Nut Proposed Merger - Heinz and Beech

The process of merging companies is combining two or more separate corporations into one large one. This is typically a corporate strategy to accomplish specific operational goals dictated by market conditions, to utilize the strengths of the two organizations, to improve financial might through resource pooling, or to increase profitability. It is crucial to note that mergers are exceedingly complex and need a great deal of adjustment on the part of the parties concerned. One such endeavor is the proposed combination of Heinz and Beech-Nut by Heinz. The two companies are attempting to gain a competitive advantage by uniting to effectively compete with Gerber, a far larger participant in the infant food industry. To this end, this paper seeks to delve into analyzing the intricacies of the proposed merger to come up with various recommendations on how to achieve this effectively. It seeks to analyze the economic problem that is the merger, make bold proposals and solutions to these problems as well as explaining the impact of these proposed solutions. Finally, it also aims to promote the objectives and goals of the merged company in relation to the market structure of the acquiring company, Heinz.

Analysis of the economic problem

The most outstanding reasons underpinning the merger of Heinz and Beech-Nut merger is to increase efficiency, to enhance strategic positioning for effective competition for market share as well as improve general profitability. These crucial multipronged objectives can only be achieved commensurately as a result of efficiency in the merging process besides proper management of the various market forces. The main economic problem facing Heinz is effective and strategic merging process and mitigation of consequent market aspects for better efficiency, need for a competitive advantage and enhanced margins. As thus, there are recommendable steps and ideas that would considerably improve chances of success for the whole process if incorporated by various stakeholders.

Recommended Solutions

Value and quality variation

As evident in Heinz and Beech- Nut operational goals and market segment as well as their core products, the two companies have different approaches to positioning and leveraging for market share. Heinz positions its product as a quality, genuine, customer centered and innovative. Value and quality variation has enabled the company to package and present its products as a value brand, setting prices that are much lower than Gerber’s due to inherent brand recognition inadequacies (Compton, 2010). On the other hand, Beech-Nut is projected as a premium product and based upon the premise of uniqueness, top notch quality, and special status, maintaining price parity with Gerber.

From the quality and customer brand perception analysis, it is highly recommendable that merging the two companies leverages on price and quality variation of the two products to meet all brand niches. Such a milestone can be achieved by having different classes of products based on quality and novelty to have a range of prices that capture all consumer segments (Compton, 2010). Essentially, it can be best achieved through having Beech-Nut products priced higher as the best product to capture the premium consumer segment.

The other Heinz products can be classed as of economy and medium quality. A market research would also be appropriate in determining which product should take positions in various stores and supermarket depending on the economic ability and quality preferences among customers that frequent the specific stores. The approach is integral to increasing market share by targeting all the economic predispositions of the consumers. Since the merger would change the market structure into a duopoly, pitting the two dominant players against each other, merely having a quality product is not enough to compete. Having a range of prices would, therefore, leave the company with a sense of sensitivity and initiative to customer needs. Thus, it takes advantage of the duopoly to introduce variety and choice to consumers, giving it a competitive edge on pricing and preference.

Strategic positioning and wholesale Supply Harmonization

According to Compton (2010), fact that the two companies pay fixed trade spending to obtain shelf placement as well as variable trade spending that allows retailers to effect price differentials to entice customers; eats into their profit margins. However, although a merger would effectively remove the intra-competition between the two partners, this does not guarantee automatic shelf placement consumer preference.

Also as a direct consequence of the merger, the cost of marketing and other such operational payoffs is reduced significantly. The companies should leverage on the fact that most stores would stock at least one of their products alongside Gerber’s as added incentive to get the best value for money on payoffs. It is, therefore, recommendable that the company pursues an aggressive value for money in areas where it still has to make the payments for better visibility. In similar regard, the company should tie up any incentives to retailers with deals for better positioning and visibility.

The approach on strategic positioning has a possible risk factor in the sense that indefinite payments to retailers are not a sustainable business practice in a free economy (Tomaru, Nakamura & Saito, 2011). It is, therefore, important for the merging companies to change tact and employ marketing opportunities from the merger to research major determinants to customer preference while systematically initiating brand loyalty initiatives of their own. If done effectively, there should be plans to consistently limit such payments for better profit margins.

