Fiona Church: CoCo Party Ware Ltd - Case Study Example

 Fiona Church: Co Co Party Ware Ltd. 1. INTRODUCTION Organisations need to streamline their business strategies and explore and identify areas, which can be best exploited with the organisation’s resource base (Andrews 1986). This report aims to assess the new strategic direction open for pursuing by Coco a manufacturer and marketer of party and celebration items and analyse the market and industry situation prior to proposing marketing and operational strategies that will best achieve its strategic intentions. 2. SITUATIONAL ANALYSIS 2.1 Organisational Analysis – SWOT A SWOT analysis (Duncan, Ginter & Swayne 1998) is used in conjunction with Organizational Capability Analysis (OCP) and an Environmental Scoring analysis to derive a quantified score of the strengths and weaknesses of the company in pursuing the identified market opportunity successfully (Thomson & Strickland 2003). Table 1 – Combined SWOT/OCP/ETOP Analysis for Co Co SWOT Criteria Weight (1-10) Impact -5 / 0 /+5 Score Strengths Competencies built up over 1 century Established business reputation in the local market Wide product portfolio MoFeu approval as a registered supplier for EU Recent success of Display Ware in foreign markets. 6 4 2 7 6 +5 +5 +5 +5 +5 30 20 10 35 30 Weaknesses Logistic issues pertaining to procurement and packing Lead time issues in process development & testing phase. Long lead-times in supply creating cash flow problems. Reactive marketing practices being used. Lack of utilization of IT technologies such as ERP. Low level of comparative experience in Display ware. 4 6 4 5 2 2 -5 -5 -5 -5 -5 -5 -20 -30 -20 -25 -10 -10 Total OCP Score +10 Opportunities Global markets with diverse celebration during different times of the year reducing cyclical demand. Growing interest in celebrations and fantasy themes. Growing spending power in new markets across the world. Increased Free trade facilitating global business 7 7 6 6 +5 +5 +5 +5 +35 +35 +30 +30 Threats Low customer loyalty and repeat purchases in the industry. Cyclical nature of demand. Difficulties in managing cross cultural diversity, which is a challenge for any business operating in global scale. Stricter government regulations on Explosives manufacturing and shipping 2 4 3 4 -5 -5 -5 -5 -10 -20 -15 -20 Total ETOP Score +65 Total Overall Score for CO CO’s New Display Ware +75 2.2 Environmental Analysis For a company to be successful in crafting and implementing business strategies, a clear understanding of the organisational environment is required (Abell 1980). Below PESTE Analysis evaluates the uncontrollable macro environmental factors (Zeithaml & Zeithaml 1984), which affects the business operations of Co Co. Political - Liberalization of most of the closed economies and greater level of regional economic integration opens markets such as India and China. Such trends lead to increased Exports. However the recent increase in terrorism and wars are affecting business environments, trade relationships and bringing in new logistic challenges with the increased security standards being implemented. Environmental factors are also becoming ever critical and companies are becoming increasingly responsive to Natural Environmental conditions. The shortage of raw materials and scare resources such as energy sources holds critical importance. For Coco the effects may come from increased environmental protection standards being implemented by the government, regulating production locations of products such as explosives. Testing etc may create noise pollution, which can exceed approved levels of new standards. Social factors in the macro environment consist of changing demographics, patterns of employment, lifestyles, cultural diversity and attitudes. With the shifts in demographics, more and more people in the world are becoming aged and celebrations the type which COCO cater to may not be a part of their lifestyle. Changing employment patterns and lack of job security affects people’s propensity to spend on high end products (Armstrong & Kotler 2000). Some of the cultural trends in the current times such as “Being Alive”, “ Small Indulgences” and “ Fantasy Adventures” (Popcorn & Marigold 1997) will hold favourable implications for Co Co’s operations. Technological Developments in the world are dynamic and rapid. With the advent of the Internet and developments in the telecommunication industries, the global markets have shrunk and the world has become a smaller place. Co Co needs to take advantage of such trends and introduce e-commerce