Strategic Management for a2 Milk Company

This report analyzes the competitive environment of the a2 Milk Company in the Australian market by applying Porter’s five forces model and provides recommendations on product lines and geographic segments. The report suggests that the company should focus on increasing its switching cost and produce innovative products with the a2 milk. It should adopt differentiation leadership strategy to further increase its profitability.

Running head: STRATEGIC MANAGEMENT
Strategic Management
Name of the Student:
Name of the University:
Author note:

1STRATEGIC MANAGEMENT
Table of Contents
1.0 Introduction................................................................................................................................3
1.1 Background/Context..............................................................................................................3
1.2 Problem/Purpose....................................................................................................................4
1.3 Scope......................................................................................................................................4
2.0 Methodology..............................................................................................................................4
3.0 Results/Findings and Discussion...............................................................................................4
3.1 Porter’s Five Forces model....................................................................................................5
4.0 Recommendations on product lines and geographic segments.................................................8
4.1 Porter's generic strategies for the firm...................................................................................8
4.1 Five potential financial and non-financial measures and usefulness for success evaluation
...................................................................................................................................................10
5.0 Conclusion...............................................................................................................................11
References......................................................................................................................................13

2STRATEGIC MANAGEMENT
Executive summary
The a2 Milk Company is a leading milk producer and supplier operating in the markets of
Australia, New Zealand, USA, UK and China. Since, its establishment in 2000 by Dr. Corran
McLachlan, the company has been able to create a successful position in the market by providing
a unique product, that is, milk containing only a2 protein. The company sources the milk from
cows that naturally produce this milk. Although, the company has seen increase in its
profitability in the recent years, it also faces tough competition from companies offering close
substitutes. This report analyzed the competitive environment of the company in the Australian
market by applying Porter’s five forces model and it is found that the company should focus on
increasing its switching cost and produce innovative products with the a2 milk. It should adopt
differentiation leadership strategy to further increase its profitability.

3STRATEGIC MANAGEMENT
1.0 Introduction
1.1 Background/Context
The a2 Milk Company is one of the major milk companies established in New Zealand.
Dr. Corran McLachlan founded the company in 2000 after a significant discovery that the
different milk proteins have different effect on the people. He discovered that cow milk contains
two different types of beta-casein protein, a1 and a2, which have different impact on the
digestion system of the consumers of cow milk. It has been found that a2 protein is easier to
digest (Jianqin et al., 2015). With this principle, the a2 Milk Company was established. It is a
publicly listed company in both New Zealand and Australia. Since its establishment in 2000, the
company has expanded its business in Australia, China, UK and in the USA. The mission of the
company was to explore more to know the scientific benefits of a2 protein type in order to spread
the nutritional goodness of the natural and real milk to more and more people
(Thea2milkcompany.com., 2018). Over the years the company has emphasized on the fact that
the cow milk contains two different beta-casein proteins and those have different effects on the
people, especially in terms of digestion and delivering the most nutritional value. The company
uses specially selected cows that produce a2 protein milk naturally and advertises it as a
marketing strategy. It has been able to create awareness among the people about the goodness of
a2 protein and a2 milk, which is high in nutritional value. The customers admit that they feel the
difference in their digestive system and overall health, which brings business to the a2 Milk
Company.

4STRATEGIC MANAGEMENT
1.2 Problem/Purpose
The purpose of this report is to present a strategic positioning of the a2 Milk Company
which would help it to further expand its business and increase its profitability by capturing a
bigger market share.
1.3 Scope
This report provides recommendation on the product lines, geographic segments along
with five potential financial and non-financial measures for future success through the analysis
of the current strategies of the milk company and its environment by using Porter’s Five Forces
Model and Porter’s generic strategies.
2.0 Methodology
The research for the report is conducted by collecting and analyzing secondary data. The
data was collected from the official website of the a2 Milk Company of Australia and various
online publications including annual reports. Porter’s five forces model and Porter’s generic
strategies were applied on the data to get the outcome of environment and competitive analysis
of the company and to provide recommendations on strategies for improving the product lines
and geographic segments.
3.0 Results/Findings and Discussion
The a2 Milk Company is a leading publicly listed company in New Zealand and in other
locations belonging to the food and beverage sector. The company has launched various
categories of milk in different markets, such as, a2 MilkTM fresh milk, Blue and Lite milk, that is,
whole milk and skim milk, infant formula milk, whole milk powder, and chocolate milk. In

