Tetra Pak Case Write Up-Pfaffinger PDF

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BBA - Introduction to Marketing

Tetra Pak Case Write-Up

Christopher Pfaffinger

! Italy is one of the main players of the world milk industry. One of the most important companies in this segment is Pontero. They are a global leader in the milk market and export dairy products to dozens of countries. Tetra Pak has contributed to Pontero´s and other Italian companies´ huge successes by providing them with machinery, materials such as aseptic cartons and other services. In this essay I will show Pontero´s impact on the milk industry and how Tetra Pak helped them to become such a strong brand. In order to get to know the circumstances I will cover the Italian milk market, the relationship between Tetra Pak and Pontero, as well as strategic decisions in challenging times. In 1999, the segmentation of the Italian milk market was in process of change. There are 4 product categories of milk: Full fat, semi skimmed, skimmed and enriched milk. Full fat had the highest market share with almost 60%, whereas semi skimmed and skimmed milk 17% and 19% market share, respectively, and enriched milk 7% market share. Looking at the data from 1995 to 1999, market shares for semi skimmed as well as enriched milk were growing, whereas the market shares for full-fat milk decreased and skimmed milk stagnated. Enriched milk has experienced the highest growth with 8% and semi skimmed milk a slightly smaller growth of 7%. The prices and margins for companies differ with every product category. Full fat milk is the cheapest type and provides 3-4% margin. Semi skimmed and skimmed milk are both categorized by higher prices and also higher margins of 7-8%. The most expensive kind of milk is enriched milk, which is in the premium segment and has the highest margin with an average of 15%. Is is true that there are more and more competitors in the milk industry. However, there are mainly three big companies competing in the Italian milk market: Pontero, Filo and Andina. Pontero has the highest market share with 16%, whereas Filo and Andina have 13% and 12%, respectively. Within only one year Pontero has lost 2 % market share, whereas Filo and Andina won roughly 2,5%. In the mid 1990s Italian producers sold 3,973 million liters of milk. After having reached its peak in 1997 with 4,034 million liters, the Italian milk market had since declined to 3,990 liters of milk in 1999. A lower birthrate and an aging population were the reasons for less consumption of milk products and contributed to a zero percent growth taking into account the sales from 1995 to 1999. Additionally there were some market trends that reinforced the decline in sales: The number of main consumers of full-fat milk number -homes with children under 15decreased. Furthermore there was a growth of alternative beverages among young people and a more “health-minded” number of consumers among adults. Besides the milk producers experienced an increasing competition for shelf space as well as an increasing number of private label milk sales and lower margins in branded milk. There is one company which is one of the main reasons for the great success in the milk industry. With innovative approaches and low prices Tetra Pak has reached a number of 80% of sold milk which is packaged in Tetra Pak. They are the innovator of aseptic carton package and the largest producer of carton packaging for liquid food products. Headquartered in Switzerland and with more than 20000 employees who contribute to an annual revenue of €7 billion they sell cartons, machinery and services. Pontero is their number one key account and they have a special relationship, since they both depend on each other. Tetra Pak is the only supplier for Pontero, unlike other companies in the milk industry who usually have more than one supplier. These two firms collaborate very closely and having Tetra Pack as its partner in doing market research and other marketing tasks in order to increase sales is highly valuable to Pontero. They have

BBA - Introduction to Marketing

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Tetra Pak Case Write-Up

Christopher Pfaffinger

always trusted Tetra Pack and both parties established a symbiotic relationship. Tetra Pack was Pontero´s mentor in reestablishing its market share. ! But on the other side of the coin Pontero´s loss is also Tetra Pak´s loss which is indeed a big problem. For instance Pontero has experienced declining sales in the target market of families with children. Even though they could increase sales in the target segment of „Housewife older than 35“, it is a shocking alert. When Pontero is not able to reach out to future customers, e.g. children, they will experience a tough future. Whereas Andina could increase sales to families with children. This was also Tetra Pak´s problem. Tetra Pak has a high interest to solve any problem which Pontero faces, since less sales for Pontero have a similar, however, not equal effect, for Tetra Pak. A further problem for Pontero are high switching costs, which make it more expensive and unlikely for Pontero to change their supplier. A huge problem for Tetra Pak is Pontero´s high bargaining power as the single best customer of Tetra Pak cartons. This might lead Pontero to switch their supplier due to lower carton prices compared to Tetra Pak. This is a benefit for Pontero, but a loss for Tetra Pak. Because Tetra Pak either needs to accept losing their biggest customer or they lower their prices which in the end lowers their margin. ! Because of Pontero´s and Tetra Pak´s special relationship the Italian milk producer approached their supplier due to declining sales. In the end Tetra Pak adviced them to offer enriched milk. However, this advice does not sound as a very strategic concept to me. It is true that the market for enriched milk was growing, as mentioned before, and one can see Tetra Pak´s point of view to enter this market. Nevertheless, every company highly depends on their customer relationships. Tetra Pak seems to neglect this. A company who has a brand positioning of "natural quality“ products certainly can not offer enriched milk with added –unnatural- ingredients. The founder Roberto Pontero has spent huge amounts of money to build a strong positioning. By introducing a product like enriched milk they would destroy their brand´s image and would be very likely to eventually lose money. Since many customers would change to other brands. In my opinion Tetra Pak should have known their client better and should have had a better understanding of what their key account and partner needed. In a more and more competitive industry it is not easy to find a proper solution for both companies. For businesses it gets harder and harder to differentiate oneself from competitors. And advices which might seem benefitial for one party do not necessarily mean the same to the other party. There are two options which I would focus my business activities on in order to get back on track. One major problem are decreased sales in families with children from 1995 to 1999, as mentionend before. The reason for this are competitors who have introduced enriched milk and increased their sales by doing so. One option would be to launch a marketing campaign which communicates the synthetic nature of enriched milk. They should damage the image of these products and try to reach out to caring parents who in the best case scenario would stop buying enriched milk. The best channels to do so are TV commercials specifically adressed to 1) children and 2) parents. Furthermore Pontero needs to position itself very clearly, hence emphasizing the "natural quality" again. Additionally I would launch a new high margin product such as drinks and yoghurts to target families with children and increase sales again. These steps will help Pontero to increase sales which will eventually lead to more sales of Tetra Pak cartons....