MBA 671 Business Strategy Game_Company A_Team Presentation_061914 by Binta Auta, Pamela Cole, Mark...

Business StrategyCompany A

Binta Auta, Pamela Cole, Mark Susor, Francis Ukpolo

June 19, 2014

Business StrategyCompany A

• Company Trends

• Strategic Vision

• Performance Targets (2017-2018)

• Competitive Strategies

• Production Strategy

• Financial Strategy

• Strongest / Closest Rivals

• Competitive Action Steps

• “lessons learned” – Crafting a Winning Strategy

2/23/2015Proprietary and Confidential: Benedictine

University – MBA 6712

Trends in the Company A's annual total revenues



Compounded Annual Growth Rate (CAGR) - 15.26%

Trends in the Company A's annual earnings per share (EPS)




$10.78

Trends in the Company A's annual return on equity investment (ROE)



Average ROE Year 11-16 - 25.1%

Trends in the Company A's annual credit rating



A+A

A+

A-A-A-B+

Trends in the Company A's year-end stock price




$200.20

Trends in the Company A's annual image rating



8991

7985

767570

Trends in the Company A's annual unit sales




Trends in the Company A's market share



34.8%35.6%

34.5%32.4%

34.8%

30.8%

25%

Company A Strategic Vision

• Company A strives to deliver innovation and inspiration to our customers at a higher quality than can be found in the market place, all at reasonable prices.

• Differentiation Strategy– Company A set themselves apart by

creating a superior shoe, above and beyond what could be found in the marketplace

– Priced the shoe competitively

– Free Shipping

– Supported Retailers at a higher level than competitors

– Decreased delivery times and increased capacity allowed Company A to keep up with the demand



Company A’s Performance Targets for each of the next two years (2017-2018)

2016 2017 2018

EPS 10.78 13.28 15.68

ROE 27.1 29.7 32.8

Credit Rating A+ A+ A+

Stock Price 200.20 242.1 258.5

Image Rating 89 91 92



Company A’s Competitive Strategy for the Internet Market

• Initially priced at $75 with $5 shipping and offered 180 models across all four regions. By year 11 we offered free shipping and increased the pricing to $85 dollars in North America while offering more models.

• Our strategy was focused on increasing our internet marketing share by– Reducing cost of production to offer our most

competitive prices to our consumers

– We also included free shipping to encourage customers to make purchase decision

– Offering a high quality product by increasing our S/Q rating

– Increased spending in advertising



Company A's Competitive Strategy for the Wholesale Market

• Company A’s initial differential strategy in the Wholesale Market was focused on providing a superior product. The goal was to provide an 8 star shoe in North America, and a 7 star shoe in the remaining regions with a minimum of 200 models offered worldwide.– Superior materials (80% in North America, 70% in remaining regions)

• A second key component of the strategy had to do with distribution. Because our company looked to provide a superior product to the marketplace; the decision was made to take no more than two weeks to delivery that product from the time the order was placed.– The delivery time standard was improved to 1 week in year 15

• Advertising – Consistently higher budget than the industry

– Retailer support higher than industry resulted in the maximum retail outlets being utilized for distribution

– Celebrity appeal was used sparingly to supplement advertising budget

– Rebates were provided above the industry standard to attract new customers and maintain customer loyalty

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Company A's Competitive Strategy for the Wholesale Market

• The number of models manufactured was expanded to 250 worldwide in year 16 to provide an additional incentive to our customers; who are not only looking for a superior product, but also want a variety of footwear to choose from.

• Production also played a key role. – High percentage of superior materials utilized

– A 2% pay increase was provided to all employees on an annual basis.

– TQM (Total Quality Management) / Six Sigma, incentive pay and best practices training was utilized with all employees

• Most importantly our S/Q (Service/Quality) image rating was maintained at a high level through our corporate citizenship / sustainability efforts, superior materials, models offered and our industry leading advertising efforts. – Models Available

– Rebate Offer

– Retailer Outlets

– Retailer Support

– Delivery Time

– Celebrity Contracts

2/23/2015Proprietary and Confidential_Benedictine


Company A's Competitive Strategy for the Private-label Market

• Private-label market utilized to maximize plant utilization (113.5%)

• Produced a 5 star shoe and priced bids to win the business while maintaining excellent operation margins.

• 100% of pairs offered were sold



Year 10 11 12 13 14 15 16

North America

Pairs Sold (000’s) 185 100 300 513 514

Market Share 25% 16.7% 49% 81.9% 81.6%

Bid Price $35.00 $40.00 $45.00 $44.98 $42.99

Margin per Pair $10.73 $10.23 $15.56 $17.16 $15.04

Europe-Africa

Pairs Sold (000’s) 185 180 300 395 395

Market Share 25% 35.6% 36.5% 72.3% 61.2%

Bid Price $35.00 $40.00 $45.00 $44.98 $42.99

Margin per Pair $8.56 $11.85 $16.45 $18.76 $15.83

Asia-Pacific

Pairs Sold (000’s) 185 174 781 782

Market Share 25% 35.4% 86.8% 74.8%

Bid Price $35.00 $33.00 $35.98 $35.75

Margin per Pair $13.56 $9.85 $12.90 $14.16

Latin America

Pairs Sold (000’s) 185 100

Market Share 25% 19.6%

Bid Price $35.00 $40.00

Margin per Pair $9.73 $10.23

Company A's Production Strategy • Company A was able to grab a 32.3% market share in the Wholesale Market in

year 11 by providing a quality product, manufactured with superior materials, minimum of 200 models in all regions and internet market, and a robust advertising budget.

