Strategics Management: Market Penetration, Market Development, and Product Development - Assignment Example

Q a) When performing an external audit of an organization, SWOT analysis is an authentic tool when it comes to analyzing its strategic position in the competitive environment. SWOT, an abbreviation for Strength, Weaknesses, Opportunities and Threats, evaluates the standing of the company in comparison with its market competitors by identifying facts and circumstances which can either boost the current status of the organization or have the potential to adversely affect it. Kellogg is considered to be one of the leading multinational when it comes to ready-to-eat cereals and convenience food. Over the years the company has developed by leaps and bounds and has now holds a significant portion of the total market share, with its revenue and customer base still portraying an inclining trend. The following table presents SWOT analysis of Kellogg in the competitive environment Considering the Strength, Kellogg has its presence in 17 countries and its product is being marketed across the globe. Since the company has established esteemed international operations, it can enjoy the cost and tax incentives of the other countries. In addition, the company also displays distinguished financial credibility and its shares are listed on one of the biggest stock exchanges of the world. A sound financial outlook always attracts investors to invest in the operations of an organization. Kellogg can easily raise capital by issuing new shares in the stock market and it can certainly be expected that the issue would be completely subscribed. Another source through which the company can raise finance for the expansion of its operation is through debt. Banks and financial institutions are likely to sanctions credit facilities to companies having credible financial outlook. The only weakness that is apparent from the ongoing operations of the company is that Kellogg has not updated its product line with the passage of time. Its production line still contains items that were originally developed over 50 years ago. Regarding the threats, the company faces fierce competition from several firms in the food industry who possess the volume and potential to outcast the company by introducing more sophisticated products and ingenious production strategies. Apart from that, the company also faces threats from store brand products which are cheaper to sell for the retailers. In addition to the discussed, it appears that the company has placed too much reliance on the discount merchandisers. These giant stores have the potential of exerting pressure on the company’s margin and forcing them to sale their products on lower prices. In the recent past, the company has started incurring expenditure in making its food items more nutritious and healthy. Kellogg is one of the first one to use the oil to lower levels of trans fat and unsaturated fats in its products. This venture can prove to be full of opportunities for the company. The company earns 66% of its revenue from the North America, and since the recent demographic studies suggests that people are becoming more diet conscious due to the prevailing obesity related disease, Kellogg’s investment in the modified and nutrition enriched food products is likely to reaps positive results. (b) Porter’s five forces model is an effective tool in exploring the competitive forces of the environment in which the organization operates. It allows the business to critically analyze its current business strategy and formulate one which can allow it to achieve a competitive position in the market. The first competitive force according to the model is the entry of new competitors into the market. New entrants might be able to capture some of the market share of Kellogg and will adversely affect the profitability. With the implementation of sophisticated data gathering software, Kellogg can repel this threat to its business. The sales department can maintain a database of the orders which can significantly assist in identifying which product is most popular among the customers. This information can be utilized in building different promotional activities for capturing market share and building brand loyalty. Threat of substitutes is another competitive force in the Porter’s model. For Kellogg threat of substitutes in the market could mean food items such as easy bake pancakes, sausages, and energy drinks etc. Food industry in considered to be the most lucrative of where margin is on the higher side as compared to the others. The companies in the food industry are always in the search for marketing the next food item which becomes the next essential convenience food items for the customers to have. Bargaining power of suppliers is another factor which the Kellogg must consider in order to operate effectively and profitably in the market. The suppliers of Kellogg and of its competitive companies are more or less the same. In order to cope with the threat of bargaining power of supplier, the purchasing unit of Kellogg can maintain a comprehensive database of the suppliers in the industry and can short list the most suitable. Computer Aided Designs (CAD) can be used to design components with the suppliers in order for the transaction to be done more continently. Another important aspect in this regard is the switching cost. In order to tackle the bargaining power of the supplier, suppliers can be integrated with the firm’s administrative operations by a system of Electronic Data Interchange (EDI). Apart from the technical modifications, the company can also perform horizontal integration where it becomes it own supplier, thus removing the threat completely. It is of prime importance to curtail the bargaining power of the customer for acquiring competitive advantage. This also includes the supply chain (wholesalers, discount merchandisers, retailers and agent) through which the products of the companies are being marketed. Targeting the customers through product differentiation will prompt the customers from switching to other suppliers. Since breakfast food is a flourishing industry thus rivalry from the competitors is another factor to consider. Kellogg can establish a comprehensive network with its Supply Chain and with its customer through developing brand loyalty. Q No. 2 (a) Merger can be defined as the amalgamation of two entities with and into one sole entity. Mergers usually take place between companies