Analysis of C Seasons Footwear Company

Analysis of C Seasons Footwear Company Introduction For the business world today, the aim of every company is to invest in an environment that is economically safe with the aim of working towards making profit, make maximum returns on investment and to kept the interest of the companys shareholders in mind and also to have the interest of customers in mind in order to gain competitive advantage by working on core competency of the organisation. The company is in the athletic footwear industry called C SEASONS. The company used a differentiated strategy for the sale of its sports footwear. This is going into the footwear market in a different way from other footwear making companies in order to have a competitive advantage over other athletic footwear industry. C Seasons Footwear Company has been in the footwear industry for the last five years supplying the best footwear to four different regions namely, North America, Europe Africa, Asia Pacific and Latin America. The BSG Online simulation was based on twelve industries that were into athletic footwear located in four regions (North America, Europe Africa, Asia Pacific and Latin America. It started with twelve companies and to compete with other company and make necessary decisions and design and implement a strategy that will provide a longterm return for shareholders over the next five years. The report will focus on company 25 (C SEASONS). According to Johnson, et al (2009) a differentiation strategy seeks to provide products or services that offer benefits that are different from those of competitors and that are widely valued by buyers. p.153. The aims and objectives of the BSG online simulation are: Becoming the market leader in the footwear making industry. To have a good shareholder returns. To have a high net profit at the end of the game simulation. Various report, tables and graphs would be used to help decision making processes. The table below shows the strengths and weaknesses for C Seasons on both the internet segment and wholesale segment of the business for the five years. Simulation Result. Year 1. In order to be the market leader, we decided that in year 1 we would be making a 1% charitable contribution, by doing this it would help reduce the tax payable by the company at the end of each financial year. The company would also be involved in workforce diversity programs. The company also decided that at the end of the year we would have certain percentage of our unsold stock on clearance sales. For the North American market clearance would be 25%, Europe Africa would be 25%, Asia Pacific would be 50% and 50% for Latin America. The company also had strengths in all regions in the models offered, rebate offers and advertisement. Some weakness were also identified such as the style and quality, delivery time and the wholesale price. At he end of the first year the company had an image rating of 66 and a credit rating of A. The net profit margin in the first year was 14.1% while return on equity was 22.8%. The current ratio in the first year was 2.74 while the asset turnover was 0. 93. Year 2 In year two the strengths of the company in the regions were the models offered and the rebate offers. The inventory clearance was left as the first year which the company believed would attract more customers. The weaknesses in year two were style and quality, wholesale price offered to retailers, the delivery time, celebrity appeal and free shipping. Return on equity in year two was 23.4% while the net profit margin was 16.4%. This was a 3.1% rise from the first year which points out that the company was selling well. Asset turnover in the second year was 0.93 while the current ratio was 4.11%. Year 3 In year three the strengths of the company in the three regions were the free shipping offered, rebate offers, celebrity appeal and the models offered. The return on equity in year three was 19.7%. Net profit margin 16.9%. Asset turnover was 0.57 while the current ratio was 5.37%. The company had some weaknesses in the third year of business delivery time, retail outlet, and advertising were the setback for the company. Year 4 In year four the company decided to pay shareholders, a sum of $0.50/share is to be paid to each shareholder per the number of share(s) they hold in the company. Shareholders were paid dividend as a sign of goodwill and also to show value for the money they have and would invest in the company. The company showed some strengths during the trading year such as the models offered, the free shipping offered, rebate offers and good advertising. The company also had some weaknesses in some of the regions such as the style and quality, retail outlet and the delivery time. The return on equity for year four as 10.3%. Net profit margin for the year was 10.5%, the reason for this was the dividend paid to shareholders during the year. The asset turnover for the year was 0.76 while the current ratio for the company was 7.32%. Year 5 In year five the current ratio for the company was 8.21% while the operating profit margin was 25.7% and net profit margin was 17%. In the fifth the company had some weaknesses such as wholesale price, style and quality and the retail outlet. The strengths during year five were free shipping offered, the good advertisement made, the delivery time, the rebate time offered and the celebrity appeal the business had. The asset turnover for year five was 0.72. Strategic Thinking a.) Strategic Analysis The basis strategy used in the simulation was a differentiation strategy â€Å"this seeks to provide products or services benefits that are different from those of competitors and that are widely valued by buyers† (Johnson et al, 2006) pg 153. C Seasons offered a good quality product and started with a slightly lower price for a quality product that it was producing. C Seasons used the PESTEL framework to analyse its external environment. â€Å"The PESTEL framework categorises environmental influences into six main types; political, economical, social, technological, environmental, and legal factors† Johnson et al (2006) pg 25. The aims was to achieve competitive advantage by offering better product or services at a reasonable price or enhancing margins slightly higher. Although, Seasons product may be identical, but possible to differentiate on the basis of the following Quality product Reasonable