Success of the Vermont Teddy Bear Company - Essay Example

Running Head: Strategic Management Analysis Case Study, EFAS & IFAS Strategic Management Analysis Case Study, EFAS & IFAS Introduction The Vermont Teddy Bear Co. Inc. is a leader in the toy industry relying chiefly on customers’ loyalty and unique image of the product. The company was founded in 1981 by John Sortino and in several years, it manufactured the best teddy bears in America maintaining high-speed growth through unique product design and technological innovations introduced into practice. External Factors Analysis External factors show overall success of the company on the national scale and help to identify the main external threats affected the company and industry in general. All factors were assessed using a ten-point scale Table 1. External Factors Analysis Summary # External Factor Weight Rating Weighted Score Additional Info 1. Threat of new entry 0.1 3 0.2 It has not an impact on the company 2. Bargaining power of buyers 0.1 2 0.2 This force is vital because it influences sales volume and market share 3. Retailing activities 0.1 3 0.3 Vermont Teddy Bear sold products related to teddy bears, as well as merchandise from other manufacturers 4. Lack of organized grass roots programs 0.1 5 0.5 These programs do not a crucial impact on the company but prevent it from rapid growth 5. High taxes 0.0 3 0 Net profit fall was caused by high taxes and high expenses 6. Reliance on past experience and success 0.1 4 0.4 The main weak point of the company prevented it from innovations and strategic. 7. Country-wide focus 0.2 3 0.6 This factor opens new opportunities and challenges for market growth 8. Unique brand image 0.1 4 0.4 This factor drives sales and is based on the popularity 9. Investment activities 0.1 3 0.3 Failure in investment field in 1998 Total Index Score 2.9 External factors affected the Vermont Teddy Bear will be accessed using PEST analysis. Political-legal forces acting upon the Vermont Teddy Bear allocate power and provide constraining and protect­ing laws and regulations. The company does not influenced greatly by political changes. Legal changes had a greater impact on the company caused by changing international situation and increased competition, high taxes and corporate expenses the main changes took place at the end of the 1990s when European market altered parameters of international competition and enforced a period of reassessment. In spite of the fact that the Vermont Teddy Bear is a national company, these changes affected its sales and profitability. Environmental changes suggest that the opening up of the market and the resultant increased competition has widened the perspective of the planning framework with profound implications. The threat was that the removal of physical barriers and the new-found freedom of movement around the European market have increased international expansion and in so doing raise the degree of European trade. According to the case study, in 2000 the Vermont Teddy Bear had a decline in its operations. Failure in investment activities at the end of 1990s led to declining of financial situa­tion and crisis (Stacey 1996). The social environment includes general forces that do not directly touch on the short-run activities of the organization but that can, and often do, influence its long-run decisions. For instance, “in 1998, the company changed this philosophy by exploring the offshore sourcing of materials, outfits, and manufacturing in an effort to lower costs” (Vincelette et al). Economic forces regulate the exchange of materials, money, energy, and information (Chaffy et al 2000). This environment proposes great challenges for the Vermont Teddy Bear influenced by customers’ loyalty and trust. Speaking about the nature competition it is possible to say that the Vermont Teddy Bear has a competitive advantage, but not a competition strategy. Competition strategy can take place on either a price or a non-price basis. Price competition involves businesses trying to undercut each others prices; this will, in turn, be dependent upon their ability to reduce their costs of production. The main weakness of the company is seasonality in purchases and the main threat is product substitution (McDonald 2003). Using the `Porter 5 Forces model, it is possible to say that the main problem is that a product, perhaps produced through a different technology, can enter the market. Another threat is bargaining power of buyers within the industry. Customer’s loyalty determines success of the company and the relative strength of the business in general. Competition among existing firms and bargaining power of suppliers are less in contrast to the factors mentioned above. The Vermont Teddy Bear follows the differentiation strategy as the most `attractive in that it provides the opportunity for a more creative approach to the market. For this reason the organization tends to be marketing led. It is vital in these business units that the cost/benefit analysis of any new form of differentiation is thoroughly evaluated. In addition, sensitivity analysis must be used to look at the viability of the associated cost base at different levels of sales performance and in different market conditions (Stacey 1996). The facts mentioned above and data included into the table show that the changing demands of the business environment and competitor pressure dictate at the very least regular adoption and in many cases fundamental shifts. On the one hand, the company seeks and achieves superiority over its competitors. On the other hand, the success is evidenced by strong market position and stability. Internal Factors Analysis The Vermont Teddy Bear products have a lifecycle involving revisions, re-positioning and replacement. Internal analysis is concerned with providing management with a detailed understanding of the business, how effective its current stra­tegies are and how effectively it has deployed its resources in support of its strategies. Table 2. Internal Factors Analysis Summary Internal Factors Weight Rating Weighted Score Additional Info 1. Product innovation 0.2 2 0.4 It allows to attract new target audiences and improve customers’ loyalty 2. Local supply exceeds demand 0.1 1 0.1 It has a negative impact on sales and market share 3. The