King of Shaves Case Study - Essay Example

? KING OF SHAVES CASE STUDY By Seminar Word Count 2,186 Table of Contents Table of Contents 2 Introduction 3 Porter’s Five Forces Model and Its Purpose and Benefits to Business 3 Porter’s Five Forces Model Application to King of Shaves 5 Opportunities and Threats of King of Shaves 7 Generic Strategy used by King of Shaves 8 Stakeholder Analysis Concept 8 Definition of Stakeholders 9 Mapping Stakeholders into the Framework 9 An example of Shareholder Mapping; 9 Power and Interest of Stakeholders 10 Conclusion 10 Executive Summary When considering starting a business, it is essential to know where to acquire the capital to invest. Internal and external sources of capital are examples of capital that investors can consider when starting a business. External capital comes from the shareholders. When a company is in operation, there are many risks eminent in the field. In this paper, King of Shaves Company is discussed in reference to Porter’s five forces model. It then takes a closer look at the shareholders, and maps them in reference to their value to the organization. Introduction Porters’ five forces model is a model framework proposed by Michael Porter which portrays the industry as being influenced by five forces. For any strategic manager and his team planning to develop an edge over the rival firms, they can effectively make use of this model to understand the industry context in which the firm operates. The following is the Porter’s five forces model Porter’s Five Forces Model and Its Purpose and Benefits to Business Intensity of rivalry determines the level of competition in the industry. Different industries have different levels of competition, which is of great importance to business strategic analysts. Economists use competition inherent in the industry in order to measure the level of competition rivalry. If the rivalry among firms in the industry is low, that industry is considered to be disciplined. Such discipline could result in the industry’s competition history, the role of the leading firm or essentially the general understanding of the code of conduct buys the industry players. Rivalry intensifies when a rival firm in an industry acts in a way eliciting a counter response by other firms, for example cutting costs of goods. There are a number of ways in which a firm can exploit to gain a competitive advantage over other its rivals, for example changing prices by the firm gives a firm a temporary advantage, improving products differentiation is yet another way of gaining advantage, using the channels of distribution in a creative way and exploiting relationships with suppliers. All these, if used in a proper way, are likely to improve the firms’ competitive advantage over its rival firms (Roy 2009, p. 28). Threat of substitutes refers to the risk a firm would likely face if customers decided to substitute goods with goods from other industries (Roy 2009, p. 29). Threat of substitute comes into effect when the demand for a particular product is affected by changes in the price for a substitute product. Increase in the availability of substitute goods increases the elasticity of demand due to increased alternatives to the consumers. A close substitute of a product makes it hard for the manufacturers to raise the price of the product. Threat of substitution comes from players outside the industry. According to Roy (2009, p. 26), buyer power is the overall impact of consumers on a producing industry. Strong power of buyers implies increased production levels and there by increased suppliers, thus creating a situation where there are a many suppliers supplying to a single customer. The advantage of such a market to the buyers is that they are the price determiners. However in reality, hardly do such markets exist in the current business world, with only there being an existence of an asymmetry between the producers and buyers. Strong buyers are characterized by concentrated buyers who purchase a significant portion of the output and they possess an option of either buying from a producing firm or its rival. However, buyers are weak if they producers threaten to execute a forward integration, if there is a significant number of buyers switch costs. Fragmented buyers do not have an influence in the industry, while if the producers supply critical portions of buyers’ input greatly influence the strength of the buyers. Supplier power affects the inputs market for producer firms. A business involved in production business requires raw materials, labor and other production process inputs. This results into a buyer-supplier relationship between the industry and the firm supplying the raw materials used in the creation of the products. If the suppliers are powerful, they can have a significant impact in the producing industry. Such influences include selling the products at a higher price to share in the industry’s profits (Schermerhorn 2011, p. 169). Threat of new entrants and entry barriers poses a threat to firms in an industry since it influences the competition of the industry. This