Particularly, this recommendation would particularly be ideal in the post -merger duopoly market structure that would consequently result. A duopoly increases the chances of visibility and shelf placement for the merged company, thereby reducing the urgency to make payments to supermarkets and retailers. This development can be used to create greater product impact in instances where the payments are made.

Effective Competition Management

The major purpose of the merger is to bring about a competitive advantage for the merging companies against the dominant Gerber Company. By extension, it is aimed at raising the standard for market entry by new competition through consolidation. As evidenced by the market statistic between the two companies in terms of niche, reach and penetration; areas that account for 80% of Beech-Nut sales, Heinz has a market share of about 2% and in areas that account for about 72% of Heinz sales, Beech Nut’s share is about 4%. This makes the merger a reasonable proposition as the two companies would largely complement and not replace each other (Arentz, 2011). However, it is highly advisable that the companies develop a joint approach to competition in other areas by packaging their products as complements and not substitutes for one another. This is achievable through timely, open and effective communication and deliberations to determine, understand and appreciate the economic strengths and weaknesses so as to develop an integrated all- encompassing plan for the merger for impact.

Competition with Gerber should also be managed to ensure relatively reasonable product pricing to keep off other competitors by suppressing the perception of a lucrative market sector, usually a problem in a duopoly. Should the prices be too supra-competitive, new entrants are likely to target the sector, putting into jeopardy the core essence of the merger which would be counterproductive for the merger. This would be a major cause for concern, especially in an extremely saturated market like the baby food sector.

If effective competition management is done by the two companies, they stand to consolidate and enhance their market standing with reduced competition through benefiting from a duopoly that is bound to result. Effective intra-competition management gives impetus to the two brands to harmonize their operations and supplies to enhance each other for greater efficiency by allowing each to pull on its competitive advantages to enhance the other to increasing market penetration in their dominant areas. The companies are also able to stifle and overcome new competition in the tight market.

Finally, there is an advantage in the approach as it stands to intervene against the pricing conflict between the merging partners that price against each other to their own disadvantage (Arentz, 2011). It is thus advisable that the companies’ price in consultation give them the best-combined consumer appeal and market advantage over Gerber.

Strategic and Far Reaching Innovation in Product Quality and Supply Dynamics

It is worth noting that the merger would likely bring about situational conditions that spur innovation and inventiveness for the merging companies (Doppelt, 2013). To begin with, it is totally imperative that the companies put in place ingenious measures to exponentially improve the currently existing products by strategically incorporating production formulas. Enhanced quality as a result of the merger on existing products is necessary for setting the Heinz on course for effective competition with advanced quality products.

In addition, the merging of the two companies should herald a new convergence of opportunities that the company should heavily invest into research new products that would complement and base on the new business model and production alterations for maximum profit (Arentz, 2011). Injection of innovation and smart solutions into the company is likely to boost creativity hence brand appreciation and preference as new ways of production as well as the introduction of new products.

Consequently, this new approach would have a positive impact on the All Commodity Volume (ACV) to ease entry of new products by the company into the market. Innovation portends another new potential for the company to introduce new products into the market without necessarily achieving a 70% ACV in advance (Doppelt, 2013). This is because a merger would enable the company to combine procedures and processes in production, thereby producing new products using new ways that can penetrate the market saturation on basis of their uniqueness and novelty. As such, the merged company would avoid competition by creating products, not in the market or enhance existing ones to have unique advantages for better customer reception and satisfaction. This is a route to market share entrenchment as well customer loyalty.

Furthermore, it is recommendable to introduce innovation into the supply structure of the company upon merging. A company should retain the areas where it is dominant while using the supply chain there to support products of another. It is recommended the company aggressively reorganizes to introduce technology into its supply operations to enhance efficiency, complementary usage, demand dynamics, and research. Not only is this a move to enhance revenue streams by lowering overheads but also a strategic approach to positioning and availing products where they are needed most.

With innovation, especially technology, the merged company is able to monitor and evaluate market forces in advance and make the necessary planning and readjustments (Doppelt, 2013). With such planning and foresight, the company is able to remain relevant, responsive to market changes and adaptable to compete favorably.

