Category: Theory

Never say never

October 20, 2014 / / 6 Comments

I know I said that studies should be taken with caution but I found an interesting one and I wanted to share its conclusions with you.
This study shows that price tag can change the way people experience wine.

If you want, you can read it here or you can read my summary (with some short cuts as I am no neural sciences expert).
20 students (among them 11 males) who said they liked and occasionally drank red wine were asked to perform a test to “study the effect of sampling time on flavor” while they were performing another test.

Each one was told they would be tasting 5 different Cabernet Sauvignons, identified by price and put in a random order but there were only 3 different wines.

One of them was given its normal price tag, another its normal price and a lower one, and the last one its normal price and a higher one.

The final results were that the students could taste 5 different wines and that the more expensive ones tasted better.
I will spare you all the neural things but the obvious thing is that more research has to be done to see if experts will replicate these first results.

Let’s take a step back and think about the results and how they could be used for tea.

It would mean that for specific origins and flushes; the higher the price, the higher the pleasure to drink it.

I guess we won’t have any answer here unless someone made blind tastes with other people.
If you think tea is a normal product (ie with price defined by a cost-based approach), this is disturbing. However, if we think that some teas (not all of them) could in a way be considered luxury goods, then the picture changes and they partly become Veblen goods, goods whose demand is proportional to their price.

I said partly because only a few people will ever pay millions of Euros for some tea
What teas could fit into this pattern? My guess is that teas with a certain prestige around their name, teas with limited harvest each year could perfectly fit the bill.

This does not mean that we might pay too much each and every tea but that the high price of some teas will create the perfect conditions for our mind to believe we are drinking an awesome tea.
Sometimes our mind doesn’t mind playing a little fool trick on us but remember it is the one saying “Trust in me…”

The answer was not in the cup

April 24, 2014 / / 14 Comments

After seeing an article saying that a machine worth 40,000 $ was able to make the perfect pot of tea, I wondered what a perfect pot of tea.
This question came back to haunt me while I was having a cup of tea with @Chakaiclub (check her website, even if it is for now only in French and for France).

“What is a perfect pot of tea? Or rather what is a perfect cup of tea?” This question came back again and again into me as if it was asking me to find an answer.
A first obvious answer is that it had to do something with tea ceremony as I had defined them in a previous post ”For this post, I will define it as a sort of tea ritual, as an unique way of making and drinking tea over and over again”.

After all, if you do something in an unique way over and over, it must be the way to do, which means that if you look at the different tea ceremonies be they British, Chinese, German (yes I know I have offended the most traditionalists here be it is also a tea ceremony) or Japanese or … you will find quite easily what is a perfect cup of tea.
For the British one, the method is quite easy and was defined in 2003 by the Royal Society of Chemistry (see there).

If I oversimplify things (and once again I am sorry for the most traditionalist readers), one of the Chinese tea ceremony Gongfu cha or “”making tea with effort” like the Japanese tea of ceremony or “the way of the tea” are ritualised ways of preparing tea in order to make a tea that taste good but also as a way to enlighten your soul directly or indirectly (through others).
As such, they follow elaborate rules to really get the best of a cup of tea.

As for the German tea ceremony, I described it here (with a video) and it is the way to make the perfect German cup of tea.

If you look at it, you will see that every country/tradition thinks it has an unique way of making tea that is is so good that nothing else could be better.
The problem being that they don’t do it the same way and that depending on your tastes, you might find the results a little bit disappointing or not suiting them, which is somehow a paradox as if its results is a perfect cup of tea, there is no way you could be disappointed.
Or it could be worse and you could thinking that the way you make your tea is what makes your cup of tea perfect for you.

And this is when I was struck by the obvious.
The answer was not in the cup but in philosophy and in Aristotle who wrote that is perfect which is so good that nothing of the kind could be better but also which has attained its purpose.

The purpose here is to drink a tea that suits your taste and to make the best of what you have used to do it. So you can use whatever method, technique… that you prefer for making your tea as long as it enlightens your, makes you feel better and brightens your day turning a “normal” cup of tea into the perfect one.

