Harvard Case - Feihe: Strategic Adjustment under a Pandemic Crisis
"Feihe: Strategic Adjustment under a Pandemic Crisis" Harvard business case study is written by Haifen Lin, Xiangli Xuan, Yunqing Ma, Youbin Leng. It deals with the challenges in the field of Strategy. The case study is 8 page(s) long and it was first published on : Jun 23, 2021
At Fern Fort University, we recommend that Feihe implement a multifaceted strategic adjustment plan to navigate the challenges posed by the pandemic and capitalize on emerging opportunities in the infant formula market. This plan will leverage Feihe's existing strengths, address weaknesses, and capitalize on market trends.
2. Background
This case study focuses on Feihe, a leading Chinese infant formula manufacturer, facing the unprecedented challenges of the COVID-19 pandemic. The pandemic disrupted supply chains, impacted consumer behavior, and intensified competition in the infant formula market. Feihe, known for its high-quality products and strong brand reputation, needed to adapt its strategy to navigate these turbulent times and maintain its market leadership.
The main protagonists of the case study are:
- Feihe's management team: Faced with the need to make critical decisions regarding strategy, operations, and marketing in a rapidly changing environment.
- Chinese consumers: Exhibiting increased demand for high-quality infant formula and heightened awareness of product safety and origin.
- Global competitors: Seeking to capitalize on the growing Chinese market, posing a significant threat to Feihe's market share.
3. Analysis of the Case Study
To comprehensively analyze Feihe's situation, we will employ various frameworks:
a) SWOT Analysis:
- Strengths: Strong brand reputation, high-quality products, vertical integration, extensive distribution network, focus on innovation, and strong financial position.
- Weaknesses: Limited international presence, reliance on domestic market, susceptibility to supply chain disruptions, potential for pricing pressure.
- Opportunities: Growing demand for premium infant formula, increasing disposable income in China, expanding e-commerce channels, potential for international expansion.
- Threats: Intense competition from domestic and international players, potential for regulatory changes, fluctuations in raw material prices, economic uncertainties.
b) Porter's Five Forces:
- Threat of new entrants: Moderate, due to high barriers to entry (regulatory requirements, brand building, distribution networks).
- Bargaining power of buyers: Moderate, as consumers are increasingly price-sensitive but value quality and brand reputation.
- Bargaining power of suppliers: Moderate, as Feihe has some control over its supply chain through vertical integration but remains vulnerable to raw material price fluctuations.
- Threat of substitute products: Moderate, as consumers can choose from various infant formula brands and alternatives like breast milk.
- Rivalry among existing competitors: High, due to the presence of several strong domestic and international players competing for market share.
c) Value Chain Analysis:
Feihe's value chain includes:
- Inbound logistics: Sourcing raw materials, managing supply chain, ensuring quality control.
- Operations: Manufacturing infant formula, maintaining high production standards, and ensuring product safety.
- Outbound logistics: Distributing products through various channels, including retail stores and online platforms.
- Marketing and sales: Building brand awareness, promoting product benefits, and engaging with consumers.
- Customer service: Providing support and addressing customer concerns.
d) Business Model Innovation:
Feihe can leverage digital transformation to innovate its business model:
- Direct-to-consumer (D2C) model: Utilizing e-commerce platforms to bypass traditional retailers and build closer relationships with consumers.
- Personalized product offerings: Leveraging data analytics to tailor product formulations and marketing messages based on individual customer needs.
- Subscription services: Offering recurring deliveries of infant formula, enhancing customer loyalty and predictability of demand.
e) Corporate Governance:
Feihe's strong corporate governance practices, including transparency, accountability, and ethical conduct, are crucial for maintaining consumer trust and long-term sustainability.
4. Recommendations
Feihe should implement the following strategic adjustments:
a) Strengthen International Presence:
- Market Expansion: Focus on key emerging markets with high growth potential for infant formula, such as Southeast Asia, Africa, and Latin America.
- Strategic Alliances: Partner with local distributors and retailers to establish a strong presence in new markets.
- Product Localization: Adapt product formulations and packaging to meet local preferences and regulatory requirements.
b) Enhance Digital Capabilities:
- E-commerce Platform Development: Invest in a robust e-commerce platform, offering a seamless online shopping experience and personalized recommendations.
- Data Analytics Integration: Utilize data analytics to understand consumer preferences, optimize marketing campaigns, and personalize product offerings.
- Social Media Engagement: Actively engage with consumers on social media platforms, building brand loyalty and addressing concerns.
c) Foster Innovation and Product Development:
- Research and Development: Invest in research and development to create innovative product formulations and packaging, catering to evolving consumer needs.
- Product Differentiation: Develop unique product features and benefits that differentiate Feihe from competitors, such as organic ingredients, specialized formulas, and advanced packaging technologies.
