Strategic Management Task 1&2

NAME
Strategic Management Task 1
SCHOOL
Mentor: NAME
25 March 2013

Subject: Strategic Management, Task1
A. Final Cumulative Balanced Scorecard, Income Statement, and Balance Sheet
Cumulative Balanced scorecard of Gulf Trading LLC based on Industry Report:
Cumulative industry report of ‘Gulf Trading LLC’ for year 18 Particulars of Cumulative Balanced Scorecard based on Industry ReportInvestors Expectation ScoreBest Industry ScoreOverall ScoreEarnings Per Share ($)24.008.006.95Return on Equity (%)21.0014.0016.94Stock Price ($ per share)24.007.0089.24Credit Rating242020Image Rating18.0015.0063.00Corporate Social Responsibility and CitizenshipN/AN/AN/ATotal Overall Balanced scorecard 11164195.59Income Statement:
Income StatementConsolidated Income StatementYear-18Gross Revenues:$000sInternet77778Wholesale189311Private-Label34955Gross Revenues from Footwear Sales302044Exchange Rate Adjustment+1879Net Revenues from Footwear Sales303923Operating Cost:Cost of pairs sold149886Warehouse expenses22153Marketing Expenses36537Administrative Expenses9530Operating Profit (Loss)85817Interest Income (Expenses)3547Other Income (Expenses)0Pre-Tax Profit (Loss)89364Income Taxes26809Net Profit (Loss)62555Balance Sheet:
Balance Sheet Balance SheetYear-18Assets$000sCash on hand206607Accounts Receivable75986Footwear Inventories4659Total Current Assets287247Net Plant Investment139832Construction WIP0Total Fixed Assets139832Total Assets427079Liabilities$000sAccounts Payable13613Overdraft Loan Payable01-year Bank Loan Payable0Current portion of LT loan0Total Current Liabilities13613Long Term Bank Loan Outstanding0Total Liabilities13613Shareholders’ Equity$000sCommon Stock9000Additional Capital31540Retained Earnings372926Total Shareholders’ Equity413466B. Generic Competitive Strategy of the Gulf Trading LLC
In order to gain a competitive advantage, Gulf Trading LLC needs to combine generic strategies depending on differentiation, cost leadership and focus strategies. Low price and product differentiation are the drivers that will attract more customers, as cost leadership and product differentiation are generic competitive strategies utilized.


Figure: Competitive Strategies available to the company
Both product differentiation and the cost leadership strategy will be basis upon which to gain a competitive advantage in the footwear industry for Gulf Trading LLC. The product differentiation strategy will be a competitive strategy through focusing on unique and fashionable footwear. The cost leadership strategy will focus on the low priced products, but there will be no compromise on quality simply for the sake of using the low price strategy.


Figure: Competitive Strategies pursued by the Gulf Trading LLC
Strategic plan (actions) to achieve competitive advantages & financial success
Game Plan # 1 Choosing Target Market
Aligning with the competitive strategies, the target market seeks to improve the company’s competitiveness among adults and children in the footwear industry. With a balanced scorecard of 195.59, it is clear that the company’s strategies are effective in the foot wear industry. This is demonstrated by the case where the company chose the ‘cost cutter’ segment targeted to customers who are price sensitive and prefer low cost products. Among customers in the ‘cost cutter’ category are bargain hunters who make demand for cost effective products unlike branded and stylish foot wear products which attract premium prices. On the other end, the company also targets the ‘Innovators market’ segment to design and offer low cost products. These customers are less concerned about costs and demand for branded and stylish footwear. Both market segments are also aligned with company’s goal to offer best value for the money.
Available Market Segments

Figure: Pursued market segments of the Gulf Trading LLC
Game Plan # 2 Designing the brand for each of the target markets
The targeted markets will initially be divided into the ‘innovator’ and ‘Cost cutter’ segments, with the design of the brands being based on the demands and preferences of the two market segments. In addition, price will be an important factor in designing footwear brands for each market segment
Available Market Segments

