BSG Online 2017 - Winning Guides and Tips
Final Report - Samples - 002 - Part 1 of 3
SAMPLE 2 - PART 1 of 3
“Our vision is to be a global leader in the foot wear industry by providing a variety of foot wear products for different segments of our customer base with emphasis on quality and affordable prices”
We adopted initial strategy of cost leadership strategy. We selected this strategy because we identified that the biggest market segment consists of customers who buy athletic shoes for general wear. Consequently, these types of customers are more likely to be price conscious. We also determined that manufacturers that produce athletic footwear with above-average S/Q rating and that charges “a wholesale price that is below the geographic” average market price will likely result in those manufacturers having higher sales volume and increased market share.
Cognizant of these facts, our opening strategy sought to provide the market with the best price per pair of shoes sold while maintaining comparatively high quality with a styling/quality (“S/Q”) rating of (5). However, our main concern was to offer our stockholders the best returns on their investments. As such, we kept our total costs at the minimum while ensuring that we still made a decent profit.
In anticipation of upcoming market growth in the global athletic footwear industry, we decided to increase capacity in our North America (“N.A.” plant. To do this, we took out a 5 year bank loan of $16,000,000 at an interest rate of %7.5. Part of this loan was also used to repurchase stock with the aim of increasing our earnings per share (“EPS”). We focused our distribution in the various regions according to the demand of each region. We only allowed shipping between N.A. and Latin America (“L.A.”) and between Asia Pacific (“A.P.”) and Europe-Africa (“E.A.”) This is to take advantage of the absence of tariffs for shipping between these regions.
We further invested in celebrity endorsement. This would hopefully boost our sales as customers identify with the celebrities we bid for. Given the size of the private label demand, we decided not to invest too much of our resources on that segment. Our plan is to gain control of the mainstream internet and wholesale market and then move to capture the private label market.
We continuously strive to improve our products to provide quality shoes great image and comfort.
Our customers are at the center of our strategy and decisions. We intend to exceed the expectation of our customers and we can achieve this when our strategy is focused on our customers and we strive to provide our customers with quality product at affordable prices.
Our employees are one group of people who drive our company. Therefore, we are committed to retaining, develop and improve their performances to ensure sustained growth.
Our Company places significant emphasis on the environment. As such, we ensure that our activities do not inflict any harm on the environment.
Over the years we have tried to develop our products to meet the requirement of our customers.
Comparison of our Original and Emergent Strategies, and Justification for the change in strategy
During this first year, on the internet segment, we controlled 12.5% of the market share across all four regions. Although we were not the market leaders during this first year; nonetheless, our assumptions and decisions placed us in very viable position to effectively to compete in the in all four regions. We continued to analyze the competition but we could not effectively predict what the competition will do with regards to the market prices and marketing activities. One significant step that we took during the first year was to purchase capacity.
We realized latter that we should have purchased more capacity or even build a plant during the initial years. This was vital because by the close of year 15, we were running out of capacity and no competitor was selling capacity. This situation significantly affected our performance as we could not meet the market demand in years 15 and years 16. Additionally this affected our earning potential and market performance.
To ensure that we are performing effectively and efficiently, we invested in ethics training and enforcement for all employees. We also invested in workforce diversity and made charitable contributions of $2,000. We did this to show our commitment to corporate social responsibility. We won the social responsibility award for year15. Because of our belief in the quality and also to minimize the amount of defects and returns, we invested $2.5 per pair on TQM from the year 10.
In subsequent years, we did not make any drastic change in strategy. This is because based on our analysis of the market, the cost leadership strategy could turn our fortunes around. Therefore, we maintained the strategy but made subtle changes to pricing policy based on our prediction of what the market will look like in the coming year. Therefore, the subtle changes we made depended on what our analysis of the present market conditions and projected future prices of the competition. We altered our prices based on what our competitors were doing on the market. We attempted to charge prices that were lower than our competitors. Beast Mode was our main competitor.
In the subsequent years, although we studied the market and competition, we noted that up to year 15, most companies were pursuing similar strategies of low cost leadership and have always charged lower prices than we have. This significantly affected our standing in the market. Additionally, some of the companies in the industry spent significantly more than we did on marketing. Our low spending on marketing activities affected our sales. Our evaluation of what the low prices were, turned out to be incorrect as some of our competitors presented lower prices for subsequent years. We therefore adopted the strategy of following the market trend to decide the price levels and expenses. We noted that this strategy started to work for us in Year 16.
Evaluation of the Company’s Competitive Posture
Employing a low-cost-strategy, we initially provided customers with a slightly higher than industry standard quality of product with a lower than average price. We opted for this strategy because we realized that the biggest market segment consisted of customers who buy athletic shoes for general wear. Therefore, these types of customers are more likely to be price conscious. We focused our distribution in each of the four regions according to the demand in each region. Although we kept good quality products at an affordable cost standard, in our first three years of operation, our average S/Q rating was between 4 and 5, which was slightly below the industry’s average. It was at that time we realized that we had to change our initial strategy.
We realized we needed to alter our strategy due to intense competition from our competitors. Many competitors imitated our pricing model and increased their advertisement and marketing strategy which decreased our market share and market position. In the first three years, we spent less than the industry’s average on advertisement and marketing. In addition to our low S/Q rating and poor advertisement approach, we also lacked celebrity appeal and had very poor shipping cost for our internet segment and poor delivery time for our wholesale segment.
In retrospect, we changed our former strategy, and followed the market trend to decide price and expenditure. We implemented our "Best always comes from Hall-of-Fame footwear" campaign; wherein, we changed our strategic goal from competitive pricing to being an industry leading footwear Corporation by providing a high standard of style and quality, maintaining a low cost strategy aimed at gaining sales and market share to dominate the worldwide market. To demand, we increased our marketing and advertising by spending more on advertising as well as increasing our product offerings. This investment helped our company gain more market share and increased our market position by year 2016 which is forecasted to grow continuously in the future.
An Analysis of your markets and competition
Competition is one of the major factors that drive the cost and price of products. In this industry, the demand for footwear was growing and so was competition. To analyze the markets and competition, we took a look at the following:
North America was one of our major target markets with a high demand of footwear. To increase market share, we lowered our prices below industry standard and increased marketing and retail outlets. We increased our model offering from 200 to 245 from year 2013 to year 2014 and from year 2014 to 2016 our model offering increased from 245 to 345. We knew marketing was an essential tool that would help promote our brand and increase our ultimate sales volume.
Therefore, we increased our advertisement expenses from $7800 to $14,500 by year 2015; nonetheless, our advertising and marketing remained below industry average as our competition was very fierce in their promotion and advertisement efforts. By 2016, we maintained a lower than industry average S/Q average rating of (5), internet price of 73.50 and wholesale segment price of 49.95. Our cost and wholesale segment of 47.5. Our cost of branded pair sold was relatively higher in North America as compared to Asia Pacific, which was mainly due to factors such as increased worker compensation in North America.
We maintained the same strategy in N.A. where our S/Q rating remained an average (5); however, in 2014 when we increased our advertising expense to $14,500, our S/Q rating rose above industry standard to a 6 when the standard was at a 5. When we decreased our advertising to $1400 in 2015, our S/Q rating dropped back down to 5. This was a negligent move for us given the increase in competition and saturated market in the previous segment. We continued to focus on providing higher quality products at low prices.
Additionally, we increased advertising by 2.2% from the previous year. Our change in strategy was due to the lack decreased market demand and low S/Q rating. Our plan was to continue to compete with a low cost strategy because we had enough capacity to produce large volume of footwear with low cost and increase brand awareness through increasing advertisement expenses.