Sensitivity to Market Forces and Anti-Trust Policies

Fair competition regulations are the biggest threat to a merger, not least because market regulation authorities could view it as anti-competition and hold it upon legal grounds. Even worse is the fact that a duopoly that results from the merger is likely to increases impetus for oversight by authorities (Weiss, 2014). It must, therefore, be recommended that special care is taken when managing the merger so as not to breach such regulations while avoiding the negative impacts of cartel-like collusion to fix prices resulting from a saturated market and barriers to new entry.

Efforts must also be put in place to limit inadvertent consensus to hike prices. This is achievable by setting up an internal panel of experts consisting legal experts, economists and managers to foresee and divert from such eventualities. The panel would be tasked with developing a framework to uphold ethical and legal standards as it may sometimes be hard to distinguish between taking advantage of the system for profit and innocent prudent business moves to increase profit margins.

Recommendation: Trends and Impacts

Value and quality variation

There is need to have a variation in terms of value as well as classes based on quality. This is because the initial oligopoly provided a sense of variety available to the consumers. However, with a merger, the initial sense of variety is limited, creating a constriction on available brands for buyers. By having a range of classes on what is available; Heinz makes a significant contribution to give choice to consumers on basis of their purchasing power. This recommendation takes advantage of the limited choices in the post -merger duopoly to give more options and flexibility to consumers both in terms of quality as well as pricing.

The impact of such a strategic approach is likely to be more consumer openness to Heinz’s products as they offer more convenience and freedom of choice to the consumer. This approach is crucial for the company to exercise targeted sales in stores depending on the financial predisposition of the customers that frequent the store.

Strategic Positioning and Wholesale Supply Harmonization

Due to reduced competition resulting from the merger, it is imperative that Heinz takes advantage of any form of payments to stores and retailers to maximize brand positioning and visibility for better sales (Greve & Zhang, 2016). The impact created by this recommendation is that the supply initiatives and product availability are ensured in stores and supermarkets. The other result is cutting off payments where none is needed for product shelf placement.

Subsequently, the company saves money for other operational undertakings. The duopolistic market structure makes this recommendation valuable as competition is eliminated by merging the two companies, making smart and strategic use of incentives to create brand loyalty as opposed to merely seeking to stock products in competition for sales.

Effective Competition Management

Competition management is an important recommendation that underpins the merger. By effectively managing competition between the merging companies, they are able to work complementarily and not as a replacement for the other. Managing competition is also key in a duopoly that results especially in terms of product pricing. By managing and keeping prices reasonable, the company is able to keep away new entry and competitors in the already saturated market, allowing it to fully reap the benefits of the merger by eliminating the perception of profitability that could attract new players into the sector. If effected properly, managing competition can buy time for the company to adjust and realign its operations after the merger and balance for better efficiency. The result of such a move is likely to be adequate time to make the adjustments with minimal interruption and competition (Doppelt, 2013). Competition management is also important by eliminating unhealthy competition between the merging partners that could result in them pricing against each other or duplicating into each other’s territories and lowering efficiency.

If this recommendation is rejected, the merger is undermined to a large extent due to the duopolistic market structure that could result into the dominant brands resorting to supra-competitive pricing. This largely opens an already saturated sector to new competition to the detriment of the merger. Failing to effectively manage the deep-seated competition between the two companies would leave the merger with major inefficiencies and inability by management to leverage on the many opportunities that would otherwise result from consolidation.

Strategic and Far Reaching Innovation in Product Quality and Supply Dynamics

It is strongly recommended for the company to invest heavily in innovation, research, and creativity regarding its production as well as supply mechanism. The impact of this in the resultant duopoly is extremely crucial for the company to compete and remain relevant in a rapidly changing world. Through innovation, the company is able to strategize to take on Gerber as well as develop new products for the market.

With technology, the company has a tool to systematically reinvent itself and its operations in a way that saves costs, is responsible and sustainable, infinitely raising the profile and standing of the company and its products. With a good reputation and efficiency, the company is able to make significant strategic moves for future sustainability and is best placed to achieve and reap the goals and expectations of the merger.

Sensitivity to Market Forces and Anti-Trust Policies

The recommendation to keenly observe the legal and ethical considerations in market competition is important as it lays ground upon which the merger process is done. Also important to note is the fact that adherence to the anti-trust policies by principally forms the legal framework upon which the merger is legally binding. Also of note is that sensitivity to market forces and reasonable fair pricing are valuable for the social perception of the company among the public.

