Strategic Options Available to Raleigh Cycles Ltd - Case Study Example

Strategic Options Available to Raleigh Cycles Ltd. Introduction: Raleigh cycle limited, a subsidiary of Tube Investments is a 120 year old company which specializes in the production and marketing of bicycles. The company had been continuously trying to expand and diversify into other products like motor cycles and automobiles. However, it later concentrated on the manufacture of its core product – the bicycle. Accordingly, in the 1970’s it has developed an innovative product called the “Chopper” which transformed this company into a market leader. However, owing to many reasons, both internal and external, the company is on the downturn from very long time. (Hadland T., 2000). Previous study has dealt with those circumstances which were conducive for the downturn. The current study deals with the strategies to be taken up to lead the organization back to its leadership position. A snap shot of the previous assignment to lead us to the current strategies is taken up below: Internal Analysis: (SWOT Analysis): Strengths: 1. The Company’s products are reliable and trustworthy. 2. Middlemen costs are cut down and the company dictates its own price. Weaknesses: 1. Failure to adapt to the market requirements. 2. Very less number of retailers. 3. Lack of innovation, Opportunities: 1. Bicycles are eco-friendly in comparison to other motor driven vehicles. 2. Cost of acquiring and maintenance is quite low. 3. Suitable for health conscious people. Threats: 1. huge number of competitors. 2. Consumer loyalty is very volatile and depends on product innovation. 3. Large time consumption in travel on the products. 4. Unfavorable political conditions and stringent regulations in under developed countries do not encourage productivity. (Friend. G. & Zehle. S., 2009). External Analysis: (Key Success Factors): Raleigh has been successful due to the following success factors: 1. Product Reliability in the minds of the consumers. 2. Good marketing techniques to drive the interest of the consumers. Sponsoring of events and cycling teams which garner attention towards the company’s products is one such technique. 3. Availability of product due to cutting down of retailer’s dictates’. (Brown. M.G., 2000). Current situational analysis of the company: The Company was in a huge loss in the 1980’s and was acquired by The Derby Cycle Corporation. From 1997 onwards, the company could not even make a pre-tax profit and in 1999 the net worth fell down to £6.1m from £10m. In 2001, Derby was sold to cycle bid co. which came to be known as Raleigh Cycle Limited. The major problems which it now faces comprise of: Threat from competitors. Maintain the requirements of existing customers and creating new customers (failure to venture into mountain bikes arena). Product innovation in continuity to market its products successfully. Unpredictable behaviors of consumers. Difficulties of globalization of the products. No especially dedicated lines for cyclists to commute in many cities. (Anon., 2001). After assessing these internal and external points, one can understand that the company is in a declining stage. Its net worth was eroding gradually. But, a later stage has revealed that the company was not going to give up. It had made consistent profits in the November, 2007 numbers. The management emphasizes on continuing to strike to leadership in the long run. (Anon., 2008). Strategic options available for a declining but re-improving Raleigh: Quick Divesting: Leave the market before every one comes to know about the decline in the industry. In this way, better sale out price can be achieved. Strategy of leadership: Continuing in the market and slowly discouraging competitors through forecasts of pessimism. When few of them leave off, the company should try to achieve leadership. Niche: It involves identifying those areas which are still profitable. Effort should be put in to encourage such niches and gain competitive edge. Strategy of Harvest: The costs have to be minimized and future R&D and other developmental efforts have to be stagnated. Viability of each option: Quick Divesting: Raleigh’s management is keen on continuing with the business. As such, it is trying to pull the company into profitability. As such, quick divesting strategy cannot be implemented. Strategy of Leadership: This can be considered but not in the immediate present situation. The company is not able to manufacture bikes for professionals which are the most revenue earning sector. As such, this strategy would be hard to achieve. Moreover, following only leadership strategy can be detrimental to the organization. Niche Marketing: Realizing the profitable arenas and working upon improving them is the best methodology. This is Niche Marketing. It is also economical on the one hand and implementable on the other. As such, the company should consider this strategy. Strategy of Harvest: It involves cutting up of costs both necessary and unnecessary. As such, future growth becomes restricted. Hence, this strategy should not be considered. On examination, niche marketing strategy should be developed by the organization which allows profitability on one hand and R&D efforts on the other for future profitability. (Porter, M.E., 