Don’t get me wrong, I do know that to make a good cup of tea, good ingredients are needed turning it into an even more enjoyable experience but what I wanted to point out here is the relativity of “perfection” and that we should all make our tea the way we like it and be open-minded and curious about how other people make their perfect cup of tea.

With a little help from my friends

March 23, 2014 / / 2 Comments

No, this blog is not about musics or whether or not the Beatles, Joe Cocker and some others ever drank tea.
This title is a thanks to @thedevotea for helping me finding a topic with one of his latest posts (http://thedevotea.teatra.de/2014/03/13/hypocrisy/) and also a hint to what my post is really about: boycotts or rather whether according to classical economics (and the different research papers I read),  boycott is efficient or not.

A boycott is when someone or a group of people decide on their free will not to buy, use… anything related to someone, to a company or to a country as a form of protest (be it for political, environmental or social reasons).
Is this linked to tea? In a way. Do you remember the Boston Tea Party, throwing away tea in protest for a tax rise (to be honest, it was also a problem of smugglers wanting to still make money and merchants being afraid of an increase in the monopoly of the East India Company).
You could also protest because of the working conditions in some estates or because you think that such or such country doesn’t or does support something you don’t like or find unethical.

The real question is whether or not this has any efficiency not from a moral point of view or in the real life but for economics.

The first issue is whether people will get along the movement. When someone hears about the boycott, he can decide to follow it and not consume the said good or he can go on and do as before. Why? Apart from the moral/political sensibilities, boycotting a product has a cost because you give up consuming a good with a certain utility for you and substitute it with another good with a lesser utility for you (since it is not as perfect as the one you consumed before) or with none. In both cases, it has a cost.
Furthermore people know that one people more is unlikely to have much effect and make things change. This is the free ride problem: people are likely not to boycott while wishing it succeeds.

A second issue is scattering. A lot of people are needed to start a boycott, to make it last and to win but how can you coordinate people around the world or a country?
Now with the Internet, forums, Twitter, Facebook and such ; it is easier than before but it could still be a problem when trying to bring more people who are not active in the right media channels in the game.

In a way, boycott is an attrition warfare between people minimising their utility and companies/countries… seeing their sales and benefits go down. Who will stand at the end of the day? The side with more “resources”.

What makes a boycott successful?
The first and most important factor is the market structure. Is this a monopolistic market with only one producer of a certain good? If the answer is yes, the boycott will face difficult times. Is it easy for the consumer to replace these goods? If the answer is no, there again the boycott will be in troble
From the producer point of view, there are three questions to answer. The first one is it diversified enough, i.e. does it have access to a lot of markets or only one? The second one (which is linked) is whether or not this boycott is a huge phenomena or just an isolated one. The last question is how much does it cost to change what is targeted by the activists?

Because you are all polite people, you will not have boycotted me for not tea ranting but here it comes.
So how does it work for tea? My analysis is that thanks to a huge number of companies, it is easy to boycott one  specific company and turns to others with “similar” products.
For gardens or estates, it might become a little more difficult as one tea is not another and although you will have the same utility, the taste and personal preferences might lead to a difficult experience if you can’t find a substitute.
And for countries, it is even more difficult as if you go for the boycott, you will not have any access any longer to a whole type of teas. It might not be a problem if you decide not to buy anything from one of the small tea producing countries but what about the big ones?

In the end, against companies, boycott could work but against the biggest tea producing countries in the world, I think that even “with a big help from our friends”, we would lose much more than we might win.
Think about it, there are plenty of customers ready to buy from them and if not, it is the small producers, those with less power to influence what you are against that are most likely to be hit.

What is in a name? Positioning

July 28, 2013 / / 8 Comments

Let me clarify something first, this post is not meant to judge any brand/product or to imply that they are not delivering what they say they are.

Positioning is how a brand tries to find a set of attributes to get a clear, attractive, different position on a market. It is also what you, I, anybody expects a brand to be or to do according to what they say they are (usually their core “philosophical” value that most of the time can be found on their website under “about us”) and what we think they are (as our perception of them might be slightly different of what the companies would like to sell us).

