BSG Online 2017 - Winning Guides and Tips
Final Report - Samples - 002 - Part 2 of 3
SAMPLE 2 - PART 2 of 3
In addition, Europe-Africa was the second major target market. The strategy for this market was similar to NA which focused on low cost and increased advertising costs and product offerings. In Y11, we initially started with 151 model offerings and an S/Q rating of (5). Our S/Q rating was slightly below industry average in terms of product offerings. In Yr 11 to Yr 14, we continued to produce our shoes with an S/Q rating slightly below industry average. In Y14, we increased advertising by 17% and product offerings about 8% above industry average.
Furthermore, in 2011, we had 10% of E-A market share and operating profit margin of 35.5%. Additionally, we sold A total of 1380 pairs sold as compared to industry average of 1,432 pairs sold. By 2016, our number of total pairs sold increased to 1,895 compared to the industry’s average of 1,812. The major challenges we faced, however, in E-A were high operating costs and fluctuations from exchange rates which directly impacted our operating profit. Lack of plants in the E-A region was a drawback initially because the shipping costs and exchange rates impacted our cost of the product. Our lack of celebrity appeal is also a key factor which led to a decrease in sales. We should have increased our investment in celebrity endorsements in this segment.
By Y16, we continued with our low cost strategy by cutting our price below 2.9% of the industry average. We also invested $14,000 of advertising expenses; this constituted 23% higher than industry average and maintained celebrity appeal and kept the celebrity appeal of 210 in Y12. This helped increase our sale and market position in the wholesale and internet sector. We also bid in the private level segment for the remaining products to increase the total revenue.
In A.P., we used the same strategy that we used in N.A. and E-A. to market our product. However, the advertisement expenses was lower than NA and EA. The S/Q rating of A.P. was (5) from Y11 to Y12. From Yr 13 to 14, it rose above industry standard of (5) to (6). It then dropped below industry standard of (5.5) to a rating of (5). Despite the fluctuation in our products’ S/Q rating, we continued with our low cost strategy.
In the internet and wholesale segments, market share for the A.P. region were 10.2% and 11.4% respectively for Y11. Our profit margin was 34.7% for the internet segment and 13.3% for the wholesale segment. We gradually increased our model offerings and advertisement expenses for Asia Pacific. The Private label segment was also a major source of revenue in the Asia Pacific region where we constantly bid prices for footwear in the private industry. To improve the quality of the work, we invested heavily on training and total quality management which helped reduce the cost of rejection. Asia-Pacific provided a good amount of revenue even without low marketing expenses compared to other regions.
Finally, LA was also one of the most important areas for the footwear industry because of high demand and growth potential. For this region, we didn’t spend as much on advertisement as we did for N.A. and E-A. In order to reach more customers, our focus was mostly on low cost and quality. In Yr 11, internet market share for L.A. was 10.7%. By Yr 16, it reached 18.4%. With respect to the wholesale market share, it was 12.7% for Y11 and 13.5% for Y16. We were able to maintain good profit margins by reducing marketing costs and administrative expenses.
To produce a quality product, we focused on best practices training for LA as well. Total quality management was also another factor which was essential for maintaining good product quality and helped reduce the rejection rate for L.A. Moreover, we used the advantage of exchange rate fluctuations to increase profit and celebrity appeal to create brand awareness. In the Y16, our low cost strategy worked well in Latin America, where we were able to achieve the highest operating profits among all of the other regions. Since we did not have a plant facility in LA, we had to import products from other regions which caused the rise in shipping cost.
Analysis of Major Competitors
Our major competitors were Excellence and Beast Mode. Therefore, we kept a strong eye on their performances. We also analyzed their financial data and decisions to determine our strategy for the coming year. Since, the market was very price sensitive, we assigned the price to the product by carefully analyzing the competitors’ movement. To evaluate our competitors’ financial performances, we rely on net revenue, earning per shares, return on equity, stock price, credit rating and image rating. Maintaining these factors were challenging because of the competition.
A description of the Strategic Decisions Made over Time
We believe that in this footwear industry, the low cost leadership is the best strategy. Upon critical analysis of our competitors and the most successful companies in the industry, we noted that they all implemented low cost strategy. Since we had the third largest market share in Yr 11, we conclude that, initially, our strategy worked. However, we believe the major reason for our rather unimpressive performance at the end of year 16 was our initial inability to continually predicting at what the pricing level of our competitors’ products.
