Market Analysis - Meso level: The closest substitute

Next we want to take a look at the most potential future competitor - Soylent. 

Soylent is the closest substitute for Ambro – and also behind the idea of Ambro itself. Soylent provides a full food substitute, just like our case company – but differs from Ambro in such a way that it is not organic. Otherwise the idea is quite similar: one mixes the powder with water (or other liquids) and the drink (meal substitute) is ready. However, unlike Ambro, Soylent advertises that one could give up all food if only using Soylent. On their website, it is even said: “What if you never had to worry about food again?” Ambro’s founders are making a clear distinction in this by stating that they do not intend people to live solely on Ambro (even though it is nutritionally possible) – they value the social atmosphere of eating too much.

Soylent is actually quite a new product as well. At the moment a customer needs to wait for over a month for the mailing (“order now and receive early 2014”). Also, the product is only available in the US and intends to go international in mid-2014. The company has been successful in collecting capital; they currently have raised over $3 million through crowdfunding and private investors.1

Positive aspects of Soylent are 

• Relatively cheap price; “a week’s worth” (21 meals) package costs $65, making one meal cost $3.10. ²
• Full feeling afterwords ³
• Noble side-idea: Soylent has also been praised for tackling environmental problems by providing a solution to the global food crisis. It is nutritional, inexpensive and can easily be transported to countries with food shortages. However, $3.10 for a meal isn’t particularly cheap in the poor countries. ³

Negative aspects of Soylent 

• Contains lots of chemicals (oat flour, maltodextrin, rice protein, canola oil, potassium gluconate, sodium, iron, zinc, chloride) ³
• Taste raises mostly negative reactions (“tastes like medicine”) – however some like it ³
• Bad smell ³

In an experiment, Soylent was used for 30 days in a row without eating anything else in addition. In that project, also other negative aspects were brought up. First, the test user’s jaw started aching because of not having used the muscles. Second, the test user experienced depressed feelings. Food often serves other purposes than its core as well, and one of the most important is the social side of eating; the test user found it hard to join friends who met for eating. Third, the test use actually lost weight during the experiment so that a doctor recommended no exercising during the diet. Losing weight would of course be good for obesity problems, but there are also a lot of people who should not lose any weight.3

Soylent is marketed as the food of future – replacing the need to cook. However, the experiment shows – which can be backed up also by most people – that food serves a social purpose which should not be totally abandoned. Therefore, if Soylent would position itself more similarly to Ambro – being a substitute for busy times instead of a full-time diet – it could provide a great threat of substitute or even a direct competitor, should it decide to enter the organic market. Still, one question prevails:

Would Soylent really enter the organic market?

Their core product is quite different; if made organic, the product would become more expensive as well, losing the image of inexpensive meal substitute that could even help the hunger. The core difference is summarized quite well in the article on Wired: "Soylent's goal is to be synthetic and affordable," "Ambro is organic and premium". We believe Ambro should definitely keep on following Soylent, but at the moment the product does not offer a direct competitor. However, such as Ambro followed Soylent, it is likely that new competitors will come. 

Sources: 

1. Soylent Funding Announcement http://blog.soylent.me/post/64789154918/soylent-funding-announcement
2. Soylent Website https://campaign.soylent.me/soylent-free-your-body
3. Blackmore, W. 2013. The Soylent Experiment: Living off "Liquid Goop" for 30 Days. Takepart [online]13 November. Available at: http://www.takepart.com/article/2013/11/13/soylent-experiment-living-liquid-goop-30-days
4. Kelly, G. 2013. Premium Soylent rival fuels the drink revolution. Wired [online] 14 November. Available at: http://www.wired.co.uk/news/archive/2013-11/14/commercial-soylent-variant 

Market Analysis - Meso level industry analysis

Next we want to investigate the competitive environment for Ambro in the US market. For this, we first conducted an industry analysis according to Porter’s five forces.¹

Threat of new entrants

As Ambro is the pioneer in the market, potential new entrants may wait for Ambro to solve out all obstacles before other companies enter the market. Therefore, Ambro indeed has to be prepared for new entrants, who could enter the market with less effort – all the initial problems having been solved. Thus, the level of threat also depends on how soon possible entrants would come to the market.

These new entrants could be ones diversifying from other markets. That way, these firms could take use of their existing capabilities and cash flows. The company of Soylent could provide a potential new entrant. After all, the idea is highly similar - providing a quick meal solution – and thus Soylent might come up with an organic version at some point. Soylent has been very successful in getting funding and thus the business has started to flourish fast. Ambro, however, is only starting their business and still needs to collect lots of funding.

The degree of the threat of entry affects the potential of the whole industry. The degree of entry barriers can be somewhat determined by looking at the barriers of entry that exist. Supply-side economies of scale are high for such a premium product. The price of the product is relatively high, but with larger production amounts the prices are likely to fall. Some kind of demand-side benefits of scale may exist (consumers getting discounts when ordering more), but this is not as important as on the supply side. Customer switching costs are quite non-existent – being a consumable product, the product itself can be switched quite immediately. Capital requirements exist to some degree. However, if potential new entrants came from already existing companies, these companies could possess enough of capital needed as they are. Incumbency advantages independent of size are quite low – unless Ambro succeeds in creating high enough brand equity. This has been seen with other food products as well – even if similar products, the ones with the highest brand equity seem to prevail (e.g. CocaCola vs. Pepsi). If using internet as the distribution channel, the access to distribution channels creates no barrier of entry. However, if Ambro is able to get the product into large online stores, they may get exclusive contracts which would increase the barrier of entry. Restrictive government policies are quite limited. Naturally, patents restrict making a copy of the existing product and there are some safety regulations to be filled, but otherwise no high barriers. 