Figure: Pursued market segments of the ‘Gulf Trading LLC’
Game Plan # 3 Designing Advertising Strategies
Advertising strategies were then used to reach out to the targeted customer, with the company seeking to use online marketing and wholesale marketing to market the company’s brand. The team did a survey and found out that wholesale marketing was suitable for the ‘Traveler’ and ‘Cost cutter’ markets, as customers visited retail outlets and encountered the advertisements. Hence, the local outlets became the main focus when using advertisements to target customers. In order to improve brand awareness and recognition, the team ran promotions to also strengthen brand appeal in the company’s footwear. The marketing costs of the venture reduced in the first year of simulation to $ 28,926,000 but eventually rose to $ 36,537,000 showing the growing importance of advertising and marketing to continued growth.
Online (web) presence has become important in marketing the company’s products, owing to increased internet penetration and e- commerce. Thus, the company will rely on email, banner ads and popup to improve online visibility. The messages in online media will be tailored to appeal to the specific needs of the target customers ensuring exposure of the products to more potential customers.
B1.  Evaluation of the effectiveness of the company’s generic strategy
To assess the company’s performance during simulation then different competitive strategies will be under review. Nonetheless, the company will not rely on cost and differentiation strategies separately, but rather a hybrid competitive approach integrating product differentiation and cost leadership strategy will be the basis of the overall competitive strategy. Among the different market segments, both Mercedes and Innovators highlight on performance while Work Horse, Cost Cutter and Traveler emphasize on price. On the surface, the hybrid strategy appears appealing, but it is not the most effective approach to increase the company’s market share in the target market. Thus, the scenario suggests that the company would be better suited to either choose product differentiation or cost leadership strategy rather than a hybrid strategy.
In choosing the right strategy, it is also necessary to highlight on price elasticity of the footwear products as this influences the demand and supply patterns in the industry. This notion extends from the observation that the pricing strategy is determined by price elasticity among the targeted customers. Also, related to the right strategy is that the competitors need to take into account the options used by opponents besides using the generic strategy. From the simulation, “Gulf Trading LLC” did not take into account the impact of pricing strategy of other competitors is using aggressive pricing to gain a bigger market share in the footwear market
C. Evaluation of the team’s ability in identifying the strengths, weaknesses, and strategies of the competitors during the simulation
In crafting the most appropriate game plan, it is necessary to understand the strengths and weaknesses of competitors. This enables the company to create strategies that seek to gain a competitive edge over rivals, but from the simulation the company did not identify the strength and weaknesses of rivals. Besides this, there was little information about competitors that would enable the company to focus on building competiveness in light of competition and capabilities of competitors. Nonetheless, the balanced score card showed that the overall score of the balanced score card was 195.59 versus a score of 64 being the best industry score.
An analysis of the competitor’s market share will help to show their strength, and based on this information, it is possible to identify market leaders and market followers. Furthermore, it is easy to identify the market leading capability. Existing brand value highlights on a company’s strength in marketing strategies of each company. For companies, high brand equity is synonymous with strengths in the market over rivals. Analysis of strength and weaknesses of competitor’s strategies reflects upon the balanced score card with an expected image rating of 18 above the industry average of 15 showing there is value in the company, an extension of the company’s strengths over her rivals.
To understand how rival companies operate, a review of the target customers helps to identify the strategies chosen to reach out to these customers. Additionally this helps to identify the level of competition in the market, where the competition is fierce, when there is a single or few market segments but the market players are many.
The pricing strategy of rival companies also helped to shed light on the level of competition in the footwear market, this is because one is able to identify the strength and weaknesses of pricing strategy used for different market segments. In particular, the dominant player influences other market players, an understanding the company’s influence in the market is crucial to identifying the level of competition.
To assess the level of competition, the company relied on decisions made and the marketing strategies employed extending to brand visibility in the market. In essence, advertisements and marketing strategies chosen showed the significance of visibility among different bands. In particular, online marketing was mostly likely to elicit immediate response. Through assessment of online marketing did inform the company on rivals’ strategies their strengths and weaknesses. Essentially, marketing activities, target market segments and the pricing strategy have influenced the company’s competition during the simulation process. Other than understanding the strength and weakness of rival companies, the evaluation helped to identify opportunities and threats posed by the competitors.
C1. Success of the company in predicting the competitors’ next moves
Predicting the competitor’s next moves helps to craft the most appropriate strategy in decision making as this should improve the company’s standing. Even though, the company did not have adequate information, it resulted to modeling competitor behaviors in view of the information available and impact of competitors’ decisions on the company’s business. To achieve this, Gulf Trading LLC relied on market surveys and customer feedback to sales representatives on competitor’s products.
To achieve this, the company anticipated that the market leader would continue to play a more prominent role in the market and this is not expected to change in the short term. Furthermore, the top brand is expected to continue with the same strategies in the Cost Cutter and Traveler market segments. In other words, the companies are less likely to change their marketing strategies.
Another anticipated move is that the top brands would move to untapped markets in the two market segments in order to increase their market share. This is predicted to lead to higher competition among all the brands. In any case, using the balanced scorecard eases the proves of strategic planning because the company is able to set targets and allocate resources to achieve the company’s goal in view of anticipated market conditions. Gulf Trading LLC was able to assess the performance of the competitors allowing the company to moderately anticipate competitor’s next moves.
