At the beginning of the Simulation I think we were not 100% sure how to define our goals and what is our unique mission statement for a dinnerware company. After analyzing what matters the most to customer and shareholders we came to the conclusion that we need to provide customers with high quality products at reasonable price and for shareholders we need to have high ROI and ROE plus pay dividends to maximize their returns.
As a group we assessed the dinnerware industry and conclude that the industry is not very attractive. Starting with competition, which was extremely high. All seven groups plus the imported sold the same product and competed in the same markets. Continue with the power of buyers, which was also very high, since all the products were essentially identical and the price was more or less in the same range it was hard to attract and keep the customers. We decided that spend more money on research and development that would help us to create a different better product. On another hand, the power of suppliers was low, since labor and materials was easily available. In addition, the threat of substitute products was low, since there were only eight in total companies selling the dinnerware in this markets, thus the consumers had no choice of alternative products. Although, in a real environment the threat of the substitutes is high, since there are no switching cost to the consumers and many different options available to buy if one needs a dinnerware, such as different kind/price/quality/bran names and so on. I believe the barriers to entry were not in a scope of the simulation since there were no new entries. Similarly, in a real environment, barriers to entry would be low, since this is not a high capital required industry and there are no strict regulations that would protect from a new entry. Therefore, by looking at each point for the simulation assessment, competition has a low attractiveness, power of buyers has a low attractiveness, the power of suppliers has a high attractiveness, and the threat of substitutes has a high attractiveness. Overall, the industry is not very attractive.
Closer to the end of the simulation we noticed that economy seem to improved over the course of the simulation and this could be a signal that customers would want a better more expensive products such as second product. Our group chose to concentrate on only one product and make sure that our costs are kept at the minimum while market share and sales were increasing.
As a group we decided to differentiate our product by higher quality and eventually charge higher price for our product. Therefore, we invested heavily in quality control. As the beginning of the simulation it was not clear how much money we would need to invest in order to have higher quality than our competitors because they were no indicator of dollar amount other companies had spent on quality control. After the first few quarters, we learned how much to spend for quality control and by the end we had the highest spending on quality control than all the other groups. I believe this was our advantage that helped us to increase the sales, especially in quarters 5 and 6 where we had an 83% growth in sales.
Our group also concentrated on achieving the lowest cost factor, which we achieved by the last quarter. However, I believe we did not have a chance to really benefit from this advantage given the fact that this was our last quarter. Also, during the simulation our company was investing a lot of money in expansion, which was in our opinion, very pricey but necessary thing to do. I believe in the end of the first year we had realized that we were not expanding enough on the second stage of manufacturing and this lade to many back orders and higher labor costs since we were forced to use more expensive labor of subcontractors. We fixed this problem closer to the end of the simulation by investing more in the second stage manufacturing, however, it was not talking effect as quickly as we would like because the expansion were taking two quarters to come to effect.
Overall, I am happy with our performance in the simulation. We accomplished a few of our goals, which were to have the highest quality and lowest cost factor. In addition our stock increased in price over the course of the simulation and we were paying a dividend to our shareholders.
On another hand, I believe that we were not consistent with our pricing strategy. As I mentioned in the beginning our goal as to manufacture highest quality products and eventually charge customers higher prices then our competitors. However, during the simulation we were always a mid-priced company because we wanted to make sure that we sale enough products and our sales continue to grow. Even though, we were increasing our price gradually by $2 each quarter this was still not enough to be a highest price product because every other group were doing similar increases. On the same note, I believe or sales were especially hurt during the last quarter when all other groups lowered their price to increase the sales and we just continued to our $2 more strategy, which probably drove customers away.
As for the future, we would definitely introduce our second product as the bull-bear economic index is projected to be 132 for the next quarter and the economy seems to be in a condition to want and handle higher priced luxury products. Also, we would continue increase our spending on research and development to try to gain the extra differentiation in our products.
Tuesday, May 20, 2008
Diagnosing Strategic Problems:
There are many symptoms that can be taken into account when diagnosing strategic problems that a firm may be facing. Two of such symptoms are: (1) too many customer complains; and (2) too much dept.
Too many customer complaints:
Satisfied customer is the key to succeed for every business. Companies are aiming to satisfy customers with products, services, and atmosphere to maintain long lasting relationships with them. More customers are leading to more sales and eventually higher profit. On the other hand, if the company does has many customer complaints it will lead to decreasing number of satisfied customer, deteriorating sales and eventually lower profit. Therefore, companies should perceive customers complain as a warning sign to problems. The company must quickly and efficiently respond to solve this problem. If the company failed to address the problem promptly it will lead to deterioration of company’s brand image. For instance, there was a small fruit and vegetable store on the corner where I resident in Brooklyn. It was very dirty inside, products were not fresh and there was always a long wait time when customers are ready to check out. Of course people complained about everything but management did not seem to care. Overtime, the store was forced to close because there were no more customers that were willing to spend their moneys in that store. A few months later someone reopen this store again after renovation and changing the name. I personally still do not shop in that little store because I believe the guys who reopen it is the same owners and this store will go down the same path. This is an example that shows that brand name can be harmed easily and it is very hard to rebuild customers’ trust.
Too much debt:
Although debt can be a major source of liquidity, companies must be aware that frailer to pay debt obligations at maturity or interest payments will send them to bankruptcy. In addition, heave debt burden takes away from companies’ financial flexibility and ability to grow. For example, Frontier airlines filed for bankruptcy earlier this year due to the change in policies by its principal credit card processor. The credit card processing company unexpectedly said that it would withhold “significant proceeds” received from the sale of Frontier tickets. As the result, Frontier did not have enough liquidity to continue its operations and decided to file for Chapter 11. This shows that companies, especially those that participate in the capital intensive industry like airlines, need to have enough “cash cushion” in order to sustain afloat and high leverage worsens the situation.
Too many customer complaints:
Satisfied customer is the key to succeed for every business. Companies are aiming to satisfy customers with products, services, and atmosphere to maintain long lasting relationships with them. More customers are leading to more sales and eventually higher profit. On the other hand, if the company does has many customer complaints it will lead to decreasing number of satisfied customer, deteriorating sales and eventually lower profit. Therefore, companies should perceive customers complain as a warning sign to problems. The company must quickly and efficiently respond to solve this problem. If the company failed to address the problem promptly it will lead to deterioration of company’s brand image. For instance, there was a small fruit and vegetable store on the corner where I resident in Brooklyn. It was very dirty inside, products were not fresh and there was always a long wait time when customers are ready to check out. Of course people complained about everything but management did not seem to care. Overtime, the store was forced to close because there were no more customers that were willing to spend their moneys in that store. A few months later someone reopen this store again after renovation and changing the name. I personally still do not shop in that little store because I believe the guys who reopen it is the same owners and this store will go down the same path. This is an example that shows that brand name can be harmed easily and it is very hard to rebuild customers’ trust.
Too much debt:
Although debt can be a major source of liquidity, companies must be aware that frailer to pay debt obligations at maturity or interest payments will send them to bankruptcy. In addition, heave debt burden takes away from companies’ financial flexibility and ability to grow. For example, Frontier airlines filed for bankruptcy earlier this year due to the change in policies by its principal credit card processor. The credit card processing company unexpectedly said that it would withhold “significant proceeds” received from the sale of Frontier tickets. As the result, Frontier did not have enough liquidity to continue its operations and decided to file for Chapter 11. This shows that companies, especially those that participate in the capital intensive industry like airlines, need to have enough “cash cushion” in order to sustain afloat and high leverage worsens the situation.
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