Key Factor in the Blue Ocean Strategy - Term Paper Example

Boss Blue Ocean Strategy Simulation xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Frank, Glen, Tim and Kent xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Lecturer xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Table of Contents Table of Contents 1 1.0 Red round 1 1.1 Critical appraisal 1 1.2 Peer group discussion 3 1.3 Self evaluation 5 2.0 Blue round one 5 2.1 Critical appraisal 5 2.2 Peer group discussion 7 2.3 Self evaluation 8 3.0 Blue round 2 9 3.1 Critical appraisal 9 3.3 Self evaluation 14 4.0 Blue round 3 15 4.1 Critical appraisal 15 4.2 Peer group discussion 17 4.3 Self evaluation 18 5.0 Conclusions 19 6.0 References 20 1.0 Red round 1.1 Critical appraisal During the red round, the team concentrated its energies into ensuring that the Red box brand of Blue buddies is able to compete and possibly beat other brands in the market. This would be achieved through market segmentation, price reduction and intensive marketing in the targeted market. The group identified that the segment that it would position the Red box strategically was the market composed of 6-21 year olds as it offers the biggest market for the overall sale of video games both in terms of the unit sales and the market value. This group is also highly price sensitive which means that a reduction in price is likely to capture an increased customer base in this category. This is as shown in figure I below. Figure 1 k36+ Year Olds. Not price sensitive, Gaming Experience, Audio & Graphics sophistication, online support. 22-35 Year Olds. Price sensitive, Gaming Experience, Controller sophistication, Multimedia add-ons, Simple fun online gaming. 6-21 Year Olds. Highly price sensitive, Controller sophistication, Simple fun online gaming. One assumption that the group made was that our strategy of reducing the prices of Red box would not amount to our competitors matching this reduced prices hence cancelling out the competitive advantage that we would gain from the reduced prices. Intensive marketing of the Red box would also be carried out to inform the target market of the availability of the product as well as inform them of the reduced prices which is aimed at consolidating the existing market as well as attracting new customers. The group was initially impressed by this strategy as it resulted to growth in revenues and market share in year 42 despite the decrease in earnings before interest and tax (EBIT) and share price index. However, a decline in the market share and revenues compounded by the already declining EBIT and share price index meant that the strategy was not sustainable and as such it needed a review. 1.2 Peer group discussion The group analyzed the four performance indictors; market share, EBIT, share price index and the company’s revenue to establish the reason for their decline. One of the reasons that came up during the discussion was that Blue buddies were not able to sell enough quantities of the Red box to cancel out loss of revenue as a result of decline in the selling prices. The result of this is that as shown in the diagram 1 below, the Red box ended up commanding only a market share of 18.32% and hence trailing all other brands. Diagram 1 It was also important to review the performance of the Red box among the 6-22 years age group which was the segment that we were targeting with the above strategies. It however imerged that the company was only able to attaine a market share of 22.7% in this category of customers hence a need to evaluate the marketing startegy. With this reality unfolding, there emerged a heated discussion about our choice of tageting 6-21 years segment which I was the main advocator while the rest of the group members had proposed we target the 22-35 years segment. The proponents of the 22-35 years segment agued that it was not enough to target the 6-21 years segment primarily basing our strategy on price differentiation as this could be easily matched by the competitors preventing the company from gaining a competitive advantage and hence gaining in market share. 1.3 Self evaluation Previously I had never had an interest in playing video games but this game has played a key part in making me like the video games. What has been much interseting to me is the practical application of this game in real life situations. I have encountered simulation in course of my studies presented inform of mathematical models but this form of simulation makes projects more easy to handle. I have been able to refine my teamwork skills through participation in the video game as teamwork was very key to the overall success of the group. In course of carrying out our task, each group member had to raise their point of view before the rest of the team members and this was a great for confidence building. I was also able to appreciate the role of management in making important decisions as it became clear to me of how important it is for the decision maker to look at all posible factors affecting a product when designing the appropriate market mix. A simplified approach like reducing the price of a product will not in many cases result into meaningful gains in realation to market share or profitability but rather it may even make the company operate at losses (Traverso 2008). 