 I did a little non-scientific survey and took a look at different tea companies from different countries, supplying tea bags and/or loose leaf ones.

What did I find?

Words like finest, health, lifestyle, tastes, wonderful, quality, perfection, refinement, premium, tradition, simplicity, uniqueness, best seem to come back on a regular basis with a few others being

If you remember the whole idea of companies and marketing is to make one product or one brand looks different than the others to be able to sell it and one tool to visualise it is perceptual mapping (http://en.wikipedia.org/wiki/Perceptual_mapping)

Author : Mydogategodshat / This file is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license

I decided to try to make a perceptual map with the words I had found while looking at the different websites and to my “surprise”; in nearly all the combinations I could make/find, there was no way to really separate the different companies (there were always a couple of companies that would not really be in the same place as the pack but they were really minor ones).

The only item in which there were clear differences is the tradition/simplicity (or modern) approach (and apart from a couple of them, I am not even sure how the companies really perceive these two words) and when looking at the countries of each company, it seems this simplicity/modern thing is more seen in the USA and other English speaking countries whereas the other countries are more adept of the “tradition” approach to tea (but there are exceptions in both groups).

Why this split? Perhaps some more in-depth research on both the key words and my conclusions should be made but I think that it comes from the clichés these different countries have on tea and the perceived need by those trying in the past years to launch tea companies in the USA that in order for the market to rise, there was a need to simplify things to make them more appealing to the “average” consumer, still full of “old ladies drinking their tea with some milk at 5 o’clock in the afternoon” and of people selling them that “the perfect tea must be brewed for 5.2 minutes at exactly 87.4°C and with a water coming from Greenland (the last trusted water resort).”

What are the risks of not being able to differentiate one company from another (in terms of who they pretend to be)? To be unable to deal with their commitment and to lose potential new customers unable to make the difference between this or that brand and the one that said the same thing but tasted “not so good.”

In the end, the customers will be the one judging the companies and their products and companies have to deliver what they promised to.

Perhaps is it time for companies to become more openly different one from another?

Tea retail business and the Great Captains: an intro

February 24, 2013 / / 13 Comments

L’Heure Gourmande by Adrian Scottow

Small tea business are like every other small business in the world. They face different challenges be it competitors, taxes, difficulties to find good suppliers… but they also have unique advantages in terms of their capacity to evolve, a peculiar relationship with their customers, the services they can provide.

This can be summarized in one sentence: small is beautiful but big is powerful.

One of the first decisions to make before launching a retail business (and tea is one of these) is what should be the focus or should I say the market for the future new company: should it try to provide everything (or nearly everything) or focus on a peculiar market (Japanese teas, home blended teas…)?

Some of you would object that this approach is quite academic and that usually people when starting a business don’t really know where they are heading or I would rather say, they don’t have a clear vision of what I just wrote about. They might have an unique expertise, some specific suppliers, a peculiar idea but for most of them (and I did write most of them), the idea is launching a business for different reasons.

This is exactly why I decided to write on this topic.

As usual, I won’t go too deeply in the topic as it is a mere introduction to something that I am sure has already been studied many times in different industries/fields.

What I want to do is provide a first look at these two alternatives and their pros and cons.

The “provide everything” approach as its name implies is a generalist approach which intents to give a little of something to everyone or to have every single need covered.

Pros

Covers every potential need

Focuses on a larger target market

Is more resilient to changes in trends

Cons

Higher competition from other companies

Differentiation from others is more difficult to achieve

Unable to answer the most precise needs of some customers

Table 1: Some pros and cons of a “provide everything” approach

The “focus, focus, focus” (the third focus being there to avoid any confusion with Hocus Pocus) approach is completely the opposite as it aims at being the best/only/… seller of a specific thing and be recognised for it.

Pros

Avoid direct competition with most people on the market

Recognised more easily for its expertise and unique approach

Higher value of the products sold or higher willingness of the customers to be more

Cons

Smaller market

More fragile when dealing with change in market trends

Linked with fewer suppliers

Table 2: Some pros and cons of a “focus, focus, focus” approach

I think most of the pros and cons can be understood quite easily so I will only comment a little more on two of them.

