Problem Solving - Assignment Example

Problem Solving Name Institution Name Date Industry Life Cycle Model Analysis Industry analysis is a vitally important aspect of any firm with prospects of entering a given industry. The widely used marketing industry analysis is the product life cycle analysis, whereby there are four faces of product life cycle including introduction, growth, maturity and decline phases. The industry life cycle has five phases including introduction/pioneering phase, growth phase, mature growth/Shakeout phase, stabilization/maturity phase, and declining phase as shown in the figure below. Industry Life Cycle Phases The characteristics of these phases will be discussed independently: Introduction/Pioneering phase New and emerging and/or reformed industries are established basically from technological innovations, new customer needs, the changing relationships with regard to relative costs, as well as from other changes in social and economic aspects of the society. At this stage there are no rules governing and/or regulating the industry and thus the competitiveness of the industry is based on harmonizing the rules that should be established to necessitate growth for companies. The structural characteristics at this phase include: i. Technological and strategic uncertainty ii. New established firms entering the industry iii. High initial entry costs iv. Early adopters are the main customers v. There are business subsidies vi. It is extremely a short phase The main strategy adopted by firms at this stage is pioneering strategies that are aimed at helping firms to acquire a larger market share. First mover advantages at this phase are achieved through designing products, and using innovative business processes in entering new markets. The firms that enter the industry use the late entry strategy. Growth phase At this stage, innovations in technology allow the emergence of new firms; new technological evolution significantly reduces the cost of product while at the same time improving product quality. Accordingly, the demand of products increases while the industry grows with their entry together with market growth. Similarly, products are differentiated with regard to technology as well as product performance and reliability becomes a critical factor particularly for products that are complex during the introduction stage. The industry’s life cycle technology becomes widely known and thus mass production can be realized. The marketing strategy at this stage is market leader strategy; for instance, the firm that is recognized as a market leader is characterized with the largest market share which forces other firms to introduce new products, intensify promotion and/or change their prices Mature growth phase This phase is characterized with above average growth but the rate of is no longer accelerating like in the growth phase. The firms within the industry start experiencing stiff competition which results into erosion of profit margins. The main strategy that companies use at this phase is the challenger strategy; for instance, second placed firms relative to market share increase their rivalry to become market leaders. Maturity phase At this phase there is transition from modest growth experienced in the growth maturity phase to extremely slow or no growth. This phase is regarded as the most critical period for companies within the industry due to the fact there are fundamental changes within the company and new trends are created including: a. Low growth represents stiff competition b. Products are no longer new c. Increased consumer knowledge as well as technological maturity, d. The industry profitability is declining e. There is rise in global and international competition Accordingly, there are changes in the basic structure of the industry; some of the industry changes exhibited includes mobility barriers, intensity of competition, and there is also relative importance of specific barriers. The structural changes that compel companies to respond strategically. The three potential strategies used here include: qualitative differentiation, cost leadership, and focus strategy Declining phase A declining industry is characterized by prolonged decrease in sales, falling profit margins, production lines reduction, decreased investment in research and development and marketing, and few competitors. Companies use harvesting strategy at this stage; harvesting strategy is a strategic decision to cut down investment in the business with a singular objective of reducing costs and/or cash flow improvement. In some cases, come companies use market leadership strategy to try and achieve profits that are above average in the industry and to become one of the companies that remain in the industry. Crossing the Chasm This refers to the challenging marketing and strategic process that technology start-ups transform from selling the products and services innovators and early adopters to selling to early majority it is also referred to as pragmatism. Crossing the chasm entails dramatically shifting start-up mentality. It basically the chasm between the initial adopters of technology; the enthusiasts and visionaries of technology and the early/initial majority; the pragmatists. Crossing the chasm term was invented by Geoffery Moor in the book “Crossing the Chasm.” In this book, visionaries and pragmatists have different technology expectations and thus these differences are exhaustively explored to come up with successful crossing the chasm through choosing the target market, expansively understanding the whole concept of the product, product positioning, developing a marketing strategy, and more importantly, choosing the most effective and efficient distribution channel as well as pricing. Four Global Strategies that a Company can Adopt 1. International strategy: this involves the internationalizing company to create value through transferring competencies and products to foreign markets where indigenous competitors lack those competencies. This strategy is preferable if the company has a valuable competence that indigenous competitors in the global markets don’t have and also if it is likely to face weak pressure for local responsiveness and cost reduction. 2. Multidomestic Strategy: This is where the company develops a business model that allows the firm to achieve maximum local responsiveness. It is an appropriate strategy when there are high pressure for local responsiveness and low pressure for cost reductions. However, the company may become highly decentralized and thus losing its ability to transfer skills and products. 3. Global Strategy: This strategy is used particularly by a company that is focused on increasing profitability through reaping cost reductions that come from experience curve effects and location economies; this mainly achieved through pursuing a low cost strategy on a global scale. It is an appropriate strategy when there are strong pressure for cost reduction and demand for local responsiveness is minimal. 