2.0 Blue round one 2.1 Critical appraisal Our result from the red round are worrying, they are not impressive at all. We are far below our targets and this calls for an affirmative action to correct this deviation. We need to develop working strategies to revive our marketing otherwise we will become obsolete operationally. It is in this having introduced stage that we have developed a new product to tap in more customers and provide competition to the dominant yellow banana. This product targets the non customer market that is yet to be exploited by any company. We have learnt that demand is unutilized at the last path while the first and second path provided were both good for our existing product. It is not yet very clear which stage at this level to follow making it hard for us to specialize and diversify at the same time. Though some markets like the path 3 shows high demand they are not profitable as such because of the unhealthy competition that is exercised by the companies. The marketing is very high and the product unit price is very low to support the production and marketing. This makes it economically irrelevant to venture in to that market. We have therefore to concentrate to market path 1 and 5. This hard time for the third consecutive year is directly affecting our revenues and consequently the earnings before interest and tax. Our revenues have been decreasing considerably (Rahmstorf 2002). To counter this we have come up with several measures. First we restructure the marketing program and expenditure to reach more potential customers instead of abrupt marketing, we agreed that the marketing department to be handled by Kent who posses very good marketing skills. She has been assigned the duty of carrying out the market feasibility study and to prepare a program there after that reflects the whole issues in the market. Second the new product to have a unique design totally different from the competitor’s brands. The design to be very appealing to the customers, this is to be done in the packaging of the product. Thirdly parents have been showing interest in this game, to accommodate their interest we decided to do away with the multimedia add-ons in some segments, they were also finding this to be an obstacle in purchasing our product. We have not eliminated the feature completely but we have removed it from some products. We shall therefore be presenting one product with different features to cater for all customer needs. This is part of customization which we are about to fully integrate in all our products. Our last but not the least strategy in this round is to review our production process and costs. We have realized that high production costs are consuming the profit margin pushing the prices up. This in turn makes fewer sales. We have decided to refine our production process so as it can be efficient and at the same time produce high quality products. We have deliberated to purchase a machine which is more efficient. This may be expensive in the short term but it will save a lot in the long run. Our market share of 25% is not enough to sustain us in the market for long. By implementing this we believe that we are going to provide a fierce battle for market share to yellow bananas which have dominated the market for quite some time. The new product we believe will conjure to our benefit. 2.2 Peer group discussion Introduction of a new product in the market is an involving decision that requires both tactical and strategic decisions to be made by any company (Bradfield 2007). Such decisions are more often than not made by a team rather than a one man decision so as to attain maximum benefit to the company and avoid a poor performance in the market. It is with this understanding that we embarked on this daunting task with the aim of creating new demand by introducing the new product and at the same time satisfying this demand. I was of the opinion that it was important to ensure that the new product does not come at high costs to the company by way of increased production costs as well as high marketing expenses. However, majority of the team members were of the opinion that it was important to carry out intensive marketing so as to inform the potential customers about the presence of the product in the market, its superiority to other brands, and its price. We therefore came to a conclusion that in the first year of introducing the product, it would not be prudent to be over cost conscious as it would not make financial sense to introduce the product and then fail in ensuring that customers are aware of the product. Even though the new product was to focus on harnessing the benefits of the untapped market, it is always important when introducing a new product to understand the competitor’s strategies so as to realize the full benefits from the product. The team was in agreement that we need to very innovative to make it difficult for the competitors to introduce a similar product hence offer immediate competition before even the company recoups its cost invested in introduction of the product 2.3 Self evaluation This round involved more of exploring new markets, I must acknowledge that quality product does not mean success when introducing it to a new market; this must be accompanied by extensive marketing targeting the right intended market. Without this