platforms to cater to its global clients as planned. The supply chain too can be made more effective and efficient through the use of Enterprise Resource Planning software, which integrate suppliers, manufacturers and customers through online network systems. Economic trends in the Macro environment carries significant implications for organisations and should be considered in forming pricing decisions as well as overall product offers. Companies from developing world are competing for a foothold in the European markets and thus increase pressure on prices. With Co Co moving its marketing focus to foreign markets, care should be taken to counter against currency risks prevalent in developing countries. 2.3 Industry Analysis The European fireworks industry is growing at a rate of 14-15% per annum and world market is growing at a 20% approximate rate. Markets such as Ukraine, has annul growth of 20-30 %. (Dykovska 2007). A brief industry analysis of the global Party & celebration ware is provided below with the application of Porter’s Five Force Model (Porter 1996). Threat of substitutes is low as the Fireworks display ware for celebrations is an industry, which has global appeal and no direct substitute. Bargaining Power of Customers – Co Co caters to two groups of customers and the business clients are more demanding, as their orders tend to be large scale and comprise of top end products. The bargaining power is however moderate in this industry although strict specifications may be demanded by most large-scale customers. Bargaining Power of Suppliers – When industries are supplied by few suppliers with specialized requirements or with scare resources, then the bargaining power of the suppliers is high. This can lead to increased costs of supplied materials, price increases, supply quotas etc. The industry has low bargaining power of suppliers but regulations of EU’s restricts Co Co’s suppliers to be from MoDue registered base of suppliers. Threat of new entrants – The entry barriers can be in the form of legislature requiring licensing or in the form of natural monopolies or oligopolies. The entry to industries can be also in the form of heavy capital intensity naturally restricting new entrants. The threat of new entrants in the fireworks display industry is moderate. Rivalry among competitors – Cheaper products coming in from China is putting adverse price pressures (Made in China 2006). In the case of celebrartion display industry, the competition is very high. The intensely competitive nature of the industry affects the profitability and industry attractiveness. Considering the analysis of the above five industry forces, the global celebration display industry holds moderate to high level of attractiveness. 3. STRATEGIC OBJECTIVES Table 2 – Four Year Strategic Objectives – Co Co Display Ware SBU Targets 2006-2007 2007-2008 2008-2009 2009-2010 Targeted Sales Volumes 7.9 9.0 11.0 13.7 Growth targets for the business segment % * 13% 14% 22% 25% Targeted new Markets ** 05 8 9 12 * Growth targets are based on previous years performance as well as expected outcomes of new strategies as well as industry growth rates. ** EU taken as one market. 4. EVALUATION OF STRATEGIC OPTIONS - Portfolio Assessment Shell Directional Policy Matrix (SDPM) Portfolio management decisions involve striking a balance between goals such as risk vs. profitability, new products vs. improvements, strategy fit vs. reward etc. (Cooper et al 2001). Figure 2 illustrates the SDPM for Co Co with the cell labels, which indicates possible strategic choices or types of resource deployments most appropriate for the product or SBU. Table 3 – SDPM Scoring Chart for Co Co’s two key SBU’s Industry Attractiveness Factors Weight Rating W/ Rating Core Ware Display Ware Core Ware Display Ware Market Size & Projected Growth 0.20 5 8 1 1.6 Intensity of Competition 0.20 7 7 1.4 1.4 Regulatory & Environmental Factors 0.10 2 6 0.2 0.6 Industry Profitability 0.25 4 8 1 2 Emerging opportunities and threats 0.25 5 8 1.25 2 Total Score 1.00 4.85 7.6 Competitive Strength Factors: Relative Market Share 0.25 7 4 1.75 1 Cost relative to competitors 0.25 5 5 1.25 1.25 Brand name and image 0.20 7 5 1.4 1 Financial Strength 0.15 6 6 0.9 0.9 Internal Process Capabilities 0.15 6 5 0.9 0.75 Total Score 1.00 6.2 4.9 Rating scale: 1- Very Unattractive 10 – Very Attractive Figure 1 – Shell Directional Policy Matrix Leader Try Harder Double or Quite Growth Proceed With Care Phased Withdrawal Cash Generator Phased Withdrawal Divestment Co CO’s new Display ware SBU is placed within the Try