Description
Regulation creates, limits, or constrains a right, creates or limits a duty, or allocates a responsibility.
Entrepreneurial activity under market regulations
A qualitative study about entrepreneurship in the Swedish brewery industry
Authors: Supervisor:
Thomas Kronholm Håkan Boter
Student Umeå School of Business Spring semester 2009 Master thesis, two-year, 15 hp
Abstract
Sweden has a long tradition of strict alcohol policies and market regulations have been used in order to keep down the consumption among the population. The state has controlled the market through monopolies and high alcohol taxes. When Sweden entered the European Union four of the five monopolies were abandoned. At the same time entrepreneurial microbreweries started to enter the market. The market is regulated by a retail monopoly (Systembolaget) and regulation considering marketing and production of alcohol products. The aim of the study was to investigate how the regulations have affected the entrepreneurs in the industry and which strategies they are using in order to compete with the big breweries which are dominating the market. Further, because it is an industry still under development, the issue of legitimacy for new industries is also included in the study. In order to develop the understanding of how the entrepreneurial process might look like and which strategies that are available at an early stage in the process a theoretical framework was constructed. This includes theories about opportunity discovery and creation, market driven or market driving entrepreneurship, branding, and industry legitimacy. The study has been done through a qualitative method based on interviews with three entrepreneurs who are founders of micro-breweries. The results of this study shows that the market regulations act both as a support and as a hinder for the entrepreneurial activity in the industry. Due to Systembolaget?s formal procedures for selecting products to their assortment, the small companies are able to compete at same condition as the bigger players in the process. However, there are regulations which hinder an effective marketing of the companies, especially when potential customers are visiting the breweries and do not have the possibility to buy the product on site. The lack of understanding among politicians for the values which guide the micro-breweries work is one reason to why the industry still struggles to gain legitimacy. A micro-brewers association has recently been founded in order to organize the entrepreneurs in a better way. This might lead to increased knowledge about their work in the future.
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Table of content
Abstract ...................................................................................................................................... 1 1 Introduction ............................................................................................................................. 4 1.2 Problem background ........................................................................................................ 5 1.3 Research Objectives ......................................................................................................... 6 1.4 Delimitation of the study .................................................................................................. 6 2 Scientific Method .................................................................................................................... 8 2.1 Preconceptions ................................................................................................................. 8 2.2 Scientific Approach .......................................................................................................... 8 2.3 Perspective of the study.................................................................................................... 9 2.4 Research method .............................................................................................................. 9 2.5 Scientific Ideal (epistemological considerations)........................................................... 10 2.6 Choice of theories ........................................................................................................... 11 2.7 Selection of sources ........................................................................................................ 11 2.8 Criticism of Sources ....................................................................................................... 12 3 Theoretical Framework ......................................................................................................... 13 3.1 Market regulations.............................................................................................................. 13 3.1.2 Regulations on the Swedish alcohol market ........................................................... 14 3.2 The entrepreneurial activity ........................................................................................... 15 3.3 The entrepreneur and the opportunity exploitation ........................................................ 18 3.4 Market driving or market driven entrepreneurship – strategic marketing decisions ...... 19 3.5 The link between marketing and entrepreneurship ........................................................ 21 3.6 Branding – a way to differentiate ................................................................................... 22 3.6.1 Brand equity ............................................................................................................ 23 3.7 Gaining legitimacy in a new industry ............................................................................ 25 3.8 Summary of the theoretical framework .......................................................................... 26 4 The study in practice ............................................................................................................. 28 4.1 Selection of respondents................................................................................................. 28 4.2 Design of the interviews ................................................................................................. 29 4.3 Interviews in practice ..................................................................................................... 30 4.4 Presentation of the empirical material ............................................................................ 31 5 Empirical presentation........................................................................................................... 32 5.1 Oppigårds brewery, Björn Falkeström ........................................................................... 32 5.2 Ahlafors brewery, Christer Sundberg............................................................................. 34 5.3 Ocean Brewery, Rodrigo Arvidsson .............................................................................. 37 6 Analysis and discussion ........................................................................................................ 40 6.1 The entrepreneurial activity ........................................................................................... 40 6.2 Market driving or market driven entrepreneurship?....................................................... 42 6.3 Marketing strategy.......................................................................................................... 43 6.4 Branding ......................................................................................................................... 44 6.5 Sales situation ................................................................................................................. 45 6.6 Legitimacy of the industry ............................................................................................. 46 6.7 Summarizing discussion ................................................................................................. 46 7 Conclusion ............................................................................................................................. 48 2
7.1 Future research ............................................................................................................... 48 8 Credibility Criteria ................................................................................................................ 49 8.1 Dependability ................................................................................................................. 49 8.2 Credibility....................................................................................................................... 49 8.3 Transferability ................................................................................................................ 49 8.4 Practical applicability ..................................................................................................... 50 References ................................................................................................................................ 51 Appendix 1: Interview guide ............................................................................................ 54
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1 Introduction
In this chapter an introduction to the Swedish market for alcohol is presented together with the problem background for the study. Further the research question and delimitations of the study is presented. The brewery industry is one of the oldest branches in the Swedish economy and Brewers of Sweden (Sveriges Bryggerier) is the oldest existing industry organization in Sweden. The shape of the industry has shifted quite dramatically during the 20th century and is still in a constant change. The nature of the market is an environment which is highly regulated with a sales monopoly for retail and high taxes on the products. When the ration book was abolished in 1955 there were 120 breweries in Sweden but in 1985 there were only nine breweries in operation. The brewery industry was for a long time characterized by a concentration of the production and the state owned Pripps was market leader with 75 % of the market.1 1993 was a turning point for the industry when new smaller breweries started to arise and produce beer on a small scale.2 The Swedish brewery industry is on its way back and has during the recent years developed in a positive way when it comes to the number of breweries and there are now about 50 breweries (soft drink and water producers included).3 The production volumes have however not increased in the same period and are today approx 400 million liters per year.4 The EU membership has changed the market conditions in several ways for the industry during the last 14 years. In 1995 the state monopoly for import, export, production and wholesales of alcohol was abolished5. The only monopoly that remained was the retail monopoly which is held by Systembolaget and is supposed to keep the consumption level low in order to prevent public health problems. According to Systembolaget?s own view it is a successful method and a possibility to offer a wide range of products without any profit interests.6 The EU membership has also lead to a change in the way people purchase their alcohol. It has become very common that people go abroad to purchase their alcohol due to lower taxes on alcohol in especially Germany but also in Denmark and the Baltic countries. This has led to a situation where the Swedish breweries export a higher percentage of their production to these countries where Swedes buy it an import it back to Sweden7. Together this creates an environment with both extensive regulations and though competition for the microbreweries operating on the Swedish market.
1
Bergström, Henrik, ”Hur ölskatterna sänktes – Om lobbning, pilsner och pluralism”, Göteborg: Förvaltningshögskolans rapporter, nr 23, 2000, 24 2 http://www.sverigesbryggerier.se/om-sveriges-bryggerier/historia-olpolitik-genom-tiderna.html, 2009-04-08 3 Bergström, 24 4 http://www.fhi.se/PageFiles/3420/R200834_Alkoholstatistik_2007_0811.pdf?epslanguage=sv, 2009-04-08 5 Bergström, 25 6 http://www.systembolaget.se/Applikationer/Knappar/OmSystembolaget/, 2009-04-08 7 http://www.sverigesbryggerier.se/pressrum/enskilda-nyheter-2008/081105-olexport%20pressmed.pdf, 200904-08
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1.2 Problem background
With a free market it would be possible for everybody to produce, sell and buy alcohol products. A free market only consists of sellers and buyers who negotiate over prices and there will be products with different quality sold for different prices. It is the buyer?s choice that determines the outcomes on the free market. The market becomes regulated when the buyer?s possibilities for a free choice becomes restricted. The more restrictions that is imposed, the more regulated the market will be. Some argue that it should be the consumers? responsibility to determine what they consume even if the products have hazards. 8 The argument for this is that all people have different acceptance towards risks and the price will reflect the hazards on the free market. Risky products would have lower price than safe, e.g. a car with airbags would have higher price than a car without. However, others argue that market regulations are motivated when the use of products might be a danger to other than the individual or when the society will be affected by higher costs which are not being calculated with by the buyer.9 Sweden has a long political tradition concerning the use, production and sales of alcohol products. Politicians want to keep consumption low since high consumption causes health problems and is thereby a burden for the national economy due to high health care costs and absents from work. 1855 was the year when the first step towards a more extensive regulation of the market for alcohol was taken when politicians wanted to fight the widespread use of alcohol among the population. By law, politician forbid production for own use and the possibilities for private actors to make profit on alcohol was restricted. To do so, the state took greater control over the production and sales and also introduced fees on the sales of alcohol products.10 From this point the free choice of the consumer was restricted and a free market did no longer exist for alcohol products. In 1955 the rationing system of alcohol was dropped and replaced by a new policy with high prices as the mean by which to control the consumption of alcohol. This was the starting point for the policy of high prices on alcohol products in Sweden. 11 Today?s legal framework on the market for alcohol is very much based on the laws that where implemented in the late 1970?s. Ever since, the Swedish government have executed a policy that want to restrict private profits from the sales of alcohol products, keep the prices high through high taxes and restrict the possibilities to purchase alcohol products.12 With the retail monopoly still existing, all domestic sales (to end consumers) has to be done through this channel. It has been argued that it is difficult to get access to this channel and that it seems to benefit the larger producers. This is because it is hard for smaller producer to get their product into the regular assortment at Systembolaget.13
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James Carrier, Meanings of the Market: The Free Market In Western Culture, (New York: Berg Publishing, 1997), 2-3 9 Rachel Dardis, ”Risk Regulation and Consumer Welfare”, The Journal of Consumer Affairs, vol. 22, no 2, 1988 10 Bergström, 18 11 Ibid., 23 12 Jenny Cisneros Örnberg, ”The Europeanization of Swedish Alcohol Policy”, Stockholm, Stockholm University, 2009, 43 13 http://www.sr.se/Norrbotten/nyheter/arkiv.asp?DagensDatum=2004-06-07&Artikel=425831, 2009-04-09
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During the 90´s the market experienced a lot of positive changes from the brewers? perspective. The decision to join the agreement for the European Economic Area (EEA) and later the European Union implied that many of the most restrictive regulations had to be removed. As mentioned earlier the state monopolies where reduced from four to only consist of the retail monopoly. Further the agreement forced the government to renew the taxation systems for alcohol products in order to meet the requirements of the agreements and thereby become more in line with the rest of Europe.14 Because this period also was the time when new small breweries started to appear in Sweden it can be assumed that it had a positive effect on the entrepreneurial spirit and increased the belief in the future for the industry. As mentioned earlier the industry is growing even though there are a lot of regulations which might cause problems and obstacles for entrepreneurs on this market. Since the industry started to grow again when the market became more free than it had been with the EU membership, regulations seem to have an effect on the entrepreneurship. Few studies have investigated how these regulations and restrictions affect entrepreneurs in this industry. It is therefore of interest to investigate and the research question for the study will therefore be: How do market regulations in the brewery industry affect entrepreneurs and their choice of strategy?
1.3 Research Objectives
The main research objective with this study is to increase the knowledge about which strategies entrepreneurs in the brewery industry apply in order to overcome barriers and obstacles in a regulated market which is dominated by a few large actors. The goal of this paper is also to increase the understanding for how entrepreneurs can find solutions that enable them to compete under such environmental circumstances. The actions and strategies used by entrepreneurs within the Swedish brewery industry will be analyzed through a theoretical framework within the fields of entrepreneurial activity, strategic market directions and brand management. Further the driving forces behind their entrepreneurial undertakings will be analyzed since it is interesting to know why they have decided to enter this relatively small industry and what driving forces lies behind their entrepreneurship. By doing this both politicians and entrepreneurs can benefit from the results by gaining a deeper knowledge of the problems and possibilities that exist in this industry. From the political perspective this could possibly lead to a change in the market regulation in favor for the small entrepreneurs. From the entrepreneurial perspective the study hopes to give valuable ideas to those who are working in this industry or consider entering it in the future.
1.4 Delimitation of the study
Since the objective of the study is to investigate how the regulated market affects entrepreneurship in the brewery industry this study will only concern those companies which have own production of beer and cider. Producers of only soft drinks and water will not be of
14
Harold Holder, Sweden and the European Union: Changes in National Alcohol Policy and their consequences, (Stockholm: Almqvist & Wiksell International, 2000), 36-37
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interest in this study because they are not working under the same regulations and will thus not be part of the selection of study objects. Further, the focus will be on smaller entrepreneurial producers (micro-breweries) since they might have a different set of problems compared to the market leaders, e.g. Carlsberg and Spendrups, who possess far greater resources.
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2 Scientific Method
This chapter will deal with the scientific approach of this study and the choice of research method. Further the perspective of the study and the preconception held before starting it will be discussed in order to give an understanding of values and experiences which might affect the study. Finally the selection of sources and choice of theories will be discussed.
2.1 Preconceptions
During my education at the Umeå School of Business (U.S.B.E) I have taken courses which have dealt with entrepreneurship, marketing and management. The knowledge gained through these courses has given me the knowledge needed to take on this investigation and to be able to deepen my knowledge within this certain area. An area like entrepreneurship in regulated markets has not been discussed to any greater extent during any of the courses of the master program. This contributes to my interest for looking into this area in this study. My strong personal interest for beer and my driving force to increase the appreciation for good beer is a strong reason why I chose this topic for the study. I see the entrepreneurs of the microbreweries as an important group which might influence to a cultural changes which could give beer the same status as wines have in society today. It is unavoidable that the researcher?s values influence the work to some point, e.g. the choice of topic and perspective, but being aware of the dangers the negative effects of bias can be minimized. Most of my knowledge of the area is of general character and I have no direct practical experience of the brewery industry. However, since I have been in the restaurant business for many years I have a close relationship to alcohol beverages as a buyer and seller of the products. This has given me knowledge of the diversity of beer existing on the market but it has also given the opportunity to discover some issues which might cause trouble for entrepreneurs on the market. For instance that many restaurant owners often are hindered to buy beer from alternative suppliers due to highly regulated contracts with their main supplier.
2.2 Scientific Approach
The starting point for this thesis was the interest for entrepreneurship and especially entrepreneurship in the brewery industry. The idea for the work was in the beginning vague and was therefore developed by reading about the industry?s development throughout the history. There was also a need to get a better understanding of the Swedish alcohol policies and reasons behind the current market regulation before developing the research problem further. When the problem was clear, more reading was needed in order to find out what had previously been studied in this area of research. There are few previous studies which deal with the kind of market regulations that currently exists on the Swedish market for alcohol products. There are however other studies that can be applied to the entrepreneurs? efforts to overcome barriers on the market. By building a theoretical framework with these theories I had a solid foundation to gather empirical data and then find some explanations and answers to the research question of this paper. The work with this study has therefore not been a linear process with the starting point in either the existing theories or in the reality. It can instead be described as a spiral process where I have move forward and backwards in the process to produce, change and refine the 8
different parts whenever a need for it has occurred in order to clarify or correct information to make it possible for the reader to understand the whole picture.15
2.3 Perspective of the study
Entrepreneurship is about people undertaking new projects and actions and is therefore very much about individuals. Even if the study aims to investigate the actions of the small entrepreneurial companies in the Swedish brewery industry, the actions taken by the company is often the action of the individual entrepreneur. The entrepreneur or founder often have a central position in the company´s strategy work and will thus many times design, execute or otherwise be involved in the actions taken by the company. Because the purpose of the study also is to increase the understanding for the problems these entrepreneurs are facing it is necessary that the perspective of this study will be from the entrepreneurs? viewpoint. Considering the fact that much of the investigations concerning the Swedish alcohol market is made from the political perspective it is valuable to switch the viewpoint to spread new light on the area. The perspective applied in the study will become evident in the analysis where problems and solution are considered from the entrepreneurs? perspective.
2.4 Research method
Considering the purpose of this study, to deepen the knowledge of how entrepreneurs overcome barriers on the market, a qualitative research method is best suited for the problem. Creswell lists a few arguments for when the nature of the problem has the characteristics of a qualitative research problem. Creswell argues that a research problem is qualitative by nature when the researcher is facing a problem or concept where the problem has not been thoroughly investigated and therefore the existing theoretical base is limited or biased. Another characteristic for a qualitative problem is when there is a need to explore a phenomenon and by doing that develop new theories that can explain it. Finally, quantitative methods may not be suitable due to the nature of the problem that is being investigated because it cannot be measured in numbers.16 Looking at the nature of the problem in this study it can be determined that it holds many of the characteristics of a typical qualitative research problem. The studied market and phenomenon is quite unique in a global context since few countries have the same kind of regulations and restrictions for alcohol. A natural outcome is that very few previous studies have been made which implies that the theoretical base concerning entrepreneurship on this type of regulated market is available. Thus the first characteristic of a lacking theoretical framework is present in this study. Second, partly because of the lack of previous studies, there is an evident need of exploring the entrepreneurs? efforts on overcoming the obstacles in order to increase the awareness and knowledge about their situation. To do so, the study needs to recognize the individuals? acts to a greater extent than the quantitative methods which measures things on the aggregate level. Further, the studied market is also quite small with few entrepreneurial actors to study; the quantitative approach is therefore less suitable since
15 16
Bruce L. Berg, Qualitative Research Methods, (Boston: Pearson, 2004),18-19 John Creswell, Research design: Qualitative, Quantitative and Mixed Methods Approaches , (London: Sage Publications, 2003), 75
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the research sample would be very small and would not provide the same amount of valuable information and thus meets the last characteristic presented by Creswell. By using qualitative interviews where the entrepreneurs in a semi-structured way can tell their story it is possible to find things that has not been considered prior to the study and thereby come up with more interesting findings than with a completely structured survey. Many scholars have argued that the aim with qualitative interviews is to capture and share the respondent?s subjective experience to the reader.17 In order to be better prepared for the interviews and have better possibilities to investigate the problem the study started with a literature search. The areas chosen were based on my preconceptions of the problem that was realistic to be found later on in the empirical data collection. Some might argue that it would be better to enter the reality without any preconceptions about future findings and thereby execute a completely inductive study, starting with an observation or interview and first thereafter turn to the theories. However, in line with the arguments presented by Repstad that the qualitative researcher need develop some hypothesis on an early stage18, it is my belief that without any prior ideas of what you want to find you will never find as much useful things as you could with good preparations. There need to be a good interplay between theory and reality all the time.19 By developing a theoretical framework before doing the interviews it will be possible to structure the interviews in a way which both gives the respondents possibilities to tell their own story but to keep the discussion within the areas which are of interest of this study.
2.5 Scientific Ideal (epistemological considerations)
Which scientific ideal the researcher applies depend on the view of the reality that he possess. This study will investigate actions that are designed and executed by humans. Their decisions will be affected by the environment and the context they are made in and by the beliefs and values of the entrepreneur who make them. It can therefore be argued that a hermeneutical approach is applied in this paper. The positivistic view is considered to be free from values and thereby objective by nature and is therefore not applicable to this study20. Through interaction in form of interviews with the entrepreneurs this study will try to identify the actions and put them into a theoretical context in order to explain the nature of the Swedish brewery industry. This is in accordance with the interpretive scientific ideal where it is the researchers aim to interpret the stories told by the entrepreneurs and relate the different actions to existing theories and thereby put it into a bigger picture. The interpretive ideal also sees objectivity as an important issue but argues that it is impossible to be completely objective throughout the whole research process.21
17
Jody Millner and Barry Glassner, “The „inside? and „outside?:finding realities in interviews”, in Qualitative Research: Theory, Method and Practice, ed. David Silverman, (London: Sage Publications, 2004), 127 18 Pål Repstad, Närhet och distans: kvalitativa metoder i samhällsvetenskaplig forskning , (Lund: Studentlitteratur, 2007), 132 19 Ibid., 132 20 Alan Bryman and Emma Bell, Företagsekonomiska forskningsmetoder, (Malmö: Liber Ekonomi, 2003), 26 21 Bengt Starrin and Per-Gunnar Svensson, Kvalitativ metod och vetenskapsteori, (Lund: Studentlitteratur, 1994), 56-57
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2.6 Choice of theories
The theories chosen for this study aims to give an understanding of how entrepreneurs discover or create opportunities from the environment they live in and act upon them. This is the foundation of entrepreneurship research and without any knowledge of the beginning of a new venture it will be harder to understand the choices made in the process thereafter. The theoretical framework starts with an introduction to market regulations in order to define the current situation for the alcohol market and to give some explanations behind it. Further the difference between market driving and market driven behavior is explained since it is two different perspectives of how the entrepreneur chose to approach the market and the opportunity that has been identified on it. This is important since it is a part of the options that entrepreneurs have to deal with the market and also a strategic decision which needs to be made quite early in the entrepreneurial process. Marketing and entrepreneurship is argued to have close relationships and will therefore be a part of the theoretical framework. Branding theories which will be used in this study are important since they are one of the major tools for entrepreneurs in the brewery industry to differentiate their products from the competing products on the market. Marketing and entrepreneurship is also linked together through the mutual dependence of each other, i.e. it is the marketing which shall make sales of the product possible and thereby make the new venture to a profitable company for the entrepreneur. The early strategic decisions are often affected by the sociopolitical environment and the expectations, laws and regulations existing in the society. Since the current brewery industry structure with many smaller companies is quite young compared to a lot of other industries it was also interesting to look into the effects of institutions. The liabilities of newness and lack of legitimacy might be of huge importance when discussing what obstacles and hinder entrepreneurs on this market have. This area is also of importance due to the regulations set up by the society which are highly evident in this industry.
2.7 Selection of sources
When selecting sources for this study it has been important that they have a high scientific quality. Therefore the goal has been to use peer reviewed articles published in scientific journals in as high degree as possible. Articles by established authors within entrepreneurship and marketing strategies have been useful in order to develop the knowledge within the studied area. The books and articles which have been used in this paper have been found through three different sources. First, the University library has been used in order to find books about entrepreneurship and marketing. Second, the database Business Source Premier and Google Scholar has been used when searching for scientific articles within the different areas covered in the study. Finally, some articles have been found through the program syllabus for the Entrepreneurship program at U.S.B.E.
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In the search for articles through databases, key words like: entrepreneurship, entrepreneurial process, regulated market, branding, opportunity, market-driven and market-driving has been used individually and in combinations. The selection was thereafter made based on the title, then by reading the abstract and finally if the article seemed interesting for the study the whole article was read. Through this approach the fit between the selected articles and the objective of the study was ensured.
2.8 Criticism of Sources
Many of the topics dealt with in the theoretical framework are often based on a few articles dealing with the issue. This might be seen as a weakness because there can be other studies which argue for another approach than the selected articles and thus the argumentation does not consider all aspects of the issue. However, many of the selected articles and theories are written by well known and established researchers within their field and they are often cited by other authors. The majority of these articles has also been published in well known scientific journals and has thus been peer reviewed. A critical evaluation of the fit with the study was also done after reading the articles. Due to this they are considered to hold high scientific credibility and therefore the risk of bias and a selective choice of theories are not considered to have been harmful for the understanding of the studied are. Sources with lower scientific credibility as books, reports and internet sources have been used carefully in this study since their content has not been reviewed to same extent as scientific articles. Most of these sources are used in the introduction part and the methodology chapters of this study. They have been used in order to describe the research problem and to give an understanding of the Swedish brewery industry. Therefore, no major credibility problems should arise by using these sources in this paper because they have limited effect on the analysis and conclusions drawn in the study.
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3 Theoretical Framework
In this chapter the theoretical framework which this study is based on is presented. Theories dealing with market regulations, the entrepreneurial activity and opportunity discover and creation is presented along with theories about the entrepreneur. Further theories about market driving and market driven behavior are presented in order to clarify the possible strategic directions for new entrepreneurs. Legitimacy is important in a new developing market and is thus a part of this chapter. Finally, theories about branding and brand management are presented because it is a central part of the marketing activity in consumer product markets.
3.1 Market regulations
In a free market the exchange of products and money is based around people?s free choices and desires and there are no other constraints than their own individual assumptions of what is right and wrong. A free market will thus only consist of buyer and sellers who agree upon prices and thereafter makes exchanges through bilateral contracts. When several exchanges occurs organizations or individuals will be a buyer at one time and seller the next. The price on the free market will be set after what the buyer is prepared to pay for the product which is being purchased. This is based on the assumption that all people are rational and want the most value for the least amount of money. The buyers will therefore have the power to determine market prices and this communicates to the producers to what cost they need to produce the products in order to meet the desires of the customers.22 Thus, if the alcohol market was a free market everybody would have the possibility to produce and sell to the price that is determined by the market without any government intervention. The free market model is argued to consider all restrictions on the buyer?s choice to be negative for the system. The choices of consumers will increase the competition among sellers with the implication that they will become more innovative in order to offer more products for the buyer. They will also try to reduce their costs in order to get an advantage on their competitors by being more efficient. According to this model all forms of monopolies, tariffs, subsidies, and workers unions are bad because they restrict the possibility of a free market.23 As described in the introduction to this paper the situation is far from this model but there are occasions when it is motivated to step away from the free market model. The government?s role should in the view of e.g. Hayek be to support the individual?s freedom of choice. The basic idea is that the government should work for a well functioning competitive market. The freedom of choice does not imply that there are no rules of law and conduct. Instead the rules should give the individuals more certainty about what outcome they can expect from their choice.24
22 23
Carrier, 2-3 Ibid. 24 Chris Guest, “Hayek on Government: Two Views or One?”, History of Economics Review, 1997
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Hayek thus argued for a small government role on the market where its main role is to create stable rules which enhance the competition on the market. However, there are arguments for situations where the government should intervene on the market. Dardis argues that if the market suffers from market failures or if consumer health and safety is at risk, government intervention might be justified.25 This is what the Swedish government has done on the alcohol market and they have thus limited the freedom of choice among customers. On the free and perfect functioning market people would evaluate the risks of the products themselves and thereafter decide what price they are willing to pay for the product. The customers would through this action be expected to protect themselves from risks and hazards by their own choice. However, there is a difference between perceived risk by the customer and the objective risk because of information asymmetry between producers/seller and consumers.26 According to Dardis, because of the information failures and inadequate risk response the society cannot expect people to protect themselves and therefore regulations are a necessary thing. Further, excessive drinking will imply a risk and extra costs for other than the individual in form of e.g. increased violence and medical costs, which will affect the whole society. Another incentive for the government to intervene on the market is when the effects of different substances are well known and certain individuals or groups are more sensitive for misuse. Therefore the government has set up minimum age for buying alcohol because the effects are greater for young people. The politicians have thus motives to restrict the customers free choice on the market for alcohol products because the nature of the product. First, the product is concluded to have negative medical effects if it is misused and people can develop an addiction of the product. Second it is determined that a lot of violence is connected to the use of alcohol. Both of these things lead to increased cost for the society and therefore it is considered beneficial to regulate the market.
