1.

Background situation
1.1. Current performance
At the moment the company Simeks is one of the largest companies on the Latvian market. The companys annual turnover is increasing steadily and it is expanding its field of business. Simeks tries to stabilize its incomes by searching and investing money into new prospective projects. About 90% of the companys annual turnover refers to the sales department and it is not a piece of news that any sales tend to fluctuate (there is a large number of reasons for that), that is why the company endows part of its funds into less profitable and booming, but more stable business (e.g. real estate). Currently all of the products of Simeks are put into the environment of intensive competition. The company does not have enough funds for large advertising campaigns in the mass media, but it uses less costly methods of promoting its products (e.g. posters, logos on vehicles, shelf positioning etc.). Simeks uses the strategy of promoting its brand names of the products rather the companys name. There are many reasons for that, especially on young and unstable Latvian market (e.g. if one of the products turns out to be a failure, the companys image will not suffer so much). When taking a look into the companys business portfolio and its changes over the past 5 years, it is clearly visible, that the company is very flexible and responsive to the micro- and macroenvironmental changes. Basing on said above, the companys financial position, its strategies, policies, structure, business portfolio, history and current performance, we drew a generalized conclusion that the company is healthy, has many prospective projects and will expand in the nearest foreseeable future.

1.2. Background analysis

1.2.1. Micro-environmental changes
The company Simeks was founded in the year 1989 as a small retailer company. In the years 1993-94 the company was involved in petrol business. Later on, in the year 1995 total changes in the companys structure took place and it was transformed into PLC Simeks and the firm became an active member of Latvian wholesale market. In the years 1996-97 the company began re-exporting consumer goods into Russia and other countries of the CIS. This diverse history of business let the company gain enough funds and the members of the managerial department- enough experience to get involved into production business.

Presently, the company is one of the largest players on Latvian wholesale market. On the other hand, the company still stays involved in the import-export business of consumer goods. The company has a very wide set of spheres of business: 1. Beer brewery Alus Avots, which has the 6th place in the market share of Latvian beer market 2. Coffee manufacturing plant Jaunsili. In the year 1996 the company invested 2 million US dollars into constructing and equipping the plant, which is located near Kekava. At the moment, the plant is one of the largest, well equipped and modern in Latvia. According to some recent data, the brand Black Coffee holds from 8 to 10 per cent of Latvian coffee market. 3. Trade hall Agenskalns, which is situated in Riga. The company lets the building to be rented to shops, which offers a wide extend of products, beginning from FMCD to furniture and various technical appliances. 4. Yacht club in Jurmala, which is situated on the coast of river Lielupe and offers a wide range of services for owners of the vessels. 5. The company successfully works with importing and distribution of FMCG, prevailingly food products. The most common scheme presumes importing the goods of higher quality from western countries and distributing them on the local market to more than over 2 thousand clients, including large networks of supermarkets, wholesalers, petrol stations and smaller shops. The company has a very diverse area of business, thus making the firms activities safer and its position on the market more stable- in case it faces a failure in one of the spheres, the company will experience a smaller affect on its overall profits. On the other hand, the companys present aim is to increase the sales by satisfying the larger amount of potential clients, broaden the product range and introduce new improvements to the production process (esp. referring the coffee production). In the same time, the company is searching for new perspectives on the Latvian market.

1.2.2. Macro-environmental changes

Usually when macro- economical analysis is needed, the STEP (also known as PEST) way of analyzing gathered data is chosen. The analysis takes into consideration four main macroenvironmental issues- sociocultural, technological, economic (competitive) and political (legal):

Sociocultural:
Demographics Culture Attitudes Current issues

Technological:
Products Materials and components Processes Distribution

SIMEKS
Economic:
Market structure Money value Inflation Taxation Interest rates

Political:
National government Regulatory bodies The EU Limitations on import Picture 1.1- components of STEP analysis

When applying the STEP analysis to the predefined company, the most important and beneficial fields of business of the company were scrutinized in a detailed way. 1.2.2.1. Political (legal) Among the most notable political/legal factors the following ones appeared to be reasonable mention: 1. Basing on the fact that the importing and distributing of food products brings about 40% to the annual budget of the company any limitations on import of the products, as well as on importing ingredients (e.g. coffee beans) could drastically affect the companys position. 2. Any restrictions on using imported goods (such as The law on sugar, which makes Latvian producers purchase sugar from the local producers or other similar laws) can lead to shutting down a particular branch of business of the company.

3. Stability in the foreign affairs of the state plays an important role as well, as the company actively works on import/export markets. This particularly concerns Latvias attitudes with the Russian Federation and other members of the CIS, especially taking into consideration the present situation of national minorities in Latvia and the governments policies towards the veterans of WWII. 4. The restriction on selling alcohol after 10 pm (does not affect beer with percentage of alcohol not more than 4.5 per cent) made more people turn to beer, because they are unable to buy other beverages at night. 5. Changes in taxation on imported goods will have evident consequences, despite there has been no such case in companys business history. 6. Latvias membership in the European Union presumes all the production to commensurate the European quality standards. Fortunately, the company has got numerous international quality certificates (e.g. Black Coffee (Melna Kafija) has established its work on the establishment of quality management system according to ISO 9001 requirements and HACCP (Hazard Analysis and Critical Control Point)). The other important fact is that the European Commission can work out and implement new regulations and standards, which will be too difficult for the company to comply with. 1.2.2.2. Economic Inflation and changes in the value of dollar and euro have a strong influence on the companys activities. As it has been mentioned previously, the companys business portfolio includes import/export operations and the company has to deal with foreign partners and suppliers, paying to them in foreign currency. Thus, the company is interested in lower value of dollar and euro, as they are prevailing in the money transfers. The same time the higher the value of Latvian currency lat is, the better more profit the company gets from sales on the local market in comparison with the value of foreign currency. 1. On the figure 1.2 it can be seen that the value of US dollar has fallen dramatically and the fact that about 90% of raw materials are being purchased for USD had a positive effect on the companys purchase costs. 2. The rise of the course of euro has, on the contrary, led to negative consequences. The products, which are being distributed by the company, are being paid for in euro, thus the higher value of euro has led to decrease in profits from sales of the products and the company had to give up distributing the products (particularly Gallina Blanca and Wissol).

0.66

Figure 1.2 - Changes of values of euro and US dollar in lats

1.2.2.3. Sociocultural

When scrutinizing sociocultural aspects of companys position and influence on the company, the following facts were considered to be vital to be looked into: 1. The welfare of Latvian citizens is increasing steadily (and further increase is predicted, esp. when Latvia becomes member of the EU), that means a more dense consumption of higher-quality, but more expensive products and services. 2. Latvian market is flooded with foreign products, and consumers more and more often prefer locally produced goods to imported ones. Retailers appreciate local products and conduct various actions in their support, thus attracting more customers to their shops and more potential consumers of the companys products (e.g. the recent advertisement of RIMI informing that they have the largest number of Latvian-made products). This affects the companys profits in 2 contradictory ways. Firstly, more people turn to the companys coffee and beer, which are produced in Latvia. Secondly, the tendency decreases incomes from sales of imported products.

0.64

0.62
5

1.2.2.4. Technological Technological advantage of a company usually means differential advantage of the companys products. This statement is particularly applicable nowadays, when people become more and more demanding, computerized facilities and extremely expensive equipment is used in production processes. There are two sources of technological advance- external sources and market-driven sources. The first approach means gathering information about recent innovations and inventions often in spheres, which are different from the one the firm works in, and trying to apply the inventions in the production process. This scheme is very costly for the company, especially taking into consideration the low possibility of gaining useful results. The second approach is more practical, that is why it is used in most of the companies. It presumes having an in-house research and development department, or contracting specialist agencies. 1. Simeks exploits the second approach by contracting with other firms (e.g. Italian company Brambati, German Robert Bosch) in the sphere of improving the flavor and blending out new flavours. 2. At the moment the company is searching for new possible innovations and new-to-themarket products to be imported and, probably, produced. 3. The companys policy presumes investing in buying new devices, which could lower the costs of production, contribute to increasing quality. 4. The company has reached its technological limits in production of Bear Beer, and cannot increase the quantity produced. That means that if demand on beer increases (and it does increase), the company will not be able to satisfy the customers needs and will lose a part of its customers, because the competitors will be able to offer their product instead.

1.3. SWOT analysis

The commonest mechanism for structuring information and data to provide critical analysis is the SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats). This analysis consists of 2 major categories: strengths/weaknesses, which tends to focus on the present and past, and on intentionally controlled factors- 4Ps, overall marketing package etc. and opportunities/threats, which is mostly focused on the present and the future, taking a more outward-looking, strategic view of likely developments and options. As it has been mentioned earlier, the company Simeks deals in different fields, thus it is apparent that an independent research for each of the products is needed. 1.3.1. SWOT analysis of products of Alus Avots brewery In the table 1.3 you can see SWOT analysis of products of the brewery Alus Avots. In spite of the good quality of the product, and its reasonable price, the market share is falling dramatically.