D. Discussion of how sustainable the most dominant competitive advantage achieved by any company within the industry.
‘Everyday Shoes’ was the best performing company in the footwear industry, and analysis shows that the company relied on aggressive pricing to gain a competitive edge over rivals. This shows that the low cost of the company’s products starved off competition and attracted more price sensitive customers to its products.
To underline the importance of the aggressive pricing strategy is that ‘Everyday Shoes’ now has a 30% market share. This is highlighted by the company’s pricing of its products which are below the other competitors in the same market category, and this is the main reason why the company has been able to capture the biggest market share
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The competitive strategy appears to be sustainable although it highlights on low prices. This is because the company’s customers appeal to a wider audience resulting to increased sales volume. The high sales volume helps the company to recoup costs borne through reliance on low prices enabling the company to maintain high profitability.
With the largest market share in the market, ‘Everyday Shoes’ was the market leader and hence other companies were merely following the company’s direction. In essence, the established presence of ‘Everyday shoes’ meant that even other companies that relied on low prices would not compete with the company. ‘Gulf Trading LLC’ used the hybrid strategy to offer low prices, but the quantum performance showed that this strategy was ineffective to beat off competition. As a market leader offering low prices meant that ‘Everyday Shoes’ was able to influence market conditions with other brands unable to compete effectively.
E. Comparison of the selected strategy of the company to the three tests of a winning strategy
In assessing the best strategy the three tests of a winning strategy is applicable to compare the results of ‘Everyday Shoes’ and ‘Gulf Trading LLC’. ‘Every day Shoes’ concentrated on product differentiation and cost leadership, and the three tests will be used to evaluate the winning strategy:
Goodness of fit test
Competitive advantage test
Performance test
Essentially, the company’s aim of selling at a low price appeals to a wider customer base enabling it to maintain its position. In providing the cheap priced goods without compromising on quality, the company offered value to customers for their money. Furthermore, the company sought to improve the footwear products, broadening its market reach through innovative and appealing design features.
Furthermore, the strategy ensures sustainable competitive advantage as it able to compete with rivals, but also needs a better strategy. The company was able to fit the second test by offering various brands with unique features. To highlight on the company’s competitive edge, the organization worked within the budget to minimize cost, but also incorporated various features in the design process, meaning that the company would try to leverage competition from the five competition forces.
The company’s performance shows that it did not fulfill the third test of a winning strategy. Unlike the other tests, the performance test was the main challenge for the company in improving business operations, showing that the strategy is sited to the company’s situation and provides competitive advantage. Clearly, ‘Gulf Trading LLC did not broaden appeal to the target market. Thus, there is a need for a more recognizable brand to attract more customers in the target market. To lay credence to this is the visibility of ‘Everyday Shoes’ with the company’s brands attracting the highest number of targeted customers. Gulf Trading LLC did not change the company’s selling strategy, but merely altered aspects that improved efficiency and competitiveness showing the value placed upon the company’s generic strategy.
F. Evaluation of the effectiveness of the company’s team in applying the value chain analysis during the simulation.
The 'value chain analysis' relates to all the activities that help to assess the competitive strength of the company, and add value to the business. Using the value chain analysis allowed the team to assess how product differentiation and cost leadership improved the company’s competitiveness. The team utilized the value chain analysis in the simulation to understand the company’s competitive advantage.
The team realized that achieving a competitive advantage over rivals would occur through focusing on value chain activities in the company where there could either be a reduction in the cost of doing business or differentiation meant to improve competitiveness. Thus, the team focused on reducing the cost associated with the products, while also improving quality in order to improve revenue and gain competitive advantage in the industry. In the second ear of simulation it was possible to perform value chain analysis allowing the company to improve competitiveness in the following year. The value chain analysis relied on the following three steps:
Identification of the activities
Analysis of the activities to determine the possibility of adding value through differentiation or cost advantage
Evaluate the effectiveness of strategies of adding value to activities and plan for action to take advantage of changes
The team emphasized on cost reduction in the activities, where the team sought to add value to current activities with without compromising competitive advantage. The team further explored whether to hold the value and cost constant alone or to together in way that improved the company’s competitiveness.
In order to assess the viability of the value chain analysis against the competitors, the team did a comparison of the company’s value chain and that of rivals. This allowed the team to assess areas where the company had cost advantages and disadvantages in the market, as well as shed light on changes that would be undertaken to improve the company’s value chain either through carrying out activities internally or by outsourcing.
G. Evaluation of the effectiveness in addressing important issues in order to achieve the competitive advantage and improve the financial success of the simulation company.
Even though, the company sought to improve its competitive strategy and financial position, there were challenges in the simulation process. For instance, the company suffered from weaker financial results than anticipated in the initial stages. The sales were less than anticipated in the first year of simulation while the expenses were considerably higher meaning that the company had weaker financial results. Consequently, the company changed the selling strategy reducing the company’s out reach to areas where there were low sales and few responses from customers. To maximize on sales the company concentrated in areas with higher potential given the responses ...