3.1.2 Regulations on the Swedish alcohol market In order to have a good control over those who produce alcohol products on the market the government has set up rules which demand permission for production of alcohol. When applying for the permission an investigation and judgment of the applying person?s suitability to deal with alcohol is done before giving the permission. The permission can have special restrictions if the authorities for some reason see it as necessary and if any violation against the permit is done it should be withdrawn immediately by the controlling body.27
25 26
Dardis, Spencer Henson and Bruce Traill, “The Demand for Food Safety: Market Imperfections and the Role of Government ”, Food policy, April 1993 27 http://www.sweden.gov.se/content/1/c6/12/15/91/fe04bc72.pdf, 2009-05-16
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The customer choice has further been restricted since the availability of the product has been limited through a retail monopoly and only restaurants with licenses are able to serve alcohol beverages to customers. In Sweden only Systembolaget are permitted to conduct retailing of alcohol merchandises with more than 3, 5 vol. % of alcohol. It is either not allowed for producers of alcohol to sell their products directly to customers or visitors at the brewery. The recent public investigation of the alcohol market also rejects the idea of introducing yard sales for small breweries or wine producers because it might jeopardize the current monopoly.28 The marketing activities of the products have also been restricted and marketing of alcohol products is allowed only for products with less alcohol than 15 vol. %. The marketing should not be targeted towards youths and should also be undemonstrative. Commercial advertising through TV channels are not allowed for alcohol products but because some of the Swedish channels are broadcasting from England other rules apply for these and therefore some alcohols commercial are possible also in Swedish TV. Advertising in journals and newspapers are allowed but there are restrictions of size of the advertisement, only the product can be shown, the alcohol percentage should be shown and a warning text of the harms of alcohol must be included in the advertisement. This can be seen as an attempt to decrease the information asymmetry between sellers and buyer by regulation what information they are allowed to transmit to the customer and not hide the negative effects which the product might have.29
3.2 The entrepreneurial activity
All entrepreneurial activity begins with opportunity identification and has come to have a central role within entrepreneurship research and many scholars have studied this process. 30 It can be either an active process or more accidental but it is however the first important element in the process to develop a successful business. Therefore, Ardichvili et al. argue that this is an area of great importance in all entrepreneurship research.31 For the purpose of this paper it becomes important since many of the new breweries in Sweden appeared during the same period of time. This indicates that there could have been something that triggered the entrepreneurs during this time. More than one individual identified some opportunities during this time and it is therefore important that the discovery or creation phase of opportunity is discussed in the paper. There are two main schools of theories about whether opportunities are created or discovered within entrepreneurship theory. They have been described under slightly different names by scholars but two clear names are discovery theory and creation theory. The first has its roots in the Austrian school of entrepreneurship and the second in the Schumpeterian school.32
28
29
http://www.sweden.gov.se/content/1/c6/12/15/91/fe04bc72.pdf, 2009-05-16 Ibid. 30 Connie Marie Gaglio and Jerome Katz, “The Psychological Basis of Opportunity Identification: Entrepreneurial Alertness”, Small Business Economics, 16, 2001, 95-111 31 Alexander Ardichvili, Richard Cardozo & Sourav Ray, “A theory of entrepreneurial opportunity identification and development”, Journal of Business Venturing, 18, 2003, 105-123 32 Sharon Alvarez & Jay Barney, “Discovery and creation: Alternative Theories of Entrepreneurial action”, Strategic Entrepreneurship Journal, 2007
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There is also a third view, opportunity recognition, which is focused on the allocation of resources and has its roots in the neoclassical theories of economy. This view is however not interesting for this study since it only focus on the system, and does not consider that individuals might discover or create opportunities through their own work or search for one. The entrepreneurial process is thereby neglected by this view since the only thing important is the outcome of the process. By this view, opportunity recognition is only a matter of luck, depending on differences in access to information.33 Since this study is more focused on the process by which the entrepreneurs are striving towards the goals, the opportunity recognition will therefore not be explained any further. Instead the focus will be on the opportunity discovery and opportunity creation theories. Before discussing opportunities any further it is necessary to define what an opportunity is. Sarasvathy et al. has identified three different components which an opportunity consist of. The first is that it needs to have a new idea or invention which might create economic ends. Thus, the idea or invention must be able to lead to be some possible economical transactions to be an opportunity. Second, the opportunity also needs positive beliefs by the entrepreneurs about the outcomes of pursuing the opportunities. Finally it needs action to achieve the ends which was intended in the first and second elements of the opportunity. 34 Thus, Sarasvathy et al. argue that an opportunity needs one or several persons who identify it as an opportunity and acts upon it. Otherwise it is useless if nobody is willing to make the efforts it needs in order to create some kind of value from it. According to the discovery theory opportunities exist in the environment and can be exploited by entrepreneurs who have the will to take on the work. The opportunities can be exploited by anyone who may come across them even though not everyone is equally likely to discover them. It is therefore argued by discovery theorists like Shane that an opportunity is an “objective phenomenon”, i.e. it exists even if no one will exploit it.35 Therefore one might argue that Shane?s arguments that an opportunity exists even if nobody acts on it falls outside the definition provided by Sarasvathy et al., earlier because they list action as an element of opportunity. However, they only say that an opportunity is meaningless if nobody acts on it, but this should not be seen as it does not exist.36 Therefore, Shane?s argument that opportunities can exist without anyone acting upon them is still valid even though it is slightly different from the first definition. As mentioned above, the likelihood that everyone can discover all opportunities is not very high. This since the process to discover new opportunities is very much about access to information and also about previous knowledge and experience that the individual possess. Networks are considered to have a central role when it comes to providing access to information. To get access to information which often is well conserved among a few
33
Saras Sarasvathy et al., “Three Views of Entrepreneurial Opportunity” in Handbook of Entrepreneurship Research, eds. Zoltan Acs and David Audretsch, (New York, Springer Science+Business Media, 2005), 145147 34 Sarasvathy et al., 143 35 Sharon Alvarez & Jay Barney 36 Sarasvathy et al., 143
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individual require close contact with those people.37 The networks are also important because people often only have information about a specific field or industry since they are specialized within that field. Thus, a chef will probably have more information about food trends than a mechanical engineer.38 What kind of knowledge the individual possess is important in order to understand the information that is being provided. Without understanding it is not likely that any opportunity can be identified based on the information.39 People who are working within a certain field will have better information about resources, technology, regulation and market demand in that field than other outsiders which gives them an advantage in the discovery process. 40 By using the information in combination with the prior knowledge the entrepreneur can come up with new ideas or an invention which was the first element of an opportunity. It is also argued that “entrepreneurial alertness” will enhance the likeliness that people can use and combine the information and their knowledge and identify the opportunity. According to Kirzner an entrepreneurial alert person is always on the watch for an opportunity to show at the horizon and is ready to act on it when it is spotted.41 The creation theory which has its roots in the Schumpeterian school has another perspective on opportunity identification. This theory is not as established as the discovery theory and the allocation theory.42 Opposite to the discovery theory, where Shane argued that opportunities are objective and exists in the environment ready to be discovered by those with alertness, the creation theory see opportunity as the result of individuals actions. Through this perspective an individual work actively to develop economic value. It is argued to be an emergent process without well defined goals in the beginning; it is more an ongoing process to reach the goals which will be developed over time as the process proceeds.43 This view of opportunity identification also considers the individual to be a social human being which is affected by the context and social interactions which makes the actions more irrational than in e.g. the discovery theory. It is argued that our actions are always depending on the situation and our intention, they cannot be freed from our psychological and physiological constraints and finally we are social beings and therefore our actions are meaningless unless they are put into a social context.44 The creation theory also has close connection to the theory of entrepreneurial learning processes. As the project develops, new problems occur and needs to be attacked in new ways and by new measures. Since the outcomes are not known in the beginning of this process it might be that the final opportunity the entrepreneur will exploit differs from the intended one
37 38
Sarasvathy et al., 143 Scott Shane & Jonathan Eckhardt, ”The individual-opportunity nexus”, ” in Handbook of Entrepreneurship Research, eds. Zoltan Acs and David Audretsch, (New York, Springer Science+Business Media, 2005), 174 39 Sarasvathy et al., 151 40 Shane & Eckhardt, 174 41 Israel Kirzner, “Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach”, Journal of Economic Literature, vol. 35, issue 1, 1997, 60-85 42 Sarasvathy et al., 155 43 Alvarez & Barney 44 Sarasvathy et al., 155
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at the start of the journey. It is not uncommon that the realized strategy will be another than the planned strategy because a lot of factors affect the process. 45 Due to this continuous process and search for the opportunity it can be said that the creation theory does not consider opportunities to exist but are being created through interaction between individuals and organizations.46
3.3 The entrepreneur and the opportunity exploitation
After describing the nature of opportunities and how they may be discovered it is also important to focus on the individual who have discovered them. Many might discover opportunities but not all will act and exploit them. Areas that are important here is the entrepreneurs access to resources, financing, social capital, psychological issues and the fit between the nature of the opportunity and the individuals abilities. Opportunity exploitation is to large extent a matter of gathering and combining resources into profitable ventures. This means that the entrepreneur needs to have access to a lot of different resources to be successful. A huge problem for new entrepreneurs is that there are information problems between the entrepreneur and the provider of the resources since entrepreneurs are unwilling to share information. Because the resource provider does not have access to all information about the project and have no previous experience of doing business with the entrepreneur there might be a lack of confidence in the project.47 The information problem might cause problems with the financing of new projects since banks are careful with their financing of risky projects with unclear business plans. Therefore many entrepreneurs need to find financing in other ways, either from their own pockets or from providers with whom they are more familiar, e.g. relatives or family members. Social capital has therefore an important position in the entrepreneurial process. Among the people that the entrepreneur already knows he/she already have the trustworthiness that is necessary in order to convince them that the idea is worth investing in.48 The access to information for the resource providers in this case is also better since it might be easier for the entrepreneur to share information with people who is well known and who are not likely to steal the idea. Another possibility to improve the access to financing is also to give away a part of the ownership which gives the provider better control over the investment. This is common when receiving venture capital from risk capitalists.49 The willingness to pursue an identified opportunity is also depending on the person?s situation and characteristics. Kirzner points out four characteristics which are necessary for a successful entrepreneur: vision, boldness, determination and creativity.50 People who have a desire to accomplish something by finding solutions to problems and by taking on complex
45 46
Alvarez & Barney Sarasvathy et al., 156 47 Shane & Eckhardt, 178 48 Ibid., 179 49 Ibid., 179 50 Israel Kirzner, “Creativity and/or Alertness: A reconsideration of the Schumpeterian Entrepreneur ”, Review of Austrian Economics, 11, 1999, 5-17
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tasks are more likely to become entrepreneurs than other. This also means that people who are not afraid the uncertainty which comes with high risk projects are more likely than risk avert persons to exploit opportunities. Therefore it is argued that people with high self-confidence and belief that they are able to deal with the complex problems are more likely than others to take on the risk.51 All of these characteristics are linked to the psychology of the person who might exploit an idea. It also is connected to the person?s life situation and the nature of the opportunity. If the person has a lot to lose in comparison with the possible positive outcomes of the opportunity it is less likely that any exploitation will occur.52 Few people are e.g. willing to give up a full time employment in order to start an own business since the possible benefits are small compared to the security that an employment provides. It will therefore be interesting to know from what situation the entrepreneurs in the brewery industry started their business.
3.4 Market driving or market driven entrepreneurship – strategic marketing decisions
An early decision in the entrepreneurial process is the strategy by which the company will pursue the market in terms of marketing orientation. On this matter Schindehutte et al. argue that firms either can have a market driven or a market driving strategy when it comes to approaching the market. They further argue that the market driving approach is an entrepreneurial phenomenon since it is what can create a lasting competitive advantage for the company.53 It therefore becomes interesting for this study to explore if the strategies applied within the brewery industry are of market-driven or market-driving character. Firms can work in three ways in order to meet their goals and through these ways their strategic approach can be analyzed. They can either approach the market by responding to customers expectations on an existing market, or they can try to redefine the market by changing the structures and expectation or they can create a completely new market for their products.54 The first strategy can be defined as reactive and the other two have a more proactive approach. The decision for the entrepreneur to pursue one or several of these different strategies is to some extent based on the assumptions of the market structures. If the assumption is that there already is an existing markets with a certain number of customer who are asking for a certain type of product then a reactive strategy will be a natural choice. Then the marketing and product/business development will be focused on following the customer expectations.55 Since customers have trouble to foresee innovative products and articulate unknown needs or expectations the product development will be focus on incremental innovation.56 This
51 52
Shane & Eckhardt., 181 Ibid., 180 53 Minet Schindehutte, Michael H. Morris, and Akin Kocak, “Understanding Market-Driving Behavior: The Role of Entrepreneurship”, Journal of Small Business Management, 46, 2008, 4-26 54 Ibid. 55 Ibid. 56 Nirmalya Kumar, Lisa Scheer & Philip Kotler, ”From Market Driven to Market Driving”, European Management Journal, vol. 18, no. 2, 2000, 129-142
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approach includes a learning process of the stakeholders? expectations in the existing market and the primary stakeholder is the customer. This is what is referred to as the market-driven behavior.57 With such an approach the micro-breweries would be most interested in following the current trends in the brewery industry and constantly follow them in order to lie as close to the customer expectations as possible all the time. This will however lead to heavy price competition since everybody will offer same types of products.58 Market-driving on the other hand is about changing the expectations of the customers or changing the whole industry structure by affecting all stakeholders within it. Schindehutte et al argues that market-driving activities indicate a strong entrepreneurial orientation of the company and that it can create sustainable advantages. Market-driving strives to achieve creation of new markets, business models or by changing the rules of the game within the industry which the company is working in.59 Compared to the market-driven firms the companies which are in this category will have more innovative products or business models which deliver unexpected value for the customer. They can achieve this because they often have a more visionary approach to the product development than market-driven firms which focus on customer research. Inexperience of the industry in which the entrepreneur acts may also be a benefit because it allows thinking outside the box. Since they are working in this way it is important that the employees in these types of companies are driven by some internal fore and motivation to change the world. They are on a mission which is of higher order than to earn some extra money. 60 Because of this it was argued that market driving behavior is more entrepreneurial than market driven. Kumar et al. argues that it is the ability to deliver products with an experience that outcompete competitors and exceeds the customer expectations without causing the customer any extra work or planning to achieve it that is significant for market-driving firms.61 In this lies also an ability to see and understand the latent needs of the customers and developing the new products according to those needs.62 The marketing approach differs between firms who have a market driving and a market driven way of doing business. The market driven firms are more conventional in their processes and have a clear segmentation strategy of the market and differentiate their marketing. They do research of what the market wants in terms of products and values and thereafter they implement these findings in their work in order to create a product - market fit.63 Market driving firms work totally different in many ways compared to the conventional methods. They do not use market segmentations and also tries to use more creative marketing methods. This is because they have a different view of the customers and how to approach them. Instead of asking the customer what they want today these market driving firms tries to
57 58
Kumar et al. Stanley Slater and John Narver, “Research notes and communications: Market-orientated is more than being customer led”, Strategic Management Journal, 20, 1999, 1165 -1168 59 Schindehutte et al. 60 Kumar et al. 61 Ibid. 62 Slater & Narver 63 Kumar et al.
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foresee what the customer might want in the future and thereby how the market can evolve from the current situation. Instead of using traditional marketing and sales methods they instead tries to educate their customers and relies on word of mouth effects or “buzz networks” as Kumar et al. puts it. This is possible since customers who have experience some extraordinary compared to competing products are eager to tell their friends about their finding. Therefore these firms do not have to spend enormous amounts of money on commercial to sell their products.64 By applying a market-driving strategy the company might be able to reach out to customers who still do not know that they need these products.65 This might be especially important in the brewery industry and similar trend industries. Here it is possible for the companies to create the trends instead of just following the customer?s existing preferences. Marketing is thus an important element in the entrepreneurial process since it is a primary tool to implement the strategies by which it works.
3.5 The link between marketing and entrepreneurship
As concluded in the previous part, marketing is an important element in entrepreneurship since it is the marketing function that shall make sales of the new product/service possible. Without any sales the company will not survive for long since the cash flow will be negative. The common thing between entrepreneurship and marketing is that it should focus on the customer and the benefits or value that the product can deliver to the customer. Studies have shown that besides financing of new ventures marketing is the most problematic area for new companies. The entrepreneurs often lack a clear marketing strategy; they have not made proper estimations of the size of the potential market and therefore miscalculate the future sales possibilities (often too optimistic assumptions about demand).66 Market-driving companies tend to have less understanding of marketing than market-driven firms in general. A reason for this might be found in the person behind the company. Many innovative and creative entrepreneurs have a personality which is not familiar with planning and therefore have less possibility to carry through effective marketing campaigns. They might be more interested in their product development than managing the sales processes of it.67 This might be a result of the often limited knowledge among entrepreneurs about marketing functions and how to promote their products. In general they do not have any greater understanding of any of the marketing concepts that can be used in order to make their products interesting for the customer to buy. This means that they will not be able to design the marketing strategy in a good way.68 Since marketing and entrepreneurship clearly are two functions that go hand in hand the paper will continue with a presentation of some useful marketing tools which might be of importance in the brewery industry. Because many of the products in this industry are similar
64 65
Kumar et al. Schindehutte 66 Hisrich, The need for marketing in entrepreneurship, The Journal of Business and Industrial Marketing, vol. 7, nr 3, 1992 67 Ibid. 68 Ibid.
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in their function and way of production it is important to distinguish them in other ways. The focus in this study will especially be laid on the possibilities that branding offers for the products and the companies. How can the small breweries shape their image and thereby become known and accepted by the customers and how are the entrepreneurs working with this matter?
3.6 Branding – a way to differentiate
To create a brand is a way for a company to create a communicative tool which differentiates their products from those of their competitors. A brand is something that provides the customer with information which helps them in the choice of products because through the brand they can quickly relate them to competing products. This is possible because the product brand is linked to the expectations that the customer holds about values or benefits delivered by the product. When the value of the product which is promised by the brand is delivered to the consumer the company also can maintain a premium price on their product. 69 This is important for small entrepreneurial firms because they often have higher unit production costs than large scale producers. For the micro-breweries it thus should be of huge important to be able to charge a premium price for their products. A brand has more than one side. The first one, described above, is brand image which concerns the consumers? perceptions and interpretations of the brand based on the information they have gained through experiences of the product, commercials, word of mouth and so on. The second side of the coin is brand identity and is concerned with the picture that the company want communicate to the customer about the brand. It is what the company wants the brand to be. This is in the control of the company but it does not necessarily have to be the same as the image because the interpretations of the customers cannot be controlled.70 There are a lot of models which describes the different dimensions of a brand. The dimensions consist of elements as: functions, image, differences, source and culture. The company tries to send out a picture of the product which contains these elements and the customer receives the information and creates an own picture. If there is consistency between the transmitted picture and the picture constructed by the customer then the brand equity will be high.71 There are also different levels of brands depending on the specification to which products a name is linked.72 Product brands: is just what the name says, a brand connected to a single product. Line brand or umbrella brand: If a company produces more than one product within the same field they can group the under a line brand which can be based on e.g. different quality standards. Company name: Some companies do not market their single products with own names but uses the company name as the brand for all products. Nokia is a good example of such a company. The only brand that is visible on their mobile phones is the company name and they
69
Sharon Ponsonby-McCabe & EmilyBoyle, “Understanding brands as experiential spaces:axiological implications for marketing strategists”, Journal of Strategic Marketing, 14, 2006, 175-189 70 Geoffrey Randall, Branding, (London: Kogan Page, 2000), 7 71 Ibid., 8 72 Ibid., 10
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only use model numbers for the different phones even if they could create individual product names for every phone. 3.6.1 Brand equity Brand equity is the concept of the added value that is connected to the brand of the product.73 It consists of different components like product attributes, brand awareness (or name awareness), brand association, brand loyalty and other properties connected to the product like trademarks, patents and relationships. It is though hard to measure the value of brand equity. There are no models that can put an exact price or value of a brand. 74 However, companies are prepared to pay large sums for acquiring known brands to their portfolios and there are also firms who sell services to estimate the correct value of different brands. To understand how the product achieves high brand equity it is necessary to develop the different components that create the total brand equity. Product attributes is concerned with the perceived quality of the product by the consumer in relation to other competing products with similar purpose of use. The product must meet the customer expectations and needs and even go beyond them. It is often mentioned in the literature that the product should deliver “unique benefits and superior value”. 75 There are a lot of features which can create this superiority of the product and thereby contribute to the brand equity. Some of the features mentioned are product quality compared to other products, price-performance ratio or well design packaging.76 Considering the brewery industry where all the products have the same basic purpose (you drink it because you are thirsty, as a complement to food or for social purposes) and effect (you get drunk if you have to many) it can be hard to achieve some of the product features which create the brand value even if some consumers may evaluate price-performance as how cheap it is to get drunk. But then we have moved away from the more entrepreneurial firms in the industry which seldom compete in this low end market. Instead they may be competing by creating positive associations to the product and with these kinds of more emotional attributes. The importance of different attributes was studied by Romaniuk and she concludes that the more attributes the customer can link to the brand, the more likely it is that a purchase will occur.77 Further, when designing the product it is important that it is easily distinguished from other products and have an attractive appearance.78 The brand name is the second component which is very important for a successful product because a good name is powerful to create awareness of the product. The name is the identity of the product. It is the name that is communicated through commercials and promotion activities. To create awareness of the product name (or brand name) can be very costly and
73
Hans Mathias Tjömöe, ”Branding, Cheating the customer and other heretical thoughts”, Journal of Brand Management, 16, 2008, 105-109 74 Randall, 23, 25 75 Ponsonby-McCabe & Boyle 76 Ibid. 77 Jenny Romaniuk, ”Brand attributes – ?distibution outlets? in the mind”, Journal of Marketing Communications, 9, 2003, 73-92 78 Ibid.
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thereby difficult for smaller breweries. The barrier to get people to try the product is also high in normal situations.79 On a regulated market it will therefore be even harder because of the sales restrictions. You are also not allowed by law to offer samples of the product which many other consumer product producers often do when they launch products. Since breweries often have many different kinds of beers in their production you often only see their company name as the main brand. Even if Carlsberg is one of the world?s biggest breweries with a lot of different products they always communicate their famous slogan “Carlsberg – probably the best beer in the world”. The do not say if it is Hof, Export, Falcon or Pripps Blå even if they produce all of these sub brands. As previously mentioned this is also a strategy used by e.g. Nokia even if they are even more consistent with using only the company name on all products80. By succeeding in these two areas the company may create a brand awareness among the customers which is the third component of brand equity. By using both commercials and media activities and other promotion activities the company can create awareness of the product.81 This is what was called brand image previously, namely how the customer perceive the product and what beliefs that are connected to the brand name. When it acts as a part of brand equity it symbols a public desire for the product that the company offers on the market. Therefore, the goal for the company is to create associations in the customer?s mind which are positive and triggers the purchase decision when choosing among different products. These associations can be directly linked to the product itself but can also be linked to some cultural aspects of the company or the location where the company is situated. Ryan has studied how a number of Finnish companies have used their origin in the marketing of the company and their products and thereby achieved a country-of-origin effect. Ryan argues that when people have knowledge about the product attributes they tend to use other indirect indicators of the products quality. By using symbols typical for the place of origin the companies can create a positive image of the product and thereby make the product more familiar for the customer even if the actual knowledge of the product does not increase.82 This might be very interesting for many of the smaller breweries which often have a very local profile. Many of the existing breweries use town or regional names as their company names. The last component of brand equity is brand loyalty which means that consumers are willing to repeatedly buy the product. This component is very hard for the company to control since it is based to a high extent on the customers experience when consuming the product. How we experience products is very individual and especially when it comes to beer where all people have different taste and opinion about how a good beer should taste like. Loyalty can be achieved if the customers experience is in line with their expectations and it should also reflect their values and identity.83
79
Romaniuk Jason Ryan, “The Finnish country-of-origin effect: The quest to create a distinctive identity in a crowded and competitive international marketplace”, Brand Management, vol. 16, 2008, 13-20 81 Ponsonby-McCabe & Boyle 82 Ryan 83 Ponsonby-McCabe & Boyle
80
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3.7 Gaining legitimacy in a new industry
Even if the brewery industry has been around for ages it can still be defined to at least some extent as a new industry from the 1990´s and forward. The industry faced huge changes during this time in terms of legislations and changes in the business environment caused by the EU membership. The customer?s awareness of new products and a desire for better quality and diversity of beers also changed the possibilities to start new small breweries in Sweden. A well rooted pattern for consumers when ordering beer in a restaurant had for a long time been to order “a big strong” when ordering beer. Nobody cared about what beer they would get and this is still in use in Sweden but is never seen in other countries. The industry also went from an oligopoly situation with a few dominant players to become more diversified with smaller companies competing of the customers favor. Due to this it is valuable to discuss the institutional context that the industry experienced and how it could cause liabilities of newness for the entrepreneurs in this business. It is always difficult and risky to start a new business but it is argued to be especially hard in industries with few companies who have created awareness of the phenomenon of entrepreneurial ventures in it. It is harder for companies to enter a business environment which is in a formative phase because they face a lot more hinders than entrepreneurs who pursue opportunities in industries which are more generally accepted. In new industries it is also harder to find employees with the right education and who have the skills necessary to work in the company. It is also harder to raise capital since investors might be afraid of investing in unknown products with no previous history or with unknown markets. 84 This is thus linked to the legitimacy of the entrepreneurs in the industry. Legitimacy is therefore concerned with the social acceptance of the companies on the market and is considered an important resource of an entrepreneurial business. It is argued by Zimmerman and Zeitz that legitimacy is what gives the company the possibility to acquire the resources they need in order to run the business. They further argue that the company through strategic action can improve the legitimacy and through this action improve the performance. 85 This argument makes legitimacy interesting for the study because it concerns the strategic work in the entrepreneurial process and offers a tool for the entrepreneur to overcome some of the hinders which is in the focus of this study. For the brewery industry it is primarily in the sociopolitical domain where lack of legitimacy might be found. This refers to the public opinion, government support, and existing norms and laws. As explained in the introduction the Swedish policy concerning alcohol beverages has been to prevent people from drinking too much and to regulate in order to hinder private profits made through peoples drinking habits. Therefore it can be said that the sociopolitical acceptance has been quite low historically in Sweden. Thus it can be expected that new firms who are trying to restructure the industry have experienced some difficulties connected to the lack of sociopolitical legitimacy.86
84
Howard Aldrich & Marlene “Fiol, Fools Rush in? The Institutional Context of Industry Creation” , Academy of Management Review, 19, 1994, 645-670 85 Zimmerman & Zeitz, Beyond Survival: Achieving New Venture Growth by Building Legitimacy, Academy of Management Review, vol. 27, no 3, 2002 86 Aldrich & Fiol
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To develop the understanding and acceptance for the industries activities it is suggested that firms should organize themselves and take collective actions, like lobbying and marketing through trade associations and industry committees.87 The Swedish brewery industry trade association is dominated by the biggest actors on the Swedish market, primarily Carlsberg and Spendrups who hold four out of seven seats in the board of directors. The other companies represented on the board are Coca-Cola Sweden, Åbro and Kopparbergs.88 Few of the small entrepreneurial companies are members of this association and none of the companies interviewed in this study is a member of this association. This could indicate that the industry is not as well organized as it should be in order to gain extended sociopolitical legitimacy which could be expressed by a more liberal legislation. It is thus interesting to study why the entrepreneurial breweries are not part of this association which also could give their company a greater acceptance on a more individual level.