This tendency could be caused by several reasons. One of the most important points is that the product is put into the environment of tense competition. Secondly, the brewery lost part of its clients because it could not satisfy the increasing needs of customers due to some technological aspects. Thirdly, the company did not put money into advertising, when other producers (Aldaris, Cesu) made large advertising campaigns. Strengths The products have a relatively good quality in comparison with other local manufacturers products. The company has a rich experience in beer producing. Weaknesses Local producers have a good quality as well and, furthermore, the number of competitors is rising. Many consumers prefer well-known brand marks of imported or locally-produced beer. Theres a tense competition on the market (eg Aldaris has 44% of the market share in 2003) The beer is produced only in large PET bottles, thus the company loses its niche of can and glassbottle market. The market share is decreasing drastically- 8.8% in 2001, 5.76% in 2002 and 2.4% by the end of 2003.

Opportunities The demand for beer is growing on the market.

Threats Therere dense advertising campaigns and activities of other companies. The products of Alus avots have almost the similar price as products of other beer manufacturers. The market share has been falling and is due to fall, if the company does not take action immediately.
Table 1.3

1.3.2. SWOT analysis of Black Coffee (Melna Kafija) From the table 1.4 you can see that position of Melna Kafija is quite stable and is improving. Unfortunately the dominant products on the market are imported well-known brands of coffee (e.g. Merrield, Jakobs), which are supported by broad advertising campaigns in all kinds of mass media throughout the region. The company does not have such large funds for advertising (esp. for TV and radio advertising), but still several kinds of media are being used (e.g. posters). The product has high quality (unfortunately quality is not the decisive factor among consumers when choosing which coffee to buy) and average price (almost the same as the competitors have).

Strengths The image of the product is improving. Wide assortment of products contributes to the companys stable position. The company has a good experience production of coffee. The market share of the product is increasing (from 5.12% in 2000 to 12% in 2002). The product has good quality. Opportunities The quantity of coffee consumed in Latvia is large. Increasing campaigns of support of local producers will affect positively on the product.

Weaknesses Local producers have a good quality as well and, furthermore, the number of competitors is rising. Many consumers prefer well-known advertised brand marks of imported coffee. There are not enough advertising campaigns even to inform customers of the product.

Threats The slow growth of market prevents from finding new niches. Large number of strong competitors. If price of coffee increases, substitutes can be found. Dense competitors advertising campaigns.
Table 1.4

1.3.3. SWOT analysis of Zott The table 1.5 shows, that the share of Zott products on the market is decreasing and it could turn a milk-cow into a dog, that would mean shutting the branch down. Such situation is caused by coming of strong competitors to the market (particularly Danon) and increase of the value of euro in relation to the course of lat (the product is being purchased in euro and sold in lats), which caused rise of price of the product, whilst prices of competitors products did not rise noticeably. The same time not much of marketing support is being provided on behalf of the producer, when competitors invest in large advertising campaigns and use sales promotion techniques to attract customers. Strengths High quality. Good image of the product. Wide product assortment. Opportunities The quantity of yoghurt consumed in Latvia is large. Advertisements of competitors about healthiness of yoghurts contribute to sales of Zott as well. Weaknesses Lack of advertising. Small market share. The quantity sold is decreasing. Threats The market growth is barely noticeable. Large number of well-advertised competitors on the market.

Products of competitors are cheaper and there is a tendency of the growth of price of Zott.
Table 1.5

1.3.4. SWOT analysis of products of Adugs Basing on the table 1.6 a conclusion, that the products of Adugs have good potential on the local market. The price of products is much lower, than price of products of competitors (e.g. JSC Staburadze) and the quality of the products is evaluated as high. One of the major drawbacks is the lack of advertising support for the products. Strengths Wide product assortment. Developed system of distribution. High quality, improvements are expected. The prices are lower than competitors have. Opportunities Large local market. Weaknesses Lack of advertising support. Small market share.

Threats The market growth is very small. Large number of competitors. Large number of substitutes.
Table 1.6

1.3.5. SWOT analysis of Romulo Romulo is an olive oil of premium quality, which is being imported from Spain. High price of olive oil makes many possible customers switch from olive to sunflower oil. The same time a large number of competitors on the market makes this small market a battlefield. The table number 1.7 displays a more detailed situation with the product. Strengths Well-known brand. Premium quality. Good support from the producer. Opportunities The price is substantially lower than the price of competitors. Weaknesses Lack of advertising support. Small market share.

Threats The overall quantity sold is small. Strong competitors on the market. Sunflower oil as a substitute.
Table 1.7

2. Marketing Objectives
2.1. Marketing goals
The main marketing goal of Simeks is improving its competitiveness on the local market, consolidating position of its products and increasing sales. The main stress is put on Latvian as well as on export markets. To do so, the company has created a range of long-term and short-term marketing goals: 1. Increase the market share. This objective refers to both short- and log-term planning. Annual increase of market share is a common objective for every company, but in the case of Simeks market share is vital, especially concerning the brewery Alus avots, where the market share has fallen almost 4 times over the past 3 years. 2. Improve the companys image. The companys image has been improving recently, but still this point stays one of the main goals of the company, because it influences the companys success not only in business-toconsumer (B2C), but also in business-to-business (B2B). Generally, good image of a company encourages not only retailers to purchase goods from the company, but, mostly, consumers buy products, which are produced by the company they do trust. This point particularly refers Melna Kafija. 3. Improve clients service. In spite of the fact that the company deals prevailingly with tangible products the level of service was also put forward as an important option among the companys marketing objectives. 4. Reach a more secure and stable position on the market. Trade department of Simeks brings about 90% of the companys total profits. As the sales are often unstable, it was decided to take course to even the fluctuating sales. 5. Decrease the costs of production to increase the competitiveness of the products. It was agreed, that the price costs are too high to contribute to the competitiveness of the product. Thus, it was decided to find ways cut down the costs of production that could lead to the decrease of the price. 6. Increase the product line length. The company should be seeking for new kinds of products in its product line to bring diversity, which could help to promote the initial brand names. 7. Increase the product mix width.

10

It is thought, that the company should pay particular attention to the search of new areas and branches of production, to invest more in innovating on the market. 8. Find new export markets. Presently, Simeks is exporting imported and Latvian-made products to some countries of the CIF and some East-European countries. In the future company is planning to establish on import markets of the Scandinavian countries.

2.2. Financial goals

Financial goals are quite similar for almost every company- the highest rate of return of the investment made (in this particular case it is purchase and installation of the equipment), profit maximization and increase of the cash flow. The company Simeks in the year 2000 worked out a clear line of long-term financial goals: 1. 2. 3. 4. Growth of companys overall turnover should be about 10% every year. Increase the trade departments turnover by 20 % every year. Stabilize the profits. Find more sources of getting profit.

Unfortunately, the company fails to comply with its long-term financial objectives- if you refer to the financial description of the companys position, you will see, that in the year 2002 the companys overall turnover and profits began to fall drastically (by 17%). At the same time the scheme of short-term financial goals, which could prevent this perilous tendency and improve the situation, has not been worked out.

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3. Marketing Strategy

3.1. Introduction
It is well known that business can become thriving by creating and keeping customers. One of the ways of how the company Simeks can achieve it is by providing better value for the customer than the competition. Marketing department of Simeks has to assess which customers the company is trying to reach and how it can design products and services that provide better value (competitive advantage). The main problem with this process is that the environment in which Simeks operates is inclined to constant changes. Simeks must adapt to reflect changes in the environment and make decisions about how to change the marketing mix in order to succeed. Marketing Strategy is concerned about the overall direction of the company; it also involves decision-making about production and operations, finance, human resource management and other business issues. For the case of Simeks this is quite a straightforward task. Why? Because geographical markets and product portfolio is quite limited. The following questions lie at the heart of the companys marketing strategy development: Where is the company now? Where Simeks is heading? Where would the company like to be? How do we get there? Is the company on course?

Why does Simeks need a marketing strategy? The company operates in hostile and increasingly complex environment of Latvia. The ability of a business to achieve profitable sales is impacted by dozens of environmental factors, many of which are inter-connected. It makes sense to try to bring some order to this chaos by understanding the commercial environment. That is why marketing strategy of the company helps to: Identify sources of competitive advantage

12

Gain commitment to the corporate strategy Get resources needed to invest in and build the business Set objectives and strategies Measure performance

Many of the core components of the marketing strategy have been thoroughly analysed in different parts of this Marketing Plan. The aim of this section is to analyse a number of tools that have been proposed to aid to Simeks marketing managers. These models allow strategic business units and Simeks products to be classified and visually displayed according to attractiveness of various markets and the companys relative market share within those markets. Three of these tools - the Boston Consulting Group (BCG) Product Portfolio Analysis, Arthurs D. Litle model and the ABC sales: contribution analysis are discussed next.

