Five-Force Analysis of Competition: Shearwater Adventures - Assignment Example

1) What competitive pressures must Shearwater Adventures is prepared to deal with? What do we learn about the nature and strength of the competitive pressures Shearwater faces from doing a five-force analysis of competition? Which of the five competitive forces is the strongest? To deal with the competitive pressures arising for the Shearwater Adventure, the CEO of the company, Allen Roberts have planned to increase pre-bookings of its adventure tours to cushion the competition. Another strategy taken by Roberts is using the existing capacity to its advantage to house more customer bookings for adventure tours. Five-Force Analysis of Competition Rival Sellers: Although Shearwater Adventure has differentiated itself from its rivals by offering a wide product range, the company still faces threats because the competition can either increase its product line or devise new adventures or copy those offered by Shearwater. and thus increase its sales and market share. The rivalry intensifies as new competition enters the market with low priced products and offering good deals compared to the existing ones. In addition to this, the competitors in the adventure industry are now trying to build strong dealer networks with the African local companies in order to increase their credibility, which is also a means of promotion and advertising. The practice of increase repeat bookings from the customers is spreading like fire among the competitors who try different tactics and methods to achieve this. New Entrants: Opening an adventure company in countries like South Africa, where Shearwater Adventure is currently operating, is very easy as compared to the setting up in United States due to high permit costs. In addition to this, the new entrants who focus on rafting trips have to endure a cost as low as $20,000 and if the company wants to offer all the services than the cost could be as high as $200,000. New companies would be encouraged to enter the market by seeing a double digit growth of few companies. Substitute Products: The companies in the industry are providing more or less the same the adventure products. Shearwater Adventure has tried to differentiate itself by providing more choices in the sports than any other company. Although at-least 40 extreme sports exist in the industry, it is difficult to provide them all depending on the location of the company. A company providing water sport activities will try to attract customers by positioning itself as better than land activities. The Strongest Force According to above five forces analysis it can be said that the strongest force Shearwater Adventure has to face is the rival sellers. 2) What are the key success factors for competing in the Extreme Adventure Sporting industry? The key success factors for competing in Extreme Adventure Sporting industry are: The knowledge base of the outdoor companies. The quality of the equipment used by the outdoor companies. Cost of entering the industry is low for small organization. The financial position of the existing company should be evaluated by the CEO of the company in order to focus on long-term sustainability of the company. To attract and retain the customers, existing companies’ should take steps such as mergers, joint ventures with associations and network sellers. In order to predict the future demand, the companies should link up with different travel agencies especially in the case of international extreme adventure company. By doing this, they could ensure that the customers or the visitors had prepaid the adventure and this could help improve the company’s value chain. Companies should offer a wide variety of activities in order to gain repeating business – repeat bookings and cross-selling. Heavy advertising was the key to attract new customers. Some of the methods used by the company include: Focusing marketing methods on maximizing operations through local businesses such as forming partnerships with shuttle drivers and setting up offices in hotels. By doing this, the extreme adventure companies could add credibility to their business. Investing in different modes of transportation services to directly target the customers. Placing advertisements in travel guides, magazines and using the Internet sources is another marketing technique. 3) What is your assessment of Shearwater’s financial performance and financial condition? Is the strategy working well in terms of delivering good financial results? Why or why not? The financial performance of the company can be analyzed using the following ratio: Net Profit Margin According to the net profit margin ratio, the company’s ratio has increased since 2004. This margin was a negative 16% in 2004; it decreased in 2005 but still remained negative 12%. The net profit margin turned to positive in 2006 with a margin of 8%. Although this margin is low, but it shows that the company was able to earn profits as compared to the losses of previous two years. Analysis of the strategy The Shearwater Adventure’s strategy of increasing the sales by rebooking and other methods is working because the company was able to increase its sales and in turn decrease it losses and turn them into profits. Although the profits are not high, and the average revenue per customer is not very much as compared to 2005, but it is still encouraging. In addition to increasing the sales, the company needs to lower its costs like the staff overheads and corporate overheads if it wishes to become more profitable. Gaining an 80% market share does not mean that the company is very profitable. If the company wishes to improve its financial position it has to understand that the costs it is incurring is more than its sales, and therefore would have to cut down costs. 4) What does a SWOT analysis reveal about Shearwaters strengths, weaknesses, opportunities and threats? Does your SWOT analysis indicate that the company’s situation and position is attractive or unattractive? Justify your answer Strengths Word-of-mouth from satisfied customers increased sales. Partnering with leading tour operators in Africa 80% market share in Victoria Falls Solid management team Offering more products than the competitors Offering bundled activities under the name of ‘Ticket to Adventure’ Weaknesses No plan to consider relocation of business. All activities offered by Shearwater based on Victoria Falls, therefore difficult to relocate. Opportunities Neighboring countries are more politically and economically stable for relocation. Threats Competitors could offer more products in the future. Not expensive for any company to add a new adventure to its current offerings Threat from local talent as they could devise a new adventure or could copy the offerings of Shearwater. Zimbabwe’s economic and political instability. Analysis According to the SWOT analysis, the company’s situation and position is attractive. This is because that the company has the biggest market share (i.e.80%) as compared to its competitors. Also the company enjoys a loyal customer base which is one factor responsible for the sales increase. The company has variety of products (adventure sports) than offered by the competitors. Using all its strengths and opportunities the company can very well tackle the threats it faces in the future. 5) What issues confront the company heading into the future? What should Allen Roberts be worried about? The basic issue the company faces is the political and economic instability of the country in which it is currently operating. As all the products offered by Shearwater Adventure are based around the location of Victoria Falls, it would difficult for Allen Roberts to difficult planning relocation if the environment gets more instable. Although the neighboring countries are stable politically and economically, it is difficult to say whether the company would be able to find similar location and environment for its product line. In addition to this, the Extreme Sport industry is growing at a fast pace. More and more competition is entering the market whether in Africa or any other part of the world. Therefore to attract the customers on global basis is a difficult task where companies would be offering more and better products (extreme sports and adventures) than the ones offered by the existing companies. 6) What recommendations would you make to Allen Roberts to sustain (or maybe increase) the companys 80% market share? What other avenues of growth might Shearwater consider? In order to sustain or increase the company’s 80% market share, Allen Roberts should pursue the following recommendations: Providing more value to the customer by improving or changing the attributes of the adventure sports Try to cut down the prices of the adventure sports to bring it in comparison to the competitors The company should acquire other small companies in order to maintain the share. Allen Roberts should try to increase its marketing and advertising techniques and methods other than relying on word-of-mouth marketing Form strategic alliances with other adventure companies in the region or other countries and work in alliance giving the best deals to the customers. Read More