Competition and Business Risk in Athletic Shoes - Essay Example

?Competition and Business Risk The global sports shoe industry manufactures athletic footwear and supplies it to different outlets and retail stores.It has been operating from past 10 years and has its manufacturing plants in various geographic regions like Asia, Latin America, North America, Europe, Africa and as well as other parts of the world. The industry during the initial 10 years has well established itself and its market has grown tremendously. The industry has been enhancing its footwear with new styles and performance features. It modifies the product styles with the public demand or its own strategic decisions. The industry also has celebrity endorsement campaigns. The prospects for long-term growth in the sales of athletic footwear are excellent. Athletic shoes have become the everyday footwear of choice for children and teenagers. Adults buy athletic shoes for recreational activities as well as casual use, attracted by greater comfort, care features, and lower prices in comparison to leather shoes. Athletic footwear has proven to be very attractive to people who spend a lot of time on their feet, as well as to older people with foot problems. The Global Shoe industry has a great amount of shares in the market and is in a position to achieve even more. The company currently has two plants in North America and Asia, each producing 2 million pairs and 4 million pairs respectively. Both plants are operated at overtime to enhance annual capacity by 20%. In year 10, the company’s annual capacity of shoe pair was 7,200,000. This makes sales volume equal to 5.2 million pairs in year 10. The company’s staff is capable of bringing in new shoe models, features and styles to keep the product line up to date. In year 10, the company sold 4,500,000 million pairs of shoes to retailers and individuals. 740,000 pairs were sold to private label through contract and bidding (Thompson, Stappenbeck & Reidenbach, 2011). The industry also has various distribution centers that not only facilitate the company but also its consumers. The distribution center includes wholesale sales, retail stores and apparel stores. The other distribution center includes online shopping through the company’s website. The industry also supplies its products through private label sales to multi-outlet retailers. The company manufactures 500 designs of products, which include shoes for different categories, from daily use to specialty shoes designed for walking, golf, tennis etc. The raw material is supplied to the industry by different suppliers, almost 250 suppliers supply raw material of different types. In short, the industry from-time-to-time enhances its footwear with new styling and performance features and alters the number of models/styles in its product lineup. The company strives to enhance its sales volume and standing in the marketplace via attractive pricing, advertising, mail-in rebates, contracting with celebrities to endorse its brand, convincing footwear retailers dealers to carry its brand, providing merchandising and promotional support to retailers, goods delivery times on shipments to retailers, and promoting online purchases at its Web site. Consumer demand for athletic footwear is diverse in terms of price, styling, and purpose for which athletic footwear is worn. Many buyers are satisfied with no-frills, budget-priced shoes, while some are quite willing to pay premium prices for top-of the-line quality, multiple features, or trendy styling. The biggest market segment consists of customers who buy athletic shoes for general wear, but there are sizable buyer segments for specialty shoes. “The diversity of buyer demand gives manufacturers room to pursue a variety of strategies, from competing across-the-board with many models and below-average prices to making a limited number of styles for buyers willing to pay premium prices for top-of-the-line quality” (Thompson, Stappenbeck and Reidenbach, 2011). Price, styling, features, quality and a wide choice of appropriate styles and models typically have the most influence on a buyer’s choice of which brand to purchase. Over the past 10 years, the company has established itself and is now, in a reliable financial condition. It is performing well and its products are well regarded. The company has sold over 5 million shoe pairs annually. The company’s stock price rose from $11 in year 6 to $30 at the end of year 10. There are 10 million shares of the company’s stock outstanding. When we took over the company it had revenues of $238 million and net earning of $25 million. This makes the net earning equal to $2.5 per share of common stock. The company was well established to make more progress (Thompson, Stappenbeck and Reidenbach 2011). It all depends on the strategy we use in future and how we make particular decisions in relation to social responsibility, sales forecast, increasing the plant capacity and for the shipment, distribution channels, celebrity endorsement etc. All of these decisions will make an impact on the shoe industry and the costs and earnings of the shoes. To make an everlasting effect on the business, we have to opt for the right strategy. The business is all about the strategies that the manager selects. Strategy implementation in general is dependant on environmental, strategic, and organizational variables (Gray, n.d.). No differences are found between the strategy types and their associated organizational structures, with each strategy type equally likely to implement either a high, mixed, or low structural configuration (Pleshko & Nickerson, 2008). An environment where there are rivals and competitors, our company must select the most suitable strategies out of the Generic strategies. The four most commonly adopted strategies are the low cost leadership strategy, differentiation strategy, low cost focus strategy and differentiation focus strategy (Michael Porters Generic Strategies, n.d.). The low cost leadership strategy offers the lowest cost of the products. The customer price is another issue that has nothing to do with the product cost. The business that wants to increase its market share by being able to offer low prices while maintaining its cost margin, employ cost leadership strategy (Murray 1988). The products are produced in a cost efficient way. This may include outsourcing production to other countries so that less worker’s salary is to be paid. The differentiation strategy is also referred to as “non pricing strategy” (Business Dictionary, 2011). The business that adopts this strategy does not offer cheapest products. It differentiates itself by offering other features, for example distinguished service quality, delivery