The first one is the trend parts.

If a company is surfing on the wave of the health benefit of green teas and selling only these teas ; it will have troubles to use what was its main selling argument when this trend “dies”.

And if it has nothing else to promote its products, it might be in dire straits.

On the other side, if it sells several products, it will have no problems surviving the different trends that rise and fall.

Obviously this simplification doesn’t work if you are talking about a trend that has been around for so long that it is something normal to most people in an area or in the world.

The second one is the higher value of the products sold or the willingness of the customers to pay more.

When a company is focusing on a product or a line of products, people recognise its expertise (I made the hypothesis that this company is knowledgeable about what it is doing) and are eager to pay more (probably a little more) for its products.

Why? Because deep inside us, we know that expertise has a price and that this price is worth it when expertise and quality go together. How do we know if they do? The first answer is by trying but we are also willing to believe more in the product quality when it is sold by someone knowledgeable in a topic.

Don’t tell me that it is the same as a salesman selling vacuum cleaners or encyclopedias as it is not. These people are sales experts not real vacuum cleaners experts. The good ones could sell you anything.

This is how this post ends but I am sure I missed something. So don’t hesitate to comment/discuss/correct me…

Napoléon on Saint Helena

What? I forgot something? The Great Captains?

No they didn’t all drink tea but they give a lot of thoughts to this being everywhere vs. focus problem and as always in military things, there was never a clear answer as it depended on a lot of things.

 

Any damn fool

January 24, 2013 / / 9 Comments

«Any damn fool can put on a deal, but it takes genius, faith and perseverance to create a brand.»

David Ogilvy (1911-1999)

With such a quote to begin with, it is obvious that I can only speak of two things: deals or brands.

I hope your bets were on the second one as I will be talking about brand and the tea world.

According to the American Marketing Association Dictionary, brand is the “name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers.”

But this is not all, a brand is also something else, it is a promise made to the buyer that he/she buys something special or solid or good or… and this is what we will be dealing with here.

A brand has :

  1. some unique attributes (a brand is known for being expensive, cheap, long lasting…) ,

  2. some unique advantages (this is the message behind each attribute),

  3. some values (a brand is the mirror of the company that created it),

  4. a culture (a Japanese brand is not at all like an American one),

  5. a personality (what would you associate this brand with?),

  6. some specific buyers (a brand is linked to a specific set of people that are expected to be suited for it).

As you might have guessed, this list comes from a marketing book I had as a student (Marketing Management by Kotler & Dubois, 9th Edition) but I just wrote it down there as a reminder of what a brand is.

Now you might ask me how does this relate to tea because we all drink teas and you don’t drink brands (although some of us only drink tea from one or several specific companies because they are who they are (isn’t this a brand thing?))

You can see it that way but I don’t think it is simple like that, otherwise why would some people only drink Darjeeling (you can write here Chinese, Taiwanese or any other tea producing country)? or teas from a specific estate? or only one kind of tea?

Let’s spend a little time on this example and don’t forget that all the things I write are my ideas not the truth.

What is a Darjeeling tea? According to the Tea Board of India and its Geographical Indication for this type of tea:

“the definition of Darjeeling Tea has been formulated to mean tea that:

  • is cultivated, grown or produced in the 87 tea gardens in the defined geographic areas and which have been registered with the Tea Board;

  • has been cultivated, grown or produced in one of the said 87 tea gardens;

  • has been processed and manufactured in a factory located in the defined geographic area; and

  • when tested by expert tea tasters, is determined to have the distinctive and naturally occurring organoleptic characteristics of taste, aroma and mouth feel, typical of tea cultivated, grown and produced in the region of Darjeeling, India.”

Source : Tea Board of India, http://teaboard.gov.in/inner1.asp?param_link_id=610&mem_link_name=About%20Darjeeling%20Tea

This definition is good but not enough to tell us if Darjeeling is a brand or not.