3.8 Summary of the theoretical framework
Opportunity identification was argued to be the central thing in all entrepreneurial activity. Further it was argued that opportunities can either be discovered or created by the individual. Discovery theory was based on the idea that an opportunity is something that is waiting “out there” and everybody can discover it but e.g. Shane argued that some are more likely to discover it than other due to differences in knowledge and access to information. The creation theory is more focused on the actions of the individual and sees the opportunity to be an outcome of the work done in order to create economic value. The social environment will influence the decision process and the opportunity is only meaningful if it is seen in a social context. The entrepreneur?s personal characteristics will also influence the probability to take on entrepreneurial work and exploit opportunities. There are two options for strategic direction which the entrepreneur needs to decide on in an early stage of the process. The company can either decide to approach the market based on the customers? expectation in a reactive way (market driven) or they can decide to work proactively in order to redefine the market structure by changing the expectations on it (market driving). It was argued that a market driving strategy was an evidence of a strong entrepreneurial orientation which can lead to sustainable advantages. To change the expectations of the market and reach the sustainable advantages the entrepreneurs need a marketing strategy. This is an area in which many entrepreneurial companies have lacking capabilities and unclear strategies. Marketing is also a way to differentiate the products from the competitors which is of great importance in the brewery industry where all products have the same basic function. Instead the companies need to focus on the customer?s experience of the product. By creating a strong brand image the company should be able to reach high brand equity. A way to build this image can be to use the origin of the product as a marketing tool. This can be valuable for the micro-breweries since they often are located on the countryside and can thereby refer to something genuine and a local culture.
87 88
Aldrich & Fiol http://sverigesbryggerier.se/om-oss/styrelse/, 2009-05-16
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Since the micro-brewery industry is relatively young and small they might still have a lack of legitimacy. Legitimacy is about the public acceptance for the industry which will be visible in laws, regulations and attitudes towards the industry. It was argued that legitimacy can be gained by organizing the industry in e.g. industry associations. The marketing and image building activities also have an important part in this process and is thus linked to the marketing activities.
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4 The study in practice
This section discusses the selection of respondents for the study and the process of collecting the empirical material which later will be analyzed. The arguments for the chosen form for presenting the material will also be provided.
4.1 Selection of respondents
The selection of respondents has been made based on the respondent?s suitability for the study which according to Creswell is more important than randomly selecting respondents. 89 To meet the purpose of this study and a set of criteria was set up before contacting the breweries. Since the study is focused on entrepreneurship the first criterion was that it should be classified as a microbrewery. A microbrewery is a small brewery is signified by craftsmanship and produces a limited amount of beer per year. The second criterion was that the founder should be active in the company. This criterion was set up since it otherwise can become hard to define whether it is question of entrepreneurship or management if the ownership issues are diffuse. This was also more suitable since the study focus both on the start-up process and the current situation of the company. Finally, the breweries needed to have own production and not just license brewing in order to be classified as a microbrewery which was the first criterion. A list with all existing breweries was found on the homepage of The Swedish Beer Consumers Association homepage. According to this list there are 33 breweries with own production in Sweden. There are also 7 breweries which produce sweetened small beers and 9 other breweries which do not have own production but instead produce their beer on license in other breweries or otherwise cannot be categorized into the other two categories. 90 For this study only the companies in the first category was of interest because the second category does not act under a regulated market concerning sales and need of permissions to produce and is thus working under totally different conditions. The third category of breweries which does not have own production falls outside the definition of microbreweries and are thus disqualified in this study. From the list the largest breweries which cannot be regarded as micro-breweries where excluded as well as pub breweries which produce for their own use and who are not selling on the market and those who only produce soft drinks. This left 12 companies and after checking their homepages and evaluating them against the criteria 11 companies where finally contacted for an interview request. At the first contact five of the companies agreed to participate in telephone interviews, two of the companies wanted to answer by e-mail due to difficulties to schedule an interview in their calendars. One company could not be reached with the request and one company was rejected since the founder has left the company and was therefore of less interest for the study. In the end only three telephone interviews were conducted after two companies changed their minds. The cause to this was lack of time for the interviews from their side. The interview questions had not been presented to them in advance so it was not due to the nature of the questions that these companies did not want to
89 90
Creswell, 185 http://www.svenskaolframjandet.se/bryggerier, 2009-05-04
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participate. In the case of the two e-mail interviews one of the respondents answered that he did not have time for it while the other one never replied. A disappointment was that one of the driving forces behind the newly started micro-brewery association did not want to participate in the study due to a busy schedule. It is understandable that these small companies with few employees have difficulties to lay of time for these interviews but for the study it could have been of large interest because it indicates that she want to work for better conditions for the industry. Some of the reasons to the start up of this organization were provided by the other entrepreneurs participating in this study but it would of course have been valuable to have the whole picture of this event. Three interviews might sound a bit thin for the study but since the population also is small it still is quite a good participation rate. The qualitative method also implies that the number of respondents is not the most important issue but the quality of the information provided. Travers states that it is possible to learn a lot from only a few interviews and thus I do not consider that the number of respondents is of major concern for the study. 91 As will be explained further in coming sections the interviews provided a lot of useful information and they also had many similarities between them. Therefore it is reasonable to believe that these three interviews have given a good picture of the situation for the entrepreneurs in the industry.
4.2 Design of the interviews
Interviews are a form of conversation where the researcher wants to gather empirical material by letting people talk about the issues which are being studied. This conversation can either be completely unstructured when the respondent can tell freely about their life to highly structured when the interviewer have a questionnaire with given answers.92 The scale of structures is wide and these are just the two extremes of it. Many interviews lie somewhere in the middle of these extremes and also this study apply a semi-structured interview design. By having a structure with defined topics and open questions within the topics the aim is to receive the maximum amount of useful information without a lot of answers which cannot contribute to the study.93 This is especially important due to the deductive approach of the study. Without any guidance few of the studied issues might be covered in the interviews. The open questions however give the opportunity for the respondent to stress what he/she thinks is important even if it goes beyond the asked question but is within the same topic. This means that if some important questions are missing in the interview guide the entrepreneur is not limited by this fact but can bring up new questions if it is of value. Therefore the main function for the use of an interview guide has been to steer the conversation without affecting the answers to much.
91 92
Max Travers, Qualitative Research Through Case Studies, (London: Sage Publications, 2001), 3 James Holstein and Jaber Gubrium, “The active interview” in Qualitative Research: Theory, Method and Practice, ed. David Silverman, (London: Sage Publications, 2004), 141 93 Ibid., 141
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The interview guide was thus designed to cover the areas described in the theoretical framework. The beginning of the interview focused on the opportunity identification and start-up phase of the company in order to find out what triggered the entrepreneur to go into the industry. Next part of the interview turned the focus to the strategies they apply in terms of marketing, sales and product development. The aim of this part is to find out if they apply a market-driven or market-driving approach in their strategy. The final part of the interview focus on more institutional hinders which they feel obstruct their future development and how they work in order to change them. This part relates to the institutional context which was discussed in the theoretical framework. The interview guide has been design to follow some kind of chronological order which makes it easier for the respondent to answer the questions. It also provides the possibility to build up some confidence between the respondent and the interviewer by starting with more general question. However, none of the questions are of really sensitive nature which should allow a positive atmosphere for the conversation.
4.3 Interviews in practice
The interviews with the respondents were conducted as telephone interviews. An audio recorder was used in order to have the possibility to listen through the interview afterwards and also to transcribe the interviews gives a better possibility to do a good analysis of the answers provided. The use of a recording devise also made it easier to keep the interview flowing without any breaks since there was no need to write down the answers before moving on. The questions where not sent to the respondent in advance because it could have limited the answers to just cover those questions. An implication of this could have that the respondent had left out important information of issues which might be of importance for the study even though they were not predicted in advance. The other side of the coin is that the respondent did not have as much time to think through the answers as if he/she would have had them in advance. In previous thesis work the questions have been sent in advance and the feeling is that this approach was more fruitful since the respondents was more relaxed with the situation and shared their information more freely when they did not have thought through their answers based on the interview guide. The atmosphere for the interviews was very relaxed and the respondents seemed to understand the questions and answered them thoroughly. An interview guide was used in order to steer the interviews through the different parts which was of interest for the study. In most of the interviews only part of the questions needed to be asked since the respondents covered them without any question being asked specifically about certain issues. This allowed a good interaction between interviewer and respondent since it became a very natural discussion when only some guiding questions needed to be asked instead of moving from question to question. Due to far distances between the different respondents, and a limited budget and schedule for the thesis, telephone interviews were the next best option to face-to-face interviews. A 30
weakness with the telephone interviews is that the connection or relationship between interviewer and respondent becomes more formal than it might be when conducting face-toface interviews. There is not the possibility to build the same relationship and confidence as a handshake and personal meeting creates between two persons. A visit to the breweries could also have rendered in more detailed explanations of certain issues since the respondents would have had better possibilities show and explain the different processes on site. However, the overall feeling is that they were able to explain the most important issues satisfying.
4.4 Presentation of the empirical material
There are a few different approaches to choose from when presenting the empirical material and which one that is most suitable depends on the nature of the study. Nylén presents four different strategies which can be applied when presenting qualitative data; case descriptions, autobiographical stories, fragmentized puzzles and unique conversations. According to Nylén it is a matter of ontological-epistemological standpoints which defines which strategy that is most suitable to use. Is it the researcher?s voice or the empirical voice that s hould dominate the presentation and is it the data that is the reality (e.g. conversation analysis) or is the respondents answers just a reflection of their social reality? 94 In this study it is the empirical voice, i.e. the view of the entrepreneurs, that is in focus and their reflections of their experiences and therefore case descriptions are most in line with the perspective and the epistemological standpoints of this paper. The transcriptions of the interviews made it possible to identify the most important parts of the interviews and thereby concentrate the presentations to only the parts important for the analysis. The material will be presented as case descriptions of each company with a structure that makes it easy to follow the different areas of the interviews. This way of presentation will allow an understanding of each respondent?s reality and their unique situation which they are acting in. This is important since many of the problems and strategies they have expressed are situation dependent. To increase the credibility for the presentations citations will be included in the text in order to express the most important answers given by the respondents. Here it is important to note that all interviews were conducted in Swedish and therefore the answers have been translated into English. Each case description will follow the same structure which makes it easy to compare the content of the different cases to each other. First a description of how the company came to existence is presented in order to give a understanding of what kind of company it is and how the person or persons behind it came up with the idea and spotted the opportunity. Then their way of working with marketing strategies and sales strategies are presented. All parts will also have a description of the problems that the respondents had experience during that phase or in that area.
94
Ulrika Nylén, Att presentera kvalitativa data, (Malmö: Liber Ekonomi, 2005), 65-67
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5 Empirical presentation
In this chapter the material from the interviews with the entrepreneurs is presented. All interviews were conducted in Swedish and therefore all citations have been translated into English.
5.1 Oppigårds brewery, Björn Falkeström
Björn Falkeström is the founder of this brewery which is situated in Hedemora. Björn has always had a strong interest for beer and started early to make his own beer and experiment with his own brews. It started in small scale as a hobby when he was 18 years old and has developed from there to become what it is today. Björn described his interest for brewing as:
“It has gone up and down from since I was 18. I produced my first whole malt brew when I was 18 years old in my mother?s old preservation device and then it has followed me throughout my studies in Uppsala and later when I was working in Stockholm I produced some home brews.”
Björn met his wife in Stockholm but they moved back to Dalarna and bought a house close to Björn?s parental home which is a farm property and the building there provided the possibility to scale up his hobby of producing beer. Björn had studied economics, and worked within that field but a dream of working with consumer products always had been present and in combination with the desire to start some own business the brewery became that business. Björn had started his process already in 92-93 when he read a lot of literature about the industry and the brewery techniques and made study visits to breweries in Europe. The move back to Dalarna in 94-95 also provided possibilities which were not present in Stockholm in form of facilities and a lower general cost situation. During this period Björn also followed the development of the Swedish entrance into the EU. This event removed a major obstacle for nascent entrepreneurs in the brewery industry.
“When we entered the EU the Swedish regulations around alcohol was loosened up and for instance the requirement to keep half a million SEK in security for future tax payments was removed.”
In 1997 the process to set up a brewery for commercial production was started but was not ready for production before 2003. The problem that Björn faced in this phase was the lack of experience from the business and he did not want to ask his future competitors of advice and they probably would not have been very interesting in helping him either. This lack of experienced was seen when everything took much longer than expected, it was more costly and the need of production space was a lot more extensive than he thought.
“I was maybe a bit naive in the planning when it comes to capital, spaces and how much time everything will need.”
The financial resources were gathered through consulting work on the side of the brewery business and also when he sold his share in the farm property to his brother. Björn also sold a car that he had built back in the days. As previously explained he did not have much of a 32
network which could assist him in the start-up but some foreign contacts was useful in the beginning. Other problems in the start-up phase were some quality failures with the durability of the beer. The infrastructure has also been causing some trouble for the brewery since they are located on the countryside e.g. the supply of electricity is not as good and the wastewater systems are not adjusted for such volumes that is produced by a brewery. The municipality?s understanding of these problems also have been somewhat lacking.
“Even if we have been granted production permits and the energy company who are responsible for the sewerage system has said it is OK, so when we finally are in production they do not think it is OK.”
The company is not working towards any specific target group of customers. The brewery makes beers with a lot of taste, many are bitter and also with a rich taste of hops. Björn said that his opinion is that it is rude to pick out a target group with the belief that these people are intelligent enough to understand our beers and other are not. He believes that all people can appreciate a good tasteful beer with more flavor than an industrial lager beer and this is part of their mission to change the drinking behavior on the Swedish market.
“I see it as we have two missions. First to make a living of our work and get return on our investment but we think it is important to spread a good beer culture and that we do by making beers with a lot of taste. You can?t spread beer culture which is based on the intoxication effect.”
The marketing of the products is mostly done at fairs like Stockholm Beer & Whiskey festival even if Björn have trouble to estimate how much value it brings back to the company to be represented in these fairs. They also sponsor some music events but this is mostly because of Björn?s personal interest in the folk music and he thinks it is a good way to contribute. They want to be visible in events they feel are joyful and which lies in line with personal believes. They do not have any concrete strategy on how to build their brand but it is to large extent connected to their location and way of work. “ …that we are out on the countryside and that we have used old buildings and that we work with craftsmanship, it is such values that gives a brand a value in combination with many who appreciate our beers.” The brewery has also had good success with editorial text and a lot of publications in newspapers both locally and on national level with mostly positive critique for their seasonal products like Christmas- and Easter beer. This is considered as a much better marketing tool than advertisements which is not possible due to the financial costs related to it. Another marketing activity which Björn considers to be one of the best is to arrange tours and visits on the brewery for groups where people can taste the beers and see how the production works. Besides the good PR function it is also an additional source of income for the brewery. Oppigårds have become quite established on Systembolaget and 90-95 % of their sales go through this channel. They have also started a co-operation with TOMP Spirits who are taking 33
care of the sales towards restaurants. This is still in a start-up phase and therefore the sales volumes through this channel are small. The brewery has also managed to get some export channels to USA and to Finland. To build the brewery around a local market Björn does not consider to be realistic since it is too small and the consumers are not loyal towards one brand. Still most beer consumers also choose their beer based on price and the brewery has no possibility to compete with the big breweries on price. Björn explained that there are a lot of myths about how difficult it is to get access to the shelves at Systembolaget. He cannot say whether it is hard or easy but since Systembolaget is run by a extensive regulation regarding what products they can sell there are no possibilities for any promotion activities towards them. Systembolaget plans their operations and then they present plans of what kind of products they aim to sell in the future. Out of these plans they then send out offering requests and as long as the formal documents are correct the brewery can send in samples of their products which then will be blind tested. Björn see it as if the products are not chosen then somebody else has a better beer. He considers Systembolaget to be a very good company because they have shops in the whole country and that it could be hard for the brewery to reach all parts of the country if they would have to promote and sell their products to many different food chains. He is also concerned about whether or not they would be able to get the same price for their products in that scenario. He is not convinced that they would be interested to have their products on the shelves of smaller stores and in smaller cities where the number of customers are low. When asking about how the support and attitudes from the society is towards the brewery industry the recently presented public investigation about the alcohol law came up. Björn expressed some disappointment with the investigator who expressed concerns that the permission for the micro-breweries to sell their products directly to customers who come to the brewery would lead back to the drinking situation among youths in the 70?s. Björn strongly opposed:
“If you have done such a poor job that you don?t have gathered any information about what values the micro-breweries stand for, which our products are, and who our customers are and you are so uninterested in discussing something that?s called beer culture then the distance between us and the politicians is quite big.”
Recently the micro-breweries has established an own association in order to get a stronger voice towards politicians and hopefully be able to act as a consultative body. Through this they will try to get people to understand what they are drinking and that politicians could see something positive with the existence of micro-breweries.
5.2 Ahlafors brewery, Christer Sundberg
Ahlafors brewery has an interesting background and is a bit different from the other cases presented here. This is because of the number of people involved in this business and the widely spread ownership of the company even if it is not a public company. Christer Sundberg who is one of those who started the whole thing and is the only employee of the 34
company explained that the stories tells that it was a bunch of men who started it in a sauna in 1993 or 1994. The inspiration they had got from Gammelstadens brewery which they had read about in the papers.
“We are a bunch of old guys who meet on Fridays for some horse gambling, we drink some beers and „lie? a bit. And then somebody says that we should also start a brewery.”
After this they started to look for financing and each person invested 5000 SEK and got a share in the company. To get more investors they put an advertisement in the newspaper and informed the public that there will be a information meeting about the project and everybody who were interested where invited. About 250 people attended and those still interested could take a form with them home with the bank account number where they could put in money. After one month they had one million on the account and today the company has around 190 shareholders. Many of them are also active on volunteer basis in the production. With an additional loan from the bank the financing of the company was managed. They had the opportunity to buy old equipment from a brewery that was in a process to expand their business. Since they had no previous experience or knowledge of the brewery industry or how to make beer they had the luck to get their first brew master as a “part of the deal” since he was laid off because of the reorganization in the firm which sold the equipment. This enabled them to get the production started and in 1995-96 the production was up and running. The whole background was well described by Christer as:
“We were happy amateurs who thought we would become rich on selling beer.”
The target group of customers is primarily residents in the municipality since the brewery tries to have a local profile. They do not target youth who just are looking for maximum alcohol effect for the minimum amount of money. The focus is on quality and they only produce unpasteurized beers and the price level is about 20 SEK /0,5L.
“The ambition is that whenever an Ahle resident have a party it should stand an Ahlafors beer on the table. Later when the night comes the German beer might come out but that does not matter”
They also target the typical beer pubs like Bishop Arms in Gothenburg and another important segment is conference centers and hotels which they also can offer to design own labels for the beer bottle because of the flexibility of the brewery. All of their products can also be found on Systembolaget?s shop in Nödinge which is the shop closest to the brewery. The micro-breweries have been offered the possibility to place their products on the nearest Systembolag shop because they cannot sell their products on the brewery and this is an attempt to conciliate the debate around the issue on the political level.
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The brewery does not experience any trouble with selling their products at the moment. The problem is more to adjust the production to the sales so that they do not produce more than they can sell and the other way around that they do not sell more than they can produce.
“We have increased production with 40% in one year and will increase with the same amount during this year so selling is not the problem but to find the mix”
Christer do not consider a possible abandoning of the sales monopoly to be a positive thing for the brewery. This because he thinks Systembolaget is a very good channel which promotes diversity of products. He does not believe that ICA or Coop would have the same amounts of brands in their assortments. He also puts very high value of the enormous knowledge resource that Systembolaget possess and this might be lost in a case of abandonment of it. However, he wishes that they could have a bit more flexible rules about which stores they are allowed to place their products in. Christer would like to get his products into the large Systembolag shops in the center of Gothenburg where none of the three micro-breweries in the region are represented. Christer have e-mailed and discussed this matter with Systembolaget but they just refer to EU competition laws which obstruct them to favor small Swedish producers but he is skeptical to their standpoint.
“Then they have to do the same with a small French wine producer, which I think is nonsense, an French wine producer will never demand that”
The marketing of the brewery is all about footwork. Christer is the one who does all the work and they do not have the finances to run expensive advertising campaigns. They try to work actively towards pubs and it is much traditional sales activities. They try to build their brand on their location and to have a clear local profile. They are situated in an old spin factory from the 19th century with clock-tower and all what is significant for such a building from that time. All products are also named with Ahlafors or with Ahle which is the municipality. There is a growing interest for these types of breweries and Ahlafors have succeeded to get some articles in the big morning paper in the Gothenburg area which builds their brand awareness in a good way. The article lead to a situation where they had sold all of their Easter beer long before the holiday had come and then people instead tried some of their other beers just because it was from the same brewery. The product development is much about experimenting and they never do any customer research before developing a new beer. They test different blends and the development is influenced of what they drink and what they hear from colleagues and then they discuss it with their brew master. Since they only produce 2000 liters per batch it is no catastrophe if it fails to sell. For the moment they cannot develop much more new brands since their capacity is not enough for it. A new tank cost about 100 000 and those money they do not have for the moment. They can do a lot of things with scarce resources because many of the shareholders have this as a hobby and come to the brewery every Wednesday to repair and clean things that are in need of it.
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Christer also mention the start of the micro-breweries? association as a positive thing since they can have a stronger voice if they act more organized. It can also be a place to discuss problems which occur and share experiences and knowledge with each other. He sees this as a good channel to spread the knowledge about the breweries and develop the beer culture in the same way as the wine culture developed during the 70?s and the 90´s. The reason why they are not a part of the current industry organization is that they do not contribute with much for the small breweries and he also say that nobody has ever asked them to join the organization.
5.3 Ocean Brewery, Rodrigo Arvidsson
Rodrigo Arvidsson is one of the founders to this micro-brewery located in Gothenburg and it is one of the youngest breweries on the Swedish market, started in 2007. Rodrigo has studied economics in Gothenburg and before entering the brewery industry he had a restaurant business in Gothenburg. During this period he met Thomas Bingebo who has been working as a brewer both in Ireland and in Sweden and Thomas proposed that they should start the micro-brewery. A reason for this was that Thomas had the possibility to buy the brewing equipment from his previous employer and so they eventually did. Rodrigo describes his interest for beer as:
“I have been interested in beer in the way that I have visited the famous beer pubs in Gothenburg which have a broad variety of beers but not more than that. I had no knowledge about breweries and the brewing process at that time.”
The networks that he thinks are important in the start-up phase are the people and companies who are working with beer, i.e. restaurants, pubs, and newspapers. The goal is to get the people behind the bar to recommend their customers to try a beer from a Swedish microbrewery instead of their normal order from the big brands and also to be able to compete with the more established micro-breweries like Oppigårds and Nils Oscars.
“It is important to create a buzz around it”
A good bank contact is also an important network since it takes external financing to start a micro-brewery. Rodrigo estimates that brewery can be in need of anything between 2 to 18 million in investments depending on size. It is hard to get external financing since it is the alcohol business which is maybe not categorized as a prospering industry in the future. The time to get return on investments is also long. The divided attitudes towards the industry were described by Rodrigo in terms like:
“There are a lot of interested people but there are few who want to take full responsibility for it”
The biggest problem Rodrigo mentioned in the start-up phase was to get all licenses to brew the beer. It takes four different licenses (to deal with alcohol, for production of alcohol, permits from tax authorities, and health- and environment authority?s permission) before you can start and all of these are in a way tied to each other. They have not experience any bigger technical problems or financial problems so far. 37
The target group of people is not defined in terms of age, gender or other measurable terms. They target their products towards customers who appreciate a well tasting beer. If it is a senior citizen who want to enjoy a beer on Friday night or a football fan who want to drink a beer at the pub does not matter for Rodrigo. They wish to have customers from all parts of the society and the only thing necessary is that they have some interest for beer but all customers are just as important. The marketing is mostly done through participation in fairs and through newsletters and their web page. They also arrange tours at the brewery with tasting for primarily companies who see it as an event for their employees to come there and have some food and see how the brewery works. Rodrigo also say that they are becoming more and more recognized as a tourist attraction since they currently are the only existing brewery in Gothenburg.