Furthermore, price manipulation and collusion in the sector in light of the duopoly in the market structure could attract hefty penalties, restrictions and legal challenges and must, therefore, be observed carefully. Therefore, an assorted team of experts is highly recommended to oversee every step of the merger and later operations to avoid the negative pitfalls that could come as a result.

Conclusion: Goals and Implications

Value and Quality Variation

The recommendation to introduce variety and choice in Heinz’s products and prices is an integral aspect of introducing options into the market. By taking care of different segments of the consumer base, the company is able to increase customer preference and satisfaction by providing a product that is flexible to the consumer financial predispositions. This serves the company’s goal of increasing product visibility and accessibility as well as increasing market share. If this is not done, the company risks losing out to competition by primarily having a narrow range of products in a market with a rival dominant player. Limited choice and price rigidity would seriously undermine the merger’s potential to benefit from improved penetration through variety in pricing.

Strategic Positioning and Wholesale Supply Harmonization

The recommendation to enhance strategic positioning and supply chain harmonization is very important in promoting goals and objectives of the company. With strategic positioning, the company stands to gain by increasing efficiency in operations while using the payoffs to a much greater impact on increased visibility and better positioning of company products (Greve & Zhang, 2016). In this sense, the company uses these payoffs not just as a competitive advantage tool but also to spearhead the objective of enhanced customer satisfaction and product penetration. Moreover, harmonization in supply would definitely improve efficiency by limiting product duplication and undercutting each other’s markets. As thus, the original objective to merge so as to create a synchronized supply chain for the two companies is best achieved in this way. Inaction would be costly for the company as it would lose profit margins through inconsequential heavy payments. In addition, the company would not get good value for money if the resultant opportunities from a merger are not used to project the brand into the mainstream of brand preference and loyalty.

Effective Competition Management

Competition management is an important recommendation in the merger process of the company as it ensures a complementary operational relationship between the two companies for the betterment of both. In addition, the proposition ensures that the market is relatively stable by keeping off new competition from new entries in the sector through keeping prices reasonably in tandem with market forces, allaying perceptions of profitability in the sector. In keeping competition, the company would get adequate time and reduced competition to readjust to the market after the merger.

Strategic and Far Reaching Innovation in Product Quality and Supply Dynamics

Innovation in the product and supply chain are important considerations that fall right within the company goals and objectives to be a leader in the baby food sector as well as stand out as a responsive, ethical and smart business. This is not only important in reducing the cost of doing business but also raises efficiency levels in production and supply. With innovation in supply, the company would rely on market research and demand analysis to determine where the products are most needed (Rybnicek & Wright, 2014). These are crucial elements in achieving the long-term goal of market dominance, product diversification, and efficient business practices.

Ignoring this recommendation would seriously hurt the chances of the company to achieve efficiency, competitive edge and properly plan for operations. Additionally, product quality is adversely affected and overall company performance is hampered due to lack of any meaningful improvement. Lack of innovation into the products negates the essence for the merger as virtually the same products face the same competition and market saturation. Without research and innovation into the supply chain, there is the real risk of duplication and products undercutting each other on retail. Inadequate innovative approaches in supply also limit the reach and penetration of products into the markets where they are is demand and undermines joint marketing of products. Besides, it lowers product ACV and hinders entry of new products into the market first due to lack of innovation as well as due to inefficient supply. Finally, the without innovation, the company loses out on a potentially powerful leverage to stand out as a progressive, mindful, innovative and responsible company given the multiple benefits that innovation produces.

Sensitivity to Market Forces and Anti-Trust Policies

The recommendation on sensitivity to market forces is in itself crucial for the success of the merger process. Sensitivity to market forces and strict adherence to antitrust policies is integral in obtaining legal recognition for the merger. It also helps to keep the business from punitive legal actions that could be costly. Besides, the company would enjoy extremely favorable public perception which is needed to drive sales as well as revenue for the company while maintaining a positive profile for the company among the public.