If we read it, we can summarize it into an unique set of attributes (quality, distinctive taste and aroma, grown in a specific place), advantages (you get a good deal for your money, you have a good tea, you can trace it to where it was grown) and values (the Champagne of tea).

To find the three other items, we have to think a little about the background of this tea.

Looking at its history and even its current organisation, it is easy to see that Darjeeling is a product of the British Empire. We now have the culture (a British Empire/British India one)

Based on all the previous lines, we can guess a personality (traditional, high quality, British), which helps us to define or to imagine what a specific customer for this tea might be (someone a little bit snobbish but still wanting a high quality product).

With this we managed to go through all the 6 items that makes something a brand and we can now say that Darjeeling is indeed a brand.

So next time you drink a tea, stop for a minute and see if your favourite tea country, type of tea or even estate would qualify as a brand.

And guess what? the answer could be yes.

You will get lost but one day you will thank me

April 2, 2012 / / 14 Comments

What a strange title, no? But I do think that you will understand what I meant before the end of this post.

Call me a magician but I know what your deepest dream is: you all dream of owning and operating a tea plantation.

Can you imagine the joy of drinking your own production?

However I am no magician but someone interested in tea, figures and facts. Therefore you can imagine how happy I was when I found online a paper called “Rapid estimation of the minimum size of a tea project” (Guinard André. Evaluation rapide de la dimension minimum d’un projet de production de thé. In: Économie rurale. N°87, 1971. pp. 67-71. http://www.persee.fr/web/revues/home/prescript/article/ecoru_0013-0559_1971_num_87_1_2137).

Unfortunately, it is in French and it was written 40 years ago.

But I am here to help you and I am not sure but I thought that perhaps what was true 40 years ago is still true today.

My only fear is that it might become too complex but we will see.

The first thing to understand is that this estimation is based on the profitability criteria, which for the author means finding out what is the minimal size which minimises fixed costs per unit of production.

Why does he want to do that?

Easy. Fixed costs are business expenses that are not dependent on the level of goods or services produced by the business (source: http://en.wikipedia.org/wiki/Fixed_cost); so the lower they are per unit produced, the higher the profit is for each sale.

Why did he use them and not other direct production factors (capital, work force, land…)?

Simple, because it takes so much time to “create” a plantation that the optimal use of these direct factors is too far away to be of any interest here.

The author decided to focus on the factory as even if it is not the most costly part of the process (20 to 30% of the investments and total price of the project), it is one where the fixed costs are the most important (50% of the fabrication costs).

 

Here comes the tricky part.

The total daily capacity of the factory is equal to the number of production lines available multiplied by their hourly production capacity and the maximum operational hours per day.

But how do you find what is the needed daily capacity? It is quite simple; the factory needs to be able to deal with the maximal daily production of the plantation, which is function of the maximum production by hectare multiplied by the number of hectares.

This means that the size of the plantation must be equal to the total capacity of the factory divided by the maximum production by hectare.

Let me guess. You are lost, aren’t you.

The only important thing to know is that if you ever get your hands on the perfect piece of land to create your own tea plantation, you will have everything you need to decide how to optimize it.

Is forecast on the French tea market like the weather forecast?

September 1, 2011 / / 6 Comments

Is forecast on the French tea market like the weather forecast?

I found a summary of a study on the tea and coffee market in France in 2011. It was made by a company that specializes in market analysis and has been doing this for years.

I know that two third of the year is already behind us but I still wanted to share with you what is happening on a “mature” market and I swear that next year, I will be more reactive.

I only have access to the French summary but if you know someone with money that might be willing to subsidise me, let me know.

What can we learn in this study?

According to their forecast, the tea and coffee consumption in volume in France should rise by 1.5%, which is higher than the average rise of the food and beverage sector.

However, when you look at it more closely, the situation is not as bright as it might seem.

Coffee and tea capsules should be 2011 main product, the one that will still grow. Coffee (both roasted and ready to drink) and medium quality teas are decreasing.