Harder Domain – These products or SBUs can be moved towards the leadership box by making available resources. The Core product category is occupying the Phased Withdrawal Domain - The strategy for this segment is to realize the value of the assets on a controlled basis to deploy the resources released from these products in other prospective products (Thomson & Strickland 2003).. This placement is actually justified by the current issued the party ware segment is experiencing in terms of low growth and repeat sales as well as the low margins and values associated with the product range 5. MARKETING STRATEGIES 5.1 Marketing Segmenting & Targeting for Co Co It is proposed that Co Co choose differentiated marketing where the different products within the Display Ware product category is offered to different customer groups. For segmentation to be effective, the market segments should be Measurable, Accessible, Substantial, Differentiable and Actionable (Armstrong & Kotler 2000). In evaluating market segments, segment size and growth potential; segment’s structural attractiveness and the company’s objectives and resources should be considered. The right size will depend on the company itself, as some companies may not be able to cope with larger segments. The structural attractiveness of a segment will depend on how aggressive are the existing competitors, the customer bargaining power, the supplier strength and existence of substitute products (Porter 1996). Having segmented the market, there are many targeting strategies, which a company can pursue. These can range from undifferentiated targeting to differentiated and concentrated market coverage tactics. In this regards, Co Co’s strategy would be to target both the large-scale Business consumers as well as individual consumers. The structural attractiveness of the Business consumer segment is low as tendering processes for large scale orders make pricing highly competitive squeezing the profit margins. The bargaining power of the customer is also very high in this segment. Although this segment offers high growth potential and size, the large scale orders coming from this segment may test Co Co’s capacity and thus organisational capabilities will have to be upgraded to capitalize on the potential from this segment. 5.2 Positioning Co CO’s Display Ware To ensure that consumer choose the company’s product from available alternatives, the first step it to gain a position in the consumer’s mind (Reis & Trout 1981). Positioning task involves three key steps of identifying a set of possible competitive advantages upon which to build a positioning, selecting the right competitive advantages which the firm can credibly support and finally communicating and delivering the chosen position to the targeted market segment (Kotler & Armstrong 2000, p.207). The proposed positioning strategy for Co Co is to choose combine product and image differentiation platforms and communicate this to the consumer. The image differentiation can be based on the fact that Co Co is from UK, a country reputed for quality products and high standards for safety and reliability. This platform can allow Co Co to compete effectively against cheap products coming from less reliable manufactures in China and other developing countries at cheaper prices. Co Co’s involvement in party ware industry for over a century should also be incorporated to add credibility. The product differentiation can come in the form of offering different designs and effects as well as wider product options to suit different global customers, and by offering to incorporate customer’s design ideas in to the actual products. This design flexibility will provide Co Co an unmatched competitive position from which to deal with customers across the world with different tastes and cultural celebrations. In order to communicate the above two positioning strategies it is proposed to introduce a separate Sub Branding for the SBU and the following positioning message. “ Introducing.. Co Co Pyrotechnics UK –Lighting up the Skies of Celebrations! We at Co Co are 100 years old and wise in the Art of Celebrations!” 