4. Transnational Strategy: this strategy is used by companies that are simultaneously seeking to lower costs, be locally responsive, and transfer competencies in a way that is consistent with global learning. The transnational strategy also seeks to combine global and multidomestic strategic aspects. This strategy is difficult to implement, the environmental trends compel multinational companies to consider global efficiencies and local responsiveness. Expansion into the foreign markets can be achieved through using the following options: a. Exporting: This strategy is where the company manufactures its products in its home country and then these products are sold abroad. There are two types of exporting: Indirect export; this happens when the firm does not involve itself in undertaking international activities but rather use intermediaries to take its products to foreign markets. The intermediaries in this case may include export houses, buying houses, and conforming houses. Direct exporting is where the company is fully involved in the distribution and selling of its own products abroad. b. Licensing/Franchising: Licensing is an agreement where the mother company (licensor) grants to intangible property to another company (licensee) for a specified period of time and in return the licensor gets loyalty fee from the licensee. Franchising is a special form of licensing in which the franchisor not only sells intangible property to the franchisee, but also the franchisee must agree to abide by the strict operational rules. c. Joint Venture: this strategy is where two or more firms come together and create a new identity where both the initiating firms have active roles in strategy formulation and making decisions. d. Foreign Direct Investment: this strategy involves the globalizing company setting up its operations by directly investing in the target country. The cost pressures These are the cost reduction pressures that an internationalizing company experience in customer value creation. For instance a firm must work to reduce the costs of value creation through mass production of standardized products at optimal location in order to realize location and experience curve economies. These pressures are likely to be intense in industries that produce products in conditions where there is difficulty in differentiating non-price factors and price is the sole competitive tool. This pressure is mainly common among companies that produce products that serve global needs. Cost pressure is increasingly becoming intensive in the global tire industry. The major tire buyers are automobile firms which are extremely powerful and hence face low switching costs and thus they play tire producing companies against each other in order to get lower prices. Specific cost pressures result from: i. When companies produce commodity products ii. Where differentiation on non-price factors is difficult and price is the main competitive weapon iii. Where competitors are based in low-cost locations iv. Where there is persistent excess capacity v. Where consumers are powerful and face low switching costs vi. The liberalization of the world trade investment environment Pressures for local responsiveness The pressure for local responsiveness results from: Differences in consumer taste and preferences: immense local responsiveness emerges particularly when the preferences and tastes between the mother county and host country differ significantly. In this regard, products together with marketing messages have to be customized to meet the tastes and preferences of local consumers Differences in manufacturing and traditional practices: differences in infrastructure and traditional practices between the home country and host country will also exert pressure for local responsiveness. For this case, products must be customized to the distinctive infrastructure as well as practices of the host nation; this may be achieved through delegating manufacturing and production activities to the host country. Differences in distribution channels: the company’s strategies for marketing should be those that respond to differences in distribution channels between countries. To effectively respond to this, the company will have to delegate the marketing functions to the host country. Host government demands: the political and economic demands by the government of the host country will ultimately necessitate local responsiveness. The cost pressures and pressures for local responsiveness in the Coca-Cola Company Cost pressures refers to the “uncompetitive cost structures” which normally make an organization to implement programs aimed at sizing overheads towards the forecasted level of business activities. On the other hand, pressures for the local responsiveness arise when the tastes and preferences of consumers significantly differ between the countries and when there are differences in both infrastructure and traditional practices. For instance, the Cost Pressures has made the Coca-Cola Company to denote its demand to minimize the unit costs while the pressures for the local responsiveness has made the company to tailor its strategies in order to respond towards the national level differences based on variable such as government policies, business practices or customers’ tastes and preferences. The extent presented by the cost pressures coupled by the extent of the pressures for the local responsiveness has made the Coca-Cola Company to actually adopt international strategies. It is a common fact that International businesses like for instance Coca-Cola Company normally face pressures for cost reductions due to the “competitive global market”. However, it is important to note that the above two factors are normally contradictory because the minimization of the unit costs may not actually be possible especially when both the products and services of a Company like Coca-Cola are supposed to be differentiated across the countries. The juxtaposition of the two factors normally results to different types of international strategies. The International Strategy The Coca Cola Company use global strategy in its international operations; for instance, the company is focused on increasing profitability through reaping cost reductions that come from experience curve effects and location economies; this mainly achieved through pursuing a low cost strategy on a global scale. This is achieved through franchising as a mode of expansion into the foreign markets. Coca Cola has successfully used this strategy to grow and expand globally. The company grants bottlers the license to sell its products; the concentrate and syrup Read More