extensive marketing sales would be had to come by. I am impressed by the result of this round although we made some major mistakes. I opposed the foot print on the ground that it is not justifiable economically. I believe that anything to be implemented or done will depend on the financial soundness of the company otherwise the management would be planning their down fall. This makes me feel let down by my group members as they carried the day. This has enlightened me to stand firm no matter how many object my point. Going solo does mean I am wrong. As I learn in class to observe integrity and competence in my work I have done it here. This helps me have a deeper understanding of the issues that compromise business ethics and morals. With the new product that we expect to launch in the market, am looking forward to seeing the performance in sales as I have been heavily involved in reducing unit costs and efficiency. I will commit myself to the prosperity of this new product. This is very important as this is the stage where we realize ourselves, the areas where each and every member is most effective in working. This specialization accompanied by collective decision making will propel me to greater heights in terms of experience. 3.0 Blue round 2 3.1 Critical appraisal We conducted two year runs in this blue round two, the years 42 and 43. To prevent our shares prices from falling down we effected many changes from blue round one stage. We knew this would prevent our shares price index from falling almost down to 600 as was the case with other groups as we witnessed. We also made sure that our product characteristics followed the right path. With critical decisions required in this blue round two we decided to have a crisis meeting within ourselves and our instructor to clarify some issues of how we will perform in this round and round three as well. Our tutor examined our results and indicated to us the areas that we needed to change, this was including our product features and also fix our production plan, without hesitation we effected the changes as advised by our tutor, though it took us the longest of hours in doing this changes. This was not in vain as after the changes we could see improved results, we decided to lower our product unit cost by 17%, though it remained highest as compared to previous period, and our market share expanded to 22%. We achieved this reduction after intensive negotiations with our suppliers based on a production plan of 2,650 thousand units, this consequently reduced the cost of goods sold by an impressive $64,227 thousand. It is not only increased market share and reducing the unit cost, we also integrated all the departments in to the new systems progressively, we reduced the G& A costs by 2%, the development costs by 2% and the cost of goods by the same margin of 2%. This represented a lot of efficiency as observed by our tutor. We further added more changes by lowering the number of players and audio as well as modifying our gaming console by adding ease of playing. The lowering of product cost by 17% came from reducing the graphic sophistications and increasing the game control ability. This was highly recommendable as from the observers. These changes increased our market share significantly. Then relocation of our manufacturing to a low labour country, from a financial point of view, looks to be very attractive. We’ve been able to mobilize the necessary resources and the public relations. We’ve also dealt decisively with the political insurgents rising against our current factories location. Though production cost has only decreased by only one percent, we expect higher returns in the periods to come (Trombetta 2008). The production plan was also difficult to figure out because of the unpredictability of the units sold. We were deeply disappointed to be penalized $24,253k for the adjustments that we made in production. The experience we learned from this is that we under estimated the units target to be sold, thus we were inaccurate by 972 thousand units for year 43. We tried to match production of units and selling of the same units. This was under production that we didn’t expect. We concluded that this under production was because of our decision to allocate more marketing resources to the marketing department and failure to lower our selling price despite the lowering the unit cost of the product. This would have boosted our sales if we did these two important things. 3.2 group discussion Though we started this round lacking confidence, our team worked well together, we were able to factor in everybody’s thoughts and argument; we knew that the results of this round would be influential. This enabled us to come up with this constructive work. As the group leader I proposed a consideration to be put in the preparation of this work. This proposal was discussed effectively by all of the members after which we decided that we should include it in the final report. We however took some unnecessary time in discussing some issues which did not benefit the group. The underproduction as indicated above was a result of a heated discussion on whether we should reduce the unit selling price as a result of decreasing the unit cost. Some members argued that reducing unit selling price will indicate to the consumers that our product is