Strategic Marketing of Skoda Company - Research Paper Example

PORTERS' FIVE FORCCES Michael Porter's Five forces model is a very useful tool for developing strategies for companies. Here, in case of Skoda cars this model can be used to identify its strengths and relative competitive positions in order to develop strategy to stay ahead of competitors. The five forces mentioned by Porter are used to analyze the position of Skoda cars and the results are shown below: Source: Doherty, J and et al The five forces model is combined with the strategic management tool, SWOT analysis to develop a competitive strategy based on differentiation. The analysis of the competitive environment of Skoda shows that, there is a very high threat of new entrants. The major competitors in the Super mini segment in the UK car industry in recent times are Corsa, Fiesta, Clio, 206 and Punto. Among the main competitors the inter-firm rivalry is very high. High competition gives rise to stiff rivalry. In this situation if we analyze the strengths of Skoda cars, we can know that the company has a very strong brand image. The brand image is created through its strong reliability and quality and good performance statistics. The strong brand image has resulted in increasing market share and profits. The following graph shows the growth in the market share of Skoda cars: Source: Doherty, J and et al The strong market position has resulted in a very low threat of substitutes. The image of Skoda cars has taken a drastic change, from a very dull model to a sexy car. Hence, this has made the bargaining power of the consumers very low. The strong product features combined with the effective advertising strategy has made the consumers turn their focus away from the price tag. The distribution network of the company is very strong because of strategic alliances and partnerships with dealers and suppliers. The strong market position has brought down the bargaining power of the suppliers and the company has benefitted by consolidating its supply chain which is very essential in maintaining the quality of the product. It is obvious that in any given business environment, the customer is the primary force. The preferences of the customer decide the position of the company in the industry. If the customer likes a product/ service, then the company starts to grow and its relative strengths also tend to increase and the company strives to serve the customer better and this becomes a cycle. In case of Skoda cars, the same argument holds good. The quality of the car speaks high about the company which is obvious in its financial results and this has increased its bargaining power of the company with its suppliers. Also the preference of the consumers towards the car has increased which has further increased its bargaining power with the consumers. But the point that has to be taken into consideration is that, there is a very high level of rivalry among the existing firms and also there is a high threat of new competition. The five forces suggested by Porter has to be combined with SWOT analysis, to adopt differentiation as its main strategy to stay ahead of competitors. The differentiation now planned by the company is regarding the research and development. Skoda has about 1300 engineers dedicated to develop new trendy designs taking into consideration the nature of Asian and Eastern Europe. In future the company has to focus on its strength of design and performance to have competitive advantage. Also it has to analyze the strengths and weaknesses of its competitors and has to combine with its own strengths to develop a differentiation strategy. COMPANY'S RESOURCES The analysis of the current resources of the company to develop a sustainable competitive strategy is very essential. The following are some of the resources that the company has which can be used to develop a strategy to maintain a sustainable competitive advantage: The company has a very long history of developing fine designs. Its strategy is to become the IKEA of marketing and it wants to build on its post cold war reputation in building inexpensive and functional cars.(Jonathan, 2005). From a car manufacturer from the communist regime, the company has become one of the fastest growing automobile brand. The long reputation and past experience of the company can be used to make decisions. The long standing intellectual resource of the company can make it easy to take lessons from its past experiences rather looking around for ideas for development. Another resource the company can build on is its market position within the Czech republic and east European region. In the Czech republic the company has 48% market share and it is one of the largest car exporter in the East European region. This market advantage can be used to create synergy in the position of the company in the international market. Also its production facilities and its network of suppliers is a major resource which can be used by the company. the hometown of Skoda resembles a European "Motor city" resembling Detroit and Toyota City which has clusters of manufacturers and suppliers. This facilitates the company to maintain its quality to the customer and to introduce new designs and technology. The management style of the company is adopted from its parent company Volkswagen. The practices of performance-oriented management, cooperative labor relations, utilitarian marketing are all followed as same. These management practices can be very valuable to create strategies. The company has to analyze its internal and external environment