1980). Niche marketing Strategy: Already profitable units have to be identified. One can gain dominant position through them. These can be further classified into 4 levels. Namely: In house Level Business Level Market Level Promotion Level. The in house level and business level strategies concentrate on the supply side of the product while market level and promotion level concentrate on the demand side of the product. Attaining equilibrium on both supply and demand sides would maximize the profits of the firm. In house level strategies identify the gaps within the organization which can be curbed. This helps in effective tapping of the available resources for better productivity. The value chain analysis is the best strategy to be put into use. Value Chain Analysis: This analysis helps the organization in understanding the activities it performs and the return it enjoys through performing those activities. They are: 1. The primary activities: The activities involving manufacturing and sale of a product of the concern have to be taken into account. These comprise of logistics inbound, operations, logistics outbound, Sales and Marketing and Service after sales. 2. Support activities: Primary activities have to be further supported through activities comprising of Planning and finance, Management of Human Resources, Design and development of processes, Management of supply etc. A firm has to inspect whether all these activities are performed in a cost competitive manner while giving importance to the quality of the product. For that sake, efficiency of low cost inputs to achieve high output has to be achieved. A diagrammatic representation of the activities would help in understanding the process in a better manner. Support Activities Planning and Finance Management of Human Resources Design and development of processes Management of supply Logistics inbound Operations Logistics outbound Sales and Marketing Output of service. Primary Activities Primary activities comprise of manufacturing the bicycles, retailing them and maintaining the goodwill through after sales service. It has been observed that the company has managed to cut down the pranks of retailers to give cost advantage to the customers. However, this can pose a problem of sustained availability of the product. Hence, it should either think of: Creating its own retail chain or Entertaining the retailers to some extent so that they start preferring the company’s products as against those of competitors. (Ivor R., 2005). Generic Strategies: At the Business Level, three generic strategies can be discussed. They are: 1. Leadership of cost 2. Strategy of differentiation and 3. Focus. These can be diagrammatically represented as follows: Leadership of cost Strategy of Differentiation Focus (Gupta. V., Gollakota. K., Srinivasan. R., 2006). The leadership of cost: It emphasizes on keeping the product cost too low. It is a type of pricing strategy wherein the competitors are forced to either lower their product prices or quit the competition. Walmart is famous for such low end pricing to pull its competitors out of the market. However, it is observed that these products have no frills in them and they are quite primary in quality. Slowly when customers did not show any interest in no frill toys, it had to discard it’s too much dependence on pricing strategies. (Grant. L., 2004). As Raleigh has established product reliability, going on pricing strategy may not be too suitable for the concern. Moreover, it is observed that the consumers are already very pricing conscious. As such, kneeling down on price may erode the profits of the company. Strategy of Differentiation: This methodology allows the company to explore an area of product innovativeness. This innovation should not be achievable by other companies. In 1970’s Raleigh has depended on the same strategy through its introduction of “Chopper”. Product innovation is the best method of differentiation. It also helps the company to wade through the tough waters of sustainability. In the current situational analysis, we have known that the company is not thinking of producing mountain bikes and is concentrating on production of family bicycles only. Mountain bikes are used by professionals who would be ready to pay higher prices because they would have sponsors. As such, the company can venture to produce those bikes as a product differentiation strategy. Focus: The Company has been following this focus strategy of producing only bicycles leaving aside the motor vehicles and automobiles segments. So, further concentrating on this strategy would not be quite suitable. Hence, of all above mentioned generic strategies discussed on the business level, it is important that the company implements the differentiation strategy. For that sake, it should start preparing for the production of mountain bikes. Strategy of Competitive Gaming: In the market level, strategy of competitive gaming has to be resorted to recognize the firm’s potential on a global front. This gaming theory tries to identify: 1. The players of the market 2. The strategies available to deal with those players and 3. The payoffs receivable by employing those strategies. The potential players of the market are: Entrants, Rivals who are