1.1 Industry Dynamics
Chiquita Banana International is a major international distributor of fresh and value-added food products. Its operations include a strong marketing element "designed to win the hearts and smiles of the world’s consumers…" (See Vanides, 2009, p 2). The nature of fresh produce favors a vertically integrated industrial organization and that is true with Chiquita.
The value-add is concentrated in specialized shipping and marketing activities (p. 4). This has led to discontent among growers, as their associations have not been able to negotiate favorable returns to the farmers. Grower associations have attempted to end-run the produce conglomerates, mainly Chiquita and Dole, (p. 5) but with mixed results. Dole International is Chiquita Brands’ major competitor in the vertically integrated fresh produce sector.
Customer concentration makes Chiquita vulnerable in North America. The case study (p. 5) reports that banana marketers and distributors are facing "the challenge of the increasing role that is being played by supermarkets and retail chains." The Boston Consulting Group, in their Harvard Business School publication examines the impact new information technology will have on disintermediation, getting rid of the middleman in many industries (Evans and Wurster, 2000, p 72).
1.2 Topic Statement: Don’t Become a Wal-Mart Harlot
The topic of this proposal is to recommend that Chiquita Brands work at 90° with the powerful grocery store channel. Using enabling technology like Landec to enter a new market is a start. We also recommend marketing strategies to broaden your customer base, first with Core-Mark and convenience stores, but longer-term with manufacturing intermediaries such as Gerber and Mrs. Smith’s. Additionally, we review marketing pull strategies to increase ultimate consumer awareness of your unique expertise and long experience in safe handling for the delivery of fresh produce.
1.3 Who are the customers and what do they want?
The customers of Chiquita Banana International are varied but concentrated so that 62% of its North American sales go to its top 20 vendors, a Pareto distribution (see Vanides, 2007, p 5). In Europe this is slightly more balanced with 32% of sales going to the top 20 retailers. The case study mentions the following customers:
- Convenience store distributors who need smaller delivery quantities of fresh bananas and packaging for individual sales.
- Supermarket retail chains that need continuous delivery of fresh bananas with high quality as well as integration with their supply-chain systems. They also seek long-term relationships.
- The ultimate customers, shoppers who buy fresh bananas
- Independent canned goods manufacturers such as Bacardi Banana Daiquiri Mix, Comstock, or Gerber who use bananas and fresh produce in their processed foods
- Manufacturers of pastries and pies like Mrs. Smith’s Banana Crème Pie.
- Bars and restaurants such as Chili’s, Ruby Tuesday’s and Appleby’s
- Soda shops such as Dairy Queen, Baskin Robbins and Ben and Jerry’s.
- Convenience stores for processed foods such as slurpees or yogurts
2. Market Analysis
2.1 Competitive Actions
Chiquita sells to retailers and there is a growing Wal-Mart Effect in North America. Retail chains, especially in the USA, are leveraging their growing power to better control the wholesale distributors like Chiquita. Vertical coordination by the retail chains is managed through supply-chain software systems.
Dole’s response is to become Wal-Mart’s harlot. Dole concentrated its management attention on the market side of the business, strengthening its supply partnerships with the retail chains (p. 5). Chiquita has done the same so far. This is risky. Wal-Mart does not partner with such companies but instead uses them until they no longer have any life and are therefore not usable anymore.
2.2 Marketing Issues
The first marketing issue is the need to diversify and broaden Chiquita’s customer base to include convenience stores and other outlets independent of the large grocery store chains and Wal-Mart. Another related issue is the need to distinguish Chiquita from commodity bananas. Marketing communications should emphasize both Chiquita’s long experience in distribution that gives it complete understanding of the safety and cleanliness issues in handling fresh produce, as well as knowledge of new technology that can benefit the process. Freshness from Landec is an example of such a technology.
The case study goes on to say that powerful grocers are moving up-channel to exert increasing control over produce. This can torpedo Chiquita profit margins by commoditizing its offerings. To obtain a reasonable rate of return, Chiquita should also expand its reach into more profitable uses of its produce, especially with manufacturing intermediaries. Spiller and Baier (2005, p 320) note that often a manufacturing intermediary has an inelastic demand for the price of a banana in comparison to shoppers at Wal-Mart. This is because the cost of a banana in a Cream Pie is a small part of the total cost of the ware so banana price can be raised more before it is noticeable to the bottom line of the manufacturer.
3. Constraints
Demand for bananas as bananas is constrained by pricing pressures from both Dole International your major fresh produce competitor, and by the ability of large retail chains to negotiate favorable pricing terms in return for access to the market they control. Chiquita Brands is further constrained in its pricing to the extent the buying public assumes bananas are a fungible commodity and is not aware of the sophistication of the handling process managed by Chiquita to ensure cleanliness, safety and freshness.
