Marketing Mix: Product

When are which needs addressed?

Well, as is mentioned in positioning, Ambro is targeted at the busy but health-conscious people. So it satisfies the need for a quick lunch, which means that it actually provides consumers the time lost with having a regular or even fast food lunch since Ambro could be easily made and be consumed on the go. Besides, Ambro satisfies the need for healthy food – an optimized portion provides both men and women with all the healthy, nutritious ingredients of a perfect meal. 

But is this linkage clear enough? Are organic foods healthy? The topic is subject to discussions lately, but the most important blogs (like this one, this one or this one) tend to positively answer this question and rely themselves therefore amongst others on this Newcastle research, even though a Stanford Analysis seems to oppose it (which in turn is again opposed here). Apart from academic research, many consumers live with the simple heuristic that organic food means also healthy food, so therefore we think marketing Ambro as organic will appeal to health fanatics.

Our target customers can use Ambro as a replacement for breakfast, lunch or dinner. Ambro could be used as a replacement for any of them. However, research shows that most U.S. citizens regularly skip breakfast. Therefore, Ambro could be the most convenient solution for breakfast skipping while simply consuming it on the way. However, it is just as likely that business people need a quick lunch, or work late and miss a good dinner later the day. In those cases, Ambro provides a healtheir solution than fast food or simple sandwiches.

Product Features

So far, the product consists of a powder that is sold in big bags of 8 meals. One meal always accounts for two breakfasts. The powder itself provides the specific ingredients, but consumers still need to scoop and mix the product themselves.

Since Ambro is a higher-than-average priced product (see the other post), it is important that the texture and layout of the package carry distinctive features that promote Ambro’s premium positioning. This can be reached through using high-end materials, and/or carefully designed packages that support the product image. For example the brand Innocent produces premium smoothies and communicates a playful brand image through their layout and premium package materials.

Possible Product Improvement

A possible improvement could lie in creating one-portion packages, so that people do not need to worry about amounts anymore. To even increase simplicity, these packages could be made in a way that users can open the package, add the water, close the package, shake, and consume. The package might look something like this:

The first package should have some resealing mechanism on top so that consumers can add water, close the package, shake, and consume. The second package however, should have some folding feature so that consumers can unfold it, add water, put the cap on, shake and consume. The third package would use the same mechanism as the first but with a different material.

Blue Ocean Strategy

In fact, Ambro does not particularly face competition but rather enters a whole new market. In other words, Ambro creates a blue ocean strategy. Ambro renders competition irrelevant by creating a leap value for both themselves as well as the customer. While meal replacements already exist, Ambro is the first one using organic and healthy ingredients. This drives up the price as well, leaving greater potential for operating profit. So with regards to competition, Ambro will be the very first healthy meal substitute, and ideally, Ambro will also be easier to use than competitive products.

Ambro’s cost are high though (which is different from traditional Blue Ocean Strategy) but this is only due to the use of specific ingredients. When the product attracts an initial customer base, opportunities for cheaper ingredient growing and processing could be slowly adapted via economies of scale so that Ambro in the end appeals to a larger customer base. Regarding regular meals on the other hand, Ambro is still cheaper - let alone a regular organic meal.

Sources

Kim, W.C. & Mauborgne, R. (2004). Blue Ocean Strategy. Harvard Business Review, 69-80.

Forecasting: the competitor's strategy

Seeing the fact that Ambro enjoys its position as the first entrance in to the niche market in the US, it would not be surprising if many competitors decide to enter the market if Ambro would deliver abnormal performances. Thus, it is elemental for Ambro to anticipate the new entrance's strategy in order to defend its position in the market.

A tool to forecast such behavior can be found in the Stackelberg leadership model devised by the German economist Heinrich Freiherr von Stackelberg in 1934. This model is a game theoretic model where the first entrant is called the 'leader'. All other subsequent entrants are called the 'followers'. According to the model, the leader can set the price and the quantity upon entering the market according to monopoly market equilibrium principles .The leader has every incentive to capture as much of the market as possible as it will be the most profitable move. If market demand is not unlimited, the followers will be forced to produce less than the leader. The followers would hurt itself and the leader if they try to produce more because it will drive the market price down. This move would be considered irrational as the profitability of both the leader and the follower would suffer.

For Ambro, this means the following:

• The potential entrants are likely to focus on a specific area's with a low initial quantity. 
• The potential entrants would compete for market share through other tools than price

Ambro could prevent the dangers of entry by anticipating these moves of the competitor. However, it must be noted that the Stackleberg model is leaning heavily on assumptions such as rationality and full transparency of the market. Furthermore, it assumes that the leader has the capacity to capture more than 50% of the market at entry. But using this theoretical framework might provide a stepping stone onto a more complex market forecasting process. 

Sources:
Stackelberg, H von, (1934), 'Market Structure and Equilibrium: 1st Edition'  Bazin, Urch & Hill, Springer 2011

Forecasted Sales and Costs

Our team has conducted thorough research of the market. We were able to establish an expected revenue and loss account for the first year of Ambro's launch in the US. Please click on the picture of our revenue and losses sheet in order to get a magnified picture.

Notes, sources and assumptions 

2: The working population of Silicon Valley which houses lots of time constrained  and high achieving people.

3: Ambro targets consumer near the age range of 18-35. 

4: San Franciso city also houses lots of high achieving and time constrained population. Here the working force has not been filtered out yet.  

5: Ambro targets consumer near the age range of 18-35.

6: In order to filter out the non-working population living in San Francisco, the unemployment rate is applied here. 