3.2. The Boston Consulting Group (BCG) Product Portfolio Analysis.

Product Portfolio analysis is based on the philosophy that a products market growth and its relative market share are important consideration in determining companys marketing strategy. All Simeks products should be integrated into a single, overall matrix and evaluated to determine appropriate strategies for individual SBUs. Simeks managers can use this model to determine and classify each products expected future cash contributions and future cash requirements. Companys marketing managers who use a portfolio model must examine the competitive position of a product and the opportunities for improving that products contribution to profitability and cash flow. Figure 3.1, which is based on work by the BCG, enables marketing managers to classify a firms products into four basic types: stars, cash flows, dogs and question marks. According to growthshare matrix we can see that Simeks has two cash cows (Alus Avots and coffee), which generate more cash than, is required to maintain market share. Simeks cash cows generate money that can be reinvested in the development of new products or to support the stars and question marks. Simeks must concentrate its strength to support cash cows in the long-run period in order to use its ability to generate financial resources. Notwithstanding, Simeks doesnt have any product with high perspectives of growth related to stars. In other words, it means that Simeks should focus on searching for a product that can be capable of moving to cash cows. Moreover, the company has one question mark (Adugs) that has a small share of growing market and requires a large amount of money to build share. However, by concentrating strength on this product, the company could move it to the star products. In addition, it has to be mention that Simeks has two products that are related to dogs. For these products the company is likely to use the strategy of harvesting and then phasing them out.

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Relative Market Share

High Low

Product market growth (per cent)

High Adugs

Alsus Avots Low

Romulo

Melna Kafija

Zott

Figure 3.1

3.3. Arthur D. Litles model-matrix.

For the thorough analysis of Simeks business portfolio a second approach has been proposed which is mainly on Arthur D.Litles matrix. In Figure 3.2 you can see this matrix, which is based on Simeks SBUs in the year 2003. This model gives us opportunity to look at the companys business portfolio at a different angle. According to this model we can note that Simeks has a strong position in the coffee and beer markets. However, Simeks position in the market of yogurts and olive oil is not stable due to low competitiveness. That is why the prior task for Simeks is to build a strong image in these markets. If we compare Simeks matrix for the year 2002 and 2003 we can see a considerable distinction. For instance, in 2003 Simeks excluded from its business portfolio several products: Gallina Blanca soups, sweets Wissoll and nuts Gemoss. In result, the companys turnover

14

reduced gradually in 2003. As a positive factor, Simeks has increased its turnover and competitiveness of coffee. However, it was not enough to reach turnovers figures of 2002.

Life-cycle of the industry

Introduction Predominant Growth Maturity Decline High Genuine Adugs development Beer Avots Coffee Romulo Zott Low High High Production Financial needs Sector risk Dominant strategy Implementation Image Spending
Figure 3.2

Competitiveness

Marginal

Considerable

Low Low

High 15

Competition Risk

High

Profitability

Low

3.4. The ABC Sales: Contribution Analysis.

This analysis can be conducted at either product group or product line level; for the total market or sub-markets, for customer segments or for individual customer accounts. The aim is to show both the amount of sales and the financial contribution from these sales to the companys fortunes. This analysis helps Simeks to identify the relative value of different products, markets or even individual customer accounts, helping with allocation of recourses. Simeks ABS sales: contribution chart is shown in figure 3.3. The 45-degree diagonal line from bottom left to top right is the optimum. It is a straightforward rule, not a regression line, however. In an ideal world, the dots on the chart would be located on the line (good sales and contribution) and be at the top right of the graph (high sale and high contribution).

16

High

A Class Great value to the business

Coffe e

B Class
Adug s

Beer Avots

Sales

C Class
Wissol l Romulo

Zott

Little value to the business Low

Low High

17

Contribution

18

Figure 3.3

What conclusion can be drawn from an ABC analysis? ABC analysis can identify highly attractive products in terms of associated contributions, but were sales are relatively low (Beer Avots). For such accounts, an increase in sales (no matter how slight), with associated high prices and good financial returns, will be highly rewarding. ABS analysis determines accounts with high sales figures but low or pitiful contributions (Adugs). Cash flow may be good, but profitability is not helped; even a slight increase in contribution is most desirable.

3.5. Conclusion:
The approaches presented here provide an overview of the most popular analytical methods used in strategic market planning. However, these methods are used not only to diagnose problem

19

areas or to recognise opportunities but also to facilitate the allocation of resources among business units of Simeks. They are not intended to serve as formulae for success or prescriptive guide, which lay out cut-and-dried strategic action plans. These approaches are supplements to, not substitutes for, the Simeks marketing managers own judgements. The real test of each approach is how well it helps management diagnose companys strengths and weaknesses and prescribe strategic actions for maintaining of improving performance.

20

4.1. Marketing mix. Product decisions.

4.1.1. Product variety

In this part a strategic segmentation of the trading department of the company Simeks will be carried out. It will cover the main groups of the offered products. 1) Beer is produced by the brewery Alus Avots, which belongs to the company Simeks. 2) Coffee is produced by Jaunsili, property of Simeks. 3) Zott yoghurts are imported from the factory in Germany. 4) The production of the company Adugs (biscuits, cakes etc.) 5) Olive oil Romulo is imported from Spain. From the graph 4.1.1. it can be seen how the annual turnover of the trading department has been increasing during the last few years.
8000000
7042160

Turnover of the trading dept. (Ls)

7000000 6000000
4964930

6232213 5583124 5985836

5000000 4000000 3000000 2000000 1000000 0 1996 1997 1998

3086853 2501836

1999

2000

2001

2002

Chart 4.1.1. The turnover of the trading dept. of "Simeks"

From this graph it is seen that during 5 years (from 1996 to 2001) the turnover of the trading department increased by 3 times. The most considerable rise was in 1998. That year the company invested money in the brewery. It was a joint venture with a Danish company Harboe until

21

2001. The increase in turnover in 2001 was 11.5%. However, it decreased by 15% in 2002. That had been caused by several reasons. Firstly, there was a reduction of the business portfolio of the company. Secondly, the wrong development strategy had been chosen. Percentage of products in the turnover Brand name Beer of Alus Avots Coffee of Melna Kafija Gallina Blanca soups Wissoll chocolates Olive oil Romulo Yoghurts Zott Production of Gemoss Production of Adugs Percentage in the turnover of the trade dept. 2000 50% 14% 16% 3% Less than 1% 11% 4% 1% 43% 18% 17% 4% Less than 1% 12% 1% 3% 2001 41% 26% 12% Less than 1% 1% 9% --10%
Table 4.1.2.

2002

The table 2.2 shows the product percentage in the turnover of the trading department of Simeks. It is seen that the business portfolio of the company has changed during the last 3 years. The share of beer has decreased, but the share of coffee has gradually risen. The company has stopped to distribute Gallina Blanca soups, Wissoll chocolates and the production of Gemoss in 2001 and 2002. That decision was influenced by several reasons. In the beginning of 2002 the companies Gallina Blanca and Wissoll converted prices of their production to euro, when its exchange rate was 1EUR=0.88USD. But in the middle of 2002 the exchange rate of euro rose (1EUR=1USD). Thus, the prime cost of the production of these companies taking into account customs has risen even more than by 15%. But Simeks had no opportunity to raise the prices of the products. In case with products of Gallina Blanca it was impossible because of the agreement between the two companies. The distributor could not raise the prices without the manufacturers permission, and Gallina Blanca did not give such permission. The production of Wissoll has always had low competitiveness because of its high price and medium quality. It was impossible to raise the price due to high competition in this market and strong positions of Latvian and Lithuanian manufacturers. In this situation the management of Simeks decided to stop the distribution of the production of Gallina Blanca and Wissoll.

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4.1.2. Beer Alus Avots

The company Simeks is the owner of the brewery Alus Avots, which produces beer in 1L and 2L PET bottles. Beer holds about 50% of the turnover of the trading department of the company. In the Latvian market Simeks was ranked in the 6th place for its sales of beer in 2002. These sales took 6% of the whole beer market in Latvia. The leader in this market is Aldaris, whose sales are about 40%. Share in the Latvian beer market are shown in the pie chart 4.1.3.
Mamas D 8% Csis 8% Gulbene 1,0% Kimmels 5% Alus Avots 6% Lplsis 11%

Bauska 4%

Varpa 5% Trvete 2% Aldaris 40% Other

Chart 4.1.3 Local beer producers in the market in 2002

Simeks has started selling beer in the PET bottles in 1998. It was the first company, who offered beer in the PET bottles on the Latvian market and succeed. In 1998 the turnover of beer of the brewery Alus Avots was 1.1mln Ls. Changes in the sales of beer are shown in the graph 4.1.4.

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3500000 3028128 3000000 2687840.77 2500000 2553431.61 2095042 1151511

Beer market share in 2000 is shown in the pie chart 4.1.5. It can be easily seen that the market has changed during that time. The share of the production of Simeks in this market was 8.8% and that was the 2nd place in the sales of beer in 2000. But in 2002 Simeks was dropped to the 6th place in the sales with 6% of the market. In 2003 the situation got worse and the company held only 2.4% of the market. There are several reasons of the reduction of the companys market share. Firstly, there is high competition in the market with such companies as Aldaris, Lplsis and Csis. These are large companies with strong advertising campaigns. Secondly, Simeks offers beer only in the PET bottles and in small barrels. There is no production of Alus Avots in glass bottles. Thirdly, the company does not promote its products in the market. And finally, the Latvian market has expanded by 15% since 2000, but the volume of output could not have been increased because of the productive capacity of the brewery Alus Avots. All these factors led to the decrease in the beer market share in Latvia.