price Global brand Broad market Unique value Niche market Product differentiation is another strategy for gaining a market foothold, and to be successful, product differentiation must be valued by target customers. It must be protected by products, make duplication by rivals difficult or impossible Today, most successful and powerful companies grew out of business model that were elegant, compelling in their logic and powerful in economic potential as some variation of the value chain that support business. b.) Mission And Vision â€Å"A mission is a general expression of the overall purpose of the organisation, which, ideally, is in line with the values and expectations of major stakeholders and concerned with the scope and boundaries of the organisation† Johnson, et al (2006) pg 9. â€Å"A vision can also be described as desired future of the organisation. It is an aspiration around which a strategist might seek to focus the attention and energies of members of the organisation† Johnson, et al (2006) pg 9. Therefore, the mission of C Seasons will be to become ‘the major player in the market and the vision is ‘to produce the best footwear that are worn and cherished the world over by both children and adult. External Environment External environment examines opportunities and threats that exit in the environment. Both opportunities and threats exist independently of the firm (Adkins, March 2008). See appendices. Internal Environment The internal environments are those that the company can set up strategies for and make sure that the decisions are the right one for the company. See appendices. Value Chain Value chain analysis also highlights the mechanisms through which developing countries and their procedures have upgraded their activities and linked to producers and consumers in the global economy, or may do so in the future in a manner that can lead to a sustainable income growth. The results of this type of analysis should indicate the way to policy challenges confronting the private and public agents operating in or promoting the chain (Kaplinsky,2000). The VRIO framework was the foundation for internal analysis in order to lead to sustainable competitive advantage a resource or capability should be valuable, rare, imitable and organised. Decision Making And Personal Learning C Seasons decided not to take a bank loan in the first year of business, the reason for this was to see if the company could sustain itself without a loan or overdraft. At the end of year one the company had a total sales of $267,140m with a net profit of $37,666m. In year four the business decided to issue dividends to shareholders, a $0.50 was to be aid to each shareholders per the number of shares they hold. The reason for the dividend been paid to shareholders was as a result of increase in the businesses market share and profit. The reason why the net profit in year four was low was as a result of the exchange rate at the time which went up to $21,764m compared to $6,756m in year three. The company had problems with its style and quality during the first two years of business and were able to sort it out by year three. In order to generate net income on our investment, we signed a celebrity to endorse our product and also wear the footwear during shows and also placed some adversitment on TV and billboards. We tried to create a new concept with good features in order to meet customers aspiration at this period our firm started making sales. In all, this exercise have exposed me to know how business can be done in real life and make necessary strategic decision that will make the business more viable to operate. These also allowed me to have an in depth understanding of business practice and ability to have a longterm vision and generate positive customer and shareholder expectation. I was also able to know how to use the accounting ratios in calculating for businesses. Conclusion To gain return on investment, strategic decisions must be made in accordance with the set objectives, the report focused on developing strategic decisions which helped in comparing the simulation to a real life business. An important skill derived will monitor numerical information and analysing these statistics in order to forecast the future and successfully survive in the business. The various experienced gained during the cause of the simulation game and comparison of other group result to improve the firms decision making were utilised this included taking risks to ensure that the firm performance in the market is high. Charts and financial ratios were analysed during the course of the simulation exercise to complete the tasks, this helped the decision making process. Making use of resources and information that is available. Recommendations C Seasons is clearly the top of its industry, but no company is invulnerable. Seasons has several avenues of improvement. If they want to continue to build upon their lead and maintain their status in the industry, they need to take a hard look at their mission and define it in SMART terms. The ability to reach some of their target customers in such a fashion could be a huge marketing advantage. Seasons reputation will be more positive and if they can gain back customers lost due to negative publicity. People already associate Seasons with quality retail products. It would be even better to feel good about buying their product and not feel as if people are being exploited every time they purchase a Seasons product. Appendices The Summary of Internal and External Analysis Swot The SWOT summarizes the key issues from business environment and the strategies capability useful as a basis against which to generate strategic options and assess future courses of option(Harvard Business Essentials,2005). Its helps to generate strategic alternatives from a situation analysis, and can be applicable to either corporate level or business unit level and do appears in marketing plans The internal and external situation analysis can produce a large amount of information, much of which may not be highly relevant. The SWOT analysis classifies the internal aspects of the company as strengths or weaknesses and the external situational factors as opportunities or threats. The following diagram shows how a SWOT analysis fits into a strategic situation analysis. SWOT Profile The internal and external situation analysis can produce a large