of inferior quality and that reducing it would reduce the profit margin considerably. Others argued that reducing it would attract new customers and hence increase sales. The later carried the day and we did not reduce the selling price. Result for that was reduction in selling pattern hence not selling all the units produced. This represented a bit of inefficiency in this area. Despite some challenges we experienced we pulled ourselves together and our hard work paid at the end. The efforts everybody in this group made was evidenced further by the fact that our group emerged with the best profit margin in the whole class, this will go deep down to the extra efforts put by X for ensuring that the products maintained its characteristics throughout the market all the time. The absence of Z in group meetings as well as her contributions did not deter us from achieving what we were craving for; topping the whole class in terms of results. 3.3 Self evaluation This round has got its fare share of predicaments which curtailed our performance. I experienced some challenges that I did not experience on the round previous rounds. This, albeit with valuable experience, represented the slightest of satisfaction as far as this game is concerned. Some members become exhausted because of repetitive work; brainstorming proved became a load rather than an advantage making us to lag behind in completing the game. At some point I felt like we made some questionable decisions because of irritation and tiresome but at the end I managed to persuade my members that we shall not only prepare good work but also improve our reasoning and decision making capability. Having been allocated to prepare the marketing budget, I got a little confused in coming up with marketing budget that suits the production plan though this was simplified by the contributions of the other group members. This again gave me an insight for the next round which I will look forward to with courage. The biggest lesson I learned in this blue round two is that working together as a group makes work easier, decisions made are very binding and that the whole game playing leads to psychological boost. I have realized that every decision made however minute it is, is very important in achieving business goals and that this can positively shape the perception and reputation of a company. 4.0 Blue round 3 4.1 Critical appraisal As the results flow and the realization that the result of the previous round determines the performance of the next round, we knew that this was a valuable chance to make our blue box successful. We successfully managed to increase our market share and reduce the unit price in round two; it is this effort we needed to produce in this round to achieve our target (Sheehan 2009). Our competitors launched new products in the market to counter our successful product; the red box. The similar characteristics of those products to ours means that we have to pull away and differentiate our product to maintain our market share while at the same time catching up with high flying yellow bananas and in the process anticipate new markets (Brandfield 2007). This will position us in the market as leading brand and quality as well. We have successfully initiated the project of acquisition to access the research and development technology, though as anticipated before will take time for the new technology to be used in the current gaming modules platforms. The resistance emanating from the existing research and development employees will be tackled impartially. Everybody else is motivated to have the new acquisition though its effects have not yet been measured. We took porters leadership strategy and this time decreased our unit prices slightly the objective being to maintain our market advantage. As (Xiu 2010) suggest we also adjusted our production plan slightly to avoid the previous problem of underproduction that we experienced in the second round. We continued to acquire new market share as compared to the previous rounds. We all discussed and unanimously agreed to bring in two aspects of maintaining the same production costs averagely as product offering is as important as the production costs. As we have competitive price in the market there is no need of adjusting the price down, as so to maintain the profit margin. 4.2 Peer group discussion We intended to maximize our marketing budget right from the beginning; we had an issue with deciding on the right project as we wanted to scale the overall budget for the marketing budget, we increased the marketing expenditure by $7,044 from $71,070 to $78,114. At some point we thought of introducing fan in the game to boast sales. There were objections as some thought that we should concentrate on delivering quality service to our customers. Focus on service would not attract the game players as one with fun would. The members showed some cold and the idea were not adopted. One member Tim decided not to cooperate with us in this stage; he claimed that we were too reliant on him in project evaluation. This was a misunderstanding from him as each and every member had his duty as this round is concerned. Though we decided to take the project and continue with it. He was later convinced that roles were distributed equally and according to each person’s understanding. On a positive note we brought forward and discussed some competing factors that we could incorporate, Frank suggested that we create a gaming café; this would attract new customers as he argued. Though some members had difficulties in configuring this great idea, we all agreed to give it a try and see what the result would be. We hired an experienced team to implement this idea. We were surprised to see the impressive results of the return from the gaming café. Our budget was tight, and so we decided to build an attractive new aspect for the untapped customers. 