Sales (Ls)

2000000 1500000 1000000 500000 0 1998 1999 2000 2001

2002

Graph 4.1.4. Sales of beer of Simeks

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Rga 7,2% Lplsis 3,7% Latgale 7,8% Csis 3,7% Gulbene 0,5%

Alus Avots 8,8% Piebalga 3,6% Bauska 6,1% Varpa 7,7%

Trvete 2,4% Liepja 7,9% Other 1%

Aldaris 40%

Chart 4.1.5. Local beer producers in the market in 2000

The company Simeks presents such beer brands: Bear Beer, ekavas Alus, Trs Ji, Brena. Share of the brands in the total sales are presented in the table 4.1.6. Share of the beer brands in the total sales Brand name "Bear Beer" ekavas alus Trs Ji Kaburs Brena % in turnover 12% 10% 24% 21% 33%
Table 4.1.6.

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4.1.3. Coffee Melna Kafija

Simeks owns the factory Melna Kafija, which produces coffee. The company has about 12% of the market share in Latvia. Coffee market share is shown in the pie chart 4.1.7.

Paulig 10% Bar 2% Jacobs 15%

Simeks 12% Tchibo 14%

Lindwall 5% Maxwell House 2% Lofbergs Lilla 3%

Milda 1% Folgers 4%

Merrild 29%
Chart 4.1.7. Coffee market

in Latvia

The pie chart shows that the leadership in this market belongs to imported production. The most popular product is Merrild coffee. It has 29% of the market share. Simekss sales of coffee after entering the Latvian market in 1996 are presented in the graph 4.1.8.

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1600000 1400000 1200000 Sales (Ls) 1000000 800000 600000 400000 200000 0

1469743

570989 461363 231607

1996 1997

612345 318494 404280

1998

1999

2000

2001

2002

Chart 4.1.7 Coffee market in Latvia

It is seen from the graph 4.1.7. that the sales of coffee have increased by 2.5 times in comparison to the previous year. Thus, the company increased the market share from 5% in 2000 and 2001 to 12% in 2002 due to the better quality of the product and launch of the new coffee products. The companys coffee brands and their percentage in the turnover are presented in the table 4.1.8.

Coffee brands of Simeks

Brand name Labrt 250g. Labrt 500g. Labvakar 250g. Labvakar 500g. Caf Duo 250g. Rga 250g. Ar Mani 250g. Tmurga 80g. Spka 160g. Spka 80g. Labvakar 80g. Caf Duo 100g. Rga 80g. % in turnover 2000 14% 4% 10% 6% 12% --35% 9% ------10% --2001 11% 3% 21% 7% 9% --10% --24% --3% 8% 4% 2002 10% --17% 7% --3% ----37% 12% 5% 3% 6%

27

Table 4.1.8. The table shows how the product range has changed since 2000. Launching new products, improving design and stopping the production of brands that were not much in demand led to such a considerable increase in sales in 2002. For example, the company launched a new product coffee Spka, that was in success in its segment. Such popularity was reached with the help of an excellent design, good quality of the product, considered strategy and relatively low price. The company has also improved the design of all of its products to correspond to the level of the largest world producers.

4.1.4. Yoghurts Zott

The company Simeks has been the only distributor of Zott yoghurts in Latvia for 7 years. This product has a quite big share in the trading turnover of the company and 9% of the annual turnover. The pie chart 4.1.9. shows yoghurt market share in Latvia. Lazdonas piensaimnieks 8% Fruttis 12% Tukuma piens 10% Zott 8% Livonija a/s 3% Vidzemes piens 5% Ekoprodukti 1% Yoginos 9% RV Piensaimnieks 7% Danon 30% Rgas piensaimnieks 7%

Chart 4.1.9. Yoghurt market in Latvia

28

The pie chart shows that Simeks holds only 8% of the market, but the leader is Danon with 30%. The reason of that is the decrease in the sales in the last few years. This tendency can be seen in the graph 4.1.10. 800000 700000 600000 Sales (Ls) 500000 400000 300000 200000 100000 0 1996 1997 1998 1999 2000 2001 2002
392339 474921 677600

688392 666089 527255 423567

Graph 4.1.10. Yoghurt market in Latvia

The graph shows the big loss of the market share in 1998, when the sales fell by 41%. Although the company improved its position in the market in 2002 and increased the sales by 24%, that still does not give the opportunity to compete with the leaders.

4.1.5. Products of Adugs

The company Simeks distributes also the products of the local manufacturers. Now Simeks distributes the production of the company Adugs. The products are honey cakes, wafer cakes Rga and biscuits. Simeks developed the design of the wafer cake Rga and they are produced specially to the order of Simeks. The sales of the production of Adugs in the Latvian market since the beginning of the joint activities are presented in the graph 4.1.11. This graph shows the increase in sales by 2.5 times in 2002. It was reached with the help of the new product - wafer cake Rga and the expansion of the range of products. The table 4.1.12. represents the share of the production.

29

600000
549673

500000 Sales (Ls) 400000 300000 200000

141809

203582

100000 0

2000

2001

2002
4.1.11. Sales of the production of "Adugs"

Share of the Adugs production in Simekss turnover Product Biscuits Wafers Wafer cakes Honey cakes % in turnover 2000 100% ------2001 91% 3% --6% 2002 18% 1% 47% 34%
Table 4.1.12.

The increase in the turnover is the result of the launch of the new products (wafer cakes) and the expansion of the range of honey cakes. Sales of biscuits have dropped by 30% in comparison to 2001.

30

4.1.6. Olive oil Romulo

Simeks offers Spanish olive oil Romulo since November 2000. The graph 4.1.13. shows the sales of the olive oil Romulo.
80000 70000 60000 Sales (Ls) 50000 40000 30000 20000 10000 0
7890 27563 69723

2000

2001

2002

Graph 4.1.13. Sales of "Romulo" olive oil

There are several reasons for such small sales. Firstly, the company has had no experience in dealing with such products. Secondly, olive oil is not much in demand in Latvia because of its rather high price. Customers prefer to buy cheaper sunflower oil. Points to mention are a 20% lower price of Romulo than the prices of other imported or local products and high quality of the product. Although the company could raise the sales of Romulo, its share in the total turnover of the trading department remains a bit more than 1%.

31

4.2. Marketing mix. Pricing decisions.

4.2.1. Introduction
All pricing decisions made by a company should be carefully thought through, because pricing decisions are among those which play a great role finding the right approach to companys success. The pricing decision is influenced by a number of factors, some of which are external to the organization and some of which are internal. The external influences include customers, channels of distribution, competition and legal and regulatory constraints. As founded out PLC Simeks is also among those organizations which thinks that price is definitely one of the most important aspects to be considered.

4.2.2. List Price

Like in the most cases PLC Simeks offers different discounts and other incentives which means that the price paid for an item is actually less that the list price. Item ID
1390 1399 1396 1398 2759 2755 3003 2757 2751 1417 2479 2471 2481 2465 2463 1721 2473 2477 2510 2765 2737

Name of the product

Biscuits "Ar riekstiem" 0.8kg Biscuits "Astra" 0.7kg Biscuits "Auzu" 0.7kg Biscuits "Gamma" 0.6kg Biscuits "Klieri" 0.7kg Biscuits "Kompromiss" 0.6kg Biscuits "Mix" 0.3kg Biscuits "Pavasaris" 0.7kg Biscuits "Pute" 0.6kg Biscuits "Trio" 0.5kg Cookies "Ar riekstiem" 0,25kg Cookies "Bannu" 0,25kg Cookies "Cukura ar demu" 0,25kg Cookies "Kafijas" 0,25kg Cookies "Krjuma" 0,25kg Cookies "Lukss" 0.25kg Cookies "Zemeu" 0,25kg Cookies "okoldes" 0,25kg Waffles in chocolate 0.145kg Waffle cake with lemon taste "Pie Tastes" 0.25kg Waffle cake with chocolate "Pie Tastes" 0.25kg

Barcode
4751000170168 4751000170823 4751000170847 4751000170854 4751000172155 4751000172193 4751000173138 4751000172186 4751000172216 4751000170748 4751000171738 4751000171691 4751000171745 4751000171653 4751000171646 4751000170090 4751000171707 4751000171721 4751000171523 4751000171851 4751000171868

Price
0.9676 0.9322 0.6962 0.7906 0.7434 0.8378 0.354 0.826 0.7788 0.6018 0.1888 0.1888 0.1888 0.177 0.177 0.1888 0.1888 0.1888 0.3894 0.6608 0.6608

Items per packing

1 1 1 1 1 1 10 1 1 1 18 18 18 18 18 18 18 18 10 10 10

32

1728 1727 1413 2439 2435 2433 2430 2428 2437 2675 1710 1711 1376 3005 3307 3305 3212 3211 3213 3210 3093 3525 2673 3076 1425 2884 1431 1427 1428 1546 1547 1548 1549 1550 1557 1558 3300 1732 1378 1748