Regarding the increased costs of supply, it seems that several health and climate issues had an impact on the industry as the tea and coffee processing industrials don’t have the bargaining power to increase their prices (the French panel that was used saw its raw margin decrease by 4 points between 2003 et 2010).

The way out for the producers seems to be innovation, both to change their products (with sometimes strange results, seeTwinnings and Earl Grey) and to create new markets through added value (check what Sylain Orebi, owner of Kusmi Tea, tells us about the launch in mid 2010 of Løv Organic, a brand of organic teas).

I won’t analyse the coffee market more than this but the hype seems to be these doses with new machines being launched, including some under store brands . And this could impact the tea market too as Nestlé launched in France its Special T, hoping to turn it into a new Nespresso.

I can’t be 100% sure about these trend analysis as I don’t have access to the full report, their summary is sometimes a bit messy with no clear distinction between coffee and tea (logical since they want you and me to buy their products) and this report focuses only on the French market.

But I thought that a “quick” theoretical analysis of this industry forecast could be interesting.

I hope to be clear enough for all of you and let me remind you that this is my own point of view/analysis.

The strategy used by all the main players seems to focus on innovation, be it either by changing the blends (exactly what Lipton does when it changes a lot of its recipes in a year), launching new brands with a different message and a different target (Kusmi Tea and Løv Organic) or trying to enter a new market (Nestlé).

Obviously, the last one is a bit different since they try to promote their know-how but it is not that much different if you think about it.

The final result is that companies are offering to their customers something with more perceived value that hopefully (for them) will cost them the same or less while allowing them to sell it at an increased price.

In other words, they try to differentiate themselves from their competitors, which is the definition of what a differentiation strategy is.

But how come these different changes of the value/price paradigm of different products all fall under the same generic strategy?

To answer that, we need to get a little more into differentiation strategies.

The uniqueness of the new offer is seen and valued by the whole market

The uniqueness of the new offer is only seen and valued by a specific market segment

Increase of the value/ price couple

Improvement strategies

Specialisation strategies

Differentiation towards the top part of the market

Decrease of the value/price couple

Purification strategies

Limitation strategies

Differentiation aimed at the lower part of the market

A posteriori segmentation that happens after the launch of the new offer

A priori segmentation that makes it possible to find what should be specific about the new offer

Adapted from Strategor, Dunod, 1997

Nice table, no? But what does it really mean?

An improvement strategy is when a company focuses on giving all customers a better value with specific products that would sell more if they were at the same price as the standard product. For example, Mariage Frères teas would be preferred by everyone if they were sold at the price of Lipton ones.

A specialisation strategy means that the company does the same as previously but only for a specific market segment Here, let’s say that a company focus is only selling teas adapted to the Chinese population in France.

A purification strategy (I am not happy with this translation but it is the best I could find for now) is when a company sells a product that is perceived as being of lower quality but at a much lower price than the standard tea.

A limitation strategy is the same but applied once more to a specific target. Let’s say that I don’t care about iced teas, a company selling me a box of teas at a lower price would satisfy me.

When you look at the “future” trends and at the above table, you can see that each of the three strategies exposed previously fits in there.

Lipton is clearly following the improvement or on the purification strategy as its target is the market as a whole and they try to change the value/price couple of their products (I don’t think we could all agree if they improve or decrease it so I won’t put them into a specific box).

Løv Organic is following what is more a specialisation strategy as it targets those interested in organic teas with high value/price products.

Nestlé gets into the market, which sets it a bit apart from the others, but I think they are targeting the whole market with a “better” quality product sold at a higher price. This is akin to an improvement strategy.

Now that we know what are differentiation strategies and that there is a differentiation strategy going on, the next question, which is very market specific, is rather obvious: when is it the right time to focus on a differentiation strategy?

To answer this, I think that Michael Porter could help us.

“A differentiation strategy is appropriate where the target customer segment is not price-sensitive, the market is competitive or saturated, customers have very specific needs which are possibly under-served, and the firm has unique resources and capabilities which enable it to satisfy these needs in ways that are difficult to copy.” (Source: Wikipedia, Porter Generic Strategies)

Are tea drinkers price-sensitive? Yes like everybody but I think a bit less than most people (at least when these people moved away from tea in bags) since they want value their money and .know that a quality tea can be costly (which doesn’t mean that people are ready to pay any price for a tea).