amount of information, much of which may not be highly relevant. The SWOT analysis classifies the internal aspects of the company as strengths or weaknesses and the external situational factors as opportunities or threats. In summary, the interaction of the internal and external analysis will result to SWOT important. e.g, the strengths can be leveraged to pursue opportunities and to avoid threats, and managers can be alerted to weaknesses that might need to be overcome in order to successfully pursue opportunities. Strengths In a SWOT analysis, the capabilities that enable Seasons company to perform wellcapabilities that needs to be leveraged. The company has introduced many innovative products giving it a competitive edge. Its global reach provides it an opportunity to tap growing global footwear market. The companys consistent innovations have enabled it to remain competitive and maintain market share Weaknesses In a SWOT analysis, the characteristics that prohibit Seasons company or unit from performing well and need to be addressed. The seasons company falls behind in brand awareness compared to its competitors because of lacking celebrity endorsements. The company faces intense competition from global players such as other competitors. Opportunities In SWOT analysis, the trends, forces, events, and ideas that Seasons company or unit can capitalize on. The global footwear market has shown positive growth in recent years. The North Americas and EU markets are expected to grow at CAGR of 4.3% and 3.2%, respectively, to reach values of $93.2 billion and $60 billion in 2010. The Asia Pacific region is set to grow more strongly in the 20052010 period, recording a CAGR of 4.7%. a positive outlook for the global footwear market would boost the revenue growth of the company. Threats In a SWOT analysis, the possible events or forces that Seasons company or unit must plan for or mitigate. The principal materials used in manufacturing footwear products are natural and synthetic rubber, plastic compounds, foam cushioning materials, nylon, leather, canvas, and polyurethane films used. As a result of rising oil prices, the prices of synthetic rubber and plastic based products has increased. Rising oil prices will further increase the prices for petroleum based products. Increasing raw material costs would increase the companys production costs and may affect its profitability. SWOT Analysis Limitations The classification of some factors as strengths or weaknesses, or as opportunities or threats was somewhat arbitrary. For example, a particular company culture can be either strength or a weakness. A technological change can be a either a threat or opportunity. But, the most important was that firms awareness of them and its development of a strategic plan to use them to its advantage. Competitive Environment The prospects for longterm industry wide growth in footwear sales are excellent. Athletic shoes have become the footwear of choice for children and teenagers, except for dressy occasions. Increased adult concerns regarding physical fitness are boosting adult purchases for use in exercise and recreational activities. Distribution Channels The ultimate customers for athletic footwear, of course, are the people who wear the shoes. But athletic footwear manufacturers have all refrained from integrating forward into retailing and making direct sales to the final user. Customer demand for athletic footwear is diverse in terms of price, quality, and types of models. There are customers who are satisfied with no frills budgetpriced shoes and there are customers who are quite willing to pay premium prices for topoftheline quality, multiple features, and fashionable styling. Wholesale Selling Price The higher your companys wholesale price to retailers, the higher the prices that retailer will charge customers. Consumers are quite knowledgeable about the prices of different brands, and many do comparison shopping on price before setting upon a brand to purchase. The Number Of Retail Outlets Retail outlets are essential in accessing the consumer market. The more retail outlets a company has carrying its brand of shoes, the more market exposure a manufacturer has and the easier it is for consumers to purchase the brand. Celebrity Endorsements Footwear companies can contract with celebrity sports figure to endorse their footwear brand and appear in company ads. Celebrity endorsements, along with the impressions and perceptions people gain from watching a companys media ads over time, combine to define how strong a brand image a company enjoys in the minds of athletic footwear buyers. Customer Rebates Manufacturers who give rebates provide retailers with rebate coupons to give buyers at the time of purchase. To obtain the rebate a customer must fill out the coupon and mail it to the manufacturers distribution warehouse, along with the receipt of purchase. The VRIO framework was used to evaluate how capable Seasons Value A resource is valuable if it helps the company to meet an external threat or exploit an opportunity. If a resource helps to bring about any one of these four things then its valuable Quality Service Seasons offer a quality service, and the good does whats designed for exceptionally well. Innovation Process innovation can influence efficiency rather than having a direct effect, because the company can have at least temporary monopoly on new product. Rare Seasons brand name is valuable but most of its competitors ,also have widely recognised brand names as well, making it not that rare. The Seasonls brand may be most recognised, but makes it more valuable not more rare. Uniqueness Its a prime locations, design, and intellectual property. Inimitability The inimitable resource are often result of historical, ambiguous or social complex causes. Intangible resources or capabilities like corporate culture or reputation are very hard to imitate and so inimitable e.g Seasons marketing strategy leads to distribution, partnership programme leads to customer relation management. Organised A resource is organised if the firm was able to actualise it. If analysis does turn up a valuable, rare and imitable resource that Seasons was not taking advantage of, then recommendations. Porters Five Forces The essence of formulating competitive strategy, writes scholar porter was relating a company to its environment. Every companys environment