Finally, Chiquita is constrained by the operational costs for its distribution activities, especially oil costs, which make cost reduction efforts problematic. This limited ability to trim costs also increases the vulnerability of Chiquita to an outfit like Wal-Mart muscling into its distribution and marketing franchise, leveraging Wal-Mart’s control of final retailing. With Chiquita’s retail sales concentrated mainly in twenty chains, there is a real risk that retailers can dictate low prices to Chiquita, basically asking "Where you gonna go?" This will squeeze Chiquita profit margins.
4. Decision Options: Objectives, Strategies and Tactics
4.1 Objectives
My biggest worries for Chiquita Brands is that its product line will be cast as commodities, that its profit margins will be squeezed, and that powerful new competitors will emerge if hefty retail chains like Wal-Mart make deals with grower associations, directly by passing Chiquita. This does not need to happen. Pine and Gilmore (1999, pp 1-3) show that exactly the opposite is possible when management has a more positive outlook and distinguishes the product or service of its company. This is our job as marketing communication consultants. We propose the following marketing objectives:
- Differentiate Chiquita from commodity bananas: 75% awareness among the retail trade about Chiquita’s sophisticated distribution methods like Landec,
- Diversify the customer base for Chiquita Bananas: Add 5,000 convenience stores to its retail channel. Both goals accomplished in next fiscal year.
4.2 Strategies
We recommend an immersive mix of push and pull strategies to differentiate Chiquita bananas from commodity bananas and expand its customer base into the convenience store sector. This initial campaign will be the introduction of the new partnership with Landec to provide consumers with a fresh and healthy snack at convenience stores. However, it is also the foundation for follow-up campaigns that must be undertaken.
The motif of this Landec campaign will be the century long experience Chiquita Brands has in safe and efficient distribution that protects consumer health while providing a continuous supply of fresh bananas at a reasonable cost. Chiquita innovates and is expanding the envelope with the introduction of a new technology by Landec. Unlike newcomers to the produce business, Chiquita does not need to experiment with the health of Mr. or Mrs. Consumer to learn the ropes like an upstart would.
Our push strategies are two: 1.) Trade-promotion to motivate trade-support through a mix of allowances; and 2.) Trade-promotion support through a complementing consumer promotion (see Duncan, 2005, p 502). Our pull strategies will use targeted advertising to different customer segments, along with promotional incentives. Additionally, we will use public relations because this advanced new technology is a "news peg" (Duncan, 2005, p 551).
The timing of the push and pull is to first push the Landec wrapped bananas into the channel at the same time as the public relations work is conducted. The consumer advertising and promotion will be presented shortly after the trade promotions to give time for the product to be available in the channel.
4.3 Tactics
Venerable trade promotion tactics form our toolkit for building this campaign. For the convenience store owners, Duncan (2005, p. 489) suggests the use of shipper displays to both highlight a new product and make it easy for customers to take a single banana. He goes on to say that co-operative advertising is an effective incentive, with 1-2% of the store sales in Chiquita bananas going back to the store for joint advertising Chiquita product availability in the store.
We will use direct mail to get a response from stores about the co-op ads. We also send direct mail to the C-stores to educate them on the profitability of this new market sector that is now open to them because of the Landec and Chiquita partnership. This direct mail is economically feasible because there are roughly 5,000 C-stores. Vanides (2009a, p 4) says lead generation is a goal of any campaign, and this will return store interest in co-operative ventures. This is a pull strategy aimed at a downstream channel member, the C-stores, to pull demand from the upstream channel, Core-Mark. Core-Mark can be incented with off-invoice allowances (see Duncan, 2005, p 497).
To forge pull from the ultimate customer, direct response advertising will be used. Spiller and Baier (2007, p. 144) note that special interest magazines have proliferated, so this gives us the ability to target our message to different consumer segments. Omniture (2007, p 1) notes that customers demand relevancy in marketing communications. Segmentation enables this.
Our message to the ultimate consumer will stress the sophisticated expertise that is required to transport fresh produce safely and with cleanliness. We also want to discourage any movement by the aggressive retail channel into your marketing and distribution franchise. There will be a call to action in the direct response ad, namely a discount coupon (see Duncan, 2005, p. 469). Spiller and Baier (2007, p. 145) note that magazine ads are relatively inexpensive. They go on to suggest that using remnant space will lower costs even more.
Internet promotions are a powerful opportunity. An increasingly popular method is Advergaming. An example game is Kellogg’s Froot Loops Treasure Hunt (see Froot Loops Game) The response rate for advergames is between 16% and 45%. Customers spend an average of 25 minutes with absorbing entertainment featuring our message. Blank (2001, ¶ 1) reports that Hershey’s Chocolate experienced a phenomenal response rate with advergaming.