is possible in a free market economy where there is free entry and exit of firms in the industry. However, industry possesses certain characteristics that act as a shield to the high profitability levels of firms in the market, inhibiting new entrants into the market. The barriers of entry are a lot more than the normal equilibrium adjustments made typically by the markets. These barriers are unique to a particular market are responsible in defining a market. Porter’s Five Forces Model Application to King of Shaves The King of Shaves company is faced by quite a number of challenges in relation to the Porters’ Five factor model. The intensity of the rivalry between the major shaving companies in the market creates a major hurdle to the company’s success. With Gillette possessing over 90 per cent of the total industry percentage, the other three firms are left to compete for the remaining percentage of the market. The prices of shaving kits and blades could be expensive, but the market trends exhibited by the strategies being put forward by companies such as King of Shaves itself shows likelihood of the profits taking a dip. The company, to counter the market dominance of Gillette, is contemplating on price cut, in order to capture more customers. This is likely to reduce the profitability margin of the companies, as others are likely to follow suit and cut their prices too to bridge the gap that this move by King of Shaves is likely to cause. Threat of substitute is yet another endangering factor to the company. Tremendous increase in the prices of the shaving blades could push customers away from buying the kits altogether. People could result into using other means of shaving other than the blades. For example, shaving gels are also common in the market today, and easily available from the supermarket shelves, chemists and retailers. The fact that these gels are quite affordable to the people is a threat to the shaving blades industry. Innovations into the production of gels to cater for external shaving are likely to cause chaos to the blade providers such as King of Shaves. Another threat is the use of shaving machines by customers. The advantage of a machine is the service it is likely to offer to a customer, they last quite for a longtime. If customers revert into using these other means of shaving, shaving blades companies are likely to experience a problem. Buyer power is yet another problem facing the King of Shaves. The market at the moment looks healthy, with increased customers who are ready to purchase the shaving blades from the manufacturers. This is a reason why there are about four manufacturers aggressively competing for the said market, and none ever goes bankrupt. Although the market for the shaving blades had been dominated by Gillette, new entrants into the industry have been welcome by customers who are ready to buy their products. However, tastes of these customers could change and this is likely to change their buying patterns. The industry has several players, all commanding a certain percentage of the market. If the customers decide to go for rival products, King of Shaves is likely to lose significantly in the business. Threat of new entrants into the industry could also affect King of Shaves business. The shaves market is a free market with free entry and exit of new firms. Any firm is free to enter and leave the market at own will. New entrants into the market are likely to affect the profitability of the firm since they increase competition. A new firm is likely to command a section of the market, and this would mean King of Shaves losing a section of its customers. A new entrant would also come with reduced prices, prompting other firms to consider a downward revision of their prices. Opportunities and Threats of King of Shaves Opportunities according to Pahl and Anne (2009, p. 7) are the elements which a company could exploit to its advantage. The King of Shaves has several opportunities that if exploited would increase its profitability and market share significantly. The new emerging markets such as India and China are a great opportunity for the company to exploit. The company is also considering investing in other markets such as America, home of the giant Gillette that is likely to bring increased revenue to the firm. The firm has an opportunity of attracting a market that had previously been dominated by the Gillette Company through the reduced prices of their products. Threats are elements that the company faces in its external environment, which could lead to its closure of business (Pahl & Anne 2009, p. 8). King of Shaves risks being bought out by other firms in the same business. Just as the director acknowledges, there had been proposals of the company being bought out by other firms in the shaving blades industry, although the company declined the offer. The firm also faces a threat of being edged out of the business by big companies which have enough capital to carry out extensive marketing of their products. Generic Strategy used by King of Shaves Eldring (2009, p. 10), states