Summary
One day, Jay Sorenson bought a cup of coffee that was a tad to hot for him to hold and that accidentally caused him to drop his coffee on his lap! To stop this from happening in the future, he came up with a product called the Java Jacket. This product is a insulated sleeve that slides right onto the cup to help people hold a hot cup of coffee comfortably. This became impressively popular, especially after they went to a coffee trade show and sold over one billion products from small stands all the way to big coffee chains.
There are two general sources of competition on which Sorenson should expect. The first of these is large competitors that have the resources to create a similar product and use their market power to take sales away from Sorenson. Their advantages from scale economies could be substantial and make it hard for Sorenson to maintain their position. Since the product is likely to become an important good in the future, he may also see competition from overseas manufacturers that can easily tap into low-cost labor and drive prices down to the point that Sorenson will find it difficult to make a profit.
There are several steps that Sorenson can take to maintain/grow his position in the market. For example, he could find an advantage that customers will notice and value (Example: superior design or function), come up with a clever name that people find easy to remember, and/or promote brand identity. He could also be constantly on the lookout for ways to drive down his costs (Example: expand sales to increase economies of scale, keep overhead low) and search for ways to reach new customers.
Considering that many people drink plenty of coffee daily throughout the United States and other countries, most likely there will be potential for market to grow for Sorensen’s product. However, the main concern is with the chance of larger competitors coming into the market and taking business away from Sorenson.
1. Will the market for Sorenson's product continue to grow in the years ahead?
2. Given the Company's Success, what sources of competition should he expect?
3. What steps would you recommend that he take to protect his company from the onslaught of competition that is likely to come?