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McCain Case Study

16 Nov 2017Essay Samples

Fierra Foods was opened in Toronto in 1973 by John and David Wolinski. Using techniques acquired in Poland prior to immigrating to Canada, the Wolinski brothers were one of the first to open up the frozen dough market in Canada. Their business grew quickly, and by 1985 their initial $150 000 investment had produced a company that was turning over 8 million dollars in sales a year. Their product was in high demand by bakeries and donut shops, as it eliminated the need for them to produce their own dough which saved them from buying expensive machinery and working unsociable hours.

Prior to 1987, Fierra Foods had encountered some competition through fledgling companies trying to imitate their product. However, virtually all of these enterprises foiled through their improper analysis of the market. Fierra Foods was able to take advantage of economies of scale and had an established reputation. This made market penetration difficult, if not impossible, for any new firms to gain market share. By 1985, Fierra Foods supplied half of the small bakeries and donut shops in the Toronto area. In 1987, however, new problems presented themselves. David, who was the driving force behind the company, was forced into early retirement due to illness. This left only John to run the business. Moreover, McCain Food Company, a giant producer of frozen foods, gained an interest in producing their own frozen dough and supplying it to interested purchasers. With their immense resources and technological prowess, they were able to produce quality frozen dough at a lower price than Fierra Foods.

As an aggressive and progressive company, McCain’s sole interest was in maximizing its market share. Executives from McCain forwarded their intentions to John Wolinski and informed him that they would achieve their objective either through buying out Fierra Foods at a generous price, or through an aggressive marketing campaign that could conceivably drive Fierra Foods out of the frozen dough industry.

As a timid businessman, John Wolinski felt that he could not compete with a mogul like McCain. He was at a point in his life where the stresses of enormous competition were not alluring, or even possible. Although McCain could not guarantee the future of Fierra’s employees, who were the only real stakeholders, John felt comfortable accepting the compensation package from McCain. He opined that the few employees he had could easily find work elsewhere. He had worked hard with his brother for fifteen years and could not risk losing everything. Although the choice was not an easy one, it represented the lesser evil.

Marketing Theory Analysis

Prior to McCain’s buy out of Fierra Foods, the Wolinski brothers had managed to create a solid client base. They enjoyed the patronage of loyal customers who, despite McCain’s more attractive prices, chose to purchase their frozen dough from Fierra Foods. Fierra Foods had a reputation for high quality and personal service. McCain could not purport to offer the same degree of personal service that Fierra had, as the distribution costs associated with such a scheme would drive their unit price to unacceptably high levels. In any event, ‘personal’ style distribution was not an image that McCain had ever tried to pursue, and would not have to in this case either. With Fierra Foods out of the market, there was really no competition for McCain other than the small number of firms that chose to produce their own dough. Personal service was not so important. With a virtual monopoly on the frozen dough market, there was also a greater degree of price elasticity than there would be with competition.

McCain was surely faced with a segmented market. It would have no difficulty in attracting clients who were solely interested in purchasing a quality product at a low price. While this would represent the bulk of their business, the smaller scaled bakeries would probably not be as receptive to having McCain as their new supplier. By concentrating its efforts on the largescale consumers, however, McCain would not need to concern itself with the smaller bakeries. In reality, they had no choice but to purchase from McCain or produce their own dough. This was tantamount to no choice. Therefore, although McCain was not launching a new product, as frozen dough had been consumed for well over a decade, the legacy of Fierra Foods would not soon be forgotten. Through the process of perceptual mapping, in reality although McCain’s new clients choices were severely limited, that is, McCain was now the only supplier, they would have to position themselves with the bakeries to ensure their patronage. They could promote their strengths as a large progressive company who cares about quality and providing their product(s) at the lowest possible price. As the objective of most bakeries, if not all of them, is profit, a decrease in price would certainly assist in gaining market share. Quality assurances could also be given that would make their product more appealing, and ultimately more profitable.