5STRATEGIC MANAGEMENT
Australia, the company has a grocery value of around 9.3%, and the infant formula milk’s market
share has increased from 16% to 26% (Thea2milkcompany.com., 2018). In New Zealand, the
fresh milk brand AnchorTM is the endorsement partner of a2 Milk. In China, the profit for the
infant milk by a2 jumped by 150% to $98.5 million in the first half of 2018 (Pash, 2018). In all
the markets, the company has been able to capture a significant market share.
3.1 Porter’s Five Forces model
Figure 1: Porter's Five Forces Model
(Source: E. Dobbs, 2014)
The intensity of the market competition in the Australian market and the profitability scope of a2
Milk Company have been analyzed using Porter’s Five Forces Model.
Threats of new entrants  Low marketing cost
 Innovative products by other companies, such as, high

6STRATEGIC MANAGEMENT
growth UHT milk, low fat yoghurt
 Lower barriers to entry
 Lower value proposition to the customers
Threats of substitutes  Low switching cost
 Rival brands addressing the core needs of customers
 Lower availability of substitute milk with a2 protein
 Availability of substitutes, such as, lactose free milk,
organic milk, low fat skim milk, high protein full milk
etc.
Bargaining power of
suppliers
 Higher priced products due to higher price charged by
suppliers
 Higher price charged by distributors
Bargaining power of buyers  Purest quality is demanded at a lower price
 Demand for offers for a lower price
Industry rivalry  Dairy Farmers
 Pauls
 Green Pastures
 Zymil
 Devondale
 Farmhouse Gold
 Tempo
 The Complete Dairy

7STRATEGIC MANAGEMENT
From the Porter’s five forces analysis of a2 Milk Company, it can be inferred that,
 The company has a high threat of new entrants in the market due to low marketing cost,
lower barriers to entry, and innovative products by the rivals or new competitors.
 On the other hand, the threat of substitutes is medium. It has a low switching cost for
products such as lactose free milk, varieties of full fat, low fat and fat free milk, but there
is lower amount of substitute products focused on providing a2 protein only. Thus,
slightly differentiated products from competitors are available in the market, as those are
not perfect substitutes.
 It is seen that the price of the a2 milks are relatively higher than the other brands’
products. It can be assumed that the price of the a2 products is higher due to higher priced
raw materials and higher price charged by the suppliers and distributors, that is, the
suppliers have higher bargaining power due to the exclusivity of the product.
 On the other hand, the buyers also have higher bargaining power as they demand highest
nutritional value from the purest quality milk at a lower price. Although, the company’s
market share has increased in the past few years, the size of the customer base is not yet
dominant in the market, since not every customer prefers to consume milk with a2
protein only.
 Lastly, there are many other popular brands in the Australian as well as global market
providing close substitutes, although none of them provide only a2 milk (Westbrook &
Greenfield, 2018).

8STRATEGIC MANAGEMENT
4.0 Recommendations on product lines and geographic segments
4.1 Porter's generic strategies for the firm
Figure 2: Porter's generic strategies
(Source: Wicker et al., 2015)
Porter’s generic strategies are applied to find out the relevant competitive advantage of
the a2 Milk Company in the Australian market. As seen from the above analysis, the company
faces challenges from lower barriers to entry in the market, low switching cost, innovative
products by rivals, higher product cost, and consumer’s demand for highest quality product at a
relatively lower price. There are geographical barriers also as the company also operates in four
other countries apart from Australia.
To increase the market share and profitability, the a2 Milk Company should opt for the
differentiation leadership strategy under the generic strategies of Porter. Under this strategy, the
companies target larger market and aim to achieve the competitive advantage in the industry
through product differentiation (D. Banker, Mashruwala, & Tripathy, 2014). The a2 Milk

9STRATEGIC MANAGEMENT
Company already provides a differentiated product in the dairy industries across five countries,
that is, milk that contains only a2 protein, and this can be used as the leadership strategy for
increasing market share. The other strategies that should be followed by the company are:
 Innovative dairy products apart from the existing products
 Branding through promoting strong brand loyalty of the customers and increasing the
value proposition to the consumers
 Increasing the distribution and display shelves in the grocery and supermarkets across all
the geographic segments and creating a milk pool to keep the bargaining power of the
suppliers in control. The company has taken an initiative by going in a strategic
partnership with Fonterra, in New Zealand to create such a milk pool (Hargreaves, 2018).
 Consistent promotional activities, such as, advertising addressing to different needs and
preferences of the customers belonging to different geographic locations, sponsorships in
various events
 Keeping the premium price for all different types of products, giving the feel of high
quality product to the customers.
The aim of the company is to improve its strategic position in the market and increase its
profitability. Thus, it should focus on delivering a unique and innovative product at an average
market price and simultaneously creating brand awareness among the customers across all
segments.