“This is very good because then they go home and talk to ten other people about how nice it was at the brewery”
Ocean Brewery tries to build their brand as an alternative quality beer which should be liked both by professional and the ordinary customer in all ages. An ambition is that if someone buys ten beers at Systembolaget then at least one of them should be from a micro-brewery. They also try to have a modern appearance on the market by producing products which cannot be found from the competing micro-breweries. They have no ambition to just be a local beer with a local brand. The sales channels are Systembolaget and pubs and restaurants. The problem they have experienced with the sales is that pubs and restaurants purchase very small quantities per order. Thus, it takes a lot of work to deliver many products and is therefore costly and time consuming. Another problem with the transportation is that some transportation companies refuse to deliver alcohol. Pubs which only have open on evenings also want deliveries in the late afternoon and all at roughly the same time which makes it problematic to deliver to all at the time they want it. A problem with Systembolaget?s regulations Rodrigo explains is that they do not take responsibility for the transports of products which are ordered from the ordering assortment. The problem is that if a customer in another part of the region wants to drink Ocean beer and order it at Systembolaget the brewery must deliver the beer to that store. If the customer only order one box the cost of delivery will be higher than the margin made on the sold products.
“There have been breweries which has gone broke just because they have been forced to drive around delivering beer over the whole region.”
Otherwise Rodrigo is very pleased with Systembolaget as a company. They are very helpful and answers all questions. He also explains that it is a long process to become established at Systembolaget. Currently they have one product in the assortment and they will soon get their second product into the shelves of one store. Rodrigo estimates that the process to become established in Systembolaget?s assortment will take 3-5 years. An abandonment of the 38
monopoly is not something that Rodrigo see as an important issue but he would like to be able to sell products to the customers who visit the brewery.
“We see it as obvious to be able to buy a bottle of wine if we go to France and visit a wine yard so we would like to have the opportunity to sell to our visitors instead of saying –Sorry, it is illegal. People think that it is a bit outof-date.”
There are few other problems that Rodrigo so far has encountered with running the brewery. Alcohol taxes can be a very tricky question because according to Rodrigo it is hard to calculate them, hard to pay them and if there is something wrong with a batch of beer and it has to be disposed it is hard to get back the taxes paid for that batch. The tax is also an obstacle for us smaller breweries since the consumer price is to 60-70 % taxes and they need to charge a premium price since their costs are higher. However, the brewery see positive on the future and is investing in more automated equipment for bottling and will double their production this year and will do so also next year.
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6 Analysis and discussion
In this chapter the empirical cases are analyzed based on the theoretical framework for this study. The ambition is to explain how their entrepreneurial activity relates to the presented theories and how their strategy works have been affected from a theoretical point of view. Arguments of how the market regulations on the Swedish market for alcohol have contributed to these strategic choices and activities are also presented.
6.1 The entrepreneurial activity
Two different theories, opportunity discovery and opportunity creation was discussed in the theoretical framework and both of these theories can be seen in the respondents entrepreneurial process. Ahlafors brewery was started because somebody expressed an idea among the right kind of people where a few had the entrepreneurial spirit and alertness to act on it. This alertness gave them the needed strength to raise the capital and gather all the necessary licenses and other resources which where needed in order to start up the brewery. Even if the person with the original idea did not have any identified opportunity when he expressed the idea in the sauna he influenced the others to open their eyes in order to see whether there was any opportunity existing or not. Apparently there was an opportunity since they have been able to run their brewery for a long time. They have thus met all the criteria of an opportunity which e.g. Sarasvathy argued for and which was explained in the theoretical framework. During this period of time the idea to establish a small local brewery can be seen as a fairly new and innovative idea because in the beginning of the 90´s there were not many microbreweries existing on the Swedish market. It also definitely had an economical end since they took on the work with the goal to become rich on beer and they have been able to perform economical transactions by having their products on the market. And since they had the luck to have the right people who took on the opportunity it was not useless since they have exploited it and are still exploiting it in order to reach their goals. The Ocean Brewery case follows the same line of argument in some sense because also in this case it is a matter of a discovery process of the opportunity. Here the opportunity lied in the fact that Thomas Bingebo who was one of the co-founders of the brewery had the possibility to buy some of the resources from his former employer. This in combination with the idea and the right type of people who possessed the drive to start a business was important for the creation of the brewery. Here the access to resources was an important factor for the start-up which also was pointed out as a reason to why some people are more likely than others to start a new venture. These two cases seem to be in line with Shane?s arguments that opportunities are objective phenomenon which are waiting for someone with the alertness to discover them and exploit them. This is very evident in the first case since nobody of the founders had any previous experience of the business or was working in some related industry and it is therefore unlikely that they possessed any information which was more available for them than others in the same situation. Neither did they have access to any specific technology or awareness of any specific market demand before entering the exploitation phase. Thus, this discovery breaks 40
the pattern described in the theoretical framework where it was argued that it is more likely for people inside the industry to discover new possibilities. The second case was more in line with this argument since Thomas Bingebo possessed the knowledge that his former employer was about to sell their brewing appliance due to an capacity increase. This information was probably not available for everybody at the same time because this type of information is not communicated outside a firm at an early stage. Therefore he had superior information provided to him by his existing networks at the brewery. When the first two cases have followed the discovery theory of opportunity identification the creation of the third case, Oppigårds, can be put into the other theoretical school which see the entrepreneurial activity as a creative process. As explained in the theoretical framework this view sees the individual?s action as the important element and that the opportunity is not something that just is “out there” waiting for exploitation of someone with the alertness to identify it. Björn Falkeström?s entrepreneurial activities started already in his youths when he started to experiment at home with different brews made in his mother?s kitchen appliances. Then there was no strategy to commercialize the idea but just a hobby activity based on his interest for beer. The strategy to commercialize the idea developed much later and by other reasons which soon will be discussed. This case can therefore be argued to follow the argumentation that opportunity creation is an emergent process which develops over time and the goals change along the way and are constantly redefined. The reasons to commercialize his hobby of brewing beer were several. First he had some internal desire to work with consumer products, he had some facilities which could be used in a new way in order to create value and also the fact that his wife wanted to move back to Dalarna can be seen as a very important thing from a theoretical point of view. The fact that his wife seemed to have a huge effect on the events is in line with the arguments and beliefs that individuals are influenced by their social context in their entrepreneurial activities. It might be that Björn would have started the brewery anyway at some point, but it clearly seems that the startup came earlier because of the decision to move back home to Dalarna. The actions he took were thus depending on the situation he was in at that moment and was influenced by other factors than just an objective opportunity discovery as Shane argued. The links between the creation theory and the theory of entrepreneurial learning can also be seen in this case. Due to the fact that many of the people involved in the start-up of the company had limited knowledge about the brewery industry a lot of complications became evident for them during the process. Many of the problems have thus caused changes to the original plans and have also affected the operations in ways which it was not planned at the beginning. Therefore the plans and strategies have been changed along the way in order to overcome the problems and find new solutions for the business. The market regulations in the industry do not seem to have caused any greater problems for the interviewed entrepreneurs in the start-up process. Rodrigo mentioned the heavy bureaucracy with many different licenses from four different authorities to cause a lot of work. Thus it could be a barrier since it is time consuming to do all the paper work but as long 41
as the persons who want to go into the business have a clean record and do not have any personal economic problems the regulations should cause any hinder to start a business in this industry. The access to capital is of course important since it requires a heavy investment in machinery and facilities at the beginning. As Rodrigo also mentioned some investors can have a bit cautious willingness to invest in this type of business since the return on investment takes a long time to achieve. Also, not all investors are interested in putting money into alcohol businesses because of moral reasons. It?s interesting to see that all of these micro-breweries have been able to buy their equipment from other breweries that are in an expansion phase and therefore are no longer in need of the machinery. So when one brewery has established itself on the market they can in a way offer the possibility for others who are in earlier stages. Thus, on long term it creates a kind of a coopetition situation where the larger breweries nurture the competition on the market as well as they benefit from it financially when they can get capital for their used equipment. It also seems that in this relatively small industry the networks between the breweries are natural since many of the employees have moved between the different breweries on the market.
6.2 Market driving or market driven entrepreneurship?
It seems that all of the micro-breweries in this study are applying a market driving entrepreneurship strategy. They are all working very proactively in order to redefine the existing market and also in order to create new markets for their products. Here the market regulations and structure of the industry can be argued to play an important role in the choice of strategy. It was argued in the theoretical framework that when there is an existing market available and the customer preferences are known a market-driven strategy would be natural to apply. This would mean that since most of the Swedish population prefers cheap international lager beers the most suitable product to produce would be such a beer. However, since the market for this beer is dominated by a few large companies the competition in this segment is hard. A market driven strategy would thus require extensive financial resources in order to market the products effectively against multinational companies. The monopoly situation also makes it harder to sell these products on the market because there are more producers of such beer to compete with when Systembolaget takes in new products in their assortment. The market regulations and industry structure has thus contributed to the fact that most of the micro breweries work as market driving forces on the market. They clearly express a personal desire to radically change the Swedish market to move away from the industrially produced beers. They try to educate the customers to buy their products by developing an appreciation for craftsmanship and quality beers. Their interest in beers also implicates that they experiment with more unique blends in order to come up with innovative beers. They are far more visionary in their product development than the large multinational companies are in there development process. In this sense their small size is an advantage because due to the small volumes they produce it is no financial catastrophe if one product fails on the market. The visionary characteristics among the entrepreneurs are well in line with the theories behind market driving firms. They do things different because they have besides their financial goals 42
another goal, to create a beer culture which builds on something else than to get drunk as cheap as possible. Björn expressed this very explicitly as a mission for his entrepreneurship but all of the respondents stressed this same goal as important for them. Thus, besides selling beer, they are selling an experience which should go beyond the feeling of alcohol effects. The sales regulation causes some problems for the ability to achieve competitive advantages by applying this strategy if we look on it from a theoretical point of view, at least for two of the three companies participating in this study. It was argued that the customer should not have to exert any extra effort in order to achieve this experience. However, as long as the products are not as available as the other products these criteria cannot be achieved. For the moment the availability of many of the products from these companies is limited. At least it causes the customers more work to be able to enjoy beer from these companies. Now many customers must order the beer at Systembolaget to be able to get it or travel to the shop closest to the brewery. Thus, it takes more planning, more time and might also cause additional costs before getting the products.
6.3 Marketing strategy
By having this market driving approach they also have another marketing approach than they would if they where market driven. It can be said that they work more general with building a new beer culture than to advertise their single products. This means that the micro-breweries are in one way benefiting from each other?s marketing efforts in the way that a rise in the general interest for these kinds of products will lead to increased total sales of products from micro-breweries. The evolution of the market is thus the most crucial thing for these companies to work with because it will have far greater benefits than just increasing the sales of individual products. This should not be seen to contradict with the Swedish alcohol policies which aim to moderate consumption. The micro-breweries do not promote increased drinking but more quality drinking and leas drunkenness. The premium price of their products can also have a moderating effect since people get less volume for their money but hopefully a bigger experience. Another business model applied by the companies is also to combine their primary business, production of beer, with a secondary business, tourism and visitor activity at the brewery. This act both as sources of income and as powerful marketing tools for these companies. One could say that the customers are paying for the companies? marketing activities and culture development. Because advertising is both expensive for these small companies with limited financial resources and regulated by law, these activities become even more important. Clearly they have overcome some of the problems within the marketing area due to this solution. However, there are still some problems remaining since customers cannot understand why they cannot take some bottles home after visiting the brewery. By being able to sell products to the customers who visit the brewery, the micro-breweries could enhance the buzz effect which already today seems to be working quite well. Now the customer only can tell their friends about their visit but if they were able to bring some bottles home they also could let their friends see the products and taste it along with the stories about the visit. In this way they 43
could reach those customers who are not yet familiar with the types of beer that is being produced by these breweries and thus create a bigger market for all premium products on the market.
6.4 Branding
Branding was given a lot of attention in the theoretical framework because it is argued to be one of the most powerful tools by which the entrepreneurs could differentiate them from their competitors. By creating a strong brand which is instantly recognized by the customer and transmit some positive values and expectations they could achieve a better position on the market and overcome many of the sales obstacles. It was also argued that there are two sides of brands and branding strategies and that it is important to look more than one dimension of it. From the empirical material it becomes evident that the micro-breweries are working with both sides of branding. All of the interviewed companies say that they want to stand for quality and craftsmanship. These are the most important values they want to transmit to the customer. Five dimensions of a brand were listed in the theory chapter. These were functions, image, differences, source and culture. When it comes to function, the micro-breweries try to include something more into the function than the alcohol effect which all alcohol products give and which for many is the only desired effect. The effect they try to package into their product is an experience far greater than the alcohol effect, something which gives a feeling of well being, a sense of satisfaction for the consumer. The image they want to have seems to be that they are a part of a cultural tradition and that they are craftsmen who put a lot of effort and passion into what they are doing. The source dimension is used a bit different by the three companies where Ahlafors stress the source of the origin of the products. They want their products to be linked to the region and are working with these both in their profile and when they are labeling their products. This can be seen as they name them either with the brewery?s name or the municipality?s name plus the type of beer which is sold. Oppigårds also have used the source as a part of their branding but not to as high extent as Ahlafors. By having the old buildings which they are located in on their labels it is my understanding that they want to transmit something genuine and local with a tradition behind it. Oppigårds use the company name for all their products and just adds what type of beer it is in the bottle. The same goes for Ocean Brewery in most cases. The culture is maybe one of the most important dimensions which the breweries work with as it was explained previously. This is of course a long term project but a successful strategy could be very profitable in the future. It was argued that by using the origin effect the companies would be able to benefit from positive association with the region and thus have spillover effects on their products. This strategy does not seem to be that common within the brewery industry. Maybe, it is hard to link beer with the typical things for the region. It is mostly seen as town or regional names on the breweries which are used in the branding of the products but they are seldom linked to other specific things for the region. This could thus be an unexploited resource for the microbreweries if they can become more innovative in their branding strategy by connecting new regional dimensions to their brand.
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From the interviews it also seems that it is hard to create high brand equity and loyalty for the products being produced. Because the people who buy these types of beer are very interested in trying a lot of different beers they constantly change products. The consumers can have many different favorite brands and therefore they do not become loyal customers of one product. Since they do not have the financial resources to build the awareness around the products it also makes it harder to establish a name on the market. Especially among the normal consumer this is a challenge. Because of these difficulties it is hard for the microbreweries to complete all the different components which create strong brand equity.
6.5 Sales situation
An interesting finding was that the micro-breweries had the least problems in the area which has the most visible regulations. The monopoly market instead seems to be positive for these small breweries in some areas. All of the respondents expressed positive attitudes towards Systembolaget and appreciated their knowledge and professionalism when it comes to services and supplier relations. A reason to the benefit with the current situation is that Systembolaget is very objective in their selection of products which will be sold in their stores. This gives the breweries the chance to compete on equal terms even if their marketing and promotion budgets are just a small fraction of the larger companies. Since Systembolaget has the monopoly on the market they have the responsibility to have a wide assortment and be to provide the whole country with products of good quality. The respondents expressed concerns that an abandonment of Systembolaget would mean that this diversity on the market would disappear since the food chains would not be as interested in keeping many products on their shelves. The fear which was expressed in the interview is that the possibility to buy beer from micro-breweries then would be concentrated to larger cities where the customer base is larger and it would be profitable for special beer shops to establish. Another implication which was mentioned by Rodrigo was that such a situation would mean that all the micro-breweries would need to expand their marketing and sales organization since it would be more customers to take care of and more promotion activity would need to take place in order to sell in their products to all kind of chains. This would of course lead to higher costs for the breweries which already today make quite moderate results. The increased competition could also make it harder for the breweries to get the right price for their products. On a free market they would be in a much worse negotiating position towards the large food chains that pressure all suppliers to keep the prices at a minimum. As already mentioned the introduction of yard sales was however wanted by two of the respondents and this is also the desire from the industry. Christer was a bit skeptical towards such an implementation but said that he probably was quite alone with that opinion among the micro-breweries. The major concerns he expressed was that it could be a problem with e.g. age controls and increased administration. The major obstacle for this seems to be the political unwillingness to change the market situation and also lack of understanding of the microbrewers situation. This will be discussed further in the next section.
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6.6 Legitimacy of the industry
There still seem to be a lack of legitimacy of the industry among politicians but also outside politics. Björn expressed disappointment with the recently presented public investigation for a new alcohol law and the lack of understanding for the micro-breweries work and which values that guides their work. Some of the views which the investigator expressed were presented in chapter two. When reading the discussion and argumentation from the investigator about why the introduction of e.g. yard sales it becomes evident that there is a lack of interest for the breweries situation. The politicians? main goal is still to preserve Systembolaget?s position on the market and all changes which might threaten this are disregarded, this despite studies from abroad which have shown no negative effects from yard sales considering alcohol policies. Thus it can be argued that the sociopolitical acceptance for the industry is still very low compared to other industries. An interesting finding was that the micro-breweries are in a phase when they have started to organize themselves by setting up a micro-brewery association. This goes in line with the theory which argues that it is important for the industry to be organized in order to become accepted by society. It is obvious that there has been limited organization in the industry previously and the industry has also been divided into two fractions. The big firms have been organized in the organization Brewers of Sweden but this organization has shown little interest for the micro-breweries? situation. As Christer mentioned they have never been in contact with them and he had no idea of who was working in the organization or what questions they are working with for the moment. Therefore, this new association is a good example of the work that is currently being done in order to break down some of the remaining barriers in the industry and the socio political environment.
6.7 Summarizing discussion
The objective with this study was to study how the market regulations under which the industry is working has affected the entrepreneurs who have entered the industry. It seems that the market regulations have a smaller effect on the entrepreneurial firm?s possibilities to market and sell their product than could be expected. As Björn also mentioned in the interview there seem to exist a lot of myths about Systembolaget and the monopoly situation on the Swedish market. This belief was also part of the reason for this study. It was therefore a positive finding that Systembolaget instead of being an huge obstacle seem to be a good channel for the micro-breweries to sell their products in fair competition with the big breweries which otherwise could outcompete the smaller breweries. The sales monopoly encourages diversity of products in a way that food chains hardly would be able to do if the sales monopoly would be abandoned. Since there are fewer sales channels it also requires less work from the micro-breweries in order to promote their products for shop managers or other buyers. Politicians have therefore nothing to fear from the micro-brewery industry concerning the attitudes towards the monopoly situation. However, there seem to be unwillingness among some politicians to accept the fact that increased possibilities for these small companies to sell their products to e.g. visitors does not lead to any undesired effects. It was also positive that the micro-brewers have realized that they need to organize themselves in order to get a forum 46
where they can share thoughts, ideas and experiences. It also provides better chances to communicate their values and opinions in a better way in order to increase the legitimacy and understanding for their work among the public. All of the entrepreneurs had different types of background and two of them had limited knowledge about the production of beer before entering the business but they all possess the characteristics which signify an entrepreneur. This clearly shows that one of the most important things for an entrepreneur is the personality and the willingness to achieve something. This willingness was easy to identify among all respondents and they were also driven by higher goals than personal economic outcomes of their business. Besides economic goals they all expressed some desire to develop a culture. These two will then go hand in hand because if the culture develops in the direction they want it to, then the demand for their products will increase. It will be interesting to follow the development in this industry since new micro-breweries are still appearing on the market and thus they can grow stronger together. The main obstacle for micro-breweries was instead problems which are common for all types of small companies. Limited marketing budgets have forced them to come up with a different marketing strategy since traditional marketing methods are both regulated and expensive. The personal beliefs among these entrepreneurs guided most of their work. Both product development and marketing profile was based on their own personal values and preferences and not on customer research and trends on the market.
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7 Conclusion
In this chapter the conclusions of the study are presented. The research question of this study was: How do market regulations in the brewery industry affect entrepreneurs and their choice of strategy? After presenting the conclusions suggestion for future research will be given. The market regulations do not seem to create any huge barriers for entrepreneurs who want to enter the brewery industry. The entrepreneurs adapt to the situation and develop their strategy according to the rules of the market. Thus, it is evident that the market regulations affect the entrepreneurs? strategic choices. Market regulations and industry structure has lead to a market driving behavior among micro-breweries in order to meet the competition. Also a strong personal desire to change the current drinking culture in Sweden was identified among the respondents as one of the reasons to this strategic approach. The monopoly situation is not considered to cause high barriers for the entrepreneurs and a positive attitude towards Systembolaget was evident in the study. Regulations and small financial resources together with the market driving approach have lead to innovative marketing strategies. Marketing of the products is partly done by educating customers and an increased appreciation for more complex beers can benefit the whole industry because customers are not brand loyal. The introduction of yard sales could increase the marketing effects of visitor activities at the breweries because there is a desire among the customers to be able to buy the products at the visiting occasion. As long as availability of the products is limited it will be hard for the micro-breweries to achieve any competitive advantage because it takes more effort from the customer to buy the product. The industry has not been well organized since the micro-breweries entered the market. The industry organization has mostly focused on the issues concerning the big established breweries and has shown little interest for micro-breweries. The industries legitimacy and political support is thus still lower than it could have been with better organization. The new micro-brewery association might contribute to increased legitimacy and thereby better possibilities to influence the regulations.
7.1 Future research
The entrepreneurs within the brewery industry considers Systembolaget to be a well functioning monopoly which offers them good service and possibilities to reach out with their products to customers all over the country. All monopolies are however under constant surveillance from EU competition authorities and in a longer perspective there might be changes in the market regulations. If the monopoly is abandoned it puts the micro-breweries in a new situation. It would therefore be of interest to see how the market situation for small entrepreneurial breweries in deregulated market is compared to the situation described in this study. Special focus could be put on countries which previously have been regulated and thereby see how the situation changes for entrepreneurs in the industry. By doing these kind of comparative studies the industry would be prepared for the changes and politicians would have better chances to co-ordinate the deregulation process in a good way
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8 Credibility Criteria
This chapter will discuss the credibility of the study and will cover the areas of credibility, dependability and practical applicability
8.1 Dependability
Dependability concerns the possibilities for others to evaluate the working process by which the thesis has been conducted. For this criteria to be fulfilled it is important that all phases of the work has been described.95 In chapter three the choice of research method and scientific approach of the study was discussed and argued for. In chapter five the practical working process of selecting respondents and process of interviewing was described thoroughly. The supervision during the working process has also contributed to more critical thinking when doing the choices in this study which according to Bryman & Bell is an important aspect when evaluating the dependability of the study96. Therefore it can be argued that the dependability criterion of this study has been achieved.
8.2 Credibility
Credibility will be achieved when the researcher gives the reader an accurate picture of the studied reality.97 As described earlier all interview where recorded and transcribed before summarizing them in the paper. According to Peräkylä this procedure eliminates many problems which otherwise could occur when working with qualitative methods.98 All of the respondents have been given the possibility to read and comment the part of the empirical presentation which is based on their interview. By doing this the chance of misinterpretation of their stories has been minimized and thus an accurate picture of the reality has been presented for the reader. It also decreases the possibility that something which they feel as very important for their story has been left out from the picture presented to the reader. Therefore it can be argued that a trustworthy and credible picture of the reality has been presented.
8.3 Transferability
The choice of a qualitative method implies that the transferability of the study needs to be discussed in order to clarify the usefulness of this study for other than the studied objects. Because of the limited number of respondents it can be hard to generalize, in traditional way, the findings into other contexts than the studied entrepreneurs. Instead of generalizing them in traditional way it is more suitable to approach them with, as Peräkylä describes it, the concept of possibility. According to this concept the study should be seen as a description of how the environment which the studied entrepreneurs act in has affected them and how they have adjusted to this environment. According to the concept of possibility it is reasonable to believe that these events also can occur for other entrepreneurs and therefore they would be
95 96
Bryman & Bell, 307 Ibid. 97 Ibid. 98 Anssi Peräkylä, “Reliability and validity in in research based on naturally occurring social inter action”, in Qualitative Research: Theory, Method and Practice, ed. David Silverman, (London: Sage, 2004), 285
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transferable to other than the studied entrepreneurs.99 But, as Bryman and Bell states, qualitative research describes the reality where the study has been conducted and it is then up to the reader to determine whether or not they are transferable to other contexts.100
8.4 Practical applicability
The findings of this study will hopefully contribute to an increased understanding of the entrepreneurial situation in the Swedish brewery industry. This is an industry with long traditions in Sweden but even so there seem to be a lacking public acceptance and willingness to improve the working conditions for those entrepreneurs who want to exploit the opportunities which exist on the market. It is an industry which could promote the agricultural landscapes of Sweden and keep the countryside alive and prosperous.
99
100
Peräkylä, “Reliability and validity in in research based on naturally occurring social inter action”, 297 Bryman & Bell, 307
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Internet references
Sveriges bryggerier, http://www.sverigesbryggerier.se/om-sveriges-bryggerier/historia-olpolitik-genomtiderna.html http://www.sverigesbryggerier.se/pressrum/enskilda-nyheter-2008/081105olexport%20pressmed.pdf http://www.sverigesbryggerier.se/pressrum/enskilda-nyheter-2008/olexporten-okar-2009-0204.pdf http://www.sverigesbryggerier.se/alkoholpolitik/europa/europas-skatter-och-konsumtionkarta.html http://sverigesbryggerier.se/om-oss/styrelse/ Folkhälsoinstitutet http://www.fhi.se/PageFiles/3420/R200834_Alkoholstatistik_2007_0811.pdf?epslanguage=sv Systembolaget http://www.systembolaget.se/Applikationer/Knappar/OmSystembolaget Sveriges radio http://www.sr.se/Norrbotten/nyheter/arkiv.asp?DagensDatum=2004-06-07&Artikel=425831 Riksdagen
http://209.85.129.132/search?q=cache:yo6yKgFfpgIJ:www.riksdagen.se/debatt/visadok.aspx%3Fspc %3Dobj%26guid%3D74e7245e-9a67-460c-89b15e2a817a0514+systembolaget+ink%C3%B6psregler&cd=2&hl=sv&ct=clnk&gl=fi http://www.sweden.gov.se/content/1/c6/12/15/91/fe04bc72.pdf
Svenska ölfränjandet http://www.svenskaolframjandet.se/bryggerier 53
Appendix 1: Interview guide
General Describe your personal background and your role in the company The start-up How did you get the idea for the brewery and how did the idea develop? How did you get all the resources? How did you experience the beginning (what kind of reactions did you meet...) Sales What target group do you have? Which channels do you use? Which are the biggest obstacles for you sales process and what do you do to overcome them? What is your opinion about the current monopoly situation? How would the introduction of yard sales affect you? Marketing How are you working with marketing today? What strategy do you have for your brand and comapany image? What values are important for you? Which obstacles do you meet in the marketing process? The market Which laws or regulations do you find most difficult for the development of the company? What support do you get from the public or the institutions on the market? Are there any institutional obstacles which are hard to overcome on the market? Future How do you see your future on the market?