For new products, like your bananas in a fresh-preserving wrapper, Spiller and Baier (2007, p. 90) recommend cross selling, a second opportunity we can exploit. One example is Graceland Cupcakery selling in 7-Eleven stores throughout the southeastern United States. They make banana bread cupcakes. See Graceland Cupcakery. Spiller and Baier (p. 96) go on to suggest new products can benefit from guarantees. We are asserting the new wrapping will preserve freshness. Let’s back it up with a money back guarantee.
Last but not least is a publicity campaign. The joint Core-Mark, Landec, Chiquita venture is a news peg – something new that can be legitimately reported by the news media. This creates awareness from a trusted source. Here is an example Chiquita-Landec News Release.
5. Implications and Recommendation
5.1 Implications
As noted earlier in this report, there are serious long-term threats to the Chiquita bottom-line and we have additional marketing communications plans that will help Chiquita more completely diversify its customer base. We welcome the opportunity to discuss these with you in future. Today, this plan is for convenience stores but tomorrow Chiquita must expand the use of bananas and fresh produce by manufacturers such as Gerber’s and Mrs. Smith’s. They provide markets with price inelasticity, i.e. protection from pricing pressure (see Spiller and Baier, 2007, p 320).
Evans and Wurster (pp126-7) expressly warn that Wal-Mart engages in predatory activity but, of course, monkey-see/monkey-do when it comes to bananas and retail food chains, so we should expect the other powerful grocers to do the same. As already noted, the growers are looking for a better deal than they get from Dole or Chiquita. How long before the two ends of the chain connect without the middlemen?
If Wal-Mart, et al can turn bananas into the ultimate fungible commodity and move up-channel to cannibalize Dole and Chiquita value-add, then they take away the basis for Chiquita revenues. The Chiquita marketing campaign with Landec will lay the foundation to counter any such attempt by alerting the public to the skill necessary for the transport and distribution of fresh produce. Chiquita will not be experimenting with shopper’s health while learning the ropes. Additionally, this campaign is the groundwork for future marketing to expand relationships with manufacturers.
5.2 Recommendations
If you will allow us to conduct follow-up campaigns, after the Landec-wrapped Chiquita bananas, we will begin working immediately to form symbiotic relationships with manufacturers such as Gerber Baby food, Ben & Jerry’s, or Mrs. Smith’s Banana Cream pies. Partnering and co-branding with them can increase supply of Chiquita even in an aggressive retail chain. We strongly recommend this for the following reasons.
Keller (2008, p 289) says that co-branding can both broaden the meaning of a product and increase its access points. Co-Branding can (p. 290) create "compelling points of difference" and create access to a higher profit margin category. Brand alliances can be an effective method for differentiating especially a fungible product, say like bananas, in a commodity war of declining profits and upstart retail chains.
To accomplish this, Chiquita must use customer database marketing to customize messages to its intermediaries. After co-branding agreements are in place with manufacturers such as Gerber, Ben & Jerry’s and Mrs. Smiths, we recommend using direct mail with coupons to enhance the partnering brands and establish pull demand through the retail chains.
6. Update
Levinson (2009, p 63) reports that Chiquita Brands is spoiling, and is unpalatable.
Its stock was downgraded to a sell in March of this year, because its profits margins have been squeezed into losses. The stock dropped 43% after losing 74¢ per share. Still, this is a great brand name, which can be salvaged. The name still has great potential but needs an integrated marketing campaign to escape the powerful chokehold being applied to it.
7. References
Blank, C (August 6, 2001). Hershey's Online Push for Reese's Gets Sweet Response. Direct Marketing News. Retrieved on September 3, 2009 at DMNews.com
Duncan, T (2005). Prinicples of Advertising & IMC. McGraw-Hill/Irwin.
Evans, Phillip and Thomas Wurster (2000). Blown to Bits. The Boston Consulting Group. Harvard Business School Press.
Levisohn, Ben (3/9/2009). Chiquita Bruised. BusinessWeek. Retrieved from EBSCOHOST on September 5, 2009.
Omniture (February 2007). Online Marketer‘s Segmentation Guide. Retrieved from WVU IMC 626 Week Two Readings on August 29, 2009
Pine, J and J Gilmore (1999). The Experience Economy. Harvard Business Press.
Spiller, L and M Baier, (2005). Contemporary Direct Marketing. Pearson/Prentice-Hall
Vanides, Alexia (2009). Case Study: Chiquita Banana and the Distribution Channel. Retrieved from WVU IMC 626 Week Two Assignment on August 29, 2009.
Vanides, Alexia (2009a). Lesson 2: Developing OST for B-to-B DM Campaigns, About Lead Generation Management. Retrieved from WVU IMC 626 Week Two Lesson on August 29, 2009.
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