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A Case Study of Growth Dynamics in Essential Oil and Aromatherapy Industry

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A Case Study of Growth Dynamics in Essential Oil and Aromatherapy Industry Journal of Open Innovation: Technology, Market, and Complexity Article Targeting Open Market with Strategic Business Innovations: A Case Study of Growth Dynamics in Essential Oil and Aromatherapy Industry Min-Ren Yan 1,*, Chun-Han Wang 1, Nelson Jose Cruz Flores 2 and Ying-Yueh Su 3 1 Institute of International Business Administration, Chinese Culture University, Taipei 111, Taiwan; [email protected] 2 Institute of Global Business, Chinese Culture University, Taipei 111, Taiwan; [email protected] 3 Department of International Trade, Chinese Culture University, Taipei 111, Taiwan; [email protected] * Correspondence: [email protected] Received: 18 June 2018; Accepted: 31 January 2019; Published: 5 February 2019 Abstract: Essential oil and aromatherapy industry is increasingly gaining prominence in the global market. Previous studies have been carried out on the benefits of essential oils in healthcare and as part of the healing arts of many cultures, as a proven method of caring for our physical, spiritual and mental health. To enter an open market and promote the awareness of essential oils and aromatherapy, strategic planning capability is important to drive business growth. This paper utilizes a simulation-based strategic decision support system (SSDSS) to conduct a real-world case study with empirical data and examine the effectiveness of SSDSS applications in supporting market development and business growth with service innovations. Through iterative computer simulations and scenario analysis of healthcare promotion and business development for performance improvement, the effects of strategic business innovations could be systematically analyzed to identify different stages of adopters and effective approaches to achieve the established objectives with market value creation. Keywords: Business Model; Strategy; Decision Support; Entrepreneurship; Business Growth 1. Introduction The demand of essential oil has experienced a huge surge in popularity for relaxation therapies and diverse benefits. The global essential oil market witnesses higher growth rate and forecasts to reach US$ 3,226.2 Million by 2025 [1]. The positive impact in treatments using aromatherapy, in addition with the trend of the generation X and millennials for body health and awareness of the benefits in natural medicine, generates high demand of the product among therapists and spas, particularly essential oil, that has a market share of 70% approximately [2]. At present, U.S., China and India are the top three major producers, consumers and exporters of essential oil in the world. Previous studies have proposed that the essential oil product is becoming more and more popular with consumers, and the largest market share in consumer products is controlled by citrus oil because of its antibacterial, disinfecting and decontaminating properties as well as its properties for cleaning and laundry [3]. The global essential oil market is fragmented into the product type, flavours, and application. The categories are by type of product, such as essential oil, blended oil, and carrier oil, has been the first holder of the major market share. Another segment is by flavours, for example fruits, spices, flowers, herbs, and others, where fruits have the higher demand from consumers. The final segment is by application including food and beverages, medical, personal care, homecare, Spa and wellness products [4]. However, personal care products such as cosmetics, toiletries and fragrances are the ones with the highest market share. Essential oils are claimed to have many health benefits and often used J. Open Innov. Technol. Mark. Complex. 2019, 5, 7; doi:10.3390/joitmc5010007 www.mdpi.com/journal/joitmc J. Open Innov. Technol. Mark. Complex. 2019, 5, 7 2 of 11 in aromatherapy, which is an alternative medicine compared to conventional drugs. With regard to the healthcare benefits, the demand of essential oil for pharmaceutical and medical purposes is expected to increase and boost the global market. In other words, it is necessary for companies to understand the importance of service innovation and business model innovation development in the essential oil market. The aromatherapy market become more competitive due to the growing market and wide segment of application. Previous studies have proposed the importance of open innovation comprising technological innovation, business innovation, and market development [5,6]. Service innovation becomes a key factor for firms to innovate business model. Actually, product and services development teams are facing a revolution stage which managers have to adjust and create strategies to develop the market and add value to the company. Highsmith [7] identifies five key business objectives for a good exploration process and reliable innovation: (1) Continuous innovation to deliver on current customer requirements; (2) Product adaptability to deliver on future customer requirements; (3) Reduce the delivery schedules to meet market windows and improve return on investment (ROI); (4) People and process adaptability to respond to the product and business change; and (5) Reliable results to support business growth and profitability. Yan [8] proposes a framework of simulation-based strategic decision support system (SSDSS) as a new generation of entrepreneurial business modelling helping the evaluation through the process of business development, in addition with technological innovations, open products/service innovation and business model innovation comprising global values for sustainable development. That is why it is necessary for companies to invest not only in the innovation of their products and services, but also in the process, machinery and personnel training. Accordingly, if a company from the aromatherapy and essential oil industry wants to maximize market values, increase the firm value and improve customer commitment, service innovation is one of the critical strategies for business developments. Consequently, to have a sustainable and effective growth strategy, the service innovation must be at the centre of the organisation management process [9–11]. 2. The Theoretical Framework Knowledge assets are the drivers of an organization’s success that play a key role to create value and improve business performance with entrepreneurial thinking and growing business opportunity [8]. The sufficient use of knowledge is a challenge for companies due to the ever faster changing conditions at the global market. The strategic planning and decision-making model should be analysed to identify the actions that take the company to implement entrepreneurial thinking [12–14], to follow the future forecasts in the industry. In the aromatherapy and essential oil industry, a service innovation provide consumers more choices including relaxation therapies, wellness centres, treatments for elder people and post-partum care. With the right business model innovation, firms can develop higher market share [15–18], and deliver a high value of product and service for adding the business value. Previous research has shown that business models represent the sources of new value creation and potential competitive advantage, delivering and capturing the mechanisms employed, and acting as drivers of firm performance [18]. Hence, designing a new business model requires intuition, creativity, and a deep understanding of user needs. Brettel [19,20] demonstrates that entrepreneurs should explicitly focus on the relationship with their key customers when designing business models of their ventures. Previous studies show that across different industries, the longer a company retains a loyal customer, the more market values the customer generates. In the long run, firms may encourage general customers to loyal customers based on customer relationship development. Firms can develop strong loyalty programs through the different stages of customer relationship and recognize the differences between these stages to identify the critical impact on competitiveness and profitability. However, there are challenges in the essential oil and aromatherapy industry. First, most people can’t fully understand the efficacy and the application of essential oil in Asia. The second challenge is the difficulty for companies to implement the promotion. Finally, it is difficult for people to J. Open Innov. Technol. Mark. Complex. 2019, 5, 7 3 of 11 understand or evaluate the quality of essential oils. Therefore, this paper attempts to demonstrate how companies in the aromatherapy industry can enhance their strategic planning and performance with value creations and service innovations by applying the principles of System Dynamics methodology. The simulation-based strategic decision support system (SSDSS) proposed by Yan [8], was adapted to demonstrate how the business model innovation can support the managerial decision-making. 3. Methodology and Strategic Architecture Warren [21] proposed Strategy Dynamics methodology that integrates simulation model-based management and resource-based view for analysing different firm’s strategies and evaluating this performs over time. Figure1 shows how SSDSS was adapted and can be used to enhance the managerial decisions for strategic service innovations and business development. To apply this proposed model, it is essential to understand the external factors and resources that have impacts on the performance of the company. Through the strategic architecture, it processes all the data and information to depict a clear picture of the situation of
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