6. PROPOSED MARKETING MIX FOR CO CO PYROTECHNICS UK Product The product element is the most crucial element of the marketing mix and needs to be offered with the required level of quality and with an ability to satisfy the need it is catering to. In the case of Co Co’s Display Ware the core product is the celebration displays. The second level of the product, includes quality, features, design, brand name and packaging. Here Co Co will introduce new products such as laser displays, electronically propelled fire works and different designs with sound and colours effects and brand them as Co Co Pyrotechnics. The third level, which is the augmented product, aims at offering additional services and benefits to add value to the product. Co Co will introduce information, safety practice advice and other valuable data on fireworks and display events etc in its new interactive web site. Collaborative design development will be made available through this e-commerce platform for customers to input their own design ideas. Price Price can be defined as the “sum of values, which a consumer exchanges for the benefits derived from a product or service” (Armstrong & Kotler 2000). Pricing decisions of a company is affected and influenced by a host of internal and external factors such as company’s marketing objectives, marketing strategy, cost structure as well as market conditions, competition, status of economy, number of resellers involved in the distribution chain and the government price controls. Co CO’s pricing strategy would be to pursue a premium pricing policy in line with its positioning as a premium product with added features and high reliability which does not come cheap. However the prices will not be marked up more than 15% above cheapest competitor prices in order to maintain competitiveness in tender procedures. Place Organisations use intermediaries in the process of taking their product to the consumers. Distribution Channels are formed with a “set of interdependent organisations involved in the process of making a product or service available for use or consumption by the consumer or business user” (Stern et. al. 1996). Co Co is still relying on conventional channels of distribution. It is proposed that Co Co enter in to strategic business partnerships in new and merging markets which it hopes to expands to and sign up contractual agreements which will allow the company to not only have stable sales but also manage its cyclical demand difficulties. By introducing online store with e commerce platform, the company can integrate its market and distribution activities targeting the global customers. Promotions Promotions element in the marketing mix is used to communicate the features of the rest of the marketing mix elements to the targeted consumers. Co Co should focus on Integrated Marketing Communication (IMC), which involves coordinating various promotional elements along with other marketing activities to communicate with firm’s customers (Fitzgerald 1988) instead of using promotional element in isolation and in ad-hoc manner. Direct marketing efforts (Shultz & Barnes 2001) such as participation in exhibitions and fairs should be combined with Internet marketing and advertising (Belch & Belch 2004) in industry journals such as “Fireworks- UK.” Sponsorships (Harris 1998) of certain celebrations whereby Co Co becomes the official Pyrotechnics partner should be considered to gain entrance to markets and strike strategic partnerships with large scale customers who host large display celebrations. 7. OPERATIONAL STRATEGIES Following Operational strategies are proposed for implementation in support of achieving the strategic objectives of Co Co Display Ware. Business Structure – It is proposed to create a subsidiary business operation dedicated to the Display Ware operations and name it as Co Co Pyrotechnics UK so that the company dedicate separate set of resources to the division by diverting existing resources as well as by acquiring new resources (Thomson & Strickland 2001). This is supported by the portfolio assesment study conducted within the report. Logistics – To separate the Fire Works division completely from the current operations by segregating all production and packing so that the company strictly complies with the high safety standards, which is in line with the reliability image within the positioning strategy. Organisational Structure – To create a modern organisational structure with team configuration to cater to different product groups as laser displays/standard displays and special displays or by geographic regions. The teams will comprise of multi tasking and multi skilled personnel who will manage the marketing, process development, testing, modification to production and shipping out of orders. Such high performance teams have become the norm to compete in high-speed highly competitive global markets (Weiss 2001). Production – It is proposed to expand the production capacities by investing in new machinery and production areas by 2-3 rd