that Porters’ generic strategies are used to give a firm a competitive advantage over other companies. Porter classified them as strategic specific scope that affects the demand side dimension of the target market, while the strategic strength is a supply side dimension and looks at the strength and firm’s core competencies. These competencies are inclusive of two most important competencies that include product differentiation and product cost efficiency. King of Shaves is considering product or cost efficiency. King is planning on price cuts for his products to gain a competitive advantage over rival firms such as Gillette. The promotional price for a single cartridge of the new version of Gillette called the Fusion ProGlide is ?2.83. The price is likely to rise to ?16.99 in a period of six months. The price set for a new version of the new cartridge version of The King of Shaves called the Azor 5 is ?1, which is likely to rise to ?5.99 in six months. Stakeholder Analysis Concept Stakeholder analysis is the process in which individuals or groups are identified which are likely to affect or possess the likelihood of affecting proposed action and sorting the according to the impact they have on the particular action and likely action the impact will have on them. It refers to the action used in analyzing stakeholder’s attitudes towards a project or a business. The analysis takes place during the preparation stage where attitudes of stakeholders are considered in relation to their views on the project or business idea (Schwalbe 2006, p. 71). The analysis is used to incorporate institutional policy reforms through accountability to the stakeholders of the firm. The decision making team, after considering the views of the stakeholders regarding the project, can then go ahead with taking the rightful steps. Definition of Stakeholders Weiss (2009, p. 4) defines a stake holder as any individual person or organization who is likely to be positively or negatively impacted by an action or is likely to personally affect the actions of a company, organization or a government. Mapping Stakeholders into the Framework Mapping is visualizing relationships in their respective objectives and the responsible stakeholders. Stakeholder mapping is a visual exercise and a tool for analysis that can be used to determine the most influential stakeholders to engage with in the process of decision making (Andersen & Galloway 2008, p. 32). When a similar criterion is used to compare stakeholders, mapping allows analyzing team to understand where the stakeholders stand. An example of an analyzing criteria is expertise of the stakeholders, willingness of the stakeholders to get involved in the decision making process of the organization and value of the stakeholders to the company. An example of Shareholder Mapping; The criteria involving five shareholders named SH1, SH2, SH3, SH4, and SH5. Shareholder Expertise in activities Willingness to engage Value to firm SH1 Medium High Low SH2 High High Medium SH3 Low Medium Low SH4 Low Low Medium SH5 High Low High Power and Interest of Stakeholders Three types of shareholders according to their interests are primary shareholders who are affected directly by either positively or negatively by the actions taken by the management of an organization. Secondary stakeholders are the intermediaries who either negatively or positively affect or are affected by actions of an organization. Key stakeholders on their part are individuals or groups who have significant influence upon the organization (Weiss 2009, p. 21). Shareholders powers are the level of influence that the shareholders have in the organization. Most shareholders have governance powers where they are responsible in electing leaders, approving amendments proposed in the articles of association and approve the essential transactions for the organization. Conclusion In conclusion, the shareholders of a company are involved in the decision making of the company. Any serious decision that has the likelihood of affecting the future of the company, shareholders have to actively get involved in the process. Porter’s Five Forces model assists the decision making team in making decisions that are likely to affect the company’s competitive advantage, thus edging itself perfectly in the market that it operates. Works Cited Andersen, B., & Galloway, D 2008, Mapping Work Processes, Milwaukee, Wis, ASQ Quality Press. Eldring, J, 2009, Porter's (1980) generic strategies, performance and risk an empirical Investigation with German Data, Hamburg, Diplomica-Verl. Pahl, N, & Anne R 2009, Swot Analysis - Idea, Methodology and a Practical Approach. Mu?Nchen: Grin Verlag Gmbh, Internet Resource. Roy, D 2009, Strategic Foresight and Porter's Five Forces: Towards A Synthesis, Mu?Nchen, Grin. Schermerhorn, J, R 2011, Exploring Management. Hoboken, N,J, Wiley. Schwalbe, K 2006, Introduction to Project Management, Boston (Mass), Thomson Course Technology. Weiss, J, W 2009, Business Ethics: A Stakeholders and Issues Management Approach, Australia, South-Western Cengage Learning. Read More