of the same sort and nature which are indulged in the same business in the same industry. It is generally observed that in merger transaction the acquiring entity possess a better and sound financial outlook and as compared to the entity being acquired, but in certain circumstances, which is commonly referred to as the reverse acquisition, a smaller entity takes over the bigger corporation. Mergers can be hostile and can also take with the consent of the shareholders and stakeholder of the two corporations involved, which is termed as a friendly merger. Merger are usually perused by the entities who wants to grow rapidly at an impressive pace and does not have the factors of production and economies of scale to organically grow. Kellogg enjoys substantial customer base in the food industry particularly dedicated to breakfast cereal and convenience foods. As apparent from the case study, the company has been facing some serious competition in the market from particularly Quaker oats, a division of Pepsi Corporation which has been given Kellogg a serious run for their money. In order to eradicate competition and significantly increase its market share, Kellogg should acquire Quaker oats from Pepsi Corp. The positive impact of such an acquisition would be that it is likely to increase the market share of the company and is likely to increase its profitability and profit growth. However, considering the negative impacts of such strategic decisions, the merger is likely to cast an adverse impact on the social reputation of the company as generally customer considers merger as a hostile event and disregard the strategic intention behind it. In addition, the acquisition may also require substantial amount of funding. Since significant amount of funds in a short period of time can only be generated through acquiring it from some bank or financial institution, the company debt to equity ratio will take a downward plunge, hence increasing the financial risk. The shareholder generally avoids investing in companies which portrays high financial risk. In addition, the additional revenue from the acquisition of Quaker division would be reduced to a certain extent by the additional finance charge that the company would pay on the acquired financing. Overall, Quaker oat would be a good strategic fit for Kellogg as it would enhance the production line of the company. (b) As much as it is of prime importance to execute the transaction of the merger accurately and without any hurdles, the real significance lies with the post-merger management of the combined entity. The primary strategy of the Kellogg, after acquiring the Quaker oats, would be to identify the redundant divisions. In this particular scenario, redundant divisions would be selling and marketing division. Kellogg already has its own selling and administration department so it does not need that of Quaker oats in order to market it. In addition, the management must also identify other redundant departments such as production and procurement and tries to adjust the operational activities of Quaker oats into its existing business architecture. Other key issue that the management of Kellogg should consider is how to relate the management philosophy with the newly acquired brand and the proper marketing tactics through which it can be communicated to the well established customers of Quaker oats. It has generally been observed that usually after acquiring a certain brand, the company rebrands it and give it a new name and presence in the market. This tactic usually backfires and results in the lost of customer base which the brand had developed over the period of time. Another aspect which the management of Kellogg should consider pertains to the Human Resource management. In order to cut the cost of production and avoid the situation of having unutilized labor, the company needs to lay off a certain amount of the employees by offering them decent compensation packages. Moreover, it is also the responsibility of the management of Kellogg to cater to the various needs of the acquired Human Resource such as career development, on job training and adequate compensation. A merger and acquisition transaction is only successful if the shareholders and stakeholders of both the companies are satisfied about the outcome. In doing so the management of the acquirer company should articulate the vision and business benefit of the merger and acquisition transaction and communicate it to the shareholders and stakeholder through its annual reports or other official pronouncements. Developing a dedicated team, assigned to resolving integration problem is likely to solve any hurdles arising in the port merger environment. Shareholder and stakeholder are mostly interested in the safety of their investment and about earning an adequate return on their investment. The management of Kellogg should prepare projection and forecast about the synergy effect that is likely to accrue to the merged entity. Synergy can be defined as the increase in the operational benefits resulting from the combined capital, operational capabilities and human resources of the two entities. Q.No 5 Management must identify the way in which it will compete with other organization and what it perceives as the basis of its competitive advantage. Various theories of strategies argue that the strategy adopted by a firm is essentially a method for creating and sustaining a profitable position in a particular market environment. Profit depends first on the nature of its strategy and second on the inherent profitability of the industry in which it operates. Intensive strategies can be defined as the set of rigorous actions which an organization takes in order to uplift it financial outlook in contrast with its competitors. Ansoff’s Product / Market mix suggests that the growth strategy decision rests in whether to use new or existing products or new or existing markets. This produces four possible options Existing products New Products Existing markets Market penetration Product development New markets Market development Diversification Market Penetration Market penetration strategy involves selling more of the same product in the existing market. This can be done through designing ingenious marketing campaigns. The market penetration strategy is useful when the market is not saturated with the sort of the product the company is currently offering to the customer, which particularly the case with telecom industry where