years of the strategic plan so that new product groups as laser displays and electronic fireworks can be manufactured. This is in line with the industry analysis, which indicates the high growth potential for these two key product segments within celebration Pyrotechnics. It is also proposed to implement Quality Circle concept and explore the organisational readiness to implement a change managemnet program such as Total Quality Managemnet (TQM) by the end of the 4 year plan. The company will target to reduce its lead time to three months. HRM – Co Co Pyrotechnics UK will need to invest in HRM function whereby new manpower of high calibre will be needed to drive the aggressive growh objectives being persued. New appraisal systems and reward systems linked partially to perfromance targets such as deadlline achivements and sales targets have to be implemented along with other organisational reward staregies such as gain sharing and team based rewards (Cascio, W. F. 1998; Amstrong, M. & Murlis, H. 1988). IT & e commerce – Co Co Pyrotechnics UK will need to implement a new Enterprise Resource Planning system which would link the company, its customers and the suppliers on a networked e commerce platform. This will facilitate product development, marketing, transaction process, managemnet decision making, inventory managemnet and a host of other operational apsects. Financial – The new company will need to target 15% minimum Return on Investments and gear up to meet the required capital outlay for new expansions in production and IT. Within a team configured organisational structure, the finance function will work closely in formulating accurate costing and avoid cost padding etc so that true financial picture is available. Inventory control – The company will target to reduce its purchase lead times by implementing the network based ERP system so that suppliers can work closely with the company in meeting its demands. 8. NEW MISSION STATEMENT In line with new business focus it is proposed that Co Co Pyrotechnics UK to implement a new mission statement as “ To Be a Trusted Global Supplier of Celebration Pyrotechnics with High Product Innovation and Reliability.” This mission statement will give sttrategic direction to the new SBU interms of its global business focus as well as the image of high product diferentiation and reliability. 9. FINANCIAL ANALYSIS Please refer to Appendix I for forecasted Sales Budget for the 4 years with breakdown of targeted markets as well products for the Display Ware SBU. In addition to the basic forecasts included in this initial business plan, finance department is currently formulating detailed analysis of profit & Loss forecasts as well as other ratio analysis to assess the feasibility and viability of new business in terms of Return on Investment, gearing ratios which will come in if new capital is to be secured etc. 10. ACTION PLAN & MILE STONE PLANNING Please refer to Appendix II for action plan on Co Co’s 4 year business plan. 11. CRITICAL RISK ASSESMENT Marketing / Sales forecasts - While forecasts always carries a certain element of business risks, the company has used a conservative approach in choosing mid range growth forecasts which are further supported by industry wide growth potential. Co Co will use three month rolling plans to adjust and revise forecasted sales. Further, by tapping on to different customers across the world with different celebration times, the company hopes to taper off the cyclical demand aspect. By signing up long terms supplier contracts and strategic alliances with key pyrotechnic event planners, Co Co will further reduce the business risks associated in sales and marketing forecasts. New Products – Although Laser displays and electronically launched displays are new to Co Co’s product line, these are well-established products in the industry, which has reached growth phase of their product life cycle. Co Co therefore needs to ensure products are developed and tested properly for quality and innovation but need not be burdened by business risks, which the pioneers of these products would have carried. Operations, Productions & IT – Risks associated with implementations of new systems such as ERP, E commerce, new production systems and TQM programs will all carry a certain element of business risk where success or failure is concerned. To minimize these the company will carryout internal audits and implement in conjunction with change management programs and high level of employee training. By linking reward systems partially to the successful implementation of these organizational changes, employee participation and commitment will be further heightened. 