10STRATEGIC MANAGEMENT
4.1 Five potential financial and non-financial measures and usefulness for success
evaluation
While implementing the differentiation leadership strategy, the a2 Milk Company should
adopt the following financial and non-financial measures to evaluate the success of the strategies.
 The a2 Milk Company should invest more capital for research and development of
innovative products as per the needs and preferences of the customers, apart from the
existing products. This would help them to implement the differentiation leadership
strategy in a more effective manner and reach to a wider customer base.
 It should attempt to increase the value proposition to the customers by promoting the
brand and the uniqueness of the products. Providing a2 milk is the unique selling point of
the company and they should highlight all the benefits of this protein through marketing.
 The milk company should increase the distribution channels across the nation as well as
in the other countries and this would increase the visibility and accessibility of the
product to the customers by increasing the display shelves in the supermarkets, grocery
and other convenience stores. This move will help to create a positioning in the minds of
the customers and influence their purchasing decision.
 It should conduct market survey from time to time to capture the customers’ preferences
and desires and this would help them to decide on the next strategy. This would also help
it to measure the success of the effectiveness of the different promotional activities,
implemented in different locations.
 The a2 milk company should continue to provide its principal component, that is, the a2
milk. Maintaining the premium price would give the consumers a feeling of highest
quality milk product and it also increases the customers’ faith on the product. This also

11STRATEGIC MANAGEMENT
helps to create a strategic positioning of the company. The annual sales and revenue
report would reflect the success of the measures undertaken by the firm.
Lastly, it can be suggested that, the annual sales report will reflect the revenue and profitability
of the a2 Milk Company after the measures have been implemented. Apart from that, the
company should conduct market surveys at a regular interval, bring more types of innovative
milks with a2 protein and increase the customer awareness through promotional activities,
highlighting the benefits of a2 protein and negatives of a1 protein. The company should also try
to expand its business internationally in the markets, other than, New Zealand, China, USA and
UK, through production as well as exports of existing and new products, such as, milk powder,
formula milk, yogurt, cheese, sour cream etc.
5.0 Conclusion
The a2 Milk Company has been experiencing growth in the recent past due to its unique
product offering to the markets in Australia, China, New Zealand, UK and USA. However, as the
market competition is high, the company should focus and invest in improving its strategic
positioning in the markets. From the Porter’s five force analysis, it is found that the company
faces some major challenges from low switching cost, higher bargaining power of the suppliers,
leading to a higher cost of products and availability of close substitutes. To improve its strategic
positioning in the market, the milk company should focus on investing on promotions
highlighting the nutritional value of the a2 protein to create brand as well as product awareness.
It should also focus on increasing its distribution channels and display options in the markets to
create more impact on the minds of the consumers. The milk has no perfect substitute in the

12STRATEGIC MANAGEMENT
market, which is beneficial for the company to implement the differential leadership strategy to
capture a bigger market.

13STRATEGIC MANAGEMENT
References
D. Banker, R., Mashruwala, R., & Tripathy, A. (2014). Does a differentiation strategy lead to
more sustainable financial performance than a cost leadership strategy?. Management
Decision, 52(5), 872-896.
E. Dobbs, M. (2014). Guidelines for applying Porter's five forces framework: a set of industry
analysis templates. Competitiveness Review, 24(1), 32-45.
Hargreaves, D. (2018). A2 Milk in 'strategic partnership' with Fonterra; Comprehensive deal
outlined - but no financial figures. Retrieved August 17, 2018, from
https://www.interest.co.nz/rural-news/92240/a2-milk-strategic-partnership-fonterra-
comprehensive-deal-outlined-no-financial
Jianqin, S., Leiming, X., Lu, X., Yelland, G. W., Ni, J., & Clarke, A. J. (2015). Effects of milk
containing only A2 beta casein versus milk containing both A1 and A2 beta casein
proteins on gastrointestinal physiology, symptoms of discomfort, and cognitive behavior
of people with self-reported intolerance to traditional cows’ milk. Nutrition
journal, 15(1), 35.
Pash, C. (2018). a2 Milk Company smashes its profit and its shares go nuts. Retrieved from
https://www.businessinsider.com.au/a2-milk-company-smashes-its-profit-and-its-shares-
go-nuts-2018-2
Thea2milkcompany.com. (2018). About us. Retrieved August 17, 2018, from
https://thea2milkcompany.com/about-us/

14STRATEGIC MANAGEMENT
Westbrook, T., & Greenfield, C. (2018). Competition heats up for controversial a2 Milk
Company. Retrieved August 17, 2018, from https://in.reuters.com/article/us-a2-milk-
company-strategy-analysis/competition-heats-up-for-controversial-a2-milk-company-
idINKCN1IH0T9
Wicker, P., Soebbing, B. P., Feiler, S., & Breuer, C. (2015). The effect of Porter’s generic
strategies on organisational problems of non-profit sports clubs. European Journal for
Sport and Society, 12(3), 281-307.