We noted that in years 12 and 16, we were successful in predicting our competitors’ pricing level and was able to price our products accordingly. We performed significantly well. On the other hand, in years where we were unsuccessful in predicting our competitors’ pricing range, we did not perform well.
Another important strategic decision was the amount of capacity that we anticipated that we would need. We purchased capacity for our N.A. plant but we realized later that the the amount of capacity purchased was significantly below what we needed to be successful in all market. Because no company was willing to sell us additional capacity, we could not do anything to address this discrepancy. Our performance was further affected by our rather late and insufficient investment in “celebrity endorsement.” We began spending in year 13, and we did not spend enough resources on the celebrity appeal. The impact of that decision could is visibly reflected on our below par performance. Lastly, we also spent below the industrial average on advertisement in an industry that virtually thrives on advertisement. Our concern was that increasing our advertising expense beyond what we had done thus far would significantly increase our cost and reduce our profits.
Discussion of the Effectiveness of the Strategy
Our initial analysis of the market convinced us that the low cost leadership was the best way to be successful in this market. Upon analyzing the financial statements and performance of our competition, we noted their successes were based on following the low cost leadership that we were following. However, the differences in our performances was due to our inability to properly forecast the subsequent year price level. Consequently, we maintained our low cost leadership strategy and it led to intermittent successes in years 11, 12 and 16. Therefore, we can confidently say that our low-cost-leadership was effective. except for the implementation problems with determination of prices that are the lowest.
The BSG provided our team with a comprehensive understanding of the intricacies of strategically running a business in situations that mimic real world. We started quite well. For instance in year 11, ROE of 16.9% was better than investor expectation of 15%. Additionally and in term of market share, Yr 12 was our best year. We had a market share of 15.7%. Notwithstanding our brief period our success, we observed that some of the decision that we made did not help our course.
To rectify this situation, we used the market snapshot, company analysis, and Competitive intelligence report to study the market and improve on our weaknesses. One very important lesson that we learned was that although we spent some resources on advertising, we spent below the industry average. The market appeared to be very responsive to the level of resources a firm appropriated for advertisement. Because our advertising expenditure did not match our competitors, we took a beating. Therefore, in the next five years, we intend to increase our advertisement above the industrial average based on our informed decisions of the market.
Finally, In an attempt to increase available inventory in some of our markets, we were forces to ship to markets where we had to face the consequences of the exchange rate effect. This affected our performance. Moving forward, however, we will not be shipping to areas that will attract exchange rate except where analysis show that such shipment will financially beneficial to the company.
The greatest lesson we learned was to either build capacity at the beginning of year 10 or purchased enough by year 13. This is because by year 15 we were already not meeting the market demand. If we had more capacity, we could have sold more products in all four regions. and would have been able to aggressively compete in the Private-Label Segment. We could have been able to increase our capacity when we had good credit by obtaining loans at lower interest rates.
A Five Year Strategic Plan for the Future
To provide quality branded athletic shoes to the global market at a competitive price.
Hall of Fame’s vision is to establish a worldwide brand dedicated to innovative design and best provider in quality at reasonable prices, allow becoming a global leader in the athletic branded shoe market.
Our company will provide its customers provide multiple choices in footwear that will satisfy any of their footwear needs. No matter the location, our goal is to satisfy our customers’ “foot fashion” desires and provide them with the best style and quality in footwear. Primarily Hall of Fame proposes to build on its existing strategy (Low-cost- leadership strategy) of attempting to gain a competitive advantage primarily by reducing the price that our customers pays for athletic shoes below what our competitors would charge for similar products. We will work tirelessly to ensure that our shoes are within reach the purchasing ability-range of any customer. Moreover, we will invest on advertising and make use of “celebrity appeal” to gain brand consciousness.
Our revised strategy is two-fold: (1) our company will continue to pursue its existing low-cost-strategy; however, to increase its market share and thereby increase revenue, our company (2) will extend its low-cost-strategy to the private label segment. Our price-mix will allow our shoes to be reasonable priced to the average personal. Notwithstanding the low-cost-strategy, the quality of our shoe will continue to exceed the quality of shoes within offered by our competitors and which are with the same price-range.