9: 'Possible reach' refers to the percentage of customers Ambro will be able to sell to within it's total targetable population. The following factors exclude consumers in the total targetable population to be a customer of Ambro:

• Non time constrained work force
• Consumers who are not conscious about their health
• Consumers with know knowledge about Ambro
• Consumer who cannot afford Ambro
• Other external and unforeseen factors

15: Exchange rate Euro's to USD, taken on the 4th of December 2013 

20: UPS truck transfer rates are applied for 100 Ambro packages. The scenario's of 'negative' 'moderate' and 'positive' relate to the physical distance of the production facility to its consumers in the San Francisco Bay area. The packages will approximately have the following characteristics:

• Dimensions: 20 by 20 by 20 inches
• Weight: Approximately 108 Kg
• 100 Ambro packages goes in to 1 package for truck shipment

25: Green Card application fee for foreign investors/entrepreneurs starting their business and operations within US boarders. 

29: Miscellaneous costs are budgeted. This will transfer to 'retained earnings' account in the next accounting period. These include but are not limited to: 

• Set up fees of the offices and general operations
• Corporation foundation fees
• Budget for unforeseen expenditures

Conclusion

From the projected revenues and costs, it can be seen that Ambro will book a slight profit in its first year.This will definitely contribute towards the survival of the start-up in the US as most of these start ups won't see their first positive cash flow in the initial period.

Where to start in the US?

Since we have determined the US as the most promising market for Ambro, the following analysis will help to determine where in the US Ambro’s product should be launched first.

Logically, the company should choose a region for which the density of their target group is particularly high. Besides this, existing relationships might play a role for that decision.

Based on these factors, we feel certain that the highest potential for Ambro is exists in the San Francisco West Bay Area, including Silicon Valley, in California:

Population:

Ambro’s main target group, which we have determined as 20-35 year old professionals with academic education, is fairly well represented in the area of Silicon Valley and San Francisco. Sillicon Valley itself has a working population of around 125000 people. For the San Francisco area, the working population can be estimated. This is done by using the total amount of the San Fransisco area inhabitants, filter everybody out who does not belong in the working population (everybody younger than 18, older than 65) and apply the unemployment rate of 6.5% to it. The final conclusion gives a total of around 771000 working people in the San Francisco area. This gives a total working population of around 896000 people in the greater San Francisco Bay area.

The following diagram gives an overview for Santa Clara and San Mateo Counties, showing that around 1/3 of the population is between 25 and 44, which provides a good basis for the spread of Ambro’s product:

In San Francisco, the age distribution is similarly beneficial for Ambro. The median age here is 36.5 and 30% of the habitants belong exactly to the category of Ambro’s target group; they are between 20 and 35 years old.

Health awareness:

In general, California is well known for its residents to be more interested in healthy eating than it is the case for the majority of other American states. Californians try to remain in good shape by working out and eating comparatively healthy. Data about overweight and obese individuals is in line with this statement.

Statistics of the student population that is overweight or obese in Silicon Valley, compared to California as a whole, shows that between 2005 and 2010 this number has been on average 5% lower for the Silicon Valley area:

A comparison between San Francisco and the US in general illustrates this even more clearly. Whereas almost 70% of adults age 20 years and over are overweight or obese in the US, in San Francisco this group accounts for 42% only.

High entrepreneur rate:

Both San Francisco and the Silicon Valley are popular locations for startups. Many young entrepreneurs start their business here. The relative growth of small business loans in Silicon Valley, compared to data for the US, supports this statement:

Since entrepreneurs are often very busy, ambitious people who care about their health and prefer to eat healthy food, they seem to perfectly suit Ambro’s target group.

Another interesting aspect about startups in the San Francisco Bay Area is that the amount of food entrepreneurs has significantly increased. Venture capitalists are investing much more into food projects than during previous years. This might hint at sufficient demand for products like Ambro's in this area.

Hard-working employees:

Ambro’s geographical target market should feature a great number of busy and hard-working people since they are particularly interested in fast and healthy meals. In the Silicon Valley area, these individuals can definitely be found a lot. David Shaywitz argues that the key to startup success is also to work very, very hard. He suggests that the majority of Silicon Valley entrepreneurs is not able to keep up with a healthy work-life balance. The demand for healthy and quick nutrition seems to be extremely high.

Apart from all the reasons stated above, Ambro already has connections to Standford University via the Startup Sauna. These can help to break into this market and perfectly support our recommendation to launch their product in the San Francisco West Bay Area.


Source for the graphs:
Silicon Valley Index Website http://www.siliconvalleyindex.org

Funding: Possibillities

Initially, Ambro's funding had come out of the founding team's own capital. Currently, additional funds are raised through crowdfunding* platforms such as Kickstarter and Indigogo. Extended funding opportunities towards expansion in the US could be found in the popular TV show The Dragon's Den. This popular North American TV show pits start-ups against professional investors. The start-ups each have 10 minutes in order to convince the five professional investor's of the value of their start-ups. At the end, the investors can decide how much capital they want to provide for this start-up. Numerous North American start-ups have received the necessary funds in this way. As Ambro has developed a tangible product which does not have received any competitive pressure, it chances at the Dragon's Den could be considered to be substantial. In addition, Ambro should try to get to attend start-up fairs such as Slush in Northern Europe, since these offer great opportunities to pitch ones idea and attract investors. 

* Crowdfunding is a form of funding in which project creators (startups) present their idea thoroughly on a crowdfunding website, and interested test users presubscribe to their product/service, already paying for the purchase. Thus, the companies get capital for production and are able to start the project. However, in order for the company to receive any money, enough of people need to like the idea as the project creators (companies) need to reach their funding goals. (kickstarter.com)