Birds Eye: decisions Brand advertising considered essential to prevent further erosion of BE’s competitive position Brand advertising considered essential to prevent further erosion of BE’s competitive position –But Birds Eye brand name stretched too thin Sub-brands: “Country selection”, “Best of British”, “Captain’s Table” etc. Sub-brands: “Country selection”, “Best of British”, “Captain’s Table” etc. –Focus of product range on “advertisable chunks of business” Improve productive efficiency: closing of factories Improve productive efficiency: closing of factories 2006: BE sold by Unilever to private equity group 2006: BE sold by Unilever to private equity group

Birds Eye takeaways: Make or buy: assets To what extent are assets relationship-specific? E.g. due to To what extent are assets relationship-specific? E.g. due to –Location: cold stores But not farm land if easy to switch customer or product But not farm land if easy to switch customer or product –Product traded: peas -> pea harvester Can long-term contracts solve the holdup problem? Can long-term contracts solve the holdup problem? –Uncertainty about market and production conditions If not, this may be a reason to integrate If not, this may be a reason to integrate

Make or buy: labor How important are effort, knowledge and initiative of workers/employees involved? How important are effort, knowledge and initiative of workers/employees involved? –Incentives normally stronger for independent producers –Outsource farming, operate cold store in-house How easy is it to monitor labor input and output? How easy is it to monitor labor input and output? –Outsource (and use performance-based pay) if output relatively easy to measure but input not: farmers –Employ if the other way around: cold-store operators

Scale economies and market size “Division of labor is limited by extent of market” “Division of labor is limited by extent of market” Birds Eye had to do many things in-house while market was small Birds Eye had to do many things in-house while market was small –Independent suppliers would not risk relying on Birds Eye’s business As market grew, opportunities for entry at all levels of value chain As market grew, opportunities for entry at all levels of value chain –Here also: falling MES due to technological advances and changes in retail landscape As market evolves, optimal organizational structure may change! As market evolves, optimal organizational structure may change!

Sources of competitive advantage Scale economies in distribution, advertising, initially processing Scale economies in distribution, advertising, initially processing Example of power of first-mover advantage due to brand reputation Example of power of first-mover advantage due to brand reputation –Here: can be sustained with relatively little advertising if others don’t advertise –Another example of “endogenous sunk costs” dynamic: until late 60s, high market concentration in spite of fast growth of market –Changes in market structure can be caused by changes in effectiveness of advertising