Is the market saturated or competitive? Right now, I (and I do mean I) think the French tea market is rather saturated. You will always be able to find new niche players focusing on specific aspects but I see it as less competitive than the market in the USA. Why? Because the market is not that huge, is quite “old” and people prefer flavoured teas coupled together with the prestige of specific big names. Is this likely to change? It could change but it would take a radical shift in the way people in general think about tea.

Do people have specific needs that are not fulfilled? With the modern trend of customisation and differentiation among people, the answer is quite obvious and it is yes (and the tea industry isn’t the only one to be in this kind of situation).

Do companies have unique resources and capabilities […] that are difficult to copy? Yes and no. Yes because a blend is something unique, people are not eager to try to copy them and other companies try to differentiate themselves, which means that copying each other is not a good thing but no because as a lot of you know that with the right raw products, you can always get really close to the original blend.

Dealing with market analysis is a bit like dealing with a stormy weather forecast: in the end, it is either completely wrong or right but only in small pieces of the country.

Things are moving fast and what is true one day could be wrong the next one.

And in your different countries, how is the tea industry positioning/repositioning itself?

Of tea and strategy

July 31, 2011 / / 4 Comments

The Republic of Tea by Mel & Patricia Ziegler and Bill Rosenzweig

And no, this is neither a post on whether or not Sun Tzu, Clausewitz or any other general or theorist ever drank tea nor a real review of The Republic of Tea book.

What I intent to do here is to see if the story in this book can fit into an existing model of strategy formation.

But first, what is in this book?

It contains the various letters and faxes between Mel Ziegler and Bill Rosenzweig in 1990 and 1991 when they worked on what would become in 1992 the Republic of Tea company.

In it, they cover everything from motivation, product ideas, marketing, packaging, relations with business angels. If you want to look how a business comes out of an idea, this is a good book.

You will even be able to find their complete business plan at the end of the book.

What is “funny” and irritating at the same time is the main difference between Mel Ziegler and Bill Rosenzweig.

The first one will focus on a philosophical approach to business while the second one tries to get the practical things first while not being really willing to fully commit itself into the business.

I looked at the Republic of Tea website before writing and although the original founders sold their company in 1994 what I found the business is still in line with their original plans (for example, the children teas or the products that were launched over the years) but is not what they originally devised or had in mind (and this changed along the book too).

My analysis is that this results from a non conscious effort between the both of them to bring together two different concepts for strategy (the deliberate and the emergent one) into something else, the realised strategy.

But first, let’s define what these concepts are and then see if I am pushing the model or if it really fits here.

For this work, I am going to use the model provided by Mintzberg and Waters in their 1985 Of Strategies,Deliberate and Emergent; Strategic Management Journal, 6, 257-272.

Realised strategy is the strategy that is actually implemented.

Intended strategy is when an organisation has decided on a consistent course of action and when all its energy is focused on realising it, it becomes a deliberate strategy.

Unrealised strategy is what I call a good idea that was not practical enough to be implemented or that was no longer adapted to the context.

Emergent strategy is the answer to unexpected opportunities or to the lack of intentions.

The way all these concepts work together is described in the picture below.

As far as the Republic of Tea is concerned, the realised strategy is pretty obvious, it is the one that has been implemented.

The other ones are probably less obvious but can be found through the whole book.

Here are some examples coming from the book.

Mel Ziegler: “The fact is that creation is a projection of what already exists. What I am saying is that The Idea existed but had not manifested.”

Bill Rosenzweig: “what is the philosophy behind the Republic of Tea?”

Mel Ziegler: “To show through the metaphor of tea, the lightness of taking life sip by sip rather than gulp by gulp.

What would you say is the business behind the philosophy?”

Bill: “The business of The Republic of Tea is to sell (which means first we have to find) the best tea on Earth.”