computer-based administration 0.1 4 0.4 It improves financial control and management 4. Contractors (home-based employees) 0.1 2 0.2 flexibility within the working environment and operations allows to decrease operational costs 5. Web site changes 0.0 4 0.0 New channels of communication and sales 7. Promotion of new divisions 0.2 3 0.6 It crates new opportunities for growth and expansion 8. Offshore resources philosophy 0.2 4 0.8 This strategy influences price level 9. Poor funding 0.1 3 0.3 This factor affects all activities of the company and threatens its future success Total Index Score 2.8 McKinsey 7-S Model is used to analyze the results of decline and internal performance. This concept which is often referred to as the McKinsey “7S” model provides a framework which is helpful to assess the readiness of the organization for change. The McKinsey 7-S Model shows that a strategic vision developed by the Vermont Teddy Bear during 1990s was an effective for national integration. Strategy used by the Vermont Teddy Bear was the clear and communicated direction supported by a coherent set of actions aimed at gaining a sustainable advantage over competition. The orientation of each other factor was evaluated and changes introduced to ensure compatibility with the strategy. Shared values and the appropriate culture and beliefs supported the needs and environment of the business. SWOT analysis allows management to identify the main advantages and threats of correct market position and company’s operations (SWOT Analysis 2007). The strengths of the company are internal change processes and corporate culture. Promotion of other divisions helped the company to increase its operations and improve customer service. The Vermont Teddy Bear target is on average as dependent on reliable information technology. The opportunities include high potential to growth and profitability of the company, and professional management team. Specification in the Vermont Teddy Bear is determined as a result of an organizations pol­icy, which in turn resulted from decisions on its market policy, which in turn resulted from its consideration of the market or customer needs, requirements, and the activ­ities of competitors. This is the process of designing quality into the service. Sales strategy is on a one-to-one basis. All customers will feel they are a valued one of the Vermont Teddy Bear. Contracted (home-based) workers allow the company to decrease operational costs: “Independent contractors allowed the company flexibility in meeting heavy demand at holiday periods such as Christmas, Valentines Day, and Mothers Day. This relationship also allowed the home­ workers flexibility in scheduling their hours of work” (Vincelette et al). Customers’ loyalty can be achieved through the people who are employed in the sphere. That is why maximizing each employees potential as an individual and as a team member will be a key to maximizing the profitability of each hotel. To ensure customer satisfaction the Vermont Teddy Bear implement and develop new strategy based on Web services. It is not a unique and a new form of service, but, unfortunately, this type of service is rarely used by such companies as the Vermont Teddy Bear. Offshore resource-based philosophy and innovations create new opportunities for market development and brand recognition. These factors benefit the Vermont Teddy Bear and help to skip the distributor completely. There is a great opportunities for the company is this field, because specialized shops, throughout the world are interested in goods produced in the environmentally friendly manner. In this case the Vermont Teddy Bear will be able to set a high price on its products and avoid low price level fixed by the distributor. The main factor (weakness) affected the Vermont Teddy Bear is lack of funding and investments. In a short period of time, it can become a threat for the company and decrease in profits (Hamel, Prahalad 1996). Corporate governance has a direct influence on all operations and activities of the Vermont Teddy Bear. Corporate governance, based on “integrated” model of management utilizing resources and HR, covers all areas of corporate activities. The company management concerns with issues related to products and services, promotion, and customer as well as public safety and public health. Control and monitoring are essential parts of corporate governance (Chaffy et al 2000). For this reason, the company introduces a resource-based position. This strategy helps the Vermont Teddy Bear to assist and support employees in solving problems and avoid hesitation about a course of actions. The adoption of ethics guidelines is very important because it helps to maintain high standards in financial reporting and organizational performance. Corporate leaders motivate and inspire employees to follow behavior standards in the workplace. In sum, marketing strategy provides the Vermont Teddy Bear with the framework for planning their business activities to develop and sustain competitive advantage. A large number of tools and systems have been developed by marketing managers and theorists to assist this process, these falling into three main generic cate­gories: defining market opportunities, fitting the capabilities of the firm to the identified opportunities and the marketing mix - the strategies adopted and implemented by the firm including product, price, promotion and distribution issues. The tables and indicators show that the external and internal factors influenced the Vermont Teddy Bear are on the average level. References 1. Chaffy, D., Mayer R., Johnson, K., Ellis-Chadwick, F. (2000). Internet Marketing, Strategy Implementation, and Practice. London: Pearson Education. 2. Hamel, G., Prahalad, C.K. (1996). Strategy as Stretch. Chapter 6.Competing for the Future. Harvard Business School Press; Reprint edition, pp. 138-161. 3. McDonald, M. (2003). Marketing: A complete Guide. Palgrave Macmillan. 4. Stacey, R. (1996). Strategic management and Organizational Dynamics, 2 ed., London, Pitman. 5. SWOT Analysis (2007). Strategic Management QuickMBA. Retrieved from http://www.quickmba.com/strategy/swot/ (accessed 24 Feb 2007). 6. Vincelette, P., Fogarty, E.A., Patrick, T.M. The Vermont Teddy Bear Co., Inc.: Challenges Facing a New CEO. Read More