BSG Report, Part 2
The only thing, we cannot change, is the Upgrade of Factory in B and D. Which should be Option C. That was a factor that we cannot keep much higher STARs in later years at lower cost! If we do again, this is the key we will change.
For all years from 14 to 18, we keep high S/Q and Model number. Just a higher price than average and large capacity to get high market shares. For Year 18, Internet Segment, we sell 63.00 and 7 stars compared with 58.19 and 6.0 stars of Ind. Avg. In NA market, we sell 54.00 an 7 stars compared with 48.71 and 6.0 stars of Ind. Avg. With this tactics, we get 12.6% of market shares. Of course, we always used strong advertising at near maximum of 24.000 in NA and also max for other markets.
Business Results when we change the Strategy
From the Year 15 to 18, for all 5 past years, we maintain EPS always higher than Expectation, in year 18, the G-Company EPS is $ 12.8 compared with 4.03 Investor Expectation (IE).
G is on top of market, we regret that we did not apply the Strategy strongly to keep top position in later years. In fact, we should use stronger Strategy by increasing S/Q and price, and advertising much more than other. Also, we did notice LA importance, but we did not build new Factory here in time to get advantage.
Evaluation of the company’s competitive advantages and disadvantages
Employing a global differentiation strategy, from Year 14 to 18, we apply higher price than average, increasing production capacity, use high model number and higher S/Q, with strongest advertising. We know we did not get advantage of Quality bonus, so we keep high capacity.
We also notice early that H get a factory in LA, which we do a lot of research and know that will have advantages in the future years. We ignore this, because we think it is only 18 years. But this is one reason we lost the top position in year 17. We get back to top in Year 18, but all score, low.
We also ignore the EPS, we know we could do better if we buy back some Share and focused more in Net Profit in Year 17. We did fix the issue in Year 18 to get back to top of the year 18.
In cost analysis, we see that a factory in LA is lower cost than NA. That is a key that we should have built a factory in LA in around year 13 or 14. But we are in low position at that time, we need to delay.
Our G-Company key advantage is:
- Strong Plant capacity: NA 3.000 and AP: 9.000
- Strong Advertising
- Low price compared with High Model and S/Q.
To adjust or change strategy after each year, we focus on study of Market Snapshot, we see the colorful chart of Price and S/Q Rating and Product Line Breath to identify the position of competitors, also we find out the niche market we can move in for the next years to get more market opportunities and avoid direct competition with closest competitors.
We have Five very strong competitive advantages, including:
- S/Q rating (always higher than 1 start, which we should increase to 2 stars, if upgraded in C)
- Model Availability (350 then 500 models)
- Advertising (always 200% or double of Ind. Avg.)
- Retailor Support (always 50 or 100 higher than Ind. Avg.)
- Celebrity Appeal (always try to get 2-3 at good bidding, we do not war by price)
We see some weaknesses, but we do not fix them, because they cost a lot but does not affect good for Net Profit. Therefore, we keep Rebate Offer, Delivery Time a little lower than Average.
We will get back Retail outlet if we have more time.
Analysis of markets and competition.
Overview of Competitors
Such an analysis will require a discussion of the strategic groups in each market.
Competition is one of the major factors that drive the cost and price of products. In this industry, the demand for footwear was growing and so was competition. To analyze the markets and competition, we took a look at the following:
North America was one of our major target markets with a high demand of footwear. To increase market share, we use strong advertising, high model number, higher S/Q to get as much demands as possible, we also support strong retailers to get more every years.
We continued apply strong advertising, often 200% of Ind. Avg., we test optimal decisions and often use this ratio for getting as much demands as possible.
The most close competitors change over the years, we lead the game in most of the years from 14, 15, 16 and 18. H-Company seem to close up and lead in Year 17 and 18 we see their strategy not threatening because actually H is focused on different segments.
- For Internet Segment: We use 63.00 and 7 stars, when H used 55.00 and 4 stars compared with 58.19 and 6.0 stars of Industry Average. Also, in NA market, we used 54.00 and 7 stars, when H used 43 and 4 stars, both used 500 models compared with 48.71 and 6.0 stars with 321 models. We can get higher margins per pair of shoes if we follow our strategy in next years.
We maintain higher S/Q than Ind. Avg. every year. Next, we use higher advertising for all the four market segments. We look carefully at competitors prices and S/Q and model number to define who in most potential competitors next years. Of course, we cannot know for sure, because they need to change to get their objective. But normally, they compete directly with the close competitors or apply similar strategies of the top companies.
We noticed that the Industry divide in two groups, our group on right hand of the chart, the other on left end with different strategies.
Because of strong competition in 500 models, we need to push up the S/Q. But we cannot upgrade the factory with C. So, in fact we could start build LA factory and upgrade with C in year 14. We did not. So if we do again, we will do that.
Maintaining high model number 500, and high S/Q will cost a lot. But we need to do so, we can get high margins, also, we discover that H followed lower S/Q of 4 stars. They get lower Image point. So this is the target, if we continue year 19, we will increase Image to 100 to lower H score in Image. This is just a lesson for the future.
We get from 4th to top successfully by changing the strategy to 500 models and 7 S/Q. We can see the changes in strategies of close competitors. At the end of year 18, two top companies get higher than 100 point of overall Score. In Year 18, G-Company get 118 of Investor Expectation, 97 of BII – Best In Industry Score, we understand that ROE does not meet requirement because we expand to fast. But Overall Score we get 108 and increase +16 from year 17. H-Company is 2nd with 118 of IE, 93 of BII and 104 of Overall Score.