Bill Rosenzweig: “the game, as you have so cleverly identified it, encompasses creativity and the process of being creative.”

Bill Rosenzweig: “4. In the middle of the night last night I woke up with ideas about the structure of our organization. I roughed them out on the attached sheet. I hope you can read the writing. Feel free to build on this and let me know your thoughts. And just for the challenge of it I took a stab at the first ten-year plan. This is a good exercice, even if it has nothing to do with what we end up doing, because it forces me to think where we want to go.

5. As I roughed out that org chart last night I realized that we need to write a “product charter” that guide our product-development process.”

Bill Rosenzweig: “Here are some more down-to-earth replies:

1. You’re right about painting our world too small […] I also find the packaging and pricing very intriguing. […]

I am working on a new diagram for us to show categories and distribution.[…] Waiting to have some information to come in before I can complete it.

3. Industry research. […] It will be important for us to feel confident about our point of entry.”

Bill Rosenzweig: “Last night it struck me that maybe it’s time for me to get somebody who’s a little less emotional about tea to tale a look at the business, and so I’ve appointed the other half of my brain as The Minister of Research, and here for a start is what I want him to find out:”

This is followed by a complete description of what is a tea industry analysis.

Mel Ziegler: “The key will be to find the right-talented like-minded people to own the offshoot business, and to lure them into helping the Republic of Tea creates itself.”

As you can see, we have two different strategy processes going on at the same time.

One that is rather predetermined and consistent all along the way, this is the intended/deliberate strategy.

The other one is dependent upon the circumstances and evolves all along the creation of the Republic of Tea. It is the emergent strategy that shapes the intended/deliberate one into what become the realised strategy.

Following Mintzberg and Waters’ classification of the different types of strategy processes, we are here typically in what they call a process strategy where the leadership focuses on designing the system that forms the ground from which the different patterns of action comes out.

You will say that this is what all new businesses do.

Perhaps but it is the first time I see this written in a book as most of the time, you only hear about how the creators had a wonderful idea, made it and sold it.

This alone makes the book worth reading.

The classical economics (Part I)

May 27, 2011 / / 5 Comments

According to classical economics, prices are the result of the interaction between the quantities of a good supplied by the producers and those demanded by customers.

However for tea, the process is a little different as it involves auctions.

But in spite of this, I decided to stick with the classical economics and to try to describe the market with a first focus on the production side.

 

For this and other similar posts, I will use the world data provided by the FAO, the Food and Agriculture Organization of the United Nations, which goes back to the year 1961.

Here are a few findings (probably quite obvious but who knows?).

 

The world production averaged in these 47 years to nearly 2.2 millions of tonnes per year with only 983,825 tons being produced in 1961 against nearly 3,896 millions in 2008.

As can be seen below, the growth rate is quite impressive and almost constant.


But there is more to it.

 

I looked at the 7 (why 7? only because this number is more or less 20% of the total number of countries and together they produce more than 80% of the world tea production, another illustration of the Pareto Principle) biggest tea producing countries in 2008 (China, India, Indonesia, Kenya, Sri Lanka and Turkey) and the growth of their average production is more important than the growth of the average world production (*4 vs. *3).

Over the same period of time, the number of tea producing countries increased by nearly 30% (and this is without counting the new Republics from the former USSR) but almost a third of the producers have a yearly averaged production below 1 000 t (I checked and this ratio was the same in 1961 and in 2008).

Along the years, the weight of the 7 biggest tea producing countries in 2008 is slightly increasing (from 77.3% to 84% of the world production with a low point at 73.2%) with an important increase from mid 1980s on (linked to an increase of the Chinese production).


What can we learn from this?

Tea production is clearly fragmented with a “high” number of countries involved but with only a few “big fishes” and with one becoming the n°1 producer country and yes, it is China, which sees its share of the world production from 9.9% to 32.7%.

For those interested, the Indian share decreased over the same period of time from 36% to 20.7% (China became n°1 in 2005).

 

The real questions start from now:

  • Why did the Indian production grow less than the Chinese one?

  • Why was there an increase in the number of producers?

  • Why was there an increase in production?