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doc_691670048.pdf
Regulation creates, limits, or constrains a right, creates or limits a duty, or allocates a responsibility.
Entrepreneurial activity under market regulations
A qualitative study about entrepreneurship in the Swedish brewery industry
Authors: Supervisor:
Thomas Kronholm Håkan Boter
Student Umeå School of Business Spring semester 2009 Master thesis, two-year, 15 hp
Abstract
Sweden has a long tradition of strict alcohol policies and market regulations have been used in order to keep down the consumption among the population. The state has controlled the market through monopolies and high alcohol taxes. When Sweden entered the European Union four of the five monopolies were abandoned. At the same time entrepreneurial microbreweries started to enter the market. The market is regulated by a retail monopoly (Systembolaget) and regulation considering marketing and production of alcohol products. The aim of the study was to investigate how the regulations have affected the entrepreneurs in the industry and which strategies they are using in order to compete with the big breweries which are dominating the market. Further, because it is an industry still under development, the issue of legitimacy for new industries is also included in the study. In order to develop the understanding of how the entrepreneurial process might look like and which strategies that are available at an early stage in the process a theoretical framework was constructed. This includes theories about opportunity discovery and creation, market driven or market driving entrepreneurship, branding, and industry legitimacy. The study has been done through a qualitative method based on interviews with three entrepreneurs who are founders of micro-breweries. The results of this study shows that the market regulations act both as a support and as a hinder for the entrepreneurial activity in the industry. Due to Systembolaget?s formal procedures for selecting products to their assortment, the small companies are able to compete at same condition as the bigger players in the process. However, there are regulations which hinder an effective marketing of the companies, especially when potential customers are visiting the breweries and do not have the possibility to buy the product on site. The lack of understanding among politicians for the values which guide the micro-breweries work is one reason to why the industry still struggles to gain legitimacy. A micro-brewers association has recently been founded in order to organize the entrepreneurs in a better way. This might lead to increased knowledge about their work in the future.
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Table of content
Abstract ...................................................................................................................................... 1 1 Introduction ............................................................................................................................. 4 1.2 Problem background ........................................................................................................ 5 1.3 Research Objectives ......................................................................................................... 6 1.4 Delimitation of the study .................................................................................................. 6 2 Scientific Method .................................................................................................................... 8 2.1 Preconceptions ................................................................................................................. 8 2.2 Scientific Approach .......................................................................................................... 8 2.3 Perspective of the study.................................................................................................... 9 2.4 Research method .............................................................................................................. 9 2.5 Scientific Ideal (epistemological considerations)........................................................... 10 2.6 Choice of theories ........................................................................................................... 11 2.7 Selection of sources ........................................................................................................ 11 2.8 Criticism of Sources ....................................................................................................... 12 3 Theoretical Framework ......................................................................................................... 13 3.1 Market regulations.............................................................................................................. 13 3.1.2 Regulations on the Swedish alcohol market ........................................................... 14 3.2 The entrepreneurial activity ........................................................................................... 15 3.3 The entrepreneur and the opportunity exploitation ........................................................ 18 3.4 Market driving or market driven entrepreneurship – strategic marketing decisions ...... 19 3.5 The link between marketing and entrepreneurship ........................................................ 21 3.6 Branding – a way to differentiate ................................................................................... 22 3.6.1 Brand equity ............................................................................................................ 23 3.7 Gaining legitimacy in a new industry ............................................................................ 25 3.8 Summary of the theoretical framework .......................................................................... 26 4 The study in practice ............................................................................................................. 28 4.1 Selection of respondents................................................................................................. 28 4.2 Design of the interviews ................................................................................................. 29 4.3 Interviews in practice ..................................................................................................... 30 4.4 Presentation of the empirical material ............................................................................ 31 5 Empirical presentation........................................................................................................... 32 5.1 Oppigårds brewery, Björn Falkeström ........................................................................... 32 5.2 Ahlafors brewery, Christer Sundberg............................................................................. 34 5.3 Ocean Brewery, Rodrigo Arvidsson .............................................................................. 37 6 Analysis and discussion ........................................................................................................ 40 6.1 The entrepreneurial activity ........................................................................................... 40 6.2 Market driving or market driven entrepreneurship?....................................................... 42 6.3 Marketing strategy.......................................................................................................... 43 6.4 Branding ......................................................................................................................... 44 6.5 Sales situation ................................................................................................................. 45 6.6 Legitimacy of the industry ............................................................................................. 46 6.7 Summarizing discussion ................................................................................................. 46 7 Conclusion ............................................................................................................................. 48 2
7.1 Future research ............................................................................................................... 48 8 Credibility Criteria ................................................................................................................ 49 8.1 Dependability ................................................................................................................. 49 8.2 Credibility....................................................................................................................... 49 8.3 Transferability ................................................................................................................ 49 8.4 Practical applicability ..................................................................................................... 50 References ................................................................................................................................ 51 Appendix 1: Interview guide ............................................................................................ 54
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1 Introduction
In this chapter an introduction to the Swedish market for alcohol is presented together with the problem background for the study. Further the research question and delimitations of the study is presented. The brewery industry is one of the oldest branches in the Swedish economy and Brewers of Sweden (Sveriges Bryggerier) is the oldest existing industry organization in Sweden. The shape of the industry has shifted quite dramatically during the 20th century and is still in a constant change. The nature of the market is an environment which is highly regulated with a sales monopoly for retail and high taxes on the products. When the ration book was abolished in 1955 there were 120 breweries in Sweden but in 1985 there were only nine breweries in operation. The brewery industry was for a long time characterized by a concentration of the production and the state owned Pripps was market leader with 75 % of the market.1 1993 was a turning point for the industry when new smaller breweries started to arise and produce beer on a small scale.2 The Swedish brewery industry is on its way back and has during the recent years developed in a positive way when it comes to the number of breweries and there are now about 50 breweries (soft drink and water producers included).3 The production volumes have however not increased in the same period and are today approx 400 million liters per year.4 The EU membership has changed the market conditions in several ways for the industry during the last 14 years. In 1995 the state monopoly for import, export, production and wholesales of alcohol was abolished5. The only monopoly that remained was the retail monopoly which is held by Systembolaget and is supposed to keep the consumption level low in order to prevent public health problems. According to Systembolaget?s own view it is a successful method and a possibility to offer a wide range of products without any profit interests.6 The EU membership has also lead to a change in the way people purchase their alcohol. It has become very common that people go abroad to purchase their alcohol due to lower taxes on alcohol in especially Germany but also in Denmark and the Baltic countries. This has led to a situation where the Swedish breweries export a higher percentage of their production to these countries where Swedes buy it an import it back to Sweden7. Together this creates an environment with both extensive regulations and though competition for the microbreweries operating on the Swedish market.
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Bergström, Henrik, ”Hur ölskatterna sänktes – Om lobbning, pilsner och pluralism”, Göteborg: Förvaltningshögskolans rapporter, nr 23, 2000, 24 2 http://www.sverigesbryggerier.se/om-sveriges-bryggerier/historia-olpolitik-genom-tiderna.html, 2009-04-08 3 Bergström, 24 4 http://www.fhi.se/PageFiles/3420/R200834_Alkoholstatistik_2007_0811.pdf?epslanguage=sv, 2009-04-08 5 Bergström, 25 6 http://www.systembolaget.se/Applikationer/Knappar/OmSystembolaget/, 2009-04-08 7 http://www.sverigesbryggerier.se/pressrum/enskilda-nyheter-2008/081105-olexport%20pressmed.pdf, 200904-08
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1.2 Problem background
With a free market it would be possible for everybody to produce, sell and buy alcohol products. A free market only consists of sellers and buyers who negotiate over prices and there will be products with different quality sold for different prices. It is the buyer?s choice that determines the outcomes on the free market. The market becomes regulated when the buyer?s possibilities for a free choice becomes restricted. The more restrictions that is imposed, the more regulated the market will be. Some argue that it should be the consumers? responsibility to determine what they consume even if the products have hazards. 8 The argument for this is that all people have different acceptance towards risks and the price will reflect the hazards on the free market. Risky products would have lower price than safe, e.g. a car with airbags would have higher price than a car without. However, others argue that market regulations are motivated when the use of products might be a danger to other than the individual or when the society will be affected by higher costs which are not being calculated with by the buyer.9 Sweden has a long political tradition concerning the use, production and sales of alcohol products. Politicians want to keep consumption low since high consumption causes health problems and is thereby a burden for the national economy due to high health care costs and absents from work. 1855 was the year when the first step towards a more extensive regulation of the market for alcohol was taken when politicians wanted to fight the widespread use of alcohol among the population. By law, politician forbid production for own use and the possibilities for private actors to make profit on alcohol was restricted. To do so, the state took greater control over the production and sales and also introduced fees on the sales of alcohol products.10 From this point the free choice of the consumer was restricted and a free market did no longer exist for alcohol products. In 1955 the rationing system of alcohol was dropped and replaced by a new policy with high prices as the mean by which to control the consumption of alcohol. This was the starting point for the policy of high prices on alcohol products in Sweden. 11 Today?s legal framework on the market for alcohol is very much based on the laws that where implemented in the late 1970?s. Ever since, the Swedish government have executed a policy that want to restrict private profits from the sales of alcohol products, keep the prices high through high taxes and restrict the possibilities to purchase alcohol products.12 With the retail monopoly still existing, all domestic sales (to end consumers) has to be done through this channel. It has been argued that it is difficult to get access to this channel and that it seems to benefit the larger producers. This is because it is hard for smaller producer to get their product into the regular assortment at Systembolaget.13
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James Carrier, Meanings of the Market: The Free Market In Western Culture, (New York: Berg Publishing, 1997), 2-3 9 Rachel Dardis, ”Risk Regulation and Consumer Welfare”, The Journal of Consumer Affairs, vol. 22, no 2, 1988 10 Bergström, 18 11 Ibid., 23 12 Jenny Cisneros Örnberg, ”The Europeanization of Swedish Alcohol Policy”, Stockholm, Stockholm University, 2009, 43 13 http://www.sr.se/Norrbotten/nyheter/arkiv.asp?DagensDatum=2004-06-07&Artikel=425831, 2009-04-09
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During the 90´s the market experienced a lot of positive changes from the brewers? perspective. The decision to join the agreement for the European Economic Area (EEA) and later the European Union implied that many of the most restrictive regulations had to be removed. As mentioned earlier the state monopolies where reduced from four to only consist of the retail monopoly. Further the agreement forced the government to renew the taxation systems for alcohol products in order to meet the requirements of the agreements and thereby become more in line with the rest of Europe.14 Because this period also was the time when new small breweries started to appear in Sweden it can be assumed that it had a positive effect on the entrepreneurial spirit and increased the belief in the future for the industry. As mentioned earlier the industry is growing even though there are a lot of regulations which might cause problems and obstacles for entrepreneurs on this market. Since the industry started to grow again when the market became more free than it had been with the EU membership, regulations seem to have an effect on the entrepreneurship. Few studies have investigated how these regulations and restrictions affect entrepreneurs in this industry. It is therefore of interest to investigate and the research question for the study will therefore be: How do market regulations in the brewery industry affect entrepreneurs and their choice of strategy?
1.3 Research Objectives
The main research objective with this study is to increase the knowledge about which strategies entrepreneurs in the brewery industry apply in order to overcome barriers and obstacles in a regulated market which is dominated by a few large actors. The goal of this paper is also to increase the understanding for how entrepreneurs can find solutions that enable them to compete under such environmental circumstances. The actions and strategies used by entrepreneurs within the Swedish brewery industry will be analyzed through a theoretical framework within the fields of entrepreneurial activity, strategic market directions and brand management. Further the driving forces behind their entrepreneurial undertakings will be analyzed since it is interesting to know why they have decided to enter this relatively small industry and what driving forces lies behind their entrepreneurship. By doing this both politicians and entrepreneurs can benefit from the results by gaining a deeper knowledge of the problems and possibilities that exist in this industry. From the political perspective this could possibly lead to a change in the market regulation in favor for the small entrepreneurs. From the entrepreneurial perspective the study hopes to give valuable ideas to those who are working in this industry or consider entering it in the future.
1.4 Delimitation of the study
Since the objective of the study is to investigate how the regulated market affects entrepreneurship in the brewery industry this study will only concern those companies which have own production of beer and cider. Producers of only soft drinks and water will not be of
14
Harold Holder, Sweden and the European Union: Changes in National Alcohol Policy and their consequences, (Stockholm: Almqvist & Wiksell International, 2000), 36-37
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interest in this study because they are not working under the same regulations and will thus not be part of the selection of study objects. Further, the focus will be on smaller entrepreneurial producers (micro-breweries) since they might have a different set of problems compared to the market leaders, e.g. Carlsberg and Spendrups, who possess far greater resources.
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2 Scientific Method
This chapter will deal with the scientific approach of this study and the choice of research method. Further the perspective of the study and the preconception held before starting it will be discussed in order to give an understanding of values and experiences which might affect the study. Finally the selection of sources and choice of theories will be discussed.
2.1 Preconceptions
During my education at the Umeå School of Business (U.S.B.E) I have taken courses which have dealt with entrepreneurship, marketing and management. The knowledge gained through these courses has given me the knowledge needed to take on this investigation and to be able to deepen my knowledge within this certain area. An area like entrepreneurship in regulated markets has not been discussed to any greater extent during any of the courses of the master program. This contributes to my interest for looking into this area in this study. My strong personal interest for beer and my driving force to increase the appreciation for good beer is a strong reason why I chose this topic for the study. I see the entrepreneurs of the microbreweries as an important group which might influence to a cultural changes which could give beer the same status as wines have in society today. It is unavoidable that the researcher?s values influence the work to some point, e.g. the choice of topic and perspective, but being aware of the dangers the negative effects of bias can be minimized. Most of my knowledge of the area is of general character and I have no direct practical experience of the brewery industry. However, since I have been in the restaurant business for many years I have a close relationship to alcohol beverages as a buyer and seller of the products. This has given me knowledge of the diversity of beer existing on the market but it has also given the opportunity to discover some issues which might cause trouble for entrepreneurs on the market. For instance that many restaurant owners often are hindered to buy beer from alternative suppliers due to highly regulated contracts with their main supplier.
2.2 Scientific Approach
The starting point for this thesis was the interest for entrepreneurship and especially entrepreneurship in the brewery industry. The idea for the work was in the beginning vague and was therefore developed by reading about the industry?s development throughout the history. There was also a need to get a better understanding of the Swedish alcohol policies and reasons behind the current market regulation before developing the research problem further. When the problem was clear, more reading was needed in order to find out what had previously been studied in this area of research. There are few previous studies which deal with the kind of market regulations that currently exists on the Swedish market for alcohol products. There are however other studies that can be applied to the entrepreneurs? efforts to overcome barriers on the market. By building a theoretical framework with these theories I had a solid foundation to gather empirical data and then find some explanations and answers to the research question of this paper. The work with this study has therefore not been a linear process with the starting point in either the existing theories or in the reality. It can instead be described as a spiral process where I have move forward and backwards in the process to produce, change and refine the 8
different parts whenever a need for it has occurred in order to clarify or correct information to make it possible for the reader to understand the whole picture.15
2.3 Perspective of the study
Entrepreneurship is about people undertaking new projects and actions and is therefore very much about individuals. Even if the study aims to investigate the actions of the small entrepreneurial companies in the Swedish brewery industry, the actions taken by the company is often the action of the individual entrepreneur. The entrepreneur or founder often have a central position in the company´s strategy work and will thus many times design, execute or otherwise be involved in the actions taken by the company. Because the purpose of the study also is to increase the understanding for the problems these entrepreneurs are facing it is necessary that the perspective of this study will be from the entrepreneurs? viewpoint. Considering the fact that much of the investigations concerning the Swedish alcohol market is made from the political perspective it is valuable to switch the viewpoint to spread new light on the area. The perspective applied in the study will become evident in the analysis where problems and solution are considered from the entrepreneurs? perspective.
2.4 Research method
Considering the purpose of this study, to deepen the knowledge of how entrepreneurs overcome barriers on the market, a qualitative research method is best suited for the problem. Creswell lists a few arguments for when the nature of the problem has the characteristics of a qualitative research problem. Creswell argues that a research problem is qualitative by nature when the researcher is facing a problem or concept where the problem has not been thoroughly investigated and therefore the existing theoretical base is limited or biased. Another characteristic for a qualitative problem is when there is a need to explore a phenomenon and by doing that develop new theories that can explain it. Finally, quantitative methods may not be suitable due to the nature of the problem that is being investigated because it cannot be measured in numbers.16 Looking at the nature of the problem in this study it can be determined that it holds many of the characteristics of a typical qualitative research problem. The studied market and phenomenon is quite unique in a global context since few countries have the same kind of regulations and restrictions for alcohol. A natural outcome is that very few previous studies have been made which implies that the theoretical base concerning entrepreneurship on this type of regulated market is available. Thus the first characteristic of a lacking theoretical framework is present in this study. Second, partly because of the lack of previous studies, there is an evident need of exploring the entrepreneurs? efforts on overcoming the obstacles in order to increase the awareness and knowledge about their situation. To do so, the study needs to recognize the individuals? acts to a greater extent than the quantitative methods which measures things on the aggregate level. Further, the studied market is also quite small with few entrepreneurial actors to study; the quantitative approach is therefore less suitable since
15 16
Bruce L. Berg, Qualitative Research Methods, (Boston: Pearson, 2004),18-19 John Creswell, Research design: Qualitative, Quantitative and Mixed Methods Approaches , (London: Sage Publications, 2003), 75
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the research sample would be very small and would not provide the same amount of valuable information and thus meets the last characteristic presented by Creswell. By using qualitative interviews where the entrepreneurs in a semi-structured way can tell their story it is possible to find things that has not been considered prior to the study and thereby come up with more interesting findings than with a completely structured survey. Many scholars have argued that the aim with qualitative interviews is to capture and share the respondent?s subjective experience to the reader.17 In order to be better prepared for the interviews and have better possibilities to investigate the problem the study started with a literature search. The areas chosen were based on my preconceptions of the problem that was realistic to be found later on in the empirical data collection. Some might argue that it would be better to enter the reality without any preconceptions about future findings and thereby execute a completely inductive study, starting with an observation or interview and first thereafter turn to the theories. However, in line with the arguments presented by Repstad that the qualitative researcher need develop some hypothesis on an early stage18, it is my belief that without any prior ideas of what you want to find you will never find as much useful things as you could with good preparations. There need to be a good interplay between theory and reality all the time.19 By developing a theoretical framework before doing the interviews it will be possible to structure the interviews in a way which both gives the respondents possibilities to tell their own story but to keep the discussion within the areas which are of interest of this study.
2.5 Scientific Ideal (epistemological considerations)
Which scientific ideal the researcher applies depend on the view of the reality that he possess. This study will investigate actions that are designed and executed by humans. Their decisions will be affected by the environment and the context they are made in and by the beliefs and values of the entrepreneur who make them. It can therefore be argued that a hermeneutical approach is applied in this paper. The positivistic view is considered to be free from values and thereby objective by nature and is therefore not applicable to this study20. Through interaction in form of interviews with the entrepreneurs this study will try to identify the actions and put them into a theoretical context in order to explain the nature of the Swedish brewery industry. This is in accordance with the interpretive scientific ideal where it is the researchers aim to interpret the stories told by the entrepreneurs and relate the different actions to existing theories and thereby put it into a bigger picture. The interpretive ideal also sees objectivity as an important issue but argues that it is impossible to be completely objective throughout the whole research process.21
17
Jody Millner and Barry Glassner, “The „inside? and „outside?:finding realities in interviews”, in Qualitative Research: Theory, Method and Practice, ed. David Silverman, (London: Sage Publications, 2004), 127 18 Pål Repstad, Närhet och distans: kvalitativa metoder i samhällsvetenskaplig forskning , (Lund: Studentlitteratur, 2007), 132 19 Ibid., 132 20 Alan Bryman and Emma Bell, Företagsekonomiska forskningsmetoder, (Malmö: Liber Ekonomi, 2003), 26 21 Bengt Starrin and Per-Gunnar Svensson, Kvalitativ metod och vetenskapsteori, (Lund: Studentlitteratur, 1994), 56-57
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2.6 Choice of theories
The theories chosen for this study aims to give an understanding of how entrepreneurs discover or create opportunities from the environment they live in and act upon them. This is the foundation of entrepreneurship research and without any knowledge of the beginning of a new venture it will be harder to understand the choices made in the process thereafter. The theoretical framework starts with an introduction to market regulations in order to define the current situation for the alcohol market and to give some explanations behind it. Further the difference between market driving and market driven behavior is explained since it is two different perspectives of how the entrepreneur chose to approach the market and the opportunity that has been identified on it. This is important since it is a part of the options that entrepreneurs have to deal with the market and also a strategic decision which needs to be made quite early in the entrepreneurial process. Marketing and entrepreneurship is argued to have close relationships and will therefore be a part of the theoretical framework. Branding theories which will be used in this study are important since they are one of the major tools for entrepreneurs in the brewery industry to differentiate their products from the competing products on the market. Marketing and entrepreneurship is also linked together through the mutual dependence of each other, i.e. it is the marketing which shall make sales of the product possible and thereby make the new venture to a profitable company for the entrepreneur. The early strategic decisions are often affected by the sociopolitical environment and the expectations, laws and regulations existing in the society. Since the current brewery industry structure with many smaller companies is quite young compared to a lot of other industries it was also interesting to look into the effects of institutions. The liabilities of newness and lack of legitimacy might be of huge importance when discussing what obstacles and hinder entrepreneurs on this market have. This area is also of importance due to the regulations set up by the society which are highly evident in this industry.
2.7 Selection of sources
When selecting sources for this study it has been important that they have a high scientific quality. Therefore the goal has been to use peer reviewed articles published in scientific journals in as high degree as possible. Articles by established authors within entrepreneurship and marketing strategies have been useful in order to develop the knowledge within the studied area. The books and articles which have been used in this paper have been found through three different sources. First, the University library has been used in order to find books about entrepreneurship and marketing. Second, the database Business Source Premier and Google Scholar has been used when searching for scientific articles within the different areas covered in the study. Finally, some articles have been found through the program syllabus for the Entrepreneurship program at U.S.B.E.
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In the search for articles through databases, key words like: entrepreneurship, entrepreneurial process, regulated market, branding, opportunity, market-driven and market-driving has been used individually and in combinations. The selection was thereafter made based on the title, then by reading the abstract and finally if the article seemed interesting for the study the whole article was read. Through this approach the fit between the selected articles and the objective of the study was ensured.
2.8 Criticism of Sources
Many of the topics dealt with in the theoretical framework are often based on a few articles dealing with the issue. This might be seen as a weakness because there can be other studies which argue for another approach than the selected articles and thus the argumentation does not consider all aspects of the issue. However, many of the selected articles and theories are written by well known and established researchers within their field and they are often cited by other authors. The majority of these articles has also been published in well known scientific journals and has thus been peer reviewed. A critical evaluation of the fit with the study was also done after reading the articles. Due to this they are considered to hold high scientific credibility and therefore the risk of bias and a selective choice of theories are not considered to have been harmful for the understanding of the studied are. Sources with lower scientific credibility as books, reports and internet sources have been used carefully in this study since their content has not been reviewed to same extent as scientific articles. Most of these sources are used in the introduction part and the methodology chapters of this study. They have been used in order to describe the research problem and to give an understanding of the Swedish brewery industry. Therefore, no major credibility problems should arise by using these sources in this paper because they have limited effect on the analysis and conclusions drawn in the study.
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3 Theoretical Framework
In this chapter the theoretical framework which this study is based on is presented. Theories dealing with market regulations, the entrepreneurial activity and opportunity discover and creation is presented along with theories about the entrepreneur. Further theories about market driving and market driven behavior are presented in order to clarify the possible strategic directions for new entrepreneurs. Legitimacy is important in a new developing market and is thus a part of this chapter. Finally, theories about branding and brand management are presented because it is a central part of the marketing activity in consumer product markets.
3.1 Market regulations
In a free market the exchange of products and money is based around people?s free choices and desires and there are no other constraints than their own individual assumptions of what is right and wrong. A free market will thus only consist of buyer and sellers who agree upon prices and thereafter makes exchanges through bilateral contracts. When several exchanges occurs organizations or individuals will be a buyer at one time and seller the next. The price on the free market will be set after what the buyer is prepared to pay for the product which is being purchased. This is based on the assumption that all people are rational and want the most value for the least amount of money. The buyers will therefore have the power to determine market prices and this communicates to the producers to what cost they need to produce the products in order to meet the desires of the customers.22 Thus, if the alcohol market was a free market everybody would have the possibility to produce and sell to the price that is determined by the market without any government intervention. The free market model is argued to consider all restrictions on the buyer?s choice to be negative for the system. The choices of consumers will increase the competition among sellers with the implication that they will become more innovative in order to offer more products for the buyer. They will also try to reduce their costs in order to get an advantage on their competitors by being more efficient. According to this model all forms of monopolies, tariffs, subsidies, and workers unions are bad because they restrict the possibility of a free market.23 As described in the introduction to this paper the situation is far from this model but there are occasions when it is motivated to step away from the free market model. The government?s role should in the view of e.g. Hayek be to support the individual?s freedom of choice. The basic idea is that the government should work for a well functioning competitive market. The freedom of choice does not imply that there are no rules of law and conduct. Instead the rules should give the individuals more certainty about what outcome they can expect from their choice.24
22 23
Carrier, 2-3 Ibid. 24 Chris Guest, “Hayek on Government: Two Views or One?”, History of Economics Review, 1997
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Hayek thus argued for a small government role on the market where its main role is to create stable rules which enhance the competition on the market. However, there are arguments for situations where the government should intervene on the market. Dardis argues that if the market suffers from market failures or if consumer health and safety is at risk, government intervention might be justified.25 This is what the Swedish government has done on the alcohol market and they have thus limited the freedom of choice among customers. On the free and perfect functioning market people would evaluate the risks of the products themselves and thereafter decide what price they are willing to pay for the product. The customers would through this action be expected to protect themselves from risks and hazards by their own choice. However, there is a difference between perceived risk by the customer and the objective risk because of information asymmetry between producers/seller and consumers.26 According to Dardis, because of the information failures and inadequate risk response the society cannot expect people to protect themselves and therefore regulations are a necessary thing. Further, excessive drinking will imply a risk and extra costs for other than the individual in form of e.g. increased violence and medical costs, which will affect the whole society. Another incentive for the government to intervene on the market is when the effects of different substances are well known and certain individuals or groups are more sensitive for misuse. Therefore the government has set up minimum age for buying alcohol because the effects are greater for young people. The politicians have thus motives to restrict the customers free choice on the market for alcohol products because the nature of the product. First, the product is concluded to have negative medical effects if it is misused and people can develop an addiction of the product. Second it is determined that a lot of violence is connected to the use of alcohol. Both of these things lead to increased cost for the society and therefore it is considered beneficial to regulate the market.