to exploit its resources in hand. The internal environment of the company shows that the company has the strengths that are listed above and it has to create strategy to build upon these strengths. The company hs to create strategy for success based on these strengths. BLUE OCEAN AND RED OCEAN STRATEGY When we are discussing about sustainable growth for organizations, it is essential that managers understand the meaning of the Red Ocean and blue ocean strategies. First we have to understand the differences in the perceptions of organizations which adopt the two strategies. The following are the differences between the Red Ocean and blue ocean strategy: 1. Red ocean represents the organizations that already exist. In red oceans the industry boundaries are defined and accepted and the competitive rules are well understood. But is the blue ocean, It denotes all the industries not in existence today - the unknown market space, untainted by competition. 2. The companies try to outperform their rivals in order to grab a greater share of existing demand. As the competition increases, more and more industries try to grab a slice of the existing demand; prospects for profits and growth are reduced. This increasing completion turns the water bloody. But the latter, blue ocean the demand is created rather than fought over. 3. The strategy in a red ocean is to beat the competition, but in a blue ocean, the competition becomes irrelevant. The companies in a red ocean, exploit existing demand, but in a blue ocean the companies create and capture new demand. 4. In a red ocean, the value and cost trade off is dominant, but in a blue ocean the value cost trade off is broken and new rules are established. 5. In the red ocean, the growth opportunities are already fully exploited and the market is saturated. There is a dwindling growth rate. But in case of Blue Ocean, there is ample growth opportunity for growth that is both profitable and rapid. To create a blue ocean, the companies give rise to new industries. Blue ocean is created within the red ocean, when an organization alters the boundary of an existing industry. The blue ocean is created by an organization when it parts from the traditional models focusing on competing in the existing market space. When a company wants to adopt the blue ocean strategy, the challenges that will be faced by the company are as follows: Not understating the scope of change in technology. It has to be understood that blue ocean is often not created through technological innovation. But adapting the technology towards the changing preferences of the consumer. Often, companies spend a huge chunk of their budget to create new strategies. But creating new technology alone doesn't guarantee success. The profile and the nature of the customer has to be understood. With the diminishing geographical boundaries in the business environment today the awareness of the expectations of the customers across the world and the technology based on the market preferences is the biggest challenge in adopting the blue strategy. Another major challenge for organizations is to create blue oceans within their core businesses. An analysis of successful blue oceans by companies shows that often blue oceans are created by already successful companies within their core business. The existing incumbents are not at a disadvantage in creating new avenues for business. But often organizations don't realize this and try to create a very new opportunity beyond which doesn't accommodate the strengths of the company. Realization of the core strengths and values of the company is essential to create Blue Ocean. Also the challenge for the companies in adopting the strategy si that blue ocean strategy is about creating the right strategic move at the right time. A company that is successful at one point need not be successful in the other situation. When the company is adopting the blue ocean strategy, the concept of the dynamics of the industry and successful business organizations do not hold good as often estimated in traditional strategic management theories. Companies are often successful when they adopt the managerial action of change and redefinition to create new industries. Ina adopting a successful blue ocean strategy, the company has to reevaluate the components of its end product/ service. Instead of fighting with the rivals in a market where the boundaries are already set, the company redefines the problem itself and it tries to create a new solution thereby resulting in a new industry. The product features and the service components have to be carefully analyzed and the problems have to identified beyond the boundaries created by the existing boundaries of the industry. The biggest challenge in adopting blue ocean strategy is to reject the cost and value trade off. In the red ocean, the decisions of the company are based upon the financial constraints. It is very difficult for the companies to think beyond this trade off. But to create a blue ocean, the strategy is based on a world view in which the market boundaries and industries can be reconstructed by the actions and beliefs of industry players. SOURCES 1. Doherty, Joanne and et al, The Death of Skoda Joke and the rebirth of the brand, www.busmgt.ulst.ac.uk, http://www.busmgt.ulst.ac.uk/modules/bmg777j2a/docs/Skoda%20Report.ppt 2. Kim, W. Chan and Mauborgne, Renee, Blue Ocean Strategy, Harvard Business Review, October, 2004 3. Ledgard, Jonathan, Skoda leaps to market, www.strategy-business.com, 2005 http://www.strategy-business.com/press/16635507/05306 Read More