All organisations face an external business environment that constantly changes. Sometimes these changes are slight eg minor amendments to regulations or a new firm entering the market as a ‘small player’. At other times, however, changes in the environment may have important consequences for an organisation eg new technologies, changing consumer tastes or a merger between two large competitors.
Changes in the business environment create both opportunities and threats to an organisation’s strategic development, and the organisation cannot risk remaining static. It must monitor its environment continually in order to:
- build the business
- develop strategic capabilities that move the organisation forward
- improve the ways in which it creates products and develops new and existing markets with a view to offering its customers better service.
Amway is an interesting example of a company that reviews its strategic capabilities and uses this review to develop its products and markets. More than 450 products carry the Amway name in the areas of nutrition, health, beauty and home. Amway also has a range of products that include other well known branded goods. The company also offers a variety of third party services.
Amway is different from the more traditional distribution channels in that the business has developed through direct selling. Amway has over three million Independent Business Owners (IBOs) worldwide.
IBOs deal directly with Clients, build up personal relationships and deliver direct to Clients’ homes. IBOs are highly motivated, selling to people they know or meet. The personal contact and care that they provide are important elements in direct selling. IBOs are self-employed and can introduce others to the business, and so forming their own sales network.
This case study illustrates how Amway, after analysing its business operations and performance, moved its business forward by choosing an appropriate marketing strategy.
It demonstrates the connection between Amway’s own strategies and the defining matrix of strategies developed by Ansoff in his article ‘Strategies for Diversification’ published by the Harvard Business Review in 1957.
Strategic analysis
The process of strategic analysis helps an organisation to understand more about its strategic position and to construct answers to questions such as:
- What is happening to our business environment?
- What do we need to know about our markets and customers?
- What new options should we consider?
- How can we develop our competencies to meet all of the changes in the business environment?
By asking these questions of itself, a business looks to match its own objectives for growth and development with the reality of the business environment. Businesses need to be realistic. They must base decisions not upon wishful thinking or blind optimism but upon close and careful analysis of products and markets.
Amway was founded in the USA in 1959. Today it is a global business that, along with its parent and sister companies, directly employs 10,000 people worldwide. The business also operates strategically at a Global, European and National level. Amway (UK) began operations in 1973 and has its own distribution and Product Selection Centres.
Amway makes good use of market research. This has helped Amway to anticipate developments within markets and to introduce new ideas that exploit opportunities and reduce any associated problems to a minimum.
Competition analysis is a key factor in market research. It helps Amway to identify the nature and extent of competition at a number of levels. For example, it helps marketers within Amway to find out how well products are meeting consumer needs and what aspects of competitors’ brands appeal to consumers.
Amway has helped millions of people around the world to start their own independent business, through which they engage in person-to-person marketing. This type of direct selling involves matching a consumer’s needs with the goods and services on offer. The better the match, the more lasting the relationship between the seller and the buyer.
Direct selling, therefore, is a boundary role: it is at the boundary of a supplying organisation that is also in close and direct contact with customers. Feedback from IBOs about products and services, as well as feedback from an IBOs own Clients, is an important contributor to marketing analysis.
Within Amway, regular internal meetings provide an opportunity for the company to discuss and evaluate its performance. Gap analysis helps this planning process by comparing forecast performance with achieved figures. The ‘gap’ is the difference between the two, as the diagram below illustrates. Of course, this ‘gap’ may be either positive or negative.
Whilst it is vital to seek to establish the reasons for ‘worse than expected performance’ it is also instructive for a company to analyse why its performance has been better than expected, as there could be lessons to learn from that too.
Ansoff´s product/market matrix
Ansoff’s product/market matrix is an accepted way of identifying and categorising market and product developments and opportunities. Amway makes good use of the technique.
The matrix identifies various strategies open to organisations and splits them into four categories. For example, when selling existing products to existing markets, organisations can look to improve their penetration of that market, and so gain a larger market share.
Where a company introduces new products into its existing markets, this may give it competitive advantage over its rivals through product improvement.
Market development involves taking existing products into completely new markets eg finding new markets overseas. Better customer targeting, further research and market segmentation often help firms to identify these new markets.
Diversification, on the other hand, involves moving into new products and new markets at the same time. This may involve a complete shift away from core activities into some other form of related activity. It represents a step into less familiar, perhaps even unfamiliar territory.
Market penetration
Going for market penetration has involved Amway in making the most of current products and competencies by ‘stretching’ them to improve Amway’s competitive position within existing markets.
One great benefit of direct selling is that it is an immediate channel to the marketplace that offers customers a good service, while at the same time providing business opportunities for individuals.
Special incentives enable IBOs and end consumers to take advantage of particular offers at certain times of the year and these incentives have also helped to increase market penetration. There are also special events such as Leadership Training Seminars. These enable IBOs to spend time with others involved in the business and to learn about ‘best practices’ from each other, whilst also sharing ideas.
Product development
Product development is a particularly appropriate strategy where an organisation is strong in research and development. Product development is highly important for products that have comparatively short life cycles.
Within Amway, there are approximately 500 active research and development projects in progress at any one time. With around 575 staff involved in research processes, and with strong links to many universities, Amway formulates, designs and develops new products to meet customer needs and expectations within the global marketplace.
For example, based on a Euromonitor study of 1998 estimated global retail sales data, ‘Artistry is among the world’s top five largest selling prestige brands of facial skin care and colour cosmetics. Others in this distinguished group include Clinique, LancÂme, Estee Lauder and Sofina’.
Amway currently holds more than 380 patents internationally and has approximately 430 patents pending. Within its product development programme, Amway’s technical teams use the company’s customer base to monitor and test new product ideas.
Market development
Market development involves taking existing products into completely new markets. One method used by Amway involves expanding the ways in which individuals can be involved with the Amway business.
Amway has developed a structure known as the IMC model. This increases the number of ways through which people can become involved in the Amway business.
Each of the letters IMC stands for a different type of involvement.
- I – Independent Business Owners (IBOs)
- M – Members
- C – Clients (customers) of the IBOs.
Members are allowed to purchase Amway products at a price equivalent to that paid by IBOs but do not participate in the Amway Sales and Marketing Plan. They are a new type of ‘customer’ who deals directly with Amway.
Diversification
Ansoff pointed out that a diversification strategy stands apart from the other three strategies. The first three strategies are usually pursued with the same technical, financial, and merchandising resources used for the original product line.
Diversification, however, usually requires a company to acquire new skills, new techniques and new facilities. This implies significant investment.
One way in which Amway has diversified its activities is by creating an online business opportunity called ‘AMIVO’ to support and enhance its traditional business. This makes use of the internet. The internet is a good example of a structure that no one firm has had to pay to construct, but which is available to all firms now that it has been constructed. The challenge to each business is to identify how to use the internet in ways that are advantageous to it and also profitable.
Amway has succeeded in doing just that. The European platform of AMIVO was first launched within the UK to provide a one-stop office for IBOs. IBOs can use AMIVO for:
- a means for Amway to communicate with IBOs quickly
- ordering products from their home 24 hours a day, 7 days a week
- a communication tool to promote their business
- keeping track of their business status
- a reference resource
- a medium to recognise IBO business achievement.
Conclusion
In today’s highly competitive environment, an organisation has to develop a business strategy that provides a strategic fit between its resources and the changing business environment.
This case study illustrates how Amway has continued to develop by using a range of strategies based on Ansoff’s product/market matrix. These strategies have enabled Amway to build its business by continuing to broaden its customer base and enhance the service it offers to Independent Business Owners, Members and Clients.