3.1.2 Regulations on the Swedish alcohol market In order to have a good control over those who produce alcohol products on the market the government has set up rules which demand permission for production of alcohol. When applying for the permission an investigation and judgment of the applying person?s suitability to deal with alcohol is done before giving the permission. The permission can have special restrictions if the authorities for some reason see it as necessary and if any violation against the permit is done it should be withdrawn immediately by the controlling body.27
25 26
Dardis, Spencer Henson and Bruce Traill, “The Demand for Food Safety: Market Imperfections and the Role of Government ”, Food policy, April 1993 27 http://www.sweden.gov.se/content/1/c6/12/15/91/fe04bc72.pdf, 2009-05-16
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The customer choice has further been restricted since the availability of the product has been limited through a retail monopoly and only restaurants with licenses are able to serve alcohol beverages to customers. In Sweden only Systembolaget are permitted to conduct retailing of alcohol merchandises with more than 3, 5 vol. % of alcohol. It is either not allowed for producers of alcohol to sell their products directly to customers or visitors at the brewery. The recent public investigation of the alcohol market also rejects the idea of introducing yard sales for small breweries or wine producers because it might jeopardize the current monopoly.28 The marketing activities of the products have also been restricted and marketing of alcohol products is allowed only for products with less alcohol than 15 vol. %. The marketing should not be targeted towards youths and should also be undemonstrative. Commercial advertising through TV channels are not allowed for alcohol products but because some of the Swedish channels are broadcasting from England other rules apply for these and therefore some alcohols commercial are possible also in Swedish TV. Advertising in journals and newspapers are allowed but there are restrictions of size of the advertisement, only the product can be shown, the alcohol percentage should be shown and a warning text of the harms of alcohol must be included in the advertisement. This can be seen as an attempt to decrease the information asymmetry between sellers and buyer by regulation what information they are allowed to transmit to the customer and not hide the negative effects which the product might have.29
3.2 The entrepreneurial activity
All entrepreneurial activity begins with opportunity identification and has come to have a central role within entrepreneurship research and many scholars have studied this process. 30 It can be either an active process or more accidental but it is however the first important element in the process to develop a successful business. Therefore, Ardichvili et al. argue that this is an area of great importance in all entrepreneurship research.31 For the purpose of this paper it becomes important since many of the new breweries in Sweden appeared during the same period of time. This indicates that there could have been something that triggered the entrepreneurs during this time. More than one individual identified some opportunities during this time and it is therefore important that the discovery or creation phase of opportunity is discussed in the paper. There are two main schools of theories about whether opportunities are created or discovered within entrepreneurship theory. They have been described under slightly different names by scholars but two clear names are discovery theory and creation theory. The first has its roots in the Austrian school of entrepreneurship and the second in the Schumpeterian school.32
28
29
http://www.sweden.gov.se/content/1/c6/12/15/91/fe04bc72.pdf, 2009-05-16 Ibid. 30 Connie Marie Gaglio and Jerome Katz, “The Psychological Basis of Opportunity Identification: Entrepreneurial Alertness”, Small Business Economics, 16, 2001, 95-111 31 Alexander Ardichvili, Richard Cardozo & Sourav Ray, “A theory of entrepreneurial opportunity identification and development”, Journal of Business Venturing, 18, 2003, 105-123 32 Sharon Alvarez & Jay Barney, “Discovery and creation: Alternative Theories of Entrepreneurial action”, Strategic Entrepreneurship Journal, 2007
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There is also a third view, opportunity recognition, which is focused on the allocation of resources and has its roots in the neoclassical theories of economy. This view is however not interesting for this study since it only focus on the system, and does not consider that individuals might discover or create opportunities through their own work or search for one. The entrepreneurial process is thereby neglected by this view since the only thing important is the outcome of the process. By this view, opportunity recognition is only a matter of luck, depending on differences in access to information.33 Since this study is more focused on the process by which the entrepreneurs are striving towards the goals, the opportunity recognition will therefore not be explained any further. Instead the focus will be on the opportunity discovery and opportunity creation theories. Before discussing opportunities any further it is necessary to define what an opportunity is. Sarasvathy et al. has identified three different components which an opportunity consist of. The first is that it needs to have a new idea or invention which might create economic ends. Thus, the idea or invention must be able to lead to be some possible economical transactions to be an opportunity. Second, the opportunity also needs positive beliefs by the entrepreneurs about the outcomes of pursuing the opportunities. Finally it needs action to achieve the ends which was intended in the first and second elements of the opportunity. 34 Thus, Sarasvathy et al. argue that an opportunity needs one or several persons who identify it as an opportunity and acts upon it. Otherwise it is useless if nobody is willing to make the efforts it needs in order to create some kind of value from it. According to the discovery theory opportunities exist in the environment and can be exploited by entrepreneurs who have the will to take on the work. The opportunities can be exploited by anyone who may come across them even though not everyone is equally likely to discover them. It is therefore argued by discovery theorists like Shane that an opportunity is an “objective phenomenon”, i.e. it exists even if no one will exploit it.35 Therefore one might argue that Shane?s arguments that an opportunity exists even if nobody acts on it falls outside the definition provided by Sarasvathy et al., earlier because they list action as an element of opportunity. However, they only say that an opportunity is meaningless if nobody acts on it, but this should not be seen as it does not exist.36 Therefore, Shane?s argument that opportunities can exist without anyone acting upon them is still valid even though it is slightly different from the first definition. As mentioned above, the likelihood that everyone can discover all opportunities is not very high. This since the process to discover new opportunities is very much about access to information and also about previous knowledge and experience that the individual possess. Networks are considered to have a central role when it comes to providing access to information. To get access to information which often is well conserved among a few
33
Saras Sarasvathy et al., “Three Views of Entrepreneurial Opportunity” in Handbook of Entrepreneurship Research, eds. Zoltan Acs and David Audretsch, (New York, Springer Science+Business Media, 2005), 145147 34 Sarasvathy et al., 143 35 Sharon Alvarez & Jay Barney 36 Sarasvathy et al., 143
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individual require close contact with those people.37 The networks are also important because people often only have information about a specific field or industry since they are specialized within that field. Thus, a chef will probably have more information about food trends than a mechanical engineer.38 What kind of knowledge the individual possess is important in order to understand the information that is being provided. Without understanding it is not likely that any opportunity can be identified based on the information.39 People who are working within a certain field will have better information about resources, technology, regulation and market demand in that field than other outsiders which gives them an advantage in the discovery process. 40 By using the information in combination with the prior knowledge the entrepreneur can come up with new ideas or an invention which was the first element of an opportunity. It is also argued that “entrepreneurial alertness” will enhance the likeliness that people can use and combine the information and their knowledge and identify the opportunity. According to Kirzner an entrepreneurial alert person is always on the watch for an opportunity to show at the horizon and is ready to act on it when it is spotted.41 The creation theory which has its roots in the Schumpeterian school has another perspective on opportunity identification. This theory is not as established as the discovery theory and the allocation theory.42 Opposite to the discovery theory, where Shane argued that opportunities are objective and exists in the environment ready to be discovered by those with alertness, the creation theory see opportunity as the result of individuals actions. Through this perspective an individual work actively to develop economic value. It is argued to be an emergent process without well defined goals in the beginning; it is more an ongoing process to reach the goals which will be developed over time as the process proceeds.43 This view of opportunity identification also considers the individual to be a social human being which is affected by the context and social interactions which makes the actions more irrational than in e.g. the discovery theory. It is argued that our actions are always depending on the situation and our intention, they cannot be freed from our psychological and physiological constraints and finally we are social beings and therefore our actions are meaningless unless they are put into a social context.44 The creation theory also has close connection to the theory of entrepreneurial learning processes. As the project develops, new problems occur and needs to be attacked in new ways and by new measures. Since the outcomes are not known in the beginning of this process it might be that the final opportunity the entrepreneur will exploit differs from the intended one
37 38
Sarasvathy et al., 143 Scott Shane & Jonathan Eckhardt, ”The individual-opportunity nexus”, ” in Handbook of Entrepreneurship Research, eds. Zoltan Acs and David Audretsch, (New York, Springer Science+Business Media, 2005), 174 39 Sarasvathy et al., 151 40 Shane & Eckhardt, 174 41 Israel Kirzner, “Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach”, Journal of Economic Literature, vol. 35, issue 1, 1997, 60-85 42 Sarasvathy et al., 155 43 Alvarez & Barney 44 Sarasvathy et al., 155
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at the start of the journey. It is not uncommon that the realized strategy will be another than the planned strategy because a lot of factors affect the process. 45 Due to this continuous process and search for the opportunity it can be said that the creation theory does not consider opportunities to exist but are being created through interaction between individuals and organizations.46
3.3 The entrepreneur and the opportunity exploitation
After describing the nature of opportunities and how they may be discovered it is also important to focus on the individual who have discovered them. Many might discover opportunities but not all will act and exploit them. Areas that are important here is the entrepreneurs access to resources, financing, social capital, psychological issues and the fit between the nature of the opportunity and the individuals abilities. Opportunity exploitation is to large extent a matter of gathering and combining resources into profitable ventures. This means that the entrepreneur needs to have access to a lot of different resources to be successful. A huge problem for new entrepreneurs is that there are information problems between the entrepreneur and the provider of the resources since entrepreneurs are unwilling to share information. Because the resource provider does not have access to all information about the project and have no previous experience of doing business with the entrepreneur there might be a lack of confidence in the project.47 The information problem might cause problems with the financing of new projects since banks are careful with their financing of risky projects with unclear business plans. Therefore many entrepreneurs need to find financing in other ways, either from their own pockets or from providers with whom they are more familiar, e.g. relatives or family members. Social capital has therefore an important position in the entrepreneurial process. Among the people that the entrepreneur already knows he/she already have the trustworthiness that is necessary in order to convince them that the idea is worth investing in.48 The access to information for the resource providers in this case is also better since it might be easier for the entrepreneur to share information with people who is well known and who are not likely to steal the idea. Another possibility to improve the access to financing is also to give away a part of the ownership which gives the provider better control over the investment. This is common when receiving venture capital from risk capitalists.49 The willingness to pursue an identified opportunity is also depending on the person?s situation and characteristics. Kirzner points out four characteristics which are necessary for a successful entrepreneur: vision, boldness, determination and creativity.50 People who have a desire to accomplish something by finding solutions to problems and by taking on complex
45 46
Alvarez & Barney Sarasvathy et al., 156 47 Shane & Eckhardt, 178 48 Ibid., 179 49 Ibid., 179 50 Israel Kirzner, “Creativity and/or Alertness: A reconsideration of the Schumpeterian Entrepreneur ”, Review of Austrian Economics, 11, 1999, 5-17
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tasks are more likely to become entrepreneurs than other. This also means that people who are not afraid the uncertainty which comes with high risk projects are more likely than risk avert persons to exploit opportunities. Therefore it is argued that people with high self-confidence and belief that they are able to deal with the complex problems are more likely than others to take on the risk.51 All of these characteristics are linked to the psychology of the person who might exploit an idea. It also is connected to the person?s life situation and the nature of the opportunity. If the person has a lot to lose in comparison with the possible positive outcomes of the opportunity it is less likely that any exploitation will occur.52 Few people are e.g. willing to give up a full time employment in order to start an own business since the possible benefits are small compared to the security that an employment provides. It will therefore be interesting to know from what situation the entrepreneurs in the brewery industry started their business.
3.4 Market driving or market driven entrepreneurship – strategic marketing decisions
An early decision in the entrepreneurial process is the strategy by which the company will pursue the market in terms of marketing orientation. On this matter Schindehutte et al. argue that firms either can have a market driven or a market driving strategy when it comes to approaching the market. They further argue that the market driving approach is an entrepreneurial phenomenon since it is what can create a lasting competitive advantage for the company.53 It therefore becomes interesting for this study to explore if the strategies applied within the brewery industry are of market-driven or market-driving character. Firms can work in three ways in order to meet their goals and through these ways their strategic approach can be analyzed. They can either approach the market by responding to customers expectations on an existing market, or they can try to redefine the market by changing the structures and expectation or they can create a completely new market for their products.54 The first strategy can be defined as reactive and the other two have a more proactive approach. The decision for the entrepreneur to pursue one or several of these different strategies is to some extent based on the assumptions of the market structures. If the assumption is that there already is an existing markets with a certain number of customer who are asking for a certain type of product then a reactive strategy will be a natural choice. Then the marketing and product/business development will be focused on following the customer expectations.55 Since customers have trouble to foresee innovative products and articulate unknown needs or expectations the product development will be focus on incremental innovation.56 This
51 52
Shane & Eckhardt., 181 Ibid., 180 53 Minet Schindehutte, Michael H. Morris, and Akin Kocak, “Understanding Market-Driving Behavior: The Role of Entrepreneurship”, Journal of Small Business Management, 46, 2008, 4-26 54 Ibid. 55 Ibid. 56 Nirmalya Kumar, Lisa Scheer & Philip Kotler, ”From Market Driven to Market Driving”, European Management Journal, vol. 18, no. 2, 2000, 129-142
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approach includes a learning process of the stakeholders? expectations in the existing market and the primary stakeholder is the customer. This is what is referred to as the market-driven behavior.57 With such an approach the micro-breweries would be most interested in following the current trends in the brewery industry and constantly follow them in order to lie as close to the customer expectations as possible all the time. This will however lead to heavy price competition since everybody will offer same types of products.58 Market-driving on the other hand is about changing the expectations of the customers or changing the whole industry structure by affecting all stakeholders within it. Schindehutte et al argues that market-driving activities indicate a strong entrepreneurial orientation of the company and that it can create sustainable advantages. Market-driving strives to achieve creation of new markets, business models or by changing the rules of the game within the industry which the company is working in.59 Compared to the market-driven firms the companies which are in this category will have more innovative products or business models which deliver unexpected value for the customer. They can achieve this because they often have a more visionary approach to the product development than market-driven firms which focus on customer research. Inexperience of the industry in which the entrepreneur acts may also be a benefit because it allows thinking outside the box. Since they are working in this way it is important that the employees in these types of companies are driven by some internal fore and motivation to change the world. They are on a mission which is of higher order than to earn some extra money. 60 Because of this it was argued that market driving behavior is more entrepreneurial than market driven. Kumar et al. argues that it is the ability to deliver products with an experience that outcompete competitors and exceeds the customer expectations without causing the customer any extra work or planning to achieve it that is significant for market-driving firms.61 In this lies also an ability to see and understand the latent needs of the customers and developing the new products according to those needs.62 The marketing approach differs between firms who have a market driving and a market driven way of doing business. The market driven firms are more conventional in their processes and have a clear segmentation strategy of the market and differentiate their marketing. They do research of what the market wants in terms of products and values and thereafter they implement these findings in their work in order to create a product - market fit.63 Market driving firms work totally different in many ways compared to the conventional methods. They do not use market segmentations and also tries to use more creative marketing methods. This is because they have a different view of the customers and how to approach them. Instead of asking the customer what they want today these market driving firms tries to
57 58
Kumar et al. Stanley Slater and John Narver, “Research notes and communications: Market-orientated is more than being customer led”, Strategic Management Journal, 20, 1999, 1165 -1168 59 Schindehutte et al. 60 Kumar et al. 61 Ibid. 62 Slater & Narver 63 Kumar et al.
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foresee what the customer might want in the future and thereby how the market can evolve from the current situation. Instead of using traditional marketing and sales methods they instead tries to educate their customers and relies on word of mouth effects or “buzz networks” as Kumar et al. puts it. This is possible since customers who have experience some extraordinary compared to competing products are eager to tell their friends about their finding. Therefore these firms do not have to spend enormous amounts of money on commercial to sell their products.64 By applying a market-driving strategy the company might be able to reach out to customers who still do not know that they need these products.65 This might be especially important in the brewery industry and similar trend industries. Here it is possible for the companies to create the trends instead of just following the customer?s existing preferences. Marketing is thus an important element in the entrepreneurial process since it is a primary tool to implement the strategies by which it works.
3.5 The link between marketing and entrepreneurship
As concluded in the previous part, marketing is an important element in entrepreneurship since it is the marketing function that shall make sales of the new product/service possible. Without any sales the company will not survive for long since the cash flow will be negative. The common thing between entrepreneurship and marketing is that it should focus on the customer and the benefits or value that the product can deliver to the customer. Studies have shown that besides financing of new ventures marketing is the most problematic area for new companies. The entrepreneurs often lack a clear marketing strategy; they have not made proper estimations of the size of the potential market and therefore miscalculate the future sales possibilities (often too optimistic assumptions about demand).66 Market-driving companies tend to have less understanding of marketing than market-driven firms in general. A reason for this might be found in the person behind the company. Many innovative and creative entrepreneurs have a personality which is not familiar with planning and therefore have less possibility to carry through effective marketing campaigns. They might be more interested in their product development than managing the sales processes of it.67 This might be a result of the often limited knowledge among entrepreneurs about marketing functions and how to promote their products. In general they do not have any greater understanding of any of the marketing concepts that can be used in order to make their products interesting for the customer to buy. This means that they will not be able to design the marketing strategy in a good way.68 Since marketing and entrepreneurship clearly are two functions that go hand in hand the paper will continue with a presentation of some useful marketing tools which might be of importance in the brewery industry. Because many of the products in this industry are similar
64 65
Kumar et al. Schindehutte 66 Hisrich, The need for marketing in entrepreneurship, The Journal of Business and Industrial Marketing, vol. 7, nr 3, 1992 67 Ibid. 68 Ibid.
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in their function and way of production it is important to distinguish them in other ways. The focus in this study will especially be laid on the possibilities that branding offers for the products and the companies. How can the small breweries shape their image and thereby become known and accepted by the customers and how are the entrepreneurs working with this matter?
3.6 Branding – a way to differentiate
To create a brand is a way for a company to create a communicative tool which differentiates their products from those of their competitors. A brand is something that provides the customer with information which helps them in the choice of products because through the brand they can quickly relate them to competing products. This is possible because the product brand is linked to the expectations that the customer holds about values or benefits delivered by the product. When the value of the product which is promised by the brand is delivered to the consumer the company also can maintain a premium price on their product. 69 This is important for small entrepreneurial firms because they often have higher unit production costs than large scale producers. For the micro-breweries it thus should be of huge important to be able to charge a premium price for their products. A brand has more than one side. The first one, described above, is brand image which concerns the consumers? perceptions and interpretations of the brand based on the information they have gained through experiences of the product, commercials, word of mouth and so on. The second side of the coin is brand identity and is concerned with the picture that the company want communicate to the customer about the brand. It is what the company wants the brand to be. This is in the control of the company but it does not necessarily have to be the same as the image because the interpretations of the customers cannot be controlled.70 There are a lot of models which describes the different dimensions of a brand. The dimensions consist of elements as: functions, image, differences, source and culture. The company tries to send out a picture of the product which contains these elements and the customer receives the information and creates an own picture. If there is consistency between the transmitted picture and the picture constructed by the customer then the brand equity will be high.71 There are also different levels of brands depending on the specification to which products a name is linked.72 Product brands: is just what the name says, a brand connected to a single product. Line brand or umbrella brand: If a company produces more than one product within the same field they can group the under a line brand which can be based on e.g. different quality standards. Company name: Some companies do not market their single products with own names but uses the company name as the brand for all products. Nokia is a good example of such a company. The only brand that is visible on their mobile phones is the company name and they
69
Sharon Ponsonby-McCabe & EmilyBoyle, “Understanding brands as experiential spaces:axiological implications for marketing strategists”, Journal of Strategic Marketing, 14, 2006, 175-189 70 Geoffrey Randall, Branding, (London: Kogan Page, 2000), 7 71 Ibid., 8 72 Ibid., 10
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only use model numbers for the different phones even if they could create individual product names for every phone. 3.6.1 Brand equity Brand equity is the concept of the added value that is connected to the brand of the product.73 It consists of different components like product attributes, brand awareness (or name awareness), brand association, brand loyalty and other properties connected to the product like trademarks, patents and relationships. It is though hard to measure the value of brand equity. There are no models that can put an exact price or value of a brand. 74 However, companies are prepared to pay large sums for acquiring known brands to their portfolios and there are also firms who sell services to estimate the correct value of different brands. To understand how the product achieves high brand equity it is necessary to develop the different components that create the total brand equity. Product attributes is concerned with the perceived quality of the product by the consumer in relation to other competing products with similar purpose of use. The product must meet the customer expectations and needs and even go beyond them. It is often mentioned in the literature that the product should deliver “unique benefits and superior value”. 75 There are a lot of features which can create this superiority of the product and thereby contribute to the brand equity. Some of the features mentioned are product quality compared to other products, price-performance ratio or well design packaging.76 Considering the brewery industry where all the products have the same basic purpose (you drink it because you are thirsty, as a complement to food or for social purposes) and effect (you get drunk if you have to many) it can be hard to achieve some of the product features which create the brand value even if some consumers may evaluate price-performance as how cheap it is to get drunk. But then we have moved away from the more entrepreneurial firms in the industry which seldom compete in this low end market. Instead they may be competing by creating positive associations to the product and with these kinds of more emotional attributes. The importance of different attributes was studied by Romaniuk and she concludes that the more attributes the customer can link to the brand, the more likely it is that a purchase will occur.77 Further, when designing the product it is important that it is easily distinguished from other products and have an attractive appearance.78 The brand name is the second component which is very important for a successful product because a good name is powerful to create awareness of the product. The name is the identity of the product. It is the name that is communicated through commercials and promotion activities. To create awareness of the product name (or brand name) can be very costly and
73
Hans Mathias Tjömöe, ”Branding, Cheating the customer and other heretical thoughts”, Journal of Brand Management, 16, 2008, 105-109 74 Randall, 23, 25 75 Ponsonby-McCabe & Boyle 76 Ibid. 77 Jenny Romaniuk, ”Brand attributes – ?distibution outlets? in the mind”, Journal of Marketing Communications, 9, 2003, 73-92 78 Ibid.
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thereby difficult for smaller breweries. The barrier to get people to try the product is also high in normal situations.79 On a regulated market it will therefore be even harder because of the sales restrictions. You are also not allowed by law to offer samples of the product which many other consumer product producers often do when they launch products. Since breweries often have many different kinds of beers in their production you often only see their company name as the main brand. Even if Carlsberg is one of the world?s biggest breweries with a lot of different products they always communicate their famous slogan “Carlsberg – probably the best beer in the world”. The do not say if it is Hof, Export, Falcon or Pripps Blå even if they produce all of these sub brands. As previously mentioned this is also a strategy used by e.g. Nokia even if they are even more consistent with using only the company name on all products80. By succeeding in these two areas the company may create a brand awareness among the customers which is the third component of brand equity. By using both commercials and media activities and other promotion activities the company can create awareness of the product.81 This is what was called brand image previously, namely how the customer perceive the product and what beliefs that are connected to the brand name. When it acts as a part of brand equity it symbols a public desire for the product that the company offers on the market. Therefore, the goal for the company is to create associations in the customer?s mind which are positive and triggers the purchase decision when choosing among different products. These associations can be directly linked to the product itself but can also be linked to some cultural aspects of the company or the location where the company is situated. Ryan has studied how a number of Finnish companies have used their origin in the marketing of the company and their products and thereby achieved a country-of-origin effect. Ryan argues that when people have knowledge about the product attributes they tend to use other indirect indicators of the products quality. By using symbols typical for the place of origin the companies can create a positive image of the product and thereby make the product more familiar for the customer even if the actual knowledge of the product does not increase.82 This might be very interesting for many of the smaller breweries which often have a very local profile. Many of the existing breweries use town or regional names as their company names. The last component of brand equity is brand loyalty which means that consumers are willing to repeatedly buy the product. This component is very hard for the company to control since it is based to a high extent on the customers experience when consuming the product. How we experience products is very individual and especially when it comes to beer where all people have different taste and opinion about how a good beer should taste like. Loyalty can be achieved if the customers experience is in line with their expectations and it should also reflect their values and identity.83
79
Romaniuk Jason Ryan, “The Finnish country-of-origin effect: The quest to create a distinctive identity in a crowded and competitive international marketplace”, Brand Management, vol. 16, 2008, 13-20 81 Ponsonby-McCabe & Boyle 82 Ryan 83 Ponsonby-McCabe & Boyle
80
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3.7 Gaining legitimacy in a new industry
Even if the brewery industry has been around for ages it can still be defined to at least some extent as a new industry from the 1990´s and forward. The industry faced huge changes during this time in terms of legislations and changes in the business environment caused by the EU membership. The customer?s awareness of new products and a desire for better quality and diversity of beers also changed the possibilities to start new small breweries in Sweden. A well rooted pattern for consumers when ordering beer in a restaurant had for a long time been to order “a big strong” when ordering beer. Nobody cared about what beer they would get and this is still in use in Sweden but is never seen in other countries. The industry also went from an oligopoly situation with a few dominant players to become more diversified with smaller companies competing of the customers favor. Due to this it is valuable to discuss the institutional context that the industry experienced and how it could cause liabilities of newness for the entrepreneurs in this business. It is always difficult and risky to start a new business but it is argued to be especially hard in industries with few companies who have created awareness of the phenomenon of entrepreneurial ventures in it. It is harder for companies to enter a business environment which is in a formative phase because they face a lot more hinders than entrepreneurs who pursue opportunities in industries which are more generally accepted. In new industries it is also harder to find employees with the right education and who have the skills necessary to work in the company. It is also harder to raise capital since investors might be afraid of investing in unknown products with no previous history or with unknown markets. 84 This is thus linked to the legitimacy of the entrepreneurs in the industry. Legitimacy is therefore concerned with the social acceptance of the companies on the market and is considered an important resource of an entrepreneurial business. It is argued by Zimmerman and Zeitz that legitimacy is what gives the company the possibility to acquire the resources they need in order to run the business. They further argue that the company through strategic action can improve the legitimacy and through this action improve the performance. 85 This argument makes legitimacy interesting for the study because it concerns the strategic work in the entrepreneurial process and offers a tool for the entrepreneur to overcome some of the hinders which is in the focus of this study. For the brewery industry it is primarily in the sociopolitical domain where lack of legitimacy might be found. This refers to the public opinion, government support, and existing norms and laws. As explained in the introduction the Swedish policy concerning alcohol beverages has been to prevent people from drinking too much and to regulate in order to hinder private profits made through peoples drinking habits. Therefore it can be said that the sociopolitical acceptance has been quite low historically in Sweden. Thus it can be expected that new firms who are trying to restructure the industry have experienced some difficulties connected to the lack of sociopolitical legitimacy.86
84
Howard Aldrich & Marlene “Fiol, Fools Rush in? The Institutional Context of Industry Creation” , Academy of Management Review, 19, 1994, 645-670 85 Zimmerman & Zeitz, Beyond Survival: Achieving New Venture Growth by Building Legitimacy, Academy of Management Review, vol. 27, no 3, 2002 86 Aldrich & Fiol
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To develop the understanding and acceptance for the industries activities it is suggested that firms should organize themselves and take collective actions, like lobbying and marketing through trade associations and industry committees.87 The Swedish brewery industry trade association is dominated by the biggest actors on the Swedish market, primarily Carlsberg and Spendrups who hold four out of seven seats in the board of directors. The other companies represented on the board are Coca-Cola Sweden, Åbro and Kopparbergs.88 Few of the small entrepreneurial companies are members of this association and none of the companies interviewed in this study is a member of this association. This could indicate that the industry is not as well organized as it should be in order to gain extended sociopolitical legitimacy which could be expressed by a more liberal legislation. It is thus interesting to study why the entrepreneurial breweries are not part of this association which also could give their company a greater acceptance on a more individual level.