Waffle cake with hazel nuts "Rga" 0.32kg Waffle cake with coffee "Rga" 0.32kg Waffle cake "Rga"0.32kg

4751000171509 4751000171516 4751000171127

0.9794 0.8496 0.885 3.068 3.068 3.068 3.068 3.068 3.068 1.6402 1.6638 1.416 0.9322 8.1538

10 10 10 6 6 6 6 6 6 12 6 15 12 4 5 5 8 8 8 8 6 6 6 6 24 24 20 20 24 24 24 24 12 12 24 24 20 20 64 64

Olive oil
Olive oil with basil "Extra Virgin" 250ml Olive oil with lemon "Extra Virgin" 250ml Olive oil with mushrooms "Extra Virgin" 250ml Olive oil with trifles "Extra Virgin" 250ml Olive oil with chilli "Extra Virgin" 250ml Olive oil with garlic "Extra Virgin" 250ml Olive oil "Extra Virgin" 0,5l Olive oil "Romulo" 1l Olive oil "Romulo" 1l PET Olive oil "Romulo" 500ml Olive oil "Romulo" 5l TIN 8429671800535 8429671800542 8429671800528 8429671800559 8429671800504 8429671800511 8429671300035 8429671301179 8429671301131 8429671301155

Waffles and jellies

Jelly Mix 180g Jelly red 180g Waffles with raspberries "Pie tastes" 320g. Waffles with cacao "Pie tastes" 320g. Waffles with cream "Pie tastes" 320g. Waffles with chocolate "Pie tastes" 320g. 4751003490546 4751003490539 4751003490478 4751003490508 4751003490515 4751003490492 4750374002167 4750374002112 4750374002129 4014500005966 40145518 40338477 40338453 4014500100326 4014500006376 40145150 4014500005270 4014500058290 4014500058351 4014500006390 40145136 40145037 4014500016405 4014500007212 0.3894 0.3894 0.4956 0.4956 0.4956 0.4956 0.236 0.2596 0.2006 0.2242 0.177 0.177 0.2242 0.2242 0.1534 0.1298 0.1298 0.1298 0.2478 0.4602 0.1652 0.1652 0 0.2242 0.4012 0.4012

Water
Drinking water with lemon "ekavas Avots" 2l Drinking water with gas "ekavas Avots" 2l Drinking water without gas "ekavas Avots" 2l Drinking water with strawberry taste "ekavas Avots" 2l 4750374002235

Zott yoghurts
Yoghurt "Monte" 62,5g. ZOTT Yoghurt with caramel "Monte 62,5g. ZOTT Yoghurt with cream 200g ZOTT Yoghurt with chocolate and cream 200g ZOTT Chocolate pudding 125g MERTINGER Fruit yoghurt 125g (b) MERTINGER Fruit yoghurt 125g (p) MERTINGER Fruit yoghurt 125g (r) MERTINGER Fruit yoghurt 250g MERTINGER Fruit yoghurt 500g MERTINGER Cream yoghurt 125g (b) MERTINGER Cream and chocolate yoghurt 125g (p) MERTINGER Sweet cream "Gold" ZOTT Sweet cream ZOTT Cheese "Bagnette" 150g MERTINGER Cheese "Emmentaler" 150g MERTINGER

33

2142 1749 1750 1751 2831 2242 1755 2866 1766 2669 2050 2837 1636 1637 1638 1639 1649 2419 2420 2421 2423 2422 2980 1346 1783 1426 1658

Cheese "Light" 150g MERTINGER Cheese "Sandwich "150g MERTINGER Cheese "Shester" 150g MERTINGER Cheese "Toast" 150g MERTINGER

4014500016344 4014500006574 4014500007137 4014500006536 4750092111318 4750092111271 4750092111356 4750092111264 4750092111301 4750092111202

0.4012 0.4012 0.4012 0.4012 0.9558 1.0502 1.0502 0.6785 1.0974 0.7788 0.679 0.708 0.8968 1.77 0.8968 1.77 0.9322 5.8174 6.8322 5.8174 5.8174 6.962 ??? 0.75 0.94 0.85 0.99

64 64 64 64 6 6 6 6 6 6 6 24 24 12 24 12 10 1 1 1 1 1 1 1 1 1 1

Instant coffee
Instant coffee "Labrt" 160g Instant coffee "Labvakar" 80g Instant coffee "Rga" 80g Instant coffee "Spka kafija" 80g Instant coffee "Spka kafija" 160g Instant coffee "Taste" 100g Instant coffee "Tmurga" 80g

Ground coffee
Ground coffee "Cafe DUO" 250g Ground coffee "Labrt"250g Ground coffee "Labrt"500g Ground coffee "Labvakar"250g Ground coffee "Labvakar"500g Ground coffee "Rga" 250g 4750092122123 4750092722118 4750092722217 4750092822115 4750092822214 4750092122178

Coffee beans
Coffee beans Ar Mani 1kg Coffee beans Exclusive 1kg Coffee beans Mocca 1kg Coffee beans Arabica 1kg Coffee beans Colombia 1kg Coffee beans Mexico Maragogype 1kg 4750092121263 4750092121232

Beer

Beer ekavas gaiais Beer Tris Jni Beer Brena Beer Kaburs

47884569028 47884569123 47884562439 47884562438

Table 4.2.1. Price list

4.2.3. Discounts
Discounts are basically about reducing the normal or the list price as a reward of something like buying in bulk or the range of distribution services offered. The level and frequency of discounts will vary according to different circumstances. Most organizations including PLC Simeks offer discounts from list prices.

4.2.3.1. Trade Discounts

These kind of discounts are based on the services that the buyer (it can be a retailer or a wholesaler) is expected to perform in the future in reselling goods. They are usually well understood between buyer and seller. The values of these discounts depend on the services to be performed and the location of the buyer in the distribution channel. As founded out from 34

PLC Simeks rarely applies these kind of discounts. Anyway, our suggestion to PLC Simeks would be to introduce trade discounts to the company since they also work as intermediaries. In order to attract more customers these discounts would be just the right thing since inability to pay is one of the most serious economical problems in Latvia.

4.2.3.2. Quantity discounts

These discounts encourage bulk purchases. Bulk discounts come into force if a single order exceeds a certain volume or value level. At the end of a trading period, the quantity purchased is totaled and a percentage rebate given back to the buyer. This type of a discounts encourage larger purchase quantities. PLC Simeks gives discounts to those who buy in bulk from this company. This is actually what all companies offer in order to sell more of its products. PLC Simeks gives different bulk discounts for different purchasers. For example, supermarket chains get 11% discount of the price when buying in bulk from PLC Simeks. Wholesalers who work with PLC Simeks get 8% off the price when buying big quantities and small shops with which PLC Simeks is the most dealing with get 5% discount if buying in big quantities.

4.2.3.3. Seasonal discounts

Seasonal discounts are usually offered to offset cash flow difficulties or to overtime the problems of utilizing capacity in quieter periods. PLC Simeks does give seasonal discounts to some of its products. The best example for this is the beer company offers to the shops. It is logical that such drink as beer is more purchased in the summer. Basically it is the time when it is warmer and people tend to consume drinks more often (in Latvia this time could be like June, July and August). Every seller understands that this is exactly the right time to raise the price since people would buy it anyway. This is also the time when most of the profit can be gained. But how to force partners and customers to still buy beer even if its not so urgent thing in this time of the year? The answer is the reduced price. This is exactly the thing PLC Simeks does. The price of a one Alus Avots bottle in the season may be up to 15 santims higher than the price offered to wholesalers at wintertime. However, these discounts can only be applied to those products which necessity can vary during the year. In my opinion it is good to have a different product range like PLC Simeks has. They can put this seasonal price to beer, but for the furniture the price will most probably remain the same for the whole year.

4.2.3.4. Cash discounts

Cash discounts encourage prompt payment in a form that is easiest and cheapest for the seller to handle. They can operate at all levels of all types of market. A small retailer, buying supplies from a wholesaler, may be offered a better price per case of a product if immediate payment is made than if a 30-day invoice has to be sent. As founded out PLC Simeks do have some of cash discounts. Not a lot of them, though. These discounts apply to some of the smaller shops which get products from PLC Simeks. These kind of shops sometimes find it difficult to pay all the money for the products in time, so these shops are offered a special discounts so that it would be easier for them to pay all the money back on time. The quicker you pay the more off the price you get.

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4.2.4. Geographical pricing

Geographical pricing strategy might be one of the pricing strategies used by the company. Geographic adjustments are those made, especially in organizational markets, to reflect the costs of transport and insurance involved in getting the goods from buyer to seller. If you are the organization which delivers the goods to the next intermediary you definitely take into consideration the price you have to pay for delivering these goods to that place. The farer it is the more money it most probably will cost. PLC Simeks has to deal with this since they also transfer goods from one place to another. And the thing they told us was just the thing we have been expecting them to tell. So they put a bit higher price to the goods they have to transport for longer distances. This is also money time, fuel, cars, delivery staff etc. Companies who refuse to pay this price can also come and get the goods from Simeks itself although companies in most cases agree to pay more and to have their goods delivered. However, there is another aspect of geographical pricing. As Simeks mostly operates on Latvian market which we now is quite small where big differences in prices could not really be possible. And Simeks does not have different prices for different regions. They give discounts when only buying in bulk. In my opinion, however some changes could be definitely made. Let us take the same beer, which is being sold in the whole territory of the Republic of Latvia. I think that maybe PLC Simeks could think of giving some discounts to the shops which are located in the regions of Latvia which economical development is not so high. Small towns like Auce, Sabile, Skulte etc. I think they should take into consideration that Riga still differs a lot from the towns like Rzekne and other parts of Latgale. My suggestion would be to lower the price a bit for these regions in order to get an increasing demand in these places, because it is clear that shops in the center of the capital make more money than those which are located in other parts of the country.