All in all, it is quite easy for new entrants to enter the market - Ambro will definitely face competition. Thus, a lot lies in Ambro’s ability to build strong brand equity. Also, Ambro will perhaps need to place their prices down to deter competitors – which is difficult at this starting point of business. 

Threat of substitute products or services

Substitute products for Ambro would be other convenient meal substitutes, which do not have to be organic if they are still perceived as healthy. Soylent may be seen as one, as well as any readily packaged, easy-to-take along snacks such as sandwiches, drinkable yogurts, fruit, etc. By choosing many of these simultaneously, a full meal can be formed – even though the nutritional value may stay a lot lower. Ambro’s substitutes often offer less pricy options, and with better taste (excluding Soylent). Also, switching costs are low. Thus, threat of substitutes is quite great, and therefore Ambro needs to put a lot of effort in highlighting its advantages: being organic, full-nutritional and of very high nutritional value. 

Bargaining power of suppliers

Some suppliers of Ambro – such as those of organic foods - do not depend heavily on the small niche industry for their overall revenues. However, some suppliers may be concentrated on superfoods – thus very niche markets, when their bargaining power is smaller. The power is somewhat increased by the industry’s switching costs – if Ambro needs to switch the supplier, it may have to adjust its production or even get new certificates to prove the quality of the new supplier. Often there are substitutes for the suppliers, and suppliers can also easily threaten to work with possible new entrants (competitors) as well. Therefore, bargaining power of suppliers is average.

Bargaining power of buyers

Ambro (and the whole market) has quite a few buyers in the sense that it serves a niche consumer market. Also, buyers face no switching costs, and thus they have negotiation leverage. However, the target consumers are not overly price sensitive, as the product itself is a premium quality product and the target audience is high-earning. Thus, buyers have a lot of negotiation leverage but are not that price-sensitive. All in all, the bargaining power of buyers is of average level.

 Rivalry among existing competitors

Ambro is a premium product without existing direct competitors. However, if one widens the range of existing competitors to cover the non-organic substitutes, the Soylent provides the most similar option at the moment. Therefore our next post will concentrate on analyzing that.

Whole framework based on:

1. Porter, M.E., 2008. The Five Competitive Forces That Shape Strategy. Harvard Business Review, (1), p.78-93. 

Market Analysis - Macro level: PESTEL

After deciding that US market is the best market to enter, we started conducting thorough market analysis to be able to conduct a clear marketing plan for Ambro.

First, we examine the macro environment with the PESTEL analysis. Such environmental analysis is extremely important for marketing in an international environment, as marketing activities and tactics are largely affected by the certain business environment.1 

	Opportunities	Threats
Political	On average low government regulation and intervention: a historically laissez-faire mentality	Strict regulations regarding food safety and marketing messages Labeling the product as food supplement instead of substitute?
Economic	High GDP per capita (purchasing power) Heathly GDP growth rate; averaging at 2-3%, which is higher than the average inflation rate (1-2%) High labor mobility	Heavier than average fiscal regulations Not fully recovered from economic crisis
Socio-Cultural	62,1% of the USA is overweight.2 Americans in general eat unhealthy. Americans are increasingly health conscious which results in a growing interest for products like Ambro.	The majority of the population is not, or only to a minor extent physically active which might indicate a reduced interest for healthy drinks.3 US citizens are quite used to taking dietary supplements, Ambro needs to put extra effort in standing out.4
Technological	Highly developed country with good infrastructure and major opportunities for internet distribution	The relative number of Startups in the U.S. is on average higher than elsewhere which might make it more difficult to reach consumers.
Environmental	Slowly increasing interest towards green or ecological products. 5	The mentioned benefit also means an increased interest in a green production of these products, so extra effort there would be needed
Legal	Import taxes can be avoided when producing in the US. On average lower corporate taxes than in Europe	Abeyance to various health and safety laws Possible trademark problems on the use of “Ambro” in the US Definition of organic is more strict in the US; requirement for 95% organic ingredients

PESTEL analysis often ignores some very important factors such as history and language, which are crucial for companies exporting to other countries. PESTEL looks at the market from the domestic point of view and ignores the international trade rules. Therefore, IMEA (International Marketing Environmental Analysis) would be a better tool for international marketing; it includes factors such as History, Economic, Language, Politics, Social, Financial, Rules (International trade), Environmental, Demographic, Infrastructure, Culture and Technology.1 

However, when we take a further look at this, it seems that IMEA Analysis does not provide much further value for the case Ambro; Ambro is only launching the whole product, straight in the US market. Also, their aim is to find local producers since the group does not want to start exporting to the US. Exporting might come in question later on in Europe, where production could be concentrated in a few areas. Thus, IMEA framework can be used later on when expanding further in Europe.

Sources:

1. Clarke, G. (2005). Internatinoal Marketing Environment Analysis. Marketing Review, (5), 159-173.  
2. Wang, Y Claire, McPherson, Klim, Marsh, Tim, Gortmaker, Steven L., Brown, Martin. Health and Economic Burden of the Projected Obesity Trends in the USA and the UK. The Lancet; 2011.
3. Health, United States, 2012. With Special Feature on emergency care.
4. Gahche, J., Bailey, R., Burt, V., Hughes, J., Yetley, E. Dwyer, J., Picciano, M.F., McDowell, M. & Sempos, C. (2011). Dietary Supplement Use Amon U.S. Adults Has Increased Since NHANES III (188-1994). NCHS Data Brief, 61.
5. Cherian, J. & Jacob, J. (2012). Green Marketing: A Study of Consumers’ Attiutde Towards Environment Friendly Products. Asian Social Science, 8(12), 117-126.