The original companies that are party to the merger have relatively good reputations among the public and it would be of great benefit to the merged company if this even got better to enhance the company products post-merger. If used strategically, a good reputation is a potentially powerful marketing tool that can be used to great effect and profitability.

It is specifically costly to fail to adhere to such ethical and legal aspects of the business in three particular ways. First, the legal consequences of such a malpractice could be financially costly in terms of fines, compensations, and restrictions that come with flaunting such rules. In extreme cases, the malpractice could easily torpedo the merger on legal grounds and as such must be given special attention (Greve & Zhang, 2016).

Secondly, the reputation of a company that fixes prices for profit would be completely tainted. In the current sentimental markets, such a misfortune would undermine the standing of such a company in society, negatively affecting its stock demand, create a social resistance to the brand. Moreover, the company products may take a hit with respect to lowered customer preference. Finally, fixing prices creates a perception of profitability in the sector which could create massive new entries to the detriment of Heinz and its goals to expand market quota. At this point, the essence for the merger is seriously jeopardized and the newly merged company could face hard economic time of uncertainty that could be costly if it hasn’t had enough time to readjust after the merger.

Conclusion

The research was primarily aimed at assessing the intricate issues regarding the merger to analyze the organizational and economic situations to determine their interrelations and how such relations would impact the merger. Thorough analysis indicate that the companies to be merged, Heinz and Beech-Nut have shortfalls in market share niche, experience fierce competition among themselves, have tentative operational inefficiencies such as product quality and supply chains among other problems that give a strong argument to the need for a merger. To mitigate these challenges, the research came up with various recommendations and proposals to counter these problems (Rybnicek & Wright, 2014). First, the research recognized that in light of the duopolistic market structure that results from the merger, there is need to inject flexibility of choice and quality options for the consumers. This would help the company entrench its reach by providing alternatives to the various customer needs. Without such a strategy, the company loses a crucial competitive advantage that would hurt its aspirations for greater market share.

Secondly, the research recommended that Strategic positioning and wholesale supply harmonization is needed to help save money that the company spends on pay-offs especially with reduced competition post- merger. Moreover, the company stands to get the best possible deal for any such payoffs in the form of better positioning and visibility to consumers, increasing the potential for revenue generation. With harmonization of the supply chain, the companies would get to enjoy the full benefits of the merger through an intergrade complementary product supply mechanism. This is likely to result in boosted efficiency that could lower overheads and overall cost of doing business while strategically ensuring product availability where there is demand and limiting competition for shelf placing between the two companies.

Another proposal is for the company to manage competition more effectively both between the merging partners and the rival Gerber. By managing competition among themselves, the two companies can promptly leverage their combined power to challenge Gerber. Without synchrony in handling intra-competition, the merger would lose the intended purpose for the merger while the company loses out on tapping the full potential of combined resources and expertise to better compete. Furthermore, product pricing should be done in consideration of the prevailing market conditions without taking advantage of the duopoly that arises to resort to supra-competitive pricing. If not taken seriously, very competitive prices would keep herald new entries into the sector, increasing competition for market share.

Strategic and far-reaching innovation in product quality and supply dynamics is another quality recommendation that the company should seriously consider as it moves into a merger. Through constant innovation and standard improvement, the partners are able to keep on top of the game and adopt flexibility with changing times. The result of this would be improved product quality, new and cheaper ways to do business and responsible and responsive operations. Also, innovation would allow for research into efficient supply methods and demand analysis to give the company a head start when designing policies and investment into new products. Without the internal drive to explore innovative solutions, the company is at a disadvantage of facing risks of lagging behind in new trends and operating efficiently. This would also put into question the quality of products a result of stagnation and rigidity in methods as well as hindering successful introduction of new products into the market.

In today’s extremely regulated markets, a recommendation to counter disruptions post -merger proposes keen sensitivity to market forces and anti-trust policies. The duopoly that results from the merger calls for a tricky balance and respect to market forces. This is because the lack of competition could lead to inadvertent collaboration to fix product prices. This has serious legal and ethical repercussions that could threaten the merger. It could also hurt the reputation of the company as an unethical enterprise that could dampen consumer confidence and perception. This single recommendation is the framework that could guarantee a smooth merger and create a stable and positive environment afterward on which to consolidate and maximize the benefits of the merger.

References

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