existing, Substitutes, Customers and Suppliers. This is the major area where Raleigh has not shown any interest right from its inception. It has always tried to protect its position through improved product performance and was never concerned of the various market players. In reality, playing according to their moves would save the company more cost than what it incurs in improving the product quality. For that sake, the players of Raleigh have been determined in the value-net model as follows: The champions are the people who are able to tap the potential of the market to the fullest capacity. The unutilized potential of consumer buying is called the slack. It can be used to some extent to pursue strategic innovation. However, efforts should be made to realize the gap in the potential and use it fully. In this way, strategies of value-chain, differentiation etc. becomes more effective. The strategies available to deal with those players: In a market where there are a number of competitors, obviously the number of champions also would be more. In such situations, strategies have to be formulated after identifying the moves of all the players and importantly champions. These strategies could be any of following four: Market leading strategy: Either tap the gaps or occupy slack of defend others from entering into that slack. Challenge to the market: Target the opponent by finding their weakness and first narrow it to the central. Then, it should be attacked to have a strong offensive. Market following: Follow the market to identify some opportune slack and fill the gap through creative strategy. Niche the market: Reduce the space of defense to the enemy and when you successfully defend, leave that space to diversify. In this way, full potential can be tapped. The payoffs receivable by employing those strategies: While playing these strategies, importance has to be given to the analysis of payoffs for such moves. Each move could be either competitive, complementary or co-opetitive to the players in the market. Strategy should address the right payoff to the deserved player. (Bradenburger.A., & Nalebuf. B., 1995). In the case of Raleigh cycles limited, the company has never thought of the gaming strategies. It only blindly tried to fill the gaps of slack. In other words, unknowingly, it had tried to use the Market leading strategy. However, plain hard work is not enough in today’s tough competition. This strategy should be complemented with the payoff employable. In the current market situation, the company has: Never bothered about its competitors, Reduced the gaps of suppliers Not been able to satisfy the customers fully In sourced its parts and as such did not partner with complementary firms. As such, the company could not be a champion in the market even after trying to fill in all the gaps. To avoid this situation, it should change its strategy to Niche strategy. Niche Gaming: It should reduce the space for its competitors by: Tying up with the suppliers through extending them some strategic slack. This could be either in the form of higher credit period extension, lowering the down payment requirements, extending corporate discounts etc. When the suppliers get interested in selling the product, the market availability of the product would be more. Innovative strategy has to be implemented to satisfy the needs of the customers. Their wishes are unpredictable. However, efforts have to be made to identify their choice through some techniques of decision theory etc. Entertaining complementary firms may not be considered as the product is of low cost and in-house development would improve the value chain better. After these market level strategies are sorted of, promotional strategies have to be designed. Promotional Level Strategies: These help in increasing the marketability of the product. They have to be followed in a sequence of: Segmentation Positioning. Segmentation: It refers to the identifying of different markets on the basis of some logic. It could be either on demographic, psychographic, and behavioral or benefit segmentation. In the case of Raleigh Cycles ltd., demographic segmentation would be more of use. Statistics of the number of customers, their age, gender, preferences in case of bikes etc. come into this segmentation. Positioning: Once proper segments of customers have been established, the product has to be positioned in their mindsets. The different varieties of family bikes introduced by Raleigh are a part of this positioning strategy. However, it should also include professional mountain bikers in its segmentation. Then, it can position its brand in their minds which can lead the company to higher profitability. (Anon., 2009). Added to these strategies of segmentation and Positioning, it also has to take up Marketing Mix techniques of Price, Place, Product and Promotion. (Smith. P., 2003). These have to be designed in consonance to the segmentation and positioning techniques. Thus the firm can turn back to its profitability position within a short period of time. Key Strategic Management issues relating to implementation of Niche Strategy Option: Value Chain Analysis: Implementation of removing slacks in the value chain may reduce the overall productivity of the firm after a certain point