everyday latest products and gadgets are coming into market. Market penetration strategy is also fruitful when the usage of the customer can be increased through implementing several marketing tactics. It has generally been observed that market penetration strategy also works in favor of an organization when the total industry presents a potential and lucrative outlook but the most of the competitors are losing its market share due to inefficient. In addition, market penetration strategy also proves to be fruitful in cases where economies of scale provide competitive edge. Market penetration strategy can be implemented through distribution and promotion of products, increasing sales force and incurring additional expenditure pertaining on advertising and publicity. Examples of market penetration strategy would be Pizza hut offering discounts to the customer at night to increase the sales and each customer purchase value and mobile service providers offering low price packages to increase the talk time of the customers. Market Development Market development strategy is adopted by the management when it wants to market its existing products in a new market. Market development strategy is suitable when new channels of distributions are available in the unexplored market which the organization can utilized in order to enhance its operations in other territories. In addition is has generally observed that the market development strategy is usually practiced by giant multinationals who presents a sound financial outlook and substantial customer base. These companies are quite successful at what they do and thus by entering other unexplored markets, they want to broaden their horizon of success. In certain cases, the company’s might pursue market development strategy based on the fact that the company has excess production capacity and wants to capitalize on it by exploring untapped market. There are several examples of market development which can be identified in today’s global economy. The discount merchandiser giants Wal-mart have opened its outlets in several parts of the world which were previously unexplored. They used their same operational philosophy, offering decent quality and cheap price, and implemented it a totally new markets of India and Japan. Other examples of companies which have pursued market development strategy are Toyota, Starbucks, Ralph Lauren and Dunk in donuts. Product Development Product development strategy can be defined as the one where a company tried increasing its sales through updating or modifying its products and services. Product development are usually practiced by the companies when their products are in the maturity phase of the product life cycle (PLC) and by altering and updating certain key aspects of the products and attracting already satisfied customers. It is generally observed that the product development strategy is usually practiced by the companies in the technology industry where the demands and taste of the customer keeps on changing at a rapid pace. By offering a fresh and new gadget to the customers, a company tries to maintain its customer base and thus competitive advantage. Product development is also witnessed in the technology industry due to the fact that it is subject to rapid growth with its revenue increasing at an impressive pace with the passage of time. In addition, this strategy is also adopted by companies having significant investment and capabilities in the area of research and development. An example of product development strategy would be a television and home appliances manufacturing company launches a cell phone in an existing market. The market for cell phones is already quite established and lucrative and the home appliances company is likely to have sufficient investment in research and development to venture into a new business dimension. Q No. 7 Contingency planning can be defined as management policies and procedures designed to maintain or restore business operations, which primarily includes computer operations and relocate them to an alternate location in case of any disaster. What constitutes a disaster is subjective and depends upon the ideology and general business operations of a company. These disaster or threats can be natural, technical or intentional. The seven steps of contingency planning covers all the aspects of a project life cycle and assists the stakeholders in planning, development and maintenance of the contingency planning. First step is the identification of the relevant regulatory requirement related to the development of contingency planning. In this step the management needs to develop a formal contingency planning policy statement which guides the stakeholders about the necessary guidelines. The management needs to get this contingency plan approved from the higher authorities of the organization The next step is to identify the critical business assets of the company. In this step the management conducts a business impact analysis and prioritize all the significant business processes and also evaluates the impact of disasters on such processes. The third step which the management should adopt is the identification and implementation of preventive controls in order to reduce the effects of disruptions and the contingency cost. The fourth step is the development of the recovery strategy which ensures that critical business processes and applications are recovered as quickly as possible with a predefined time frame. This step also strives to integrate the recover application and processes in to the nee system architecture The fifth step in contingency planning is the drafting of a detailed contingency plan which contains all the steps that is required to be performed in order to recover from disruptions. After development of a detailed plan, the sixth step is testing of the plan and training of the team in order to acquaint them with its requirements and guidance. In this step gap are also identified in the plans and it is considered to be prudent if prompt actions are taken in these gaps. Last but not the least, the seventh step is very critical according to which the plan needs to updated after a certain interval of time and it should reflect changes in management estimates about critical business processes and threats. Resources [1] Michael E. Whitman, Herbert J. Mattord “Principles of information security” p.523 fourth edition [2] Johan Halasz, Porter’s five forces model, article, 10th November 2010, Read More