Analysis of Major Competitors
We get to top in Year 15 and 16, both tables, then H come to top, we are 2nd. In year 18, we back to top but Over All still 2nd. We can see that in term of Net Profit, we get 108 vs. 104 of H in year 18. So we are back to do well. If we have Year 19 and 20, the competition will be strong.
Also, we see that H apply lower S/Q of 4 Stars. This is a key we can attack. We can enlarge the Image point from 100 vs. 65 of H to get higher point. We will also need larger factory in AP and keep NA for controlling Private Label, we also will have more advantages in the future, because the trends of Private Market often requires higher S/Q in the future and NA has upgraded in Option C already. We can also build a new factory in LA for future demands.
In Year 18, we get back high Net Profit of 108.877 compared with 104.530 of H Company, we always look at Page 5 of Footwear Industry Report to see the trends of Net Profit over the years. With Net Profit higher than 100.000.000 per year, next five year for G-Company will be easy.
Comparing with H, they also apply strong advertising, lower prices, lower S/Q.
We need to focus back in Net Profit to increase EPS. Comparing with H, we are quite close, 12.81 vs. 13.57. We can buy back some stocks to increase EPS.
Keep increasing Net Profit, increasing EPS to compete with H
We also have higher ROE, 24.4 vs. 23.00. This is good point, we need to reduce Equity by some ways.
Keep High Net Profit, reduce Equity to increase ROE
Action 3. Stock Price
We also have to increase Stock Price, get is back to high, 211 vs. 217 is not a large gap. If we get high Net Profit again, we can compete with this criteria.
Action 4. Credit Rating
Both companies get A for Credit Rating. We now get A+ in year 19 (although, we do not continue). But getting an A+ for Credit Rating will be advantages.
Action 5. Image Rating
Continue Higher Image to compete with H in Year 19 and Year 20. This is the key to attack H because they have very low Image of 66, we will increase to start, to get 100 point in Image. Then, we have one strong advantages.
The strategic decisions of C-Company over time
Some companies they believe that in this footwear industry, the low cost leadership is the best strategy. It may be true for last 30 years, but not now. With new technology, advance factory can reduce cost, but keep increasing Quality, shoes are not just shoes, they are Image, they are also Health care for every step we make in daily life. So, the high S/Q shoes can get larger market share, increasing day by day. The cost of a good quality shoes at USD 55.00 is affordable by most of customers. Also the gap of USD 10 is not a barrier. People can move up to $55 or even $65 to get top quality shoes easily.
This is why we change strategy from Year 14, to follow 350 to 500 models, and increasing quality regularly, from 5 to 6 then to 7. We should have increase to 8 and 9 then we could have better results.
Also, we keep the Price very reasonable, just 10% to less than 15% higher than Ind. Avg. so that most of customers can change to our Branded products when they notice the value for quality.
Also, the evidence of strong Internet sales proved that our strategy is right!
The effectiveness of strategy.
We change the strategy to strong and leading of the market, get up from slow company to leading the models and S/Q with reasonable prices. This proved right. We get Net Profit from 26 million in Year 13 to 108 million in Year 18. Even higher than H, top competitors. Much higher than I only 50, and D only 63. Leaving F far behind at 60 million.
We recognized the loss from Year 17 due to our fast expansion, we get Net Revenue of 697,029 and Net Profit of 108,877 compared with that of 533.653 Revenue and 104.530 Net Profit of H-Company. Our Competitor seem to be more effective in Year 17.
If we look at details, H is also has 127 days of inventory when we have only 39. So we are selling better, we have the same 3.000 and 9.000 factory capacity. So we can compete.
The lessons we learn from the BSG is we can always find a good strategy to bring a company back to good position, if we look at market opportunities and look at strategy of competitors. Also, think about value we bring to customers, then we can find a good strategy. In this case, we bring best value for customers, largest selection, and very reasonable prices. This may the three key reasons for G-company to get back to Top.
H company played well, what we notice is they up and down sometimes too, but they also keep going up. Their advantage may come from LA factory for lower cost also they have lower prices and strong advertising too. Image is one of the issued they find difficult to fix in the future.
Lessons learned from experience
The BSG provided our team with a comprehensive understanding of the intricacies of strategically running a business in situations that mimic real world.
We did not start well in Year 11-12 and 13. But from Year 14 to Year 18, we did well,
Most of our key criteria are much higher than Investor Expectation, Over all Sore 102/100 in Year 18, with details:
|EPS||12.81 / 4.30|
|ROE||24.30 / 15.00|
|Image||89 / 70|
|Credit Rating||A / B+|
|Stock Price||211.80 / 48.78|
After every year of the game, we know how to look at market Snap Shot to see the results.
We have seen the Intelligence Report to identify our Strength and Weaknesses.
One very important lesson that we learned was that although we spent STRONG resources on advertising, 200% of Ind. Avg.
We need to estimate or use Sales Forecast precisely to know how much market demands, how much we can produce, and how much left for future growth that need to use in Private markets, even with lower Margins (but increase Image).
We also know that Net Profit depends strongly in Margin per pair of shoes in each market segment, LA often get very low margin, in early years, but increasing fast. It is like real life.
Also, we know where to distribute more to get high total net profit, the segment with higher margins, but all 4 segment market shares contribute to Image, so we learn that market shares create Image worldwide. This is true to life.
Private markets can be good or bad, if total Supply close to total Demand it is an opportunity. We can get Image and both Profit if other ignore the chance. But profit comes with risks. Some difficult companies dumping the prices, then we cannot get the contract, lower profit, lower image will come. So, the best case, do not depends on Private market in later years.