Even prior to Fierra Food’s closure, McCain had attracted a significant share of the market away from them. From the outset, Fierra’s larger clients were likely more interested in savings rather than service. As a large company, McCain could conceivably provide frozen dough for a number of franchise operations. Large-scale bakeries, such as Country Style, who order in mass quantities would represent secure and profitable clients for McCain. Even if they had to sell such mass quantities at a discounted price, the economies of scale that they could achieve through such clients in addition to the production required for their own consumption, would make it very profitable. Large-scale clients would represent McCain’s target market as the sheer volume generated by operations such as Country Style would be the most attractive segments for a profit oriented company like McCain. As they would not have to worry about competition, they could negotiate their prices according to quantities ordered, and would not have to offer a minimalist price or even penetration pricing to acquire increased market share.

McCain would not have to actively promote their product. John Wolinski had ensured this by removing his company from the market. There simply were no viable alternatives to McCain’s product. As companies had previously tried to imitate Fierra Food’s frozen dough, and failed, it is reasonable to assume that McCain would face little if any competition. Expensive promotional campaigns would be unnecessary. A simple promotional mix of informing prospective clients in a subtle way that they were the only suppliers would be enough. However, this would have to be done in a way that would highlight the professionalism of the company. As a diverse and widely recognizable frozen food company, a negative image garnered through their supply of frozen dough to bakeries could have ramifications upon the rest of the products they offered. On the other hand, the instillation of a positive image could bolster sales in their other product lines.

For the place, or more specifically, distribution of their products, McCain would likely channel their products through intermediary agents that would deliver their product to their clients. Alternatively, there could be a depot from where the product could be distributed, perhaps directly from the factory, and the clients could assume the responsibility of collection. While reduced cost could be a benefit for some smaller bakeries, the amount of frozen dough required by some clients, such as Country Style, would burden them with the necessity of purchasing an appropriate method of transportation. The use of intermediary distributors for the channelling of the frozen dough would thus be necessary and the most efficient manner by which their product could be distributed to the client. For the delivery of one product, no wholesalers or retailers would be required, and McCain would simply have to be conscious of the quality of their intermediary distributor. As proved through Fierra Food’s experience, contracting with delivery companies can lead to bad experiences, for instance, uncontrollable breakdowns, goods not being delivered, impolite service etc. With this in mind, McCain would have to be exceedingly careful in their selection of an intermediary distributor, as their positioning with their client was also at stake.

Strategic Alternatives

With a virtual monopoly on the frozen dough market, McCain Foods was in a very propitious situation. If it could, at a minimum, maintain the quality of its product and price, ongoing business was the only real option.

However, the outright purchase and closure of Fierra foods did not necessarily represent the most attractive option for McCain. It would have been quite practical for McCain to buy Fierra Foods and keep the operation running. While John Wolinski may not have agreed to such an option, it would have represented a very attractive situation for both McCain and the stakeholders at Fierra Foods. With an established client base and an excellent reputation, McCain may have advantaged from keeping the Fierra Foods operation running and having it supply its established client base, and having McCain supply the major consumers, such as Country Style. With an established internal environment at Fierra Foods, and a necessary increase in internal environment at McCain, a significant amount of expense could have been avoided by co-ordinating the efforts of the two operations. Virtually 100% market share could have been possible in this instance. Healthy competition is positive to the conduct of business, and although McCain would have had ownership of Fierra, the perceived competition could have been profitable for McCain.

A second strategic option, related to the first, is if McCain Foods had allowed their offer of purchase to Fierra Foods to lapse. Again, a healthy degree of competition could have benefited McCain. Had Fierra Foods remained in business, the majority of McCain’s target market - larger clients, would still have been maintained. McCain would not really have lost any significant market share by allowing Fierra Foods to continue its operation. By specializing solely in the smaller bakery market, Fierra Foods may even have realized that the loss in profits and downsizing of their company was less favourable than closure. Therefore, it is possible that McCain could have saved on the generous compensation package that it offered John Wolinski and concluded with the same ultimate result. Important to note, is that if Fierra Foods had voluntarily closed its doors, some of the smaller scale clients would be more receptive to McCain’s increase in market share. As most small business owners see ‘big-business’ as a distinct threat, the forced buy out of Fierra Foods would be felt on a personal level for many of Fierra Food’s long term clients. A voluntary shut down, although still ultimately the responsibility of McCain, would perhaps be seen in more favourable regard.