3.8 Summary of the theoretical framework
Opportunity identification was argued to be the central thing in all entrepreneurial activity. Further it was argued that opportunities can either be discovered or created by the individual. Discovery theory was based on the idea that an opportunity is something that is waiting “out there” and everybody can discover it but e.g. Shane argued that some are more likely to discover it than other due to differences in knowledge and access to information. The creation theory is more focused on the actions of the individual and sees the opportunity to be an outcome of the work done in order to create economic value. The social environment will influence the decision process and the opportunity is only meaningful if it is seen in a social context. The entrepreneur?s personal characteristics will also influence the probability to take on entrepreneurial work and exploit opportunities. There are two options for strategic direction which the entrepreneur needs to decide on in an early stage of the process. The company can either decide to approach the market based on the customers? expectation in a reactive way (market driven) or they can decide to work proactively in order to redefine the market structure by changing the expectations on it (market driving). It was argued that a market driving strategy was an evidence of a strong entrepreneurial orientation which can lead to sustainable advantages. To change the expectations of the market and reach the sustainable advantages the entrepreneurs need a marketing strategy. This is an area in which many entrepreneurial companies have lacking capabilities and unclear strategies. Marketing is also a way to differentiate the products from the competitors which is of great importance in the brewery industry where all products have the same basic function. Instead the companies need to focus on the customer?s experience of the product. By creating a strong brand image the company should be able to reach high brand equity. A way to build this image can be to use the origin of the product as a marketing tool. This can be valuable for the micro-breweries since they often are located on the countryside and can thereby refer to something genuine and a local culture.
87 88
Aldrich & Fiol http://sverigesbryggerier.se/om-oss/styrelse/, 2009-05-16
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Since the micro-brewery industry is relatively young and small they might still have a lack of legitimacy. Legitimacy is about the public acceptance for the industry which will be visible in laws, regulations and attitudes towards the industry. It was argued that legitimacy can be gained by organizing the industry in e.g. industry associations. The marketing and image building activities also have an important part in this process and is thus linked to the marketing activities.
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4 The study in practice
This section discusses the selection of respondents for the study and the process of collecting the empirical material which later will be analyzed. The arguments for the chosen form for presenting the material will also be provided.
4.1 Selection of respondents
The selection of respondents has been made based on the respondent?s suitability for the study which according to Creswell is more important than randomly selecting respondents. 89 To meet the purpose of this study and a set of criteria was set up before contacting the breweries. Since the study is focused on entrepreneurship the first criterion was that it should be classified as a microbrewery. A microbrewery is a small brewery is signified by craftsmanship and produces a limited amount of beer per year. The second criterion was that the founder should be active in the company. This criterion was set up since it otherwise can become hard to define whether it is question of entrepreneurship or management if the ownership issues are diffuse. This was also more suitable since the study focus both on the start-up process and the current situation of the company. Finally, the breweries needed to have own production and not just license brewing in order to be classified as a microbrewery which was the first criterion. A list with all existing breweries was found on the homepage of The Swedish Beer Consumers Association homepage. According to this list there are 33 breweries with own production in Sweden. There are also 7 breweries which produce sweetened small beers and 9 other breweries which do not have own production but instead produce their beer on license in other breweries or otherwise cannot be categorized into the other two categories. 90 For this study only the companies in the first category was of interest because the second category does not act under a regulated market concerning sales and need of permissions to produce and is thus working under totally different conditions. The third category of breweries which does not have own production falls outside the definition of microbreweries and are thus disqualified in this study. From the list the largest breweries which cannot be regarded as micro-breweries where excluded as well as pub breweries which produce for their own use and who are not selling on the market and those who only produce soft drinks. This left 12 companies and after checking their homepages and evaluating them against the criteria 11 companies where finally contacted for an interview request. At the first contact five of the companies agreed to participate in telephone interviews, two of the companies wanted to answer by e-mail due to difficulties to schedule an interview in their calendars. One company could not be reached with the request and one company was rejected since the founder has left the company and was therefore of less interest for the study. In the end only three telephone interviews were conducted after two companies changed their minds. The cause to this was lack of time for the interviews from their side. The interview questions had not been presented to them in advance so it was not due to the nature of the questions that these companies did not want to
89 90
Creswell, 185 http://www.svenskaolframjandet.se/bryggerier, 2009-05-04
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participate. In the case of the two e-mail interviews one of the respondents answered that he did not have time for it while the other one never replied. A disappointment was that one of the driving forces behind the newly started micro-brewery association did not want to participate in the study due to a busy schedule. It is understandable that these small companies with few employees have difficulties to lay of time for these interviews but for the study it could have been of large interest because it indicates that she want to work for better conditions for the industry. Some of the reasons to the start up of this organization were provided by the other entrepreneurs participating in this study but it would of course have been valuable to have the whole picture of this event. Three interviews might sound a bit thin for the study but since the population also is small it still is quite a good participation rate. The qualitative method also implies that the number of respondents is not the most important issue but the quality of the information provided. Travers states that it is possible to learn a lot from only a few interviews and thus I do not consider that the number of respondents is of major concern for the study. 91 As will be explained further in coming sections the interviews provided a lot of useful information and they also had many similarities between them. Therefore it is reasonable to believe that these three interviews have given a good picture of the situation for the entrepreneurs in the industry.
4.2 Design of the interviews
Interviews are a form of conversation where the researcher wants to gather empirical material by letting people talk about the issues which are being studied. This conversation can either be completely unstructured when the respondent can tell freely about their life to highly structured when the interviewer have a questionnaire with given answers.92 The scale of structures is wide and these are just the two extremes of it. Many interviews lie somewhere in the middle of these extremes and also this study apply a semi-structured interview design. By having a structure with defined topics and open questions within the topics the aim is to receive the maximum amount of useful information without a lot of answers which cannot contribute to the study.93 This is especially important due to the deductive approach of the study. Without any guidance few of the studied issues might be covered in the interviews. The open questions however give the opportunity for the respondent to stress what he/she thinks is important even if it goes beyond the asked question but is within the same topic. This means that if some important questions are missing in the interview guide the entrepreneur is not limited by this fact but can bring up new questions if it is of value. Therefore the main function for the use of an interview guide has been to steer the conversation without affecting the answers to much.
91 92
Max Travers, Qualitative Research Through Case Studies, (London: Sage Publications, 2001), 3 James Holstein and Jaber Gubrium, “The active interview” in Qualitative Research: Theory, Method and Practice, ed. David Silverman, (London: Sage Publications, 2004), 141 93 Ibid., 141
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The interview guide was thus designed to cover the areas described in the theoretical framework. The beginning of the interview focused on the opportunity identification and start-up phase of the company in order to find out what triggered the entrepreneur to go into the industry. Next part of the interview turned the focus to the strategies they apply in terms of marketing, sales and product development. The aim of this part is to find out if they apply a market-driven or market-driving approach in their strategy. The final part of the interview focus on more institutional hinders which they feel obstruct their future development and how they work in order to change them. This part relates to the institutional context which was discussed in the theoretical framework. The interview guide has been design to follow some kind of chronological order which makes it easier for the respondent to answer the questions. It also provides the possibility to build up some confidence between the respondent and the interviewer by starting with more general question. However, none of the questions are of really sensitive nature which should allow a positive atmosphere for the conversation.
4.3 Interviews in practice
The interviews with the respondents were conducted as telephone interviews. An audio recorder was used in order to have the possibility to listen through the interview afterwards and also to transcribe the interviews gives a better possibility to do a good analysis of the answers provided. The use of a recording devise also made it easier to keep the interview flowing without any breaks since there was no need to write down the answers before moving on. The questions where not sent to the respondent in advance because it could have limited the answers to just cover those questions. An implication of this could have that the respondent had left out important information of issues which might be of importance for the study even though they were not predicted in advance. The other side of the coin is that the respondent did not have as much time to think through the answers as if he/she would have had them in advance. In previous thesis work the questions have been sent in advance and the feeling is that this approach was more fruitful since the respondents was more relaxed with the situation and shared their information more freely when they did not have thought through their answers based on the interview guide. The atmosphere for the interviews was very relaxed and the respondents seemed to understand the questions and answered them thoroughly. An interview guide was used in order to steer the interviews through the different parts which was of interest for the study. In most of the interviews only part of the questions needed to be asked since the respondents covered them without any question being asked specifically about certain issues. This allowed a good interaction between interviewer and respondent since it became a very natural discussion when only some guiding questions needed to be asked instead of moving from question to question. Due to far distances between the different respondents, and a limited budget and schedule for the thesis, telephone interviews were the next best option to face-to-face interviews. A 30
weakness with the telephone interviews is that the connection or relationship between interviewer and respondent becomes more formal than it might be when conducting face-toface interviews. There is not the possibility to build the same relationship and confidence as a handshake and personal meeting creates between two persons. A visit to the breweries could also have rendered in more detailed explanations of certain issues since the respondents would have had better possibilities show and explain the different processes on site. However, the overall feeling is that they were able to explain the most important issues satisfying.
4.4 Presentation of the empirical material
There are a few different approaches to choose from when presenting the empirical material and which one that is most suitable depends on the nature of the study. Nylén presents four different strategies which can be applied when presenting qualitative data; case descriptions, autobiographical stories, fragmentized puzzles and unique conversations. According to Nylén it is a matter of ontological-epistemological standpoints which defines which strategy that is most suitable to use. Is it the researcher?s voice or the empirical voice that s hould dominate the presentation and is it the data that is the reality (e.g. conversation analysis) or is the respondents answers just a reflection of their social reality? 94 In this study it is the empirical voice, i.e. the view of the entrepreneurs, that is in focus and their reflections of their experiences and therefore case descriptions are most in line with the perspective and the epistemological standpoints of this paper. The transcriptions of the interviews made it possible to identify the most important parts of the interviews and thereby concentrate the presentations to only the parts important for the analysis. The material will be presented as case descriptions of each company with a structure that makes it easy to follow the different areas of the interviews. This way of presentation will allow an understanding of each respondent?s reality and their unique situation which they are acting in. This is important since many of the problems and strategies they have expressed are situation dependent. To increase the credibility for the presentations citations will be included in the text in order to express the most important answers given by the respondents. Here it is important to note that all interviews were conducted in Swedish and therefore the answers have been translated into English. Each case description will follow the same structure which makes it easy to compare the content of the different cases to each other. First a description of how the company came to existence is presented in order to give a understanding of what kind of company it is and how the person or persons behind it came up with the idea and spotted the opportunity. Then their way of working with marketing strategies and sales strategies are presented. All parts will also have a description of the problems that the respondents had experience during that phase or in that area.
94
Ulrika Nylén, Att presentera kvalitativa data, (Malmö: Liber Ekonomi, 2005), 65-67
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5 Empirical presentation
In this chapter the material from the interviews with the entrepreneurs is presented. All interviews were conducted in Swedish and therefore all citations have been translated into English.
5.1 Oppigårds brewery, Björn Falkeström
Björn Falkeström is the founder of this brewery which is situated in Hedemora. Björn has always had a strong interest for beer and started early to make his own beer and experiment with his own brews. It started in small scale as a hobby when he was 18 years old and has developed from there to become what it is today. Björn described his interest for brewing as:
“It has gone up and down from since I was 18. I produced my first whole malt brew when I was 18 years old in my mother?s old preservation device and then it has followed me throughout my studies in Uppsala and later when I was working in Stockholm I produced some home brews.”
Björn met his wife in Stockholm but they moved back to Dalarna and bought a house close to Björn?s parental home which is a farm property and the building there provided the possibility to scale up his hobby of producing beer. Björn had studied economics, and worked within that field but a dream of working with consumer products always had been present and in combination with the desire to start some own business the brewery became that business. Björn had started his process already in 92-93 when he read a lot of literature about the industry and the brewery techniques and made study visits to breweries in Europe. The move back to Dalarna in 94-95 also provided possibilities which were not present in Stockholm in form of facilities and a lower general cost situation. During this period Björn also followed the development of the Swedish entrance into the EU. This event removed a major obstacle for nascent entrepreneurs in the brewery industry.
“When we entered the EU the Swedish regulations around alcohol was loosened up and for instance the requirement to keep half a million SEK in security for future tax payments was removed.”
In 1997 the process to set up a brewery for commercial production was started but was not ready for production before 2003. The problem that Björn faced in this phase was the lack of experience from the business and he did not want to ask his future competitors of advice and they probably would not have been very interesting in helping him either. This lack of experienced was seen when everything took much longer than expected, it was more costly and the need of production space was a lot more extensive than he thought.
“I was maybe a bit naive in the planning when it comes to capital, spaces and how much time everything will need.”
The financial resources were gathered through consulting work on the side of the brewery business and also when he sold his share in the farm property to his brother. Björn also sold a car that he had built back in the days. As previously explained he did not have much of a 32
network which could assist him in the start-up but some foreign contacts was useful in the beginning. Other problems in the start-up phase were some quality failures with the durability of the beer. The infrastructure has also been causing some trouble for the brewery since they are located on the countryside e.g. the supply of electricity is not as good and the wastewater systems are not adjusted for such volumes that is produced by a brewery. The municipality?s understanding of these problems also have been somewhat lacking.
“Even if we have been granted production permits and the energy company who are responsible for the sewerage system has said it is OK, so when we finally are in production they do not think it is OK.”
The company is not working towards any specific target group of customers. The brewery makes beers with a lot of taste, many are bitter and also with a rich taste of hops. Björn said that his opinion is that it is rude to pick out a target group with the belief that these people are intelligent enough to understand our beers and other are not. He believes that all people can appreciate a good tasteful beer with more flavor than an industrial lager beer and this is part of their mission to change the drinking behavior on the Swedish market.
“I see it as we have two missions. First to make a living of our work and get return on our investment but we think it is important to spread a good beer culture and that we do by making beers with a lot of taste. You can?t spread beer culture which is based on the intoxication effect.”
The marketing of the products is mostly done at fairs like Stockholm Beer & Whiskey festival even if Björn have trouble to estimate how much value it brings back to the company to be represented in these fairs. They also sponsor some music events but this is mostly because of Björn?s personal interest in the folk music and he thinks it is a good way to contribute. They want to be visible in events they feel are joyful and which lies in line with personal believes. They do not have any concrete strategy on how to build their brand but it is to large extent connected to their location and way of work. “ …that we are out on the countryside and that we have used old buildings and that we work with craftsmanship, it is such values that gives a brand a value in combination with many who appreciate our beers.” The brewery has also had good success with editorial text and a lot of publications in newspapers both locally and on national level with mostly positive critique for their seasonal products like Christmas- and Easter beer. This is considered as a much better marketing tool than advertisements which is not possible due to the financial costs related to it. Another marketing activity which Björn considers to be one of the best is to arrange tours and visits on the brewery for groups where people can taste the beers and see how the production works. Besides the good PR function it is also an additional source of income for the brewery. Oppigårds have become quite established on Systembolaget and 90-95 % of their sales go through this channel. They have also started a co-operation with TOMP Spirits who are taking 33
care of the sales towards restaurants. This is still in a start-up phase and therefore the sales volumes through this channel are small. The brewery has also managed to get some export channels to USA and to Finland. To build the brewery around a local market Björn does not consider to be realistic since it is too small and the consumers are not loyal towards one brand. Still most beer consumers also choose their beer based on price and the brewery has no possibility to compete with the big breweries on price. Björn explained that there are a lot of myths about how difficult it is to get access to the shelves at Systembolaget. He cannot say whether it is hard or easy but since Systembolaget is run by a extensive regulation regarding what products they can sell there are no possibilities for any promotion activities towards them. Systembolaget plans their operations and then they present plans of what kind of products they aim to sell in the future. Out of these plans they then send out offering requests and as long as the formal documents are correct the brewery can send in samples of their products which then will be blind tested. Björn see it as if the products are not chosen then somebody else has a better beer. He considers Systembolaget to be a very good company because they have shops in the whole country and that it could be hard for the brewery to reach all parts of the country if they would have to promote and sell their products to many different food chains. He is also concerned about whether or not they would be able to get the same price for their products in that scenario. He is not convinced that they would be interested to have their products on the shelves of smaller stores and in smaller cities where the number of customers are low. When asking about how the support and attitudes from the society is towards the brewery industry the recently presented public investigation about the alcohol law came up. Björn expressed some disappointment with the investigator who expressed concerns that the permission for the micro-breweries to sell their products directly to customers who come to the brewery would lead back to the drinking situation among youths in the 70?s. Björn strongly opposed:
“If you have done such a poor job that you don?t have gathered any information about what values the micro-breweries stand for, which our products are, and who our customers are and you are so uninterested in discussing something that?s called beer culture then the distance between us and the politicians is quite big.”
Recently the micro-breweries has established an own association in order to get a stronger voice towards politicians and hopefully be able to act as a consultative body. Through this they will try to get people to understand what they are drinking and that politicians could see something positive with the existence of micro-breweries.
5.2 Ahlafors brewery, Christer Sundberg
Ahlafors brewery has an interesting background and is a bit different from the other cases presented here. This is because of the number of people involved in this business and the widely spread ownership of the company even if it is not a public company. Christer Sundberg who is one of those who started the whole thing and is the only employee of the 34
company explained that the stories tells that it was a bunch of men who started it in a sauna in 1993 or 1994. The inspiration they had got from Gammelstadens brewery which they had read about in the papers.
“We are a bunch of old guys who meet on Fridays for some horse gambling, we drink some beers and „lie? a bit. And then somebody says that we should also start a brewery.”
After this they started to look for financing and each person invested 5000 SEK and got a share in the company. To get more investors they put an advertisement in the newspaper and informed the public that there will be a information meeting about the project and everybody who were interested where invited. About 250 people attended and those still interested could take a form with them home with the bank account number where they could put in money. After one month they had one million on the account and today the company has around 190 shareholders. Many of them are also active on volunteer basis in the production. With an additional loan from the bank the financing of the company was managed. They had the opportunity to buy old equipment from a brewery that was in a process to expand their business. Since they had no previous experience or knowledge of the brewery industry or how to make beer they had the luck to get their first brew master as a “part of the deal” since he was laid off because of the reorganization in the firm which sold the equipment. This enabled them to get the production started and in 1995-96 the production was up and running. The whole background was well described by Christer as:
“We were happy amateurs who thought we would become rich on selling beer.”
The target group of customers is primarily residents in the municipality since the brewery tries to have a local profile. They do not target youth who just are looking for maximum alcohol effect for the minimum amount of money. The focus is on quality and they only produce unpasteurized beers and the price level is about 20 SEK /0,5L.
“The ambition is that whenever an Ahle resident have a party it should stand an Ahlafors beer on the table. Later when the night comes the German beer might come out but that does not matter”
They also target the typical beer pubs like Bishop Arms in Gothenburg and another important segment is conference centers and hotels which they also can offer to design own labels for the beer bottle because of the flexibility of the brewery. All of their products can also be found on Systembolaget?s shop in Nödinge which is the shop closest to the brewery. The micro-breweries have been offered the possibility to place their products on the nearest Systembolag shop because they cannot sell their products on the brewery and this is an attempt to conciliate the debate around the issue on the political level.
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The brewery does not experience any trouble with selling their products at the moment. The problem is more to adjust the production to the sales so that they do not produce more than they can sell and the other way around that they do not sell more than they can produce.
“We have increased production with 40% in one year and will increase with the same amount during this year so selling is not the problem but to find the mix”
Christer do not consider a possible abandoning of the sales monopoly to be a positive thing for the brewery. This because he thinks Systembolaget is a very good channel which promotes diversity of products. He does not believe that ICA or Coop would have the same amounts of brands in their assortments. He also puts very high value of the enormous knowledge resource that Systembolaget possess and this might be lost in a case of abandonment of it. However, he wishes that they could have a bit more flexible rules about which stores they are allowed to place their products in. Christer would like to get his products into the large Systembolag shops in the center of Gothenburg where none of the three micro-breweries in the region are represented. Christer have e-mailed and discussed this matter with Systembolaget but they just refer to EU competition laws which obstruct them to favor small Swedish producers but he is skeptical to their standpoint.
“Then they have to do the same with a small French wine producer, which I think is nonsense, an French wine producer will never demand that”
The marketing of the brewery is all about footwork. Christer is the one who does all the work and they do not have the finances to run expensive advertising campaigns. They try to work actively towards pubs and it is much traditional sales activities. They try to build their brand on their location and to have a clear local profile. They are situated in an old spin factory from the 19th century with clock-tower and all what is significant for such a building from that time. All products are also named with Ahlafors or with Ahle which is the municipality. There is a growing interest for these types of breweries and Ahlafors have succeeded to get some articles in the big morning paper in the Gothenburg area which builds their brand awareness in a good way. The article lead to a situation where they had sold all of their Easter beer long before the holiday had come and then people instead tried some of their other beers just because it was from the same brewery. The product development is much about experimenting and they never do any customer research before developing a new beer. They test different blends and the development is influenced of what they drink and what they hear from colleagues and then they discuss it with their brew master. Since they only produce 2000 liters per batch it is no catastrophe if it fails to sell. For the moment they cannot develop much more new brands since their capacity is not enough for it. A new tank cost about 100 000 and those money they do not have for the moment. They can do a lot of things with scarce resources because many of the shareholders have this as a hobby and come to the brewery every Wednesday to repair and clean things that are in need of it.
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Christer also mention the start of the micro-breweries? association as a positive thing since they can have a stronger voice if they act more organized. It can also be a place to discuss problems which occur and share experiences and knowledge with each other. He sees this as a good channel to spread the knowledge about the breweries and develop the beer culture in the same way as the wine culture developed during the 70?s and the 90´s. The reason why they are not a part of the current industry organization is that they do not contribute with much for the small breweries and he also say that nobody has ever asked them to join the organization.
5.3 Ocean Brewery, Rodrigo Arvidsson
Rodrigo Arvidsson is one of the founders to this micro-brewery located in Gothenburg and it is one of the youngest breweries on the Swedish market, started in 2007. Rodrigo has studied economics in Gothenburg and before entering the brewery industry he had a restaurant business in Gothenburg. During this period he met Thomas Bingebo who has been working as a brewer both in Ireland and in Sweden and Thomas proposed that they should start the micro-brewery. A reason for this was that Thomas had the possibility to buy the brewing equipment from his previous employer and so they eventually did. Rodrigo describes his interest for beer as:
“I have been interested in beer in the way that I have visited the famous beer pubs in Gothenburg which have a broad variety of beers but not more than that. I had no knowledge about breweries and the brewing process at that time.”
The networks that he thinks are important in the start-up phase are the people and companies who are working with beer, i.e. restaurants, pubs, and newspapers. The goal is to get the people behind the bar to recommend their customers to try a beer from a Swedish microbrewery instead of their normal order from the big brands and also to be able to compete with the more established micro-breweries like Oppigårds and Nils Oscars.