4.2.5. Payment terms

Payment terms are the exact time given when you have to pay all the money to the organization. This time can vary and it can depend on an organization itself or it can depend on a purchaser as well. Clients which are considered to be financially sound get less time to pay all the money they owe, smaller, outside the city shops can get longer time to give the money to the organization. PLC Simeks also have different payment terms, which depend on the purchaser. The company gives up to 20 days for stable supermarket chains to pay all the money and they give up to 45 days for smaller shops, which are usually located outside of the big cities.

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4.3. Marketing mix. Promotion.

4.3.1. Sales Force
Sales force usually is responsible for creating and servicing the customer and maintaining relations, expanding purchase rates. The company SIMEKS has just 10 agents, 3 of them are merchandisers who deal with forming product layout on shelves in shops and supermarkets. They also are responsible for working out discount schemes. They directly deal with order takers who agree initial contracts with retailers (RIMI, MAXIMA etc.). Other of them work as sales representatives order takers order makers sales support But presently we cannot speak about a constant system, because marketing department of company is developing now, thats why company is very cautious with recruiting sales force staff.

4.3.2. Advertising
Advertising is any paid form of non-personal promotion transmitted through mass medium. The key difference between advertising and other forms of promotion is that it is impersonal and communicates with large numbers of people through paid media channels. Advertising normally conforms to one of two basic types: Product orientated advertisement Institutional orientated advertisement.

Taking into consideration these two basic types, we can say that the company SIMEKS uses more product orientated advertisement, but as this company was nearly all the time working with already existing loyal customers and its marketing department, which deals with advertising, is starting to develop only now, they dont have much of advertising. Only during the last two years the company has made different size packages, which have mostly been advertised on TV. At first the companys SIMEKS trademark was Ar Mani. It was advertised on TV in a TV programme Siena nis and had even taken part in an exhibition. But as the company had little experience in making coffee, most of the people didnt like it, so after some period of time the company made a new trademark Meln Kafija. Now when they have a lot of experience in making coffee and more and more people start to like it, they want this trade mark to be known all over Latvia and even abroad. They have started to advertise it using TV and other methods. For example, coffee Columbia,

37

Mokka and Spka under the trademark Meln Kafija is advertised by Egils Zari in a well known TV morning program LNT Brokastis. The design to these three brands is made by a company called DPJN Diena pirms Ju nakts. Last year the instant coffee Spka during the whole October, November and December was advertised on such TV channels like LNT, TV3 and ORT. The Marketing department came out wit the coffee name Spka because they had created a strong coffee for people between 25 and 50 (economically active people), who are working and need a lot of energy during the day, so they had to give the coffee a suitable name. Some advertisements of the trademark Meln kafija can also be seen on Internet and the company owns several cars with the logo Meln kafija on them. Very rarely in big supermarkets such as Rimi or Maxima you can taste different coffee brands from the company SIMEKS. In the company there are 3 people who go to cafs, bars, and restaurants and offer the new coffee brands under the trade mark Meln kafija together with professional coffee apparatus and cups with the companys logo. They even offer the bartenders to teach them how to make a good coffee. There is also a coffee brand Empire. In several cafs such as Pica Malibu and others there is mini-poster of this coffee brand standing on each table. In March there is expected to be a big TV advertisement for people to know more about the trade mark Meln kafija and the three newest brand names: Columbia, Mokka and Spka.

4.3.3. Public relations

The deliberate, planned and sustained effort to institute and maintain mutual understanding between an organization and its publics. PR is just as much of a strategically though out, long-term commitment. The essence of PR is to look after the nature and quality of the relationships between the organization and its various publics. This means that PR covers the management of a range of activities that create and maintain the character and status of the organization in the eyes of those who matter. There are several activities of PR, which are important for the company SIMEKS: 1. The creation and maintenance of corporate identity and image. 2. Enhancement of the organizations standing as a corporate citizen, through activities such as arts and sports sponsorship, charitable involvement and community initiatives. The company SIMEKS through sponsorship is creating a strong image by giving financial or material support. In the year 2000 the company under one of its brand names BEAR BEER gave financial support to Rigas Zoo. They agreed to cover all the payments (outlays) for transporting white bears to Riga Zoo and supplying them with all the necessary things for their living. As the

38

donated sum was quite large, the companys name was written on a special board in front of the white bear house. The company also supports the floor-ball team ekava/Simeks. This is the most successful team in Latvia, who won the title of champions four times. They have even taken part in the European Championships. That is one of the ways how the companys name got familiar to a wider audience, especially abroad. A kickboxing club called Cas gars is also sponsored by SIMEKS.

4.3.4. Consumer promotion

While it is obviously important for manufacturers to have several distribution channels working in their favour, there is still much work to be done with the consumer to help ensure continued product success. There are several consumer sales promotion methods that company can use: Money-based Product-based Gift, prize or merchandise based Store based Usually SIMEKS uses just some of them. If we speak about money-based promotion, we particularly mean reduced price offers. SIMEKS basically reduce price on product. In many cases it is one sort of coffee. But unfortunately it doesnt happen very often. Just during Christmas, Ligo and etc. The company doesnt provide any coupons or rebates. Second consumer promotion method that SIMEKS covers extra product that customer can get (BIGIF or BOGOFF), samples which company uses to persuade people to try a product, (usually on-pack). E.g. If you buy Melna kafija (1kg package), you will get Speka kafija (200g package), which is on the package of first one. In biggest supermarkets sometimes are held demonstrations to gain customer interest and trial, to show how real coffee should be made. But these presentations dont usually increase customer purchases and dont change companys situation. Thats why SIMEKS doesnt pay too much attention to demonstrations. Lotteries are also very rare event. Usually just one or two in a year. But prizes are always very useful and expensive. E.g. This year in lottery of Melna Kafija you could win 4 mobile phones and 1 trip to Egypt (Domina Travel). This Lottery was intensively advertised on TV 3 +.

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4.3.5. Trade promotion

A sales promotion designed to gain reseller support and to improve resellers selling efforts is defined as trade promotion. These include discounts, allowances, free goods, cooperative advertising, and push money, as well as conventions and trade shows. Some trade promotions are tightly linked with consumer promotions to create a synergy between push and pull strategies. The main push promotions are variations on price promotions and direct assistance with selling to the final customer. The company SIMEKS offers seasonal discounts or discount overrides. The company must be sure that the products are very well seen by the customers. SIMEKS uses store-based method point-of sale displays. The main objectives of POS promotion are to inform the customer and to persuade them to try or retry the product. IN some areas it has been suggested that up to 55 per cent of purchasing decisions are made in-store. This means that the manufacturer has to ensure that the product talks from the shelf to attract attention. So the company SIMEKS, for example, pays extra money to the retailer to put the companys products on the shelves on the customers eye level. SIMEKS also uses free merchandise method. This method involves the offer of free merchandise in return for an agreed level of purchases. Indirectly, this is a price-based promotion in the retailers eyed, as it effectively reduces the average cost of all the cases purchased of that brand. The free merchandise does not need to be necessarily the product itself. Like SIMEKS did, they offered to by 2 packs of coffee and to get a cup for free. Such activities as sweepstakes are also very popular both with consumers and organisations. Sweepstakes are gift, prize or merchandise-based sales promotion method which doesnt involve skill, but offer every entrant an equal chance of winning through the luck of the draw. Additionally, they must ensure that entry is open to anyone, regardless of whether they have purchased a product or not. SIMEKS used to put money in their product to attract more customers. However, at some stage consumers may become bored with such activities, especially when they do not think they have any reasonable chance of wining. At that point, a more immediate but less valuable incentive might be more appropriative. However, in common with price promotions offered to the consumer, trade-orientated price promotions do have the disadvantages of being quickly and easily copied by the competition, leading to the risk of mutually destructive rise wars.

4.3.6. Direct marketing

Direct marketing is interactive system of marketing, which uses one or more advertising media to affect measurable response at any location. SIMEKS doesnt deal with this at the moment at all, because it has big amount of different products, which are sold on very low price in every store, and almost every purchaser knows it. Also SIMEKS has its own loyal customers, who will hardly switch to another companys products (mainly these are cafes and restaurants).