speed, fashionable products and wide range of styles etc. The business then demands for higher prices because they offer additional features that cost leaders don’t. The other strategy that can be employed to the business is low cost focus strategy. It is also referred to as “niche marketing”. The business that adopts this strategy selects a specific market segment and then directs its products marketing directly to that region. This helps in making a business to make progress effectively in that particular region. This is an effective strategy for smaller business that competes against the larger ones. The differentiation focus strategy is like the low cost focus strategy (Porter's Generic Competitive Strategies 2010). The difference is that the differentiation focus strategy offers some additional features and gaining sales in one or two regions. It is not concerned with price; rather it is concerned with the increase in sales. The low cost focus and differentiation focus strategy are for the small businesses or narrow industries. Whereas, the low cost leadership and differentiation strategy targets the wider industries and larger businesses. After taking on the industry, being the manager of the company, I had to decide about the strategy that the company will follow in the next five years. Our team has decided that the company will employ low cost leadership strategy and pursue a competitive advantage keyed to having lower costs and selling both branded and private label footwear at low prices relative to the rivals. The company will offer the products and features that are acceptable by the customers. This not only increases the sale rate but also reduce the cost of products. The cost leadership strategy will have a positive impact on the company. It ignores the different market segments and focuses on the mass market (Porter 1997). The advantages of employing this strategy are that the company will charge lower prices yet will get the same profit. The market shares are protected from the rivals. The business will have opportunity to reduce its price to compete with the substitute products. All these advantages will secure the business and will give the rivals and competitors a hard time. The competitive factors that drive the market share and competition among rival footwear companies’ center around 11 sales determining factors, that are wholesale selling price, SQ ratings, product line breadth, advertising expenditures, mail in rebates, appeal of celebrities endorsing the company’s brand, and days required for delivery to retailers, support offered to retailers in merchandising the company’s brand, independent retailers carrying the company’s brand, effectiveness of online sales, and customer loyalty (Bonoma, 1984). If the company is good in managing these factors then the market share will increase and its position will be stronger against the rivals. Having a good hold of these factors can make a company successful or a failure. The selected strategy should be used in such a way that the company achieves the projected target and also works well among all these factors. The strengths and weaknesses that the company may face are also examined and discussed by the management. Till now, the company is having a smooth financial position, in the market as well as internally. It has adequate shares and earnings. The strength of the company is the low cost leadership strategy and the decision to have low prices, reliability of the product and the confidence of the customers in the products and company. The low cost leadership strategy will also allow the company to access the capital requirements to make investments in production process, efficient distribution centers (that the company already have), cut cost for labor, raw materials, manufacturing and facilities. The low cost of the products will act as a barrier for the rivals. The weaknesses or the disadvantages that the company may face are that if any of the rivals brings in the technological advancements, like better features in low price or some kind of differentiation, then the company may face some challenges. The imitation ability of the rival would be another disadvantage for the company (Cost Leadership Strategy 2010). Following the low cost strategy, our company would target less market as compared to rivals to have a balance between price and cost of the product. The biggest weakness that the company may have would be if the rivals also come up with the same strategy of low cost products. Our company, in this case, would loose not only shares but might loose the customer’s following as well. The opportunities that can be availed by the company are the expansion of the regional markets and plants. When the price will be low, the demand of the shoes will automatically be higher. Keeping this in view, we can increase the plant capacity after one or two years. After two three years, we can change our strategy by closely observing the actions and anticipations of rivals. We can build a stronger image by giving value to the social responsibilities. In this way, the customers will be more satisfied. But all the newer modifications in the strategy can be implemented after two or three years. The threats that the industry can encounter is related to the market share. If the rival companies also opted for the low cost leadership strategy then there is a possibility that our company’s market shares decreases (Ahmed, 2003). The other threats can be if any of the rivals decides to introduce new product with differential features and low cost. This type of step by any of the other industry can be a risk for our company and its strategical plan for next five years. To avoid these threats and challenges, our company needs to have a regular and close inspection of the steps that are even anticipated by the rivals. In this way, we can avoid any challenges or threats. The biggest challenge for our company is to provide unique services to the customer and to satisfy maximum number of customers. In achieving this target, we have to compete with the rivals and reflect our decided strategy with our actions and products. Apart from the strategies and SWOT analysis, the management is likely to use tactics in case of environmental uncertainty and market dynamism (Guth & MacMillan, 1986). This will help the company in increasing their control over the flow of events and will assist it in gaining its path. In this type of circumstances, tactics such as command and politics will be more suitable than the cultural or other tactics because they work faster and guarantee that the decisions are implemented given that no compromises are required (Lehner, 2004). 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