“It is important to create a buzz around it”
A good bank contact is also an important network since it takes external financing to start a micro-brewery. Rodrigo estimates that brewery can be in need of anything between 2 to 18 million in investments depending on size. It is hard to get external financing since it is the alcohol business which is maybe not categorized as a prospering industry in the future. The time to get return on investments is also long. The divided attitudes towards the industry were described by Rodrigo in terms like:
“There are a lot of interested people but there are few who want to take full responsibility for it”
The biggest problem Rodrigo mentioned in the start-up phase was to get all licenses to brew the beer. It takes four different licenses (to deal with alcohol, for production of alcohol, permits from tax authorities, and health- and environment authority?s permission) before you can start and all of these are in a way tied to each other. They have not experience any bigger technical problems or financial problems so far. 37
The target group of people is not defined in terms of age, gender or other measurable terms. They target their products towards customers who appreciate a well tasting beer. If it is a senior citizen who want to enjoy a beer on Friday night or a football fan who want to drink a beer at the pub does not matter for Rodrigo. They wish to have customers from all parts of the society and the only thing necessary is that they have some interest for beer but all customers are just as important. The marketing is mostly done through participation in fairs and through newsletters and their web page. They also arrange tours at the brewery with tasting for primarily companies who see it as an event for their employees to come there and have some food and see how the brewery works. Rodrigo also say that they are becoming more and more recognized as a tourist attraction since they currently are the only existing brewery in Gothenburg.
“This is very good because then they go home and talk to ten other people about how nice it was at the brewery”
Ocean Brewery tries to build their brand as an alternative quality beer which should be liked both by professional and the ordinary customer in all ages. An ambition is that if someone buys ten beers at Systembolaget then at least one of them should be from a micro-brewery. They also try to have a modern appearance on the market by producing products which cannot be found from the competing micro-breweries. They have no ambition to just be a local beer with a local brand. The sales channels are Systembolaget and pubs and restaurants. The problem they have experienced with the sales is that pubs and restaurants purchase very small quantities per order. Thus, it takes a lot of work to deliver many products and is therefore costly and time consuming. Another problem with the transportation is that some transportation companies refuse to deliver alcohol. Pubs which only have open on evenings also want deliveries in the late afternoon and all at roughly the same time which makes it problematic to deliver to all at the time they want it. A problem with Systembolaget?s regulations Rodrigo explains is that they do not take responsibility for the transports of products which are ordered from the ordering assortment. The problem is that if a customer in another part of the region wants to drink Ocean beer and order it at Systembolaget the brewery must deliver the beer to that store. If the customer only order one box the cost of delivery will be higher than the margin made on the sold products.
“There have been breweries which has gone broke just because they have been forced to drive around delivering beer over the whole region.”
Otherwise Rodrigo is very pleased with Systembolaget as a company. They are very helpful and answers all questions. He also explains that it is a long process to become established at Systembolaget. Currently they have one product in the assortment and they will soon get their second product into the shelves of one store. Rodrigo estimates that the process to become established in Systembolaget?s assortment will take 3-5 years. An abandonment of the 38
monopoly is not something that Rodrigo see as an important issue but he would like to be able to sell products to the customers who visit the brewery.
“We see it as obvious to be able to buy a bottle of wine if we go to France and visit a wine yard so we would like to have the opportunity to sell to our visitors instead of saying –Sorry, it is illegal. People think that it is a bit outof-date.”
There are few other problems that Rodrigo so far has encountered with running the brewery. Alcohol taxes can be a very tricky question because according to Rodrigo it is hard to calculate them, hard to pay them and if there is something wrong with a batch of beer and it has to be disposed it is hard to get back the taxes paid for that batch. The tax is also an obstacle for us smaller breweries since the consumer price is to 60-70 % taxes and they need to charge a premium price since their costs are higher. However, the brewery see positive on the future and is investing in more automated equipment for bottling and will double their production this year and will do so also next year.
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6 Analysis and discussion
In this chapter the empirical cases are analyzed based on the theoretical framework for this study. The ambition is to explain how their entrepreneurial activity relates to the presented theories and how their strategy works have been affected from a theoretical point of view. Arguments of how the market regulations on the Swedish market for alcohol have contributed to these strategic choices and activities are also presented.
6.1 The entrepreneurial activity
Two different theories, opportunity discovery and opportunity creation was discussed in the theoretical framework and both of these theories can be seen in the respondents entrepreneurial process. Ahlafors brewery was started because somebody expressed an idea among the right kind of people where a few had the entrepreneurial spirit and alertness to act on it. This alertness gave them the needed strength to raise the capital and gather all the necessary licenses and other resources which where needed in order to start up the brewery. Even if the person with the original idea did not have any identified opportunity when he expressed the idea in the sauna he influenced the others to open their eyes in order to see whether there was any opportunity existing or not. Apparently there was an opportunity since they have been able to run their brewery for a long time. They have thus met all the criteria of an opportunity which e.g. Sarasvathy argued for and which was explained in the theoretical framework. During this period of time the idea to establish a small local brewery can be seen as a fairly new and innovative idea because in the beginning of the 90´s there were not many microbreweries existing on the Swedish market. It also definitely had an economical end since they took on the work with the goal to become rich on beer and they have been able to perform economical transactions by having their products on the market. And since they had the luck to have the right people who took on the opportunity it was not useless since they have exploited it and are still exploiting it in order to reach their goals. The Ocean Brewery case follows the same line of argument in some sense because also in this case it is a matter of a discovery process of the opportunity. Here the opportunity lied in the fact that Thomas Bingebo who was one of the co-founders of the brewery had the possibility to buy some of the resources from his former employer. This in combination with the idea and the right type of people who possessed the drive to start a business was important for the creation of the brewery. Here the access to resources was an important factor for the start-up which also was pointed out as a reason to why some people are more likely than others to start a new venture. These two cases seem to be in line with Shane?s arguments that opportunities are objective phenomenon which are waiting for someone with the alertness to discover them and exploit them. This is very evident in the first case since nobody of the founders had any previous experience of the business or was working in some related industry and it is therefore unlikely that they possessed any information which was more available for them than others in the same situation. Neither did they have access to any specific technology or awareness of any specific market demand before entering the exploitation phase. Thus, this discovery breaks 40
the pattern described in the theoretical framework where it was argued that it is more likely for people inside the industry to discover new possibilities. The second case was more in line with this argument since Thomas Bingebo possessed the knowledge that his former employer was about to sell their brewing appliance due to an capacity increase. This information was probably not available for everybody at the same time because this type of information is not communicated outside a firm at an early stage. Therefore he had superior information provided to him by his existing networks at the brewery. When the first two cases have followed the discovery theory of opportunity identification the creation of the third case, Oppigårds, can be put into the other theoretical school which see the entrepreneurial activity as a creative process. As explained in the theoretical framework this view sees the individual?s action as the important element and that the opportunity is not something that just is “out there” waiting for exploitation of someone with the alertness to identify it. Björn Falkeström?s entrepreneurial activities started already in his youths when he started to experiment at home with different brews made in his mother?s kitchen appliances. Then there was no strategy to commercialize the idea but just a hobby activity based on his interest for beer. The strategy to commercialize the idea developed much later and by other reasons which soon will be discussed. This case can therefore be argued to follow the argumentation that opportunity creation is an emergent process which develops over time and the goals change along the way and are constantly redefined. The reasons to commercialize his hobby of brewing beer were several. First he had some internal desire to work with consumer products, he had some facilities which could be used in a new way in order to create value and also the fact that his wife wanted to move back to Dalarna can be seen as a very important thing from a theoretical point of view. The fact that his wife seemed to have a huge effect on the events is in line with the arguments and beliefs that individuals are influenced by their social context in their entrepreneurial activities. It might be that Björn would have started the brewery anyway at some point, but it clearly seems that the startup came earlier because of the decision to move back home to Dalarna. The actions he took were thus depending on the situation he was in at that moment and was influenced by other factors than just an objective opportunity discovery as Shane argued. The links between the creation theory and the theory of entrepreneurial learning can also be seen in this case. Due to the fact that many of the people involved in the start-up of the company had limited knowledge about the brewery industry a lot of complications became evident for them during the process. Many of the problems have thus caused changes to the original plans and have also affected the operations in ways which it was not planned at the beginning. Therefore the plans and strategies have been changed along the way in order to overcome the problems and find new solutions for the business. The market regulations in the industry do not seem to have caused any greater problems for the interviewed entrepreneurs in the start-up process. Rodrigo mentioned the heavy bureaucracy with many different licenses from four different authorities to cause a lot of work. Thus it could be a barrier since it is time consuming to do all the paper work but as long 41
as the persons who want to go into the business have a clean record and do not have any personal economic problems the regulations should cause any hinder to start a business in this industry. The access to capital is of course important since it requires a heavy investment in machinery and facilities at the beginning. As Rodrigo also mentioned some investors can have a bit cautious willingness to invest in this type of business since the return on investment takes a long time to achieve. Also, not all investors are interested in putting money into alcohol businesses because of moral reasons. It?s interesting to see that all of these micro-breweries have been able to buy their equipment from other breweries that are in an expansion phase and therefore are no longer in need of the machinery. So when one brewery has established itself on the market they can in a way offer the possibility for others who are in earlier stages. Thus, on long term it creates a kind of a coopetition situation where the larger breweries nurture the competition on the market as well as they benefit from it financially when they can get capital for their used equipment. It also seems that in this relatively small industry the networks between the breweries are natural since many of the employees have moved between the different breweries on the market.
6.2 Market driving or market driven entrepreneurship?
It seems that all of the micro-breweries in this study are applying a market driving entrepreneurship strategy. They are all working very proactively in order to redefine the existing market and also in order to create new markets for their products. Here the market regulations and structure of the industry can be argued to play an important role in the choice of strategy. It was argued in the theoretical framework that when there is an existing market available and the customer preferences are known a market-driven strategy would be natural to apply. This would mean that since most of the Swedish population prefers cheap international lager beers the most suitable product to produce would be such a beer. However, since the market for this beer is dominated by a few large companies the competition in this segment is hard. A market driven strategy would thus require extensive financial resources in order to market the products effectively against multinational companies. The monopoly situation also makes it harder to sell these products on the market because there are more producers of such beer to compete with when Systembolaget takes in new products in their assortment. The market regulations and industry structure has thus contributed to the fact that most of the micro breweries work as market driving forces on the market. They clearly express a personal desire to radically change the Swedish market to move away from the industrially produced beers. They try to educate the customers to buy their products by developing an appreciation for craftsmanship and quality beers. Their interest in beers also implicates that they experiment with more unique blends in order to come up with innovative beers. They are far more visionary in their product development than the large multinational companies are in there development process. In this sense their small size is an advantage because due to the small volumes they produce it is no financial catastrophe if one product fails on the market. The visionary characteristics among the entrepreneurs are well in line with the theories behind market driving firms. They do things different because they have besides their financial goals 42
another goal, to create a beer culture which builds on something else than to get drunk as cheap as possible. Björn expressed this very explicitly as a mission for his entrepreneurship but all of the respondents stressed this same goal as important for them. Thus, besides selling beer, they are selling an experience which should go beyond the feeling of alcohol effects. The sales regulation causes some problems for the ability to achieve competitive advantages by applying this strategy if we look on it from a theoretical point of view, at least for two of the three companies participating in this study. It was argued that the customer should not have to exert any extra effort in order to achieve this experience. However, as long as the products are not as available as the other products these criteria cannot be achieved. For the moment the availability of many of the products from these companies is limited. At least it causes the customers more work to be able to enjoy beer from these companies. Now many customers must order the beer at Systembolaget to be able to get it or travel to the shop closest to the brewery. Thus, it takes more planning, more time and might also cause additional costs before getting the products.
6.3 Marketing strategy
By having this market driving approach they also have another marketing approach than they would if they where market driven. It can be said that they work more general with building a new beer culture than to advertise their single products. This means that the micro-breweries are in one way benefiting from each other?s marketing efforts in the way that a rise in the general interest for these kinds of products will lead to increased total sales of products from micro-breweries. The evolution of the market is thus the most crucial thing for these companies to work with because it will have far greater benefits than just increasing the sales of individual products. This should not be seen to contradict with the Swedish alcohol policies which aim to moderate consumption. The micro-breweries do not promote increased drinking but more quality drinking and leas drunkenness. The premium price of their products can also have a moderating effect since people get less volume for their money but hopefully a bigger experience. Another business model applied by the companies is also to combine their primary business, production of beer, with a secondary business, tourism and visitor activity at the brewery. This act both as sources of income and as powerful marketing tools for these companies. One could say that the customers are paying for the companies? marketing activities and culture development. Because advertising is both expensive for these small companies with limited financial resources and regulated by law, these activities become even more important. Clearly they have overcome some of the problems within the marketing area due to this solution. However, there are still some problems remaining since customers cannot understand why they cannot take some bottles home after visiting the brewery. By being able to sell products to the customers who visit the brewery, the micro-breweries could enhance the buzz effect which already today seems to be working quite well. Now the customer only can tell their friends about their visit but if they were able to bring some bottles home they also could let their friends see the products and taste it along with the stories about the visit. In this way they 43
could reach those customers who are not yet familiar with the types of beer that is being produced by these breweries and thus create a bigger market for all premium products on the market.
6.4 Branding
Branding was given a lot of attention in the theoretical framework because it is argued to be one of the most powerful tools by which the entrepreneurs could differentiate them from their competitors. By creating a strong brand which is instantly recognized by the customer and transmit some positive values and expectations they could achieve a better position on the market and overcome many of the sales obstacles. It was also argued that there are two sides of brands and branding strategies and that it is important to look more than one dimension of it. From the empirical material it becomes evident that the micro-breweries are working with both sides of branding. All of the interviewed companies say that they want to stand for quality and craftsmanship. These are the most important values they want to transmit to the customer. Five dimensions of a brand were listed in the theory chapter. These were functions, image, differences, source and culture. When it comes to function, the micro-breweries try to include something more into the function than the alcohol effect which all alcohol products give and which for many is the only desired effect. The effect they try to package into their product is an experience far greater than the alcohol effect, something which gives a feeling of well being, a sense of satisfaction for the consumer. The image they want to have seems to be that they are a part of a cultural tradition and that they are craftsmen who put a lot of effort and passion into what they are doing. The source dimension is used a bit different by the three companies where Ahlafors stress the source of the origin of the products. They want their products to be linked to the region and are working with these both in their profile and when they are labeling their products. This can be seen as they name them either with the brewery?s name or the municipality?s name plus the type of beer which is sold. Oppigårds also have used the source as a part of their branding but not to as high extent as Ahlafors. By having the old buildings which they are located in on their labels it is my understanding that they want to transmit something genuine and local with a tradition behind it. Oppigårds use the company name for all their products and just adds what type of beer it is in the bottle. The same goes for Ocean Brewery in most cases. The culture is maybe one of the most important dimensions which the breweries work with as it was explained previously. This is of course a long term project but a successful strategy could be very profitable in the future. It was argued that by using the origin effect the companies would be able to benefit from positive association with the region and thus have spillover effects on their products. This strategy does not seem to be that common within the brewery industry. Maybe, it is hard to link beer with the typical things for the region. It is mostly seen as town or regional names on the breweries which are used in the branding of the products but they are seldom linked to other specific things for the region. This could thus be an unexploited resource for the microbreweries if they can become more innovative in their branding strategy by connecting new regional dimensions to their brand.
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From the interviews it also seems that it is hard to create high brand equity and loyalty for the products being produced. Because the people who buy these types of beer are very interested in trying a lot of different beers they constantly change products. The consumers can have many different favorite brands and therefore they do not become loyal customers of one product. Since they do not have the financial resources to build the awareness around the products it also makes it harder to establish a name on the market. Especially among the normal consumer this is a challenge. Because of these difficulties it is hard for the microbreweries to complete all the different components which create strong brand equity.
6.5 Sales situation
An interesting finding was that the micro-breweries had the least problems in the area which has the most visible regulations. The monopoly market instead seems to be positive for these small breweries in some areas. All of the respondents expressed positive attitudes towards Systembolaget and appreciated their knowledge and professionalism when it comes to services and supplier relations. A reason to the benefit with the current situation is that Systembolaget is very objective in their selection of products which will be sold in their stores. This gives the breweries the chance to compete on equal terms even if their marketing and promotion budgets are just a small fraction of the larger companies. Since Systembolaget has the monopoly on the market they have the responsibility to have a wide assortment and be to provide the whole country with products of good quality. The respondents expressed concerns that an abandonment of Systembolaget would mean that this diversity on the market would disappear since the food chains would not be as interested in keeping many products on their shelves. The fear which was expressed in the interview is that the possibility to buy beer from micro-breweries then would be concentrated to larger cities where the customer base is larger and it would be profitable for special beer shops to establish. Another implication which was mentioned by Rodrigo was that such a situation would mean that all the micro-breweries would need to expand their marketing and sales organization since it would be more customers to take care of and more promotion activity would need to take place in order to sell in their products to all kind of chains. This would of course lead to higher costs for the breweries which already today make quite moderate results. The increased competition could also make it harder for the breweries to get the right price for their products. On a free market they would be in a much worse negotiating position towards the large food chains that pressure all suppliers to keep the prices at a minimum. As already mentioned the introduction of yard sales was however wanted by two of the respondents and this is also the desire from the industry. Christer was a bit skeptical towards such an implementation but said that he probably was quite alone with that opinion among the micro-breweries. The major concerns he expressed was that it could be a problem with e.g. age controls and increased administration. The major obstacle for this seems to be the political unwillingness to change the market situation and also lack of understanding of the microbrewers situation. This will be discussed further in the next section.
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6.6 Legitimacy of the industry
There still seem to be a lack of legitimacy of the industry among politicians but also outside politics. Björn expressed disappointment with the recently presented public investigation for a new alcohol law and the lack of understanding for the micro-breweries work and which values that guides their work. Some of the views which the investigator expressed were presented in chapter two. When reading the discussion and argumentation from the investigator about why the introduction of e.g. yard sales it becomes evident that there is a lack of interest for the breweries situation. The politicians? main goal is still to preserve Systembolaget?s position on the market and all changes which might threaten this are disregarded, this despite studies from abroad which have shown no negative effects from yard sales considering alcohol policies. Thus it can be argued that the sociopolitical acceptance for the industry is still very low compared to other industries. An interesting finding was that the micro-breweries are in a phase when they have started to organize themselves by setting up a micro-brewery association. This goes in line with the theory which argues that it is important for the industry to be organized in order to become accepted by society. It is obvious that there has been limited organization in the industry previously and the industry has also been divided into two fractions. The big firms have been organized in the organization Brewers of Sweden but this organization has shown little interest for the micro-breweries? situation. As Christer mentioned they have never been in contact with them and he had no idea of who was working in the organization or what questions they are working with for the moment. Therefore, this new association is a good example of the work that is currently being done in order to break down some of the remaining barriers in the industry and the socio political environment.
6.7 Summarizing discussion
The objective with this study was to study how the market regulations under which the industry is working has affected the entrepreneurs who have entered the industry. It seems that the market regulations have a smaller effect on the entrepreneurial firm?s possibilities to market and sell their product than could be expected. As Björn also mentioned in the interview there seem to exist a lot of myths about Systembolaget and the monopoly situation on the Swedish market. This belief was also part of the reason for this study. It was therefore a positive finding that Systembolaget instead of being an huge obstacle seem to be a good channel for the micro-breweries to sell their products in fair competition with the big breweries which otherwise could outcompete the smaller breweries. The sales monopoly encourages diversity of products in a way that food chains hardly would be able to do if the sales monopoly would be abandoned. Since there are fewer sales channels it also requires less work from the micro-breweries in order to promote their products for shop managers or other buyers. Politicians have therefore nothing to fear from the micro-brewery industry concerning the attitudes towards the monopoly situation. However, there seem to be unwillingness among some politicians to accept the fact that increased possibilities for these small companies to sell their products to e.g. visitors does not lead to any undesired effects. It was also positive that the micro-brewers have realized that they need to organize themselves in order to get a forum 46
where they can share thoughts, ideas and experiences. It also provides better chances to communicate their values and opinions in a better way in order to increase the legitimacy and understanding for their work among the public. All of the entrepreneurs had different types of background and two of them had limited knowledge about the production of beer before entering the business but they all possess the characteristics which signify an entrepreneur. This clearly shows that one of the most important things for an entrepreneur is the personality and the willingness to achieve something. This willingness was easy to identify among all respondents and they were also driven by higher goals than personal economic outcomes of their business. Besides economic goals they all expressed some desire to develop a culture. These two will then go hand in hand because if the culture develops in the direction they want it to, then the demand for their products will increase. It will be interesting to follow the development in this industry since new micro-breweries are still appearing on the market and thus they can grow stronger together. The main obstacle for micro-breweries was instead problems which are common for all types of small companies. Limited marketing budgets have forced them to come up with a different marketing strategy since traditional marketing methods are both regulated and expensive. The personal beliefs among these entrepreneurs guided most of their work. Both product development and marketing profile was based on their own personal values and preferences and not on customer research and trends on the market.
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7 Conclusion
In this chapter the conclusions of the study are presented. The research question of this study was: How do market regulations in the brewery industry affect entrepreneurs and their choice of strategy? After presenting the conclusions suggestion for future research will be given. The market regulations do not seem to create any huge barriers for entrepreneurs who want to enter the brewery industry. The entrepreneurs adapt to the situation and develop their strategy according to the rules of the market. Thus, it is evident that the market regulations affect the entrepreneurs? strategic choices. Market regulations and industry structure has lead to a market driving behavior among micro-breweries in order to meet the competition. Also a strong personal desire to change the current drinking culture in Sweden was identified among the respondents as one of the reasons to this strategic approach. The monopoly situation is not considered to cause high barriers for the entrepreneurs and a positive attitude towards Systembolaget was evident in the study. Regulations and small financial resources together with the market driving approach have lead to innovative marketing strategies. Marketing of the products is partly done by educating customers and an increased appreciation for more complex beers can benefit the whole industry because customers are not brand loyal. The introduction of yard sales could increase the marketing effects of visitor activities at the breweries because there is a desire among the customers to be able to buy the products at the visiting occasion. As long as availability of the products is limited it will be hard for the micro-breweries to achieve any competitive advantage because it takes more effort from the customer to buy the product. The industry has not been well organized since the micro-breweries entered the market. The industry organization has mostly focused on the issues concerning the big established breweries and has shown little interest for micro-breweries. The industries legitimacy and political support is thus still lower than it could have been with better organization. The new micro-brewery association might contribute to increased legitimacy and thereby better possibilities to influence the regulations.
7.1 Future research
The entrepreneurs within the brewery industry considers Systembolaget to be a well functioning monopoly which offers them good service and possibilities to reach out with their products to customers all over the country. All monopolies are however under constant surveillance from EU competition authorities and in a longer perspective there might be changes in the market regulations. If the monopoly is abandoned it puts the micro-breweries in a new situation. It would therefore be of interest to see how the market situation for small entrepreneurial breweries in deregulated market is compared to the situation described in this study. Special focus could be put on countries which previously have been regulated and thereby see how the situation changes for entrepreneurs in the industry. By doing these kind of comparative studies the industry would be prepared for the changes and politicians would have better chances to co-ordinate the deregulation process in a good way
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8 Credibility Criteria
This chapter will discuss the credibility of the study and will cover the areas of credibility, dependability and practical applicability
8.1 Dependability
Dependability concerns the possibilities for others to evaluate the working process by which the thesis has been conducted. For this criteria to be fulfilled it is important that all phases of the work has been described.95 In chapter three the choice of research method and scientific approach of the study was discussed and argued for. In chapter five the practical working process of selecting respondents and process of interviewing was described thoroughly. The supervision during the working process has also contributed to more critical thinking when doing the choices in this study which according to Bryman & Bell is an important aspect when evaluating the dependability of the study96. Therefore it can be argued that the dependability criterion of this study has been achieved.
8.2 Credibility
Credibility will be achieved when the researcher gives the reader an accurate picture of the studied reality.97 As described earlier all interview where recorded and transcribed before summarizing them in the paper. According to Peräkylä this procedure eliminates many problems which otherwise could occur when working with qualitative methods.98 All of the respondents have been given the possibility to read and comment the part of the empirical presentation which is based on their interview. By doing this the chance of misinterpretation of their stories has been minimized and thus an accurate picture of the reality has been presented for the reader. It also decreases the possibility that something which they feel as very important for their story has been left out from the picture presented to the reader. Therefore it can be argued that a trustworthy and credible picture of the reality has been presented.
8.3 Transferability
The choice of a qualitative method implies that the transferability of the study needs to be discussed in order to clarify the usefulness of this study for other than the studied objects. Because of the limited number of respondents it can be hard to generalize, in traditional way, the findings into other contexts than the studied entrepreneurs. Instead of generalizing them in traditional way it is more suitable to approach them with, as Peräkylä describes it, the concept of possibility. According to this concept the study should be seen as a description of how the environment which the studied entrepreneurs act in has affected them and how they have adjusted to this environment. According to the concept of possibility it is reasonable to believe that these events also can occur for other entrepreneurs and therefore they would be
95 96
Bryman & Bell, 307 Ibid. 97 Ibid. 98 Anssi Peräkylä, “Reliability and validity in in research based on naturally occurring social inter action”, in Qualitative Research: Theory, Method and Practice, ed. David Silverman, (London: Sage, 2004), 285
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transferable to other than the studied entrepreneurs.99 But, as Bryman and Bell states, qualitative research describes the reality where the study has been conducted and it is then up to the reader to determine whether or not they are transferable to other contexts.100
8.4 Practical applicability
The findings of this study will hopefully contribute to an increased understanding of the entrepreneurial situation in the Swedish brewery industry. This is an industry with long traditions in Sweden but even so there seem to be a lacking public acceptance and willingness to improve the working conditions for those entrepreneurs who want to exploit the opportunities which exist on the market. It is an industry which could promote the agricultural landscapes of Sweden and keep the countryside alive and prosperous.
99
100
Peräkylä, “Reliability and validity in in research based on naturally occurring social inter action”, 297 Bryman & Bell, 307
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Appendix 1: Interview guide
General Describe your personal background and your role in the company The start-up How did you get the idea for the brewery and how did the idea develop? How did you get all the resources? How did you experience the beginning (what kind of reactions did you meet...) Sales What target group do you have? Which channels do you use? Which are the biggest obstacles for you sales process and what do you do to overcome them? What is your opinion about the current monopoly situation? How would the introduction of yard sales affect you? Marketing How are you working with marketing today? What strategy do you have for your brand and comapany image? What values are important for you? Which obstacles do you meet in the marketing process? The market Which laws or regulations do you find most difficult for the development of the company? What support do you get from the public or the institutions on the market? Are there any institutional obstacles which are hard to overcome on the market? Future How do you see your future on the market?
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doc_691670048.pdf