Thirdly, McCain could absorb the employees of Fierra Foods to garner an image as a caring company. This would not simply be a token gesture, as Fierra’s employees would undoubtedly be very familiar with the frozen dough industry, perhaps even to a greater degree than McCain’s own employees would. Fierra Food’s previous clients would respect such a strategy, and be more prone to willingly accept McCain as their new supplier of frozen dough. As the number of employees at Fierra Food’s was marginal in light of the increased demand the McCain would likely be faced with, this would represent a strategic alternative that had no negative implications.

Finally, after its purchase of Fierra Foods, McCain could, as a long term strategy, expand its operation to the national stage. By doing so, the economies of scale and scope would lower McCain’s production costs even further, and greater profits could consequently be expected. After assessing the market situation and external environment, it is probable that there would be little if any competition for market share on such a level. This strategic alternative represents the best strategy for McCain and will be further discussed below.

Marketing Mix

McCain’s marketing strategy would consist primarily of promoting the quality of their product and its very attractive price. With Fierra Foods out of the Toronto market, McCain would not have much difficulty in attracting Fierra Food’s erstwhile clients, or other new clients to their product. Out of necessity, clients may even approach McCain to supply them with frozen dough, as there would be no other outlet from where they could obtain it.

If McCain could continue to produce a quality product at a favourable price, and there is no reason why it could not, it could continually increase its control of the Toronto market. As a massive company operating on a national basis however, it is not realistic to assume that McCain’s interests would be limited to the Toronto market alone. Environmental scanning on a macro level would indicate whether expansion to the national market would be profitable or not. From the information supplied, it is likely that the Toronto market would represent the most competitive in the country. With the relative ease that Fierra Food’s was bought out, considering they held approximately 50% of the market share, it is reasonable to assume that McCain could easily control the national frozen dough market. While it is not clear whether or not bakeries out of the Toronto area would have been aware of the frozen dough concept, for the purposes of this section it will be assumed that the merits of frozen dough usage could be appreciated on a national level. Need an essay on Marketing Mix? Use our academic writing service from PhDify.com

As a new product in their diverse line, frozen dough could even assume a prominence in the consumer market. The McCain name is instantly recognizable to many, and some consumers who are themselves reluctant to make dough, could use the product. This could effectively be accomplished through their already well developed channels of distribution. With specific regard to the industrial, or producer market, the McCain name would again be instantly recognizable. In other Canadian markets where the Fierra name was unknown, McCain would likely have access to untouched markets and could expect explosive growth. Marketing the merits of frozen dough to clients who had never previously heard of it, or never had access to it, is an opportunity most firms rarely encounter. From this, it is clear that the product itself is very marketable and in high demand.

As regards price, with a virtual monopoly on the market, McCain could base its price on an analysis of price elasticity. It would likely be quite elastic, as the only substitute for bakeries would be to produce their own dough. This would be an expensive and inconvenient for bakeries that were accustomed to purchasing frozen dough. For other bakeries, however, this choice is not so clear. If the price were too high, some bakeries, mostly those out of the Toronto area who had not been presented with the product, would continue to produce their own dough. Therefore, the product is not without its substitute. If McCain’s price could be competitive, which it certainly could be as evidenced through its brief competition with Fierra Foods, the entire Canadian market would be available.

On the basis of its exclusivity, price and quality, McCain could campaign its product with great success. While the Toronto market would not require much introduction, the remainder of the country would demand a higher degree of assertiveness. By personal selling through trained representatives, McCain could best gain the highest market share. While operating at a national level, McCain could open the floodgates to increased competition. It may not be lucrative for a firm to compete against McCain for the control of the Toronto market, for instance, but in an enlarged market such the national, some firms could justify the capital outlay necessary for the commencement of operation. McCain would thus be most advantaged by promoting their product on a subtle basis, individually to each prospective client.

Operating on a national level would make distribution, or place, more complicated. However, the use of intermediary distributors would still likely represent the best option. As frozen dough could be easily transported with properly refrigerated equipment, regional distribution would be quite simple. However, it is likely that several dough producing factories would be required to cover the expanse of the country. It would be imperative for McCain to target which regions would be the most profitable and centre their operations within these areas.

In conclusion, as a large corporation, McCain would be most advantaged by marketing their frozen dough on a national level. By implementing the aforementioned marketing mix in light of the current external environment, it would be unlikely for problems to arise that could impede their success and reduce their vast market share

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