includes with customers, competitors, suppliers and regulators etc, and has impact on its profit potential (Harvard Business Essentials,2005). Both current and potential customer, each requirements for product quality, features and utility. Changes in the external environment may be related to competitors, suppliers, partners, customers, sociochanges, economic environment etc. The external analysis was use to examine opportunities and threats which do exists in the environment, and both opportunities and threat exists independently of the firm. The opportunities were favourable conditions in the environment, which produce the results for an organisation if agreed. But, the threats were conditions or barriers that may prevent the firms from reaching its objectives. Power Of Buyers The bargaining power of buyers was very high, as Seasons continue to market their products and differentiate their brands against competitors, so as to increase sales and market share. With the use of internet marketing, helps the company to improve accessibility and intimacy among users. It helps the brand entity plays its role in purchasing behaviour, strong identity will gives customers trusts and loyalty. Some of the online customers are sensitive to price and switching cost for the buyer was low. Power Of Suppliers The threats of bargaining power of Suppliers was very low, many suppliers in this industry, little differentiation among suppliers and makes it nonexistence. The suppliers dependent on the firm in order to survive can switch between suppliers quickly and cheaply due to geographical locations, cheap labours on various regions. In this industry, raw materials were abundantly present (Leather, rubber, cotton) etc, will help the seasons to standardise their input procedure especially to material used, labours, suppliers, services and logistics in some of the regions. Threats Of Substitutes The buyers propensity to substitute was very low. Consumers are not likely to substitute due to the performance specification of the product. e.g, a basketball player would not wear boots to play basketball. Therefore, there are no real substitutes for athletic footwear. Consumer substitutes for athletic footwear products are low because there are little alternatives to switch, some substitutes for athlete footwear could be boots, sandals, dress shoes or bear feet. Barriers To Entry Threats of entry was very low in the sense that, seasons is able to control their costs to retain performance advantage over emerging competitors in the industry. The capital injection into web site development is high and must be updated frequently with new promotions and added features to attract online shoppers. There are many proprietary product differences in the industry therefore brand identity has an immediate competitive advantage. The online footwear industry is highly abundant with hundreds on online merchants. Switching cost is low for the consumer, and may occur frequently depending on consumer preference and other factors affecting consumer, and may occur decision, (i.e. price sensitive consumers). Selling footwear online is highly competitive; however, barriers to enter into this ecommerce industry are quite low. Rivalry Among Existing Competitors The rivalry among existing competitors in the footwear industry was very high. Most individuals in North America have access to high speed internet and online purchasing has become the new trend for the twenty first century. Almost every large firm has a web site, and most of these web sites contain virtual stores which provide convenience to consumers. Competition is fierce in the footwear industry and those who dominate or lead the market do so with high capital expenditures, aggressive sales and marketing strategies, and strong brand identity. Pestle Analysis Political Analysis Political environment vary widely between countries and can alter rapidly. Government can of course create significant opportunities for organisations. It is important, however, to determine the level of political risk before entering a country (Johnson et al, 2009) pg 218. Examples are the political stability of the country, tax policies, etc. Economic Analysis key comparators in deciding entry are levels of gross domestic product and disposable income which help in estimating the potential size of the market. However, companies must also be aware of the stability of a countrys currency which mat affect its income stream (Johnson et al, 2009) pg 218. Examples inflation rate, interest rates, labour costs, etc. Social Analysis Social factor will clearly be important, for example the availability of well trained workforce or the size of demographic market segments old or young relevant to the strategy (Johnson et al, 2009) pg 218. Examples are income distribution, consumer behaviour, living standard. Legal Analysis Countries vary widely in their legal regime, determining the extent to which businesses can enforce contracts, protect intellectual property or avoid corruption. (Johnson et al, 2009) pg 219. Another external factor that C Seasons faced was other competitor, this was difficult because we new that other industries would have access to our details and would see what we were doing and try to target our business. The edge our industry had was that we spent more on advertising and reducing our delivery time to two weeks. Internal Environment Technology Capabilities All the industry under the simulation game has got one thing in common and that it we are all making athletic footwear. We all want to make the best footwear and so we would make sure that we use the best and very latest technology to produce the best footwear for the athlete or for the public that would wear them. Distribution This is how the footwear is distributed to the wholesalers and private customers. C Seasons was able to reduce delivery time from four weeks to two weeks which helped sales. Purchase Decision Purchase decision is what will determine the product a customer will purchase or buy, this would in turn reflect in the decision to be made by the company. In all cases, before customer makes a decision to purchase a particular product they would compare prices of the product with the value they hope to enjoy from such product. C Seasons was able to enhance the purchase decisions of its customers by making their footwear a high quality with good styling.