40

4.4. Marketing mix. Distribution.

4.4.1. Distribution channels and channel variety. Distribution directness.

Marketing channels is a structure that links manufacturers and consumers. The degree of formality in the relationships between the channel members can vary significantly. There are several different types of intermediary, each with slightly different role: 1. Wholesalers: dont deal with consumer; they resell goods to retailers, take title to the goods. 2. Retailers: sell direct to consumers, also take title to the goods. 3. Distributors and dealers: add services to the goods (credit, after sales service). 4. Franchisees: hold a contract to supply and market product or service. 5. Agents and brokers: represent interest of manufacturers, dont take title to the goods SIMEKS deals only with first three categories.

1. The channel structure which the company SIMEKS uses almost always is the short channel:

PRODUCER

RETAILER

CONSUMER SIMEKS delivers just roasted coffee straight from the factory to almost all main Latvian supermarkets: 5 VP markets (Maxima; T-Market) Kesko (City market; Super Netto) All Rimi supermarkets Mego 11 Nelda supermarkets

41

Beta 30 shops over all Latvia

SIMEKS uses this channel also to deliver roasted coffee to the local Latvian plants such as Staburadze and Latvijas Balzams. The company supports a special service, which delivers the coffee straight to the local 350 restaurants and bars such as Double Coffee (5 cafeterias), Beta caf (4 cafeterias), Salmu krogs, Lira and etc. Special agents visit almost all new cafes, bars, restaurants and hotels that have appeared in last time and offer them coffee, equipment (coffee machines, cups) and even training. Simeks provides a special training centre, where barmen are trained. They study how to make a real good coffee. 2. The company uses long channel, but quite rarely:

PRODUCER

WHOLESALER

RETAILER

CONSUMER In this case wholesaler is wholesale base. This channel structure is quite rare used, because there are not so many wholesale bases in Latvia. These wholesalers resell products to retailers (in this case small shops). This scheme is usually applied when exporting products (particularly olive oil and yoghurts) to the countries of CIS. SIMEKS doesnt use agents when coffee is exported. They just have their own distributors in this country. E.g. In Lithuania they have distributor Coffee 777, which is responsible for advertising, distribution and adding other services to this product in Lithuania.

4.4.2. Market coverage

Market coverage is about reaching the end customer as cost effectively and as efficiently as possible, while maximising customer satisfaction. To achieve this, three alternative models of distribution intensity can be adopted, each of which reflects different product and customer requirements from place. These three models are: Intensive distribution

42

Selective distribution Exclusive distribution.

The companys SIMEKS produced product coffee falls into the first category. It is a convenience good, which corresponds to the routine buying situation. The buyer puts little effort into the purchasing decision and convenience often takes priority over brand loyalty. Communication needs to e aimed directly at consumers to get them as involved as possible with the product through the creation of brand image to offset brand-switching indifference. Packaging and creation of a good brand image are the tings SIMEKS now really cares about. It is interesting what an influence it has on customers. For example, the coffee Columbia in a white package has more attracted the attention of women while the coffee Mokka packed in a red package has more attracted the attention of men. As we can see, packaging and brand image are very important and they have to be as memorable as possible to facilitate recognition and positive brand choice at the point of sale. Distribution focus for these products is maximum availability. The company SIMEKS with his coffee covers 18-20% in Lithuania, 10% in Latvia and about 2% in Russia.

4.4.3. Density of distribution

We can say that SIMEKS sells his products almost all over Latvia and the distribution through different channels is the maximum. The reason for this is the trade mark Meln Kafija is sold in nearly all the biggest supermarkets like Rimi, Maxima, Nelda, City market and many others and these supermarkets are already in every big Latvian region as well as in some big cities abroad. Plus this coffee is also available in small shops, cafs, bars, and restaurants.

4.4.4. Dealer support

Each company must know how support its dealers. That should be done for dealer loyality. Company SIMEKS always support dealers with additional discounts. These discounts depend on product amount that each of dealers order. Big supermarkets as RIMI have constant discounts. Supermarkets, which place their products in special place, get promotion bonuses. It is also connected with putting low price on product. E.g. T-Market sells coffee with the same price that it buys from SIMEKS. After some time it gets promotion bonus (usually in products). The company SIMEKS provides transportation of offered product and covers all costs.

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4.5. Marketing mix. Services. Staff.

4.5.1. Services provided by Simeks

Simeks provides some of the optional services, which include delivery, training etc. This gives company a certain competitive advantage over rivals. Pre-sale services might include marketing research, finding out what customers want consequently satisfying the needs. Some representatives of the company go out to the public and offer the product to potential customers. For example, a sales person might visit a caf and persuade the manager of it to but their coffee brand as it is of a high quality and competitive price. Point-of-sale services would include delivery of the products to the retailers. Some huge retailers such as RIMI have their own means of transportation available, hence the products supplied by Simeks are transformed directly to the warehouses. To keep the customers satisfied the company is providing a number of post-sale services. First of all, as with coffee producers, they offer not only a product but also the equipment such as coffee machines. Moreover, staff training is provided for the customers, for example, some bartenders and waiter would be sent directly to the manufacturer. There they would receive a full lecture on the types of coffee, the specific qualities of all brands plus they would be taught how to use a coffee machine. The firm also provides a guarantee for its products, for example if there is something wrong with a coffee machine at one of the restaurants, a technician would be sent straight away so see what is the problem and try to solve it as soon as possible. From the above, it could be deducted that Simeks does care about keeping their customers satisfied and happy. By providing some additional services they encourage customers loyalty.

4.5.2. Staff of Simeks

Support staff includes 10 agents, 10 drivers and 3 merchandisers. An agent acts as an intermediary in bringing together buyers and sellers of a good or service. They receive a flat commission or fee related to the nature and comprehensiveness of the work undertaken. In Simeks case agents are intermediaries between the manufacturer and the retailer outlets. 10 drivers are hired to conduct deliveries. A reliable delivering company has been chosen to ensure that all deliveries are made on date, this is important at retaining the customers. Plus whenever there is a conflict about the delivery quality e.g. some coffee was damaged due to the inappropriate container it was transformed in; the delivering company would be held responsible for it and compensation would be necessary. Merchandisers are responsible for in store promotional activity at the point of sale, which is designed to stimulate the sales. Merchandisers make a considerable use of point of sale display materials and special buying

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incentives. They do their best to attract the customer to the particular display and not the competitors one. Simeks also uses the services of some agencies. For example, when it comes to quality control some independent experts are asked to visit the factory and try out coffee samples. For promotion the company heavily relies on the agencies so design the advertising so carry out the surveys etc. Other staff consists of 210 employees. 150 of them work at the coffee factory. There are 9 traditional departments. The shop floor workers have two shifts and their working hours are from 8am till 4 pm and from 4 pm till 12 am. Talking about motivation, at present most workers have a low wage, which is sufficient to satisfy their basic needs. Monetary factor is of great importance for the employees, and it is used as a main motivator. However, managers are not satisfied by these motivators, they need to move up, they have got safety needs and esteem needs to satisfy. For lower lever managers the following motivators could be used: encourage meeting organization, provide work, which requires socialization, teamwork. Encourage informal groups (Hawthorne effect the idea that workers are motivated by recognition given to them as a group). For executive managers self-actualization is becoming a priority. They should be provided with more demanding tasks. Their achievements should be recognized and rewarded. They could get promoted to top positions, plus they could gain more authority. Training could be provided to help them to deal with more complicated work and more responsibilities. To conclude, Maslows hierarchy of needs could be used. The person should be motivated with accordance to their level. Once physiological needs are satisfied, safety would become a priority, then love and belonging, esteem and self-actualization. The employer should find out which lever each individual is at and decide on suitable rewards. This would make workers more enthusiastic about their job; they would feel a sense of belonging to a company, which cares for its employees. Productivity and efficiency would increase as a result. Workers would give their full support in achieving companys targets and goals. Generally, there is no dissatisfaction amongst workers since the factory facilities are modern and they are with accordance with EU regulations. Some employees might be not too happy with their daily grind at the tasks might seem to be boring after a while. Job rotation could be introduced to solve that problem. Workers could be giver some training to enable them to carry out a variety of tasks. It should be noted that managers need to be flexible and adapt the methods and approaches that are available to motivate staff to the particular circumstances of their business and their workforce.

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5. Budget
5.1. Introduction
The marketing budget specifies and sets out clearly the financial elements of the marketing plan. Like budgets for other aspects of business activity, the marketing budget is a plan of what the business hopes to achieve in the forthcoming period. Marketing budgets focus mainly upon sales revenue, marketing expenditure and profit. When setting marketing budgets a balance must be maintained. On the one hand business must set precise financial plans associated with marketing activities. It is important that plans are precise if managers are to use the budget to control spending and to set targets for sales. However, changes in the internal and external marketing environment mean that some flexibility must be built into the budget. Simeks; uses percentage of past sales approach when it sets its budget. This is where the budget for marketing expenditure is based upon previous sales of the product or service. Products are allocated a marketing budget in line with their sales records. So, for example, a product that has sold particularly well in the past may have a higher amount spent on its advertising than a product with poor sales. The benefit of this method is that successful products are rewarded with high promotional budgets. This should help their future success. The problem with this budgeting method is that it can lead to particular products being sent on a downward spiral. Falling sales lead to lower marketing expenditure, this leads to lower sales and so on. Sometimes, however, it may be in the strategic interest of a business to increase marketing expenditure on a product with falling sales.