12. CONCLUSION In conclusion, it can be stated with confidence that Co Co has a high potential business opportunity in the new Display Ware category and the situational analysis pertaining to both the company’s internal capabilities and the environmental conditions support the pursuing of this strategic business opportunity. However the company needs to revamp and gear up its comparatively low organisational capacities if it were to capitalize from this business potential and the proposed marketing and operational strategies are based on how to achieve this strategic business objective. Report 3,721 Appendix I 157 Appendix II 131 Total Words 4,009 Including Cover page References Aaker, D.A. (1996). Building Strong Brands. New York: The Free Press. Abell, D. F. (1980). Defining the Business: The Starting Point of Strategic Planning. Englewood Cliff, New Jersey: Prentice Hall. Armstrong, G. & Kotler, P. (2000). Marketing: An Introduction. 5th ed. Singapore: Person Education Inc. 2000. Belch, G. E. & Belch, M. A. (2004). Advertising & Promotion: An Integrated Marketing communication perspective. Illinois: Irwin. Amstrong, M. & Murlis, H. (1988). Reward Management: A Handbook of Remuneration Strategy & Practice, 3rd ed. Kogan Page Limited, London. Cascio, W. F. (1998). Managing Human Resources: Productivity, Quality of Work Life, Profits, 5th ed, McGraw-Hill Companies, USA. Duncan, J. W., Ginter, P. & Swayne, L.E. (1998).Competitive Advantage and Internal Organisational Assessment. Academy of Management Executives, Vol.12, No 3. pp. 6 –16. Dykovska, O. (2007). Pyro-Show CJSC. Pyro Planet.com Retrieved 13 February 2007 from http://display.pyroplanet.com/Article359.html?MDPROSID=e152e4c9a0d113f35cd0d5bbf9fc4e7c Levitt, T. (1965) Exploit the product life cycle, Harvard Business Review, vol 43, November-December , pp 81-94. PESTLE Analysis.(2006) Faculty of Professional Studies, e-learning unit. 01.01.2006. http://www.trainingessentials.org.uk/pestlesitecopy/ Popcorn. F. & Lys, M. (1997) Clicking. New York: Harper Collings. Porter, M. (1996) Competitive Strategy. Harvard Business Review. Rise, A. & Trout, J. (1986). Positioning: The battle for your mind. New York: McGraw-Hill Book Co. Smith, G. (2004) Brand Image Transfer Through Sponsorship. Journal of Marketing Management, Vol. 20, no 3-4, pp. 457-474. Thomson, A. A. Jr. & Strickland, A. J. (2003). Strategic Management Concepts and Cases. 13th ed. New York: McGraw-Hill Publishing Company Ltd. Taylor, M. “As Others See Us: A Fireworks Case Study.” Fireworks Mag. Org. Retrieved on 13 February 2007 from: http://www.fireworks-mag.org/news07.htm “Ukrainian Aspirations” 2007 Wednesday, January 31, 2007. China Daily.com Retrieved on 13 February 2007. from: http://www.chinadaily.com.cn/bizchina/2006-12/30/content_771956.htm Zeithaml, C. & Zeithaml, V. A. “Environmental Management: Revising the Marketing perspective”. Journal of Marketing, spring 1984: 44-53. Appendix I Sales Forecasts for Co Co Pyrotechnics UK – 2006 – 2010 (In £ million) Sales Targets 2006-2007 2007-2008 2008-2009 2009-2010 Targeted Sales Volumes 7.9 9.0 11.0 13.7 Growth targets 13% 14% 22% 25% Targeted new Markets ** 05 8 12 15 Break up of Sales Forecast by Target Markets - 2006 – 2010 (In £ million) Markets 2006-2007 2007-2008 2008-2009 2009-2010 UK 1.8 1.8 2.0 2.1 EU 0.4 4.2 4.3 4.5 USA 0.7 0.8 1.5 2.0 India 0.6 0.6 0.6 0.7 Brazil 0.8 0.8 1.0 1.0 Switzerland   0.2 0.4 0.5 Russia   0.4 0.5 0.7 Canada   0.2 0.4 0.5 Australia     0.3 0.5 Japan       0.2 Others       1.0 Targeted Sales Volumes 7.9 9 11 13.7 Total Markets 5 8 9 12 Break up of Sales Forecast by Key Products - 2006 – 2010 (In £ million) Key Products in Display Ware 2006-2007 2007-2008 2008-2009 2009-2010 Standard Pyrotechnics 7.9 8.0 8.5 9.0 Electronic Pyrotechnics   1.0 2.5 3.5 Laser Display   1.2 Total 7.9 9.0 11.0 13.7 Table of Content Content Page 1. INTRODUCTION 01 2. SITUATIONAL ANALYSIS 01 2.1 Organisational Analysis – SWOT 01 2.2 Environmental Analysis 03 2.3 Industry Analysis 05 3. STRATEGIC OBJECTIVES 05 4. EVALUATION OF STRATEGIC OPTIONS 06 Portfolio Assessment 5. MARKETING STRATEGIES 07 5.1 Marketing Segmenting & Targeting for Co Co 07 5.2 Positioning Co CO’s Display Ware 08 6. PROPOSED MARKETING MIX FOR Co Co 09 PYROTECHNICS UK 7. OPERATIONAL STRATEGIES 11 8. NEW MISSION STATEMENT 13 9. FINANCIAL ANALYSIS 14 10. ACTION PLAN & MILE STONE PLANNING 14 11. CRITICAL RISK ASSESMENT 14 12. CONCLUSION 15 REFERENCES 16-17 APPENDIX I 18 APPENDIC II 19 Read More