• With the Year 11 market share success, company A immediately expanded plant capacity with the following plant capacity decisions:– Bought 600,000 of available plant capacity in North America (Year 12) for $22.8 million

– Built new 2,000,000 capacity plant in Europe/Africa (Year 13) for $96 million. Used to meet demand in Europe-Africa while reducing warehousing and related transportation costs (import tariff / negative exchange rate adjustments).

– Planned to build a 1,000,000 plant in Latin America (Year 18) for $44 million. Plant will be used to meet demand increasing demand in Latin America while reducing warehousing and related transportation costs (related import tariff / negative exchange rate adjustments).

• Utilized Private Label Market to fill excess capacity until demand – Plant Utilization: 6 year average: 113.5%

• Company A utilized the Private Label market to fully utilize plant capacity and thus reduce overall Cost of Pairs Sold (COPS).

– Private Label Cost of Pairs Sold (COPS) and warehousing expense is the lowest in the industry

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Company A's Production Strategy • Plant Upgrades – Reduce rejects, improve

productivity, increase S/Q image rating, and reduce operating expense – Option A (Reject Rate Reduction) in North America

and Asia-Pacific Plants for $15 million (Year 11), Europe-Africa plant for $5 million (Year 14)

– Option D (worker productivity) in Asia-Pacific plant for $14 million (Year 15)

– Option B (production-run setup) in North America and Europe/Africa plants for $36.8 million (Year 16) in anticipation of increasing number of models offered.

• Produced over 40% of our product out of Asia Pacific market to take advantage of cheap labor

• Branded Market Segments production provided – Lowest warehouse expense per pair in the industry

– Lowest administrative expense in the industry



Company A's Production Strategy

• High percentage of superior materials utilized to ensure market differentiation– 8 star shoe in North America, and a 7

star shoe in the remaining regions

– Superior materials (80% in North America, 70% in remaining regions)

– Support S/Q Image Rating

• Employee training and compensation designed to produce high quality shoes with low reject rates– A 2% pay increase was provided to all

employees on an annual basis

– TQM (Total Quality Management) / Six Sigma, incentive pay and best practices training was utilized with all employees



Company A's Finance Strategy

• Company A felt dividends should be paid every year at the expected growth of the industry, 6%.

• If this meant taking a one year loan to do so, this was worthy of the interest charged.

• In Year 15 and Year 16, stock repurchases occurred, resulting in a positive effect on Company A’s EPS, and a decrease in the funds borrowed.

• Company A plans to continue paying dividends in line with the market’s growth.

• Stock will continue to be repurchased.



Year 14 Year 15 Year 16

Target Actual Target Actual Target Actual

EPS $6.75 6.98 6.90 8.37 7.00 10.38

Company A's Finance Strategy Cont.

• By choosing debt versus equity, Company A was able to manage its business without involving additional decision makers.

• Profits were Company A’s to manage and delegate.

• Most loans taken were short term loans, paid back quickly, and then the relationship was terminated.

• Over time, as revenues increased cash flow was greater, and the need to borrow cash for short term debts dissipated.

• The increased cash flow improved Company A’s credit rating as a result



Strongest/Closest Competitors

Internet Market

• Company C was our closet competitor in internet marketing, with Company D being a close second. Company D was able to capitalize on their high celebrity appeal while Company C offered competitive prices and more models on the internet. We focused on producing better quality and increased our spending in advertising to compensate for the loss of celebrity appeal in the final years.




Wholesale Market

• Company C was our strongest competitor in wholesale marketing. Company C had similar strategy to ours by improving the quality of their shoe and offering high number of models. This strategy was able to set both Companies apart from other competition. Our celebrity appeal was the lowest in the industry, but we were able to compensate by focusing on increased advertising, retailer support, outlets utilized, which ultimately led to high sales volume.




Private Label Market

• Increase percentage of superior materials usage

• Focused on gaining higher S/Q rating than competition

• Enhanced features/styling

• Increased plant capacity and took advantage of private-label in the L.A market



Company A’s actions planned to out-compete close rivals in the next two years

• Increase spending on advertising, particularly in celebrity endorsements.

• Continue to focus on improving our S/Q rating across the board.

• Increase models offered and maintain competitive internet pricing

• Continue to reduce production cost while increasing capacity in AP plant

• Continue to repurchase stock



Company A’s "lessons learned" about crafting a winning strategy

• Having a clear long term vision is key.– Company A knew what type of shoe they wanted to

sell and what type of market they wanted to attract.

• Short term goals should impact production capabilities that will benefit long term strategies

• Understanding global capacity to adjust production was also key– Understood the capacity demands in the market

place.

– Recognized a demand for more production early on.

– Bought capacity and then built an additional plant

– Understood how company decisions were forecasting to impact capacity needs with the company

– Bid remaining capacity to private label at competitive rates to offset normal plant costs



• First to market – We captured market share by quickly establishing a superior product; supported by robust advertising and TQM / Six Sigma quality programs in our manufacturing plants.

Company A’s "lessons learned" about crafting a winning strategy

• Our focus on product differentiation by providing superior quality turned out to be beneficial

• We learned not to underestimate the value of celebrity appeal, but also learned that increased spending in advertising and retailer support can compensate for low celebrity appeal

• Customers love free shipping, numerous models, enhanced styling and low prices

• Consistency in the chosen approach plays a big role in crafting a winning strategy



MBA 671 Business Strategy Game_Company A_Team Presentation_061914 by Binta Auta, Pamela Cole, Mark...

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