of time. The resources have to be directed and not forced to perform to their best. Strategy of Differentiation: Differentiation requires a lot of investment in the direction of R&D efforts. As it is not profitable immediately, putting in huge amounts towards such activities may not be very appreciated by the management. Strategy of Gaming: These tricks are almost known to all managers who are well experienced. Naturally, they will be known to the competitors of Raleigh also. Quick decision making has to be taken along with niche strategy so that the competitor will not be given any chance to retreat. Attaining that speed involves employing efficient employees who are loyal. Recruitment of such staff may prove to be costly to the company. Promotional Strategy: Marketing in the international field by an international firm becomes quite difficult because of the local players. They tend to grab the general public by pricing strategies. This becomes difficult for an international firm which spreads its costs over the counters. Appropriate recommendations to overcome the management issues: Value Chain analysis: Incentives and motivational factors should be considered in the case of labor. Once they are motivated, most of the resources can be utilized to the maximum profitability level. (Prasad. L.M., 2006). Strategy of Differentiation: Instead of going with high end products, small intricate comforts have to be installed into the products. These can go a long way in saving the R&D costs at one end and great credibility from the customers on the other. Strategy of Gaming: This should be considered very wisely and too much dependence on this strategy has to be curbed. This is to save the company from criticism which may arise due to gaming strategies. Promotional Strategy: The Company should make efforts to tie up with the local companies and ensure that it enjoys the maximum share of the market. It should think of providing quality service like after sales service and usage of reliable inputs to improve its goodwill. Thus, the local players get restricted to the lower end products only. Conclusion: Raleigh cycles private limited that has seen its down turn from 2002 is trying to position itself into the market. It has been arrived at that the company has to adopt niche strategy of maintaining with the possible available resources. In the meanwhile, value chain analysis has to be undertaken to find out the slacks present in the production side. Apt product has to be produced following the strategy of differentiation. These comprise of the strategies on the supply side. To improve the demand side of the product, corporate niche gaming strategies have to be adopted. These have to be complemented with the segmentation, positioning and marketing mix techniques to ensure optimal demand for the product. Where the equilibrium is struck between the supply and demand of the product, the company will make the maximum profits and emerge as a champion in the market again. While following these strategies, there may be some management issues like low productivity, high R&D costs, over dependence on non-working strategies and fight with the local suppliers. These have to be tackled with care by extending incentives to the employees, developing intricate product efficiencies to offset R&D costs, do not depend too much on Gaming and ensure higher margins than the local producers. Thus it can evolve as a champion in the market. Book References: Brown M.G., 2000. Winning Score: How to Design and Implement Organizational Score Cards. Ch. 8. U.K. Productivity Press. Friend G. & Stefan.Z. Guide To Business Planning. Ch. 9. U.K. Profile Books. Gupta. V., Gollakota. K.,& Srinivasan. R., 2006. Business Policy And Strategic Management: Concepts and Applications. Ch. 3. New Delhi. Prentice Hall of India Pvt. Ltd. Ivor. R. 2005. The Outsourcing Process: Strategies for Evaluation & Management. Ch. 5. U.K. Cambridge University Press. Porter. M.E., 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors. Ch. 12. New York. Free Press. Prasad. L.M., 2006. Organizational Behavior. Ch. 8. New Delhi. Sultan Chand & Sons. Smith. P., 2003. Great Answers to Tough Marketing. U.K. Kogan Page. Internet References: Anonymous., 2001. Raleigh U.K. Ltd. Funding Universe .com., U.K., 16th April, 2010. http://www.fundinguniverse.com/company-histories/Raleigh-UK-Ltd-Company-History.html Anonymous., 2008, Raleigh MD Likens IBD’s To ‘Steptoe and Son’, Bike Europe., 16th April, 2010. http://www.bike-eu.com/facts-figures/market-reports/2700/united-kingdom-2007-cycle-use-continues-to-rise.html Anonymous., 2009. Marketing Strategy, Segmentation and Positioning. @webo. 16th April, 2010.  http://www.atwebo.com/marketing_segmentation.htm. Bradenburger.A & Nalebuf. B., 1995. 12Manage The Executive Fast Track.1995. 16th April, 2010. http://www.12manage.com/methods_brandenburger_value_net.html Hadland. T., 2000. Raleigh In The Last Quarter Of the 20th Century, 11th International Cycle History Conference, Osaka, Japan. 16th April, 2010 http://www.users.globalnet.co.uk/~hadland/raleigh.htm. Lorrie Grant, 10th Nov, 2004, Wal-Mart doesn’t plan to toy much with prices, USA Today, 16th April, 2010. http://www.usatoday.com/money/industries/retail/2004-10-11-toy-2004_x.htm Read More