5.2. Financial overview of Simeks

As it could be deducted from the table 6.1 the companys annual turnover in the period of 2000 to 2001 has reached up the firms predetermined financial goals (see paragraph 1. for more details on the company's financial goals). It has increased by 12% per year in comparison with the previous year. However, in 2002 companys annual turnover has decreased rapidly- by more than 17%. It failed to reach the preset goal of increase by 20%. At the beginning of 2001 the companys debt of 755000 Ls was capitalized and core capital was 2155000 Ls. Later on, in the core capital was increased and made up 2500000 Ls. Presently, the company does not have long-term debts and there are expected to be no shortages of current assets. Basing on the mentioned earlier, we can come to a conclusion that company has accomplished its mission to stabilize its financial situation.

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Nevertheless, turnover figures show income from selling goods and services, it should be remembered that the actual amount the company will have is going to be much less. First of all, indirect taxes such as VAT should be excluded from the turnover figure. Secondly, it should be remembered that there should be some room left for the returned, unwanted goods. Finally, some customers who have bought goods in credit will be simply unable to pay, hence they become bed debtors. So even though, the company does not have any long-term debts it might still face liquidity problems or difficulties controlling cash flow. Simeks might not be able to convert their liquid assets into cash quickly enough. The main sources of the liquidity problems are the following. Overtrading occurs when the company is attempting to fund a large volume of production or buys too much stock with inadequate working capital. Plus Simeks is constantly looking for the ways to expand, and this rains the capital. Stockpiling could be another reason, since money tied up in stock is unproductive. The business should not buy in bulk if discounts are not enough to compensate for the extra cost of holding stocks. Moreover, Simeks might be allowing too much credit. One of the dangers of this is that customers might be allowed too long for payments. This means the company is waiting for money and may actually be forced to borrow during this period. Unexpected demand changes should be also taken into the account. Although, the business tries to sustain demand for its products and services, there are many times when it falls unexpectedly due to for example new competitors entering the market, change of taste of customers, etc. Taking into the account all the causes of problem the company should carefully consider what actions are to be taken to increase working capital (current assets-current liabilities), and avoid liquidity problems. Simeks should make only essential purchases, extend credit terms with the suppliers, and introduce tighter credit control. In case the problem is overlooked, it might cause some major disturbance in business functioning.

1999 Overall annual turnover Change of overall annual turnover Annual turnover of trade department Change of Annual turnover of trade department 5583000 6139000

2000 6876000 +12% 6232000 +11,5%

2001 +12% +13%

2002 -17% -15%

2003

7701120 6391930 7042160 5985836

Table 5.1

The same time, chart 5.2 shows, that the companys trade department cannot provide stable revenues. The chart also shows that the companys trade turnover draw up about 90% to the

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total companys turnover. It means that if the companys trade department cannot achieve secure income, it will undermine the companys goal of stable financial situation.

1200000 1000000 800000 600000 400000 200000 0 1999 2000 2001 2002 2003

Revenues Expenditures Profits

Chart 5.2

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6. Organizational implications
6.1. Type of structure.
Simeks was founded in 1989. At that time it owned a few retailer stores. Nowadays, it is a diversified limited company. All this has a certain effect on the organizational structure of Simeks, the way in which a company is structured in order to perform its economic, social etc activities. The company has a functional structure this means that activities are grouped into departments by function marketing, production, finance which support all the firms products and activities. There are a number of advantages having this particular structure type. First of all, specialization allows each department to focus on just one business area. This helps to improve the efficiency. Secondly, accountability is clear. Each department is having a manager who is responsible for allocating resources, achieving goals etc. Finally, clarity is an important aspect. Organization by function helps staff to understand they role and position in a companys structure. Nevertheless, there are also some drawbacks of this kind of structure. Firstly, communication and coordination problems may occur. Since the company is divided into function departments, the last ones are likely to operate as self-contained units. Communication between the departments may be limited. Secondly, individual departments may become set in their ways over time. In this case they would resist any major changes. Thirdly, since Simeks is a large diversified company it may find that with time this kind of organization becomes unsuitable. There would be too many departments and too many layers hence, it would become extremely difficult to keep track of everything what is going on.

6.2. Organizational chart

Attached you can see the organizational chart (chart number 6.1) which is a diagrammatic representation of the job titles and the formal patterns of authority and responsibility in an organization. Generally, this chart displays the managerial hierarchy. This hierarchical structure shows the chain of command, the way authority is organized. Simeks adopted line authority. It shows the authority a manager has over a subordinate. Communication will flow down from the superior to the subordinate in the chain of command. Manager can allocate work and control subordinates, who have a clear understanding of who is giving the instructions. So why did Simeks company create such a tall chart with so many management levels? This particular structure was chosen because it is the most appropriate for achieving objectives of the company. Objectives are the goals of the business, what it wants to achieve in future. Mission statement, a description of the overall aims of the business and its shortand long-term objectives is to expand and exploit completely new markets. Simeks is aiming to satisfy customers demand for its products. To achieve this the company is 49

increasing the variety of the imported products, produces and sells high quality products at a lower costs, moreover, expanding existing enterprises and creating a new ones which have a huge potential for growth.
Chart 6.1 Existing structure of Simeks

BOD
Financial executive the formal patterns of authority and responsibility in an Production executive the job titles and Sales and marketing manager this chart displays the managerial hierarchy. manager Generally, executive manager

Attached you can see the organizational chart which is a diagrammatic representation of organization. Vice president This hierarchical structure shows the chain of command, the way authority is organized. Simeks adopted line authority. It shows the authority a manager has over a subordinate. Communication will flow down from the superior to the subordinate in the chain of Mnager of Chief accountantManager can allocate work and control subordinates, who have a clear commercial command. Alus Avots Melna Kafija centre understanding of who is giving the instructions. production production
manager

So why did Simeks company create such a tall chart with so many management levels? Accountants Manager of This particular structure was chosen because it is the most appropriate for achieving Yacht club objectives of the company. Objectives are the goals of the business, what it wants to achieve in future. Mission statement, a description of the overall aims of the business and its short- and long-term objectives is to expand and exploit completely new markets. Simeks is aiming to satisfy customers demand for its products. To achieve this the Stock company is increasing the variety of the imported products, Logistics and sellsmanager produces high Sales Purchasing Marketing quality products at amanager lower costs, moreover, expanding existing enterprises and creating a manager manager manager new ones which have a huge potential for growth.

manager

6.3. A new suggested chart.

Taking into the consideration the size and activities of the Simeks company a matrix structure could be more appropriate. This type of structure cuts across the departmental lines of the hierarchical chart and creates project teams made up of people from all departments or divisions. This method of organizing a business is task or project focused. It gathers together a team of specialists with the objective of completing a task or a project successfully. The advantages of the suggested structure include the following. Matrix structure allows total communication between all members of the team. There is less chance of people focusing on just what is good for their department. This is replaced with a feeling of what is good for the project and the business as a whole. The cross over of the ideas between people with specialist knowledge in different areas tends to create more successful solutions. As new project teams can be created quickly, this system is well designed to respond to changing market or technological conditions. Some drawbacks of the structure include less direct control from the top as the teams may be empowered to undertake and complete a project. This passing down of authority to more junior staff could be difficult for some managers to come to terms with. As crossdepartmental teams could be created conflict of interests may occur. 50

BOD
Financial executive manager Sales and marketing executive manager Production executive manager

Manager of product 1 Manager of product Executive of project 1 Executive of project

Finances

Sales and marketing Sales and marketing

Production

Finances

Production

Costs analysis

Market analysis

Technology and production Technology and production

Costs analysis

Market analysis

Chart 6.2 - suggested structure of Simeks

6.4. Benefits of the new structure.

Generally, matrix structure is more appropriate for Simeks company since it allows better communication and teamwork according to the areas of specialization. This structure will help the company to gain a competitive advantage, become more efficient and flexible. Staff of the company will appreciate group working, at all the resources would be pulled together in the needed area. Motivation is also likely to improve.

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REFERENCES

1. 2. 3.

Business Studies Ian Chambers. Second Edition Collins Business Dictionary Megamarketing Philip Kotler, Harvard Business Review 1998

4. The Marketing Planning Book Sally Dibb, Lyndon Simkin, John Bradley; Thomson Business Publishing 1996 5. Marketing Management: Analysis, Planing, Control, Philip Kotler; Prentice-Hall 1998 6. Market Entry and Development, Stephen Young, James Hamill; Englewood Cliffs 1993 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. Marketing Management, John I. Coppett; Journal of Marketing Strategy and tactics, Dibb and Simpkin; Prentice-Hall 1993 Starting Your Business by Peter Hingston Foundations of psychology- Nicky Hayes, third edition Principles of marketing- Frances Brassington, Stephen Pettitt Reports on sales of Simeks (1998-2002) www.alus.lv www.aldaris.lv www.melnakafija.lv www.zz.lv www.radburg.com www.konsult.lv www.rigazoo.lv www.bplans.com www.bank.lv

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