4.3 Self evaluation I felt a little at ease as compared from the previous round (round 2). There was no much pressure in this round. This was as a result of confidence and well implemented round two. As this was the final round of boss simulation, I evaluated myself and found that my performance did not meet my expectations as we did not make to have a kick. I was pretty worried of whether we would make one in the final round; though I was thoughtful this depended with the whole group agreeing and I could not make it on my own. I was grad though, that the opinion on efficient service delivery was incorporated in the game. I found myself on the opposite side of the argument on most matters discussed but this did not pull me back in asserting my expertise and know how. This has taught me that no matter how many turn against me, I can always have the day provided I have weighty opinion. I have also learn from the whole game experience that matters which are highly subjective should not be hurriedly be implemented before looking at the reasons for and against the decision. This would avoid doing things pushed up by members who want personal gains and interest rather than the interest of the whole group. I have learnt how business operates, what is involved in the day to day running of a business and the critical decisions that the persons in the management position have to make in order to propel the company in the right decision. Dedication is another useful matter that I have learnt from this game in whole, unless am dedicated in what I do I can’t succeed. I must say that I am so proud of my team especially in the final round; they are dedicated and made the whole exercise so enjoyable and an exciting challenge. Lastly I have learned that technically it is almost impossible to implement competing factors and expect different results at the same time. 5.0 Conclusions Our group was able to achieve an SPI of 1706 making the second highest market share. We have expressed our gratitude at the way we have conducted the game and the results that we have achieved, some way beyond what our competitors could imagine. Being my first time to play this game, I think that STRATX and BOSS need to express and bring out the instructions clearly, they should explain the rules of the game in more defined and direct way to avoid confusion among the players. The team did not issue guidelines/hints for production. Many game participants faced unexplained obstacles which I think should have been addressed. However in spite of this few errors the whole game is great, it brings out the other part of a person, the critical thinking which is so important in life. I can be able now to explain any company performance using the revenue, the market share, the earnings before interest and tax among other financial performance indicators of a business. My passion for business studies have been boosted by near real life game, this is so important, I understand the process of starting a business, running it, making decisions and keeping afloat and ahead of the competitors in the market. We learn from mistakes and I have learnt from them when I was playing the game equipping me with real life experience. I rate blue ocean strategies simulation at 75%. They provide good running experience, however they should focus to shorten the game period, offer more assistance to the participants and make it more interesting. 6.0 References Brandfield, D & Gao, X 2007, A methodology to facilitate knowledge sharing in the new product development process, international journal of production research, Vol.45, Is.7, Pp. 1489-1504 Trombetta, B 2008 Design Your Future Blue Ocean Strategy Brand, 19(3), p.7-12 Rahmstorf, S 2002 Ocean circulation and climate during the past 120,000 years Nature, 419(6903), p.207-214 Traverso, J 2008 Innovation, key factor in the Blue Ocean strategy Leadership Magazine for Managers, 5(14), p5 Available at: http://libezproxy.open.ac.uk/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=34100134&site=ehost-live&scope=site. Sheehan, N & Vaidyanathan, G 2009 using a value creation compasses to discover “Blue Oceans. Strategy Leadership, 37(2), p.13-20 Available at: http://www.emeraldinsight.com/10.1108/10878570910941172. Lv, R & Xiu, J 2010 Study on the contradiction in red ocean strategy based on TRIZ Computer Design and Applications ICCDA 2010 International Conference on, 1(Iccda), p.V1-83-V1-86. Kanagal, N 2009 Role of relationship marketing in competitive marketing strategy, journal of management and marketing research, Vol.2, Is.1, Pp 1-17. Dibb, S & Simkin, L 1996 the market segmentation workbook target market for marketing managers, Cengage learning Emea. http://ieeexplore.ieee.org/lpdocs/epic03/wrapper.htm?arnumber=5541081. Read More