- Sustainability Focus: Incorporate sustainable practices into product development and manufacturing processes, appealing to environmentally conscious consumers.
d) Strengthen Supply Chain Resilience:
- Diversification of Suppliers: Reduce dependence on single suppliers by sourcing raw materials from multiple sources.
- Inventory Management Optimization: Implement advanced inventory management systems to ensure efficient stock levels and minimize disruptions.
- Strategic Partnerships: Collaborate with logistics providers to enhance supply chain efficiency and reliability.
e) Enhance Brand Management:
- Brand Storytelling: Develop compelling brand narratives that resonate with consumers, highlighting Feihe's commitment to quality, innovation, and social responsibility.
- Influencer Marketing: Partner with relevant influencers to reach target audiences and build brand credibility.
- Customer Relationship Management (CRM): Implement a robust CRM system to track customer interactions, personalize communication, and build lasting relationships.
f) Embrace Corporate Social Responsibility:
- Sustainability Initiatives: Implement sustainable practices throughout the value chain, reducing environmental impact and promoting ethical sourcing.
- Community Engagement: Engage with local communities through philanthropic initiatives, supporting education, healthcare, and social causes.
- Transparency and Accountability: Maintain transparency in operations and communication, fostering trust and building a positive brand image.
5. Basis of Recommendations
Our recommendations are based on a thorough analysis of Feihe's strengths, weaknesses, opportunities, and threats, considering the following factors:
- Core Competencies and Consistency with Mission: Our recommendations align with Feihe's core competencies in product quality, innovation, and brand reputation, supporting its mission to provide high-quality infant formula for healthy growth and development.
- External Customers and Internal Clients: Our recommendations prioritize meeting the evolving needs of Chinese and international consumers while ensuring the well-being of Feihe's employees and stakeholders.
- Competitors: Our recommendations aim to differentiate Feihe from competitors by focusing on innovation, digital transformation, and building a strong international presence.
- Attractiveness: We have considered quantitative measures such as market growth potential, return on investment (ROI), and market share gains to assess the attractiveness of our recommendations.
6. Conclusion
By implementing these strategic adjustments, Feihe can navigate the challenges of the pandemic, capitalize on emerging opportunities, and maintain its market leadership in the infant formula industry. This multifaceted approach will enhance Feihe's competitive advantage, foster innovation, and drive sustainable growth.
7. Discussion
Other alternatives not selected include:
- Mergers and acquisitions: While M&A could provide access to new markets and technologies, it carries significant risks and requires careful consideration.
- Cost leadership strategy: Focusing solely on cost leadership might compromise product quality and brand reputation, potentially alienating premium-seeking consumers.
Key assumptions underlying our recommendations include:
- Continued growth in the global infant formula market.
- Increasing consumer demand for high-quality and innovative products.
- Feihe's ability to successfully adapt to evolving market dynamics.
8. Next Steps
Feihe should prioritize the following steps:
Phase 1 (Short-Term):
- Develop a detailed implementation plan: Outline specific actions, timelines, and resource allocation for each recommendation.
- Strengthen e-commerce platform: Invest in platform development and marketing to reach a wider online audience.
- Expand international presence: Focus on key emerging markets, establishing strategic partnerships and adapting product offerings.
Phase 2 (Medium-Term):
- Invest in research and development: Develop innovative product formulations and packaging to differentiate Feihe from competitors.
- Enhance supply chain resilience: Diversify suppliers, optimize inventory management, and strengthen partnerships with logistics providers.
- Implement corporate social responsibility initiatives: Promote sustainability, community engagement, and transparency.
Phase 3 (Long-Term):
- Establish a strong digital presence: Utilize data analytics, social media, and personalized marketing to build customer loyalty.
- Expand into new product categories: Explore opportunities in related markets, such as baby food and other infant care products.
- Foster a culture of innovation: Encourage experimentation, collaboration, and continuous improvement throughout the organization.
By taking these steps, Feihe can navigate the challenges of the pandemic, capitalize on emerging opportunities, and solidify its position as a global leader in the infant formula industry.
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Case Description
When the outbreak of COVID-19 in early 2020 affected commercial circulation in various regions around the world, Heilongjiang Feihe Dairy Co. Ltd. (Feihe), a leading Chinese dairy company, had been facing difficulties for a while. The company's enterprise strategy was actively adjusted, and various measures were taken to protect the company's supply of raw materials and the business operations of its production, distribution logistics, sales, and other departments from adverse effects of the pandemic in the first quarter of 2020. Feihe announced that its revenue growth rate in the first quarter of 2020 would not be less than 30 per cent. However, due to the impact of COVID-19, the pattern of competition among milk powder brands had quietly changed. Although Feihe had successfully gained a share of the high-end market, which had previously been dominated by foreign brands, its proportion of this market was still not high. At the same time, the rapid rise of other domestic brands had disturbed Feihe's brand appeal of being "more suitable for Chinese babies" and its claim that its sales were far ahead in China. How should Feihe further adjust its strategy to properly deal with its competitive relationship with other brands?
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