt and adapt to new technologies.
8. Next Steps
- Form a task force: Establish a task force to develop a detailed implementation plan.
- Conduct feasibility studies: Assess the feasibility and costs of each recommendation.
- Pilot programs: Implement pilot programs to test new technologies and strategies.
- Engage stakeholders: Communicate the strategy and its benefits to all stakeholders.
- Monitor progress: Regularly monitor progress and make adjustments as needed.
By taking these steps, Ecuadorian rose growers can position themselves for success in the increasingly competitive global flower market.
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Case Description
At the end of 2018, international markets were no longer paying a premium for Ecuadorian roses. Despite globally recognized product quality, mainly attributed to a longer vase life, Ecuadorian rose growers found it extremely difficult to achieve attractive levels of profitability. A multi-year analysis of US-based data showed just how pronounced this trend was (see Exhibit 1). Being one of Ecuador's chief exportable products, and generating more than 100,000 jobs, the industry needed a change. How could this small Latin American country reimagine how it competes in this global market?
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