TABLE OF CONTENTS
Mission Statement……………………………………………………………………. 2
Long Term Strategies………………………………………………………………… 2
Short Term (Yearly) Strategies…………………………….………………………… 3
Marketing Concept………………………………………………………………….. 22
Decision Making Techniques and Strategy Formulation……………..…………….. 29
Competitor Analysis Report………………………………………………………… 35
SWOT Analysis……………………………………………………………………... 49
1
Mission Statement
Our mission is to be the leading provider of the most innovative and highest
quality shoe in the world. We pride ourselves on our commitments to the highest level of
customer service and quality. Each year we strive to grow our business around the needs
of our valued customers. Through our extensive network of customer service
representatives and retail outlets we ensure that the voice of the client is our number one
priority. Furthermore, A-YO maintains its commitment excellence; this is most evident in
our aggressive growth and expansion of our asset base. We are dedicated to employees as
they are the foundation of our great products and service. We are a unique manufacturer
of shoes in that we believe service and quality should be the most important aspect of the
sale. Ideally, we want to continue to reward out loyal investors with continuous growth in
our stock price and in dividends issuances.
Long Term Strategies
Essentially, our long-term strategy was to expand our asset base and production
capabilities, which would enable us to cut production costs. With lower production costs
we had hoped to take a competitive position in the market through a pricing strategy
which allowed obtaining the greatest market share. With the greatest market share and
lowest cost we believed that A-YO would be in position to maximize the profit margin
and to become the leader in the shoe manufacturing industry.
From the start we saw that our best opportunity for growth was in the developing
Asian market. Although, the initial costs for building a facility were high, we felt the long
term benefits would outweigh those costs. The first benefit would be the increased
2
production capabilities. This allows us to exceed the demands of the market and protects
us from costly stock outs.
The second benefit of expanding into the Asian market is the decreasing cost of
labor for our company, A-YO. In the Ohio plant, the cost of labor after incentives was
approaching $20 per hour in the first year, and we knew that the demands of the North
American labor unions would only add to the already high costs of labor. This was an
issue as those higher wages would be forced onto the consumers. As mentioned before,
we desired to become a low-cost provider and the Ohio facility was not harmonious with
those plans. In contrast, the Asian facility offered labor at under $5 per hour while
maintaining our elevated level of quality. A-YO’s new plant would be state of the art and
the most innovative in the shoe manufacturing industry.
Finally, the corporate leaders at A-YO felt that in making a substantial investment
in the Asian economy and bringing the A-YO brand name to the region that the
consumers of the Asian economy would respond favorably to our product. In essence our
goal was to become “the” brand image of the rapidly growing Asian market, and in doing
so we would dominate the market share of the region.
Another one of the long term strategies was to become the leader in customer
service. At A-YO we pride ourselves on our commitment to the customer; we believe that
without a satisfied customer there would be no A-YO. In order to satisfy our customer
base we implemented a long-term plan than involved the construction of numerous retail
outlets and the subsequent hiring of service representatives. We knew it would be a
difficult task to become the leading customer service provider in the industry while
3
keeping costs within reason, but we felt any costs spent on customer service were value
added costs.
An additional long term strategy was to raise shareholder’s wealth, for us that
meant growing A-YO’s stock price each year and increasing annual dividends for our
value stockholders. As A-YO is a publicly traded company we believe that it is in the
best interest of the shareholders to pay an annual dividend, but more importantly the
executives of A-YO felt that growing the dividend each year would be the best way to
reward the shareholders who invest in our company.
Our final long term strategy was to develop a unique marketing strategy that
would set the A-YO name apart from the other companies in the shoe manufacturing
industry. We had hoped that this marketing strategy would, in essence, define the A-YO
brand name. The leaders of our company understand the importance of marketing and
they are willing to spend aggressively to ensure that the A-YO brand becomes more then
just another imitation Nike®. We believe that with our marketing campaign and
outstanding customer service that A-YO will be the number one name in the footwear
industry.
We felt that our marketing campaign would be most effective if it was focused
around two of our best products. The products that we choose were our running sneaker,
‘The Aftermath’ and our golf shoe, ‘The Maker”. We understand the importance of
effectively marketing these products in order to gain the greatest amount of market share
and to turn outstanding profit margins.
4
Individual Yearly Strategic Summaries
We entered into the first year (year 11) with our long term goals in the forefront
of the decision making process. First and foremost, we wanted to establish the presence
of our corporation in the Asian markets. Our first priority quickly became building a new
production facility on Asian soil. The team agreed that building this plant would provide
us with several competitive advantages and that it was important that we implement this
plan as quickly as possible. If other teams built plants on Asian soil before we did, we
would most certainly lose the edge that we stood to gain.
The first advantage we saw in building an Asian plant was the massive increased
production capacity we would enjoy. Building a large plant would increase our
production by 3,000,000 pairs of shoes per year. We were very excited about this
prospect because increased production was a requirement of our overall strategy, which
was to be able to lower costs and control market share through a competitive pricing plan.
The excess capacity created in the new Asian plant was a very good start.
The second advantage of this plant, concurrent with our overall strategy, was that
it would allow us to decrease our labor costs. The costs of labor in Ohio (per worker/per
hour) were close to $20 after incentives. While the elevated costs of labor posed a real
problem for our strategy, what made matters worse was an active union that would
continually place upward pressure on these costs every year. The Asian plant became a
real solution to this issue, because it lowered our cost of labor (per worker/per hour) to
under $5 after incentives. This provided more than a 75% reduction in labor costs, and
would obviously be a major factor in the success of our strategy.
5
Lastly, since the prospects of the developing Asian economy are very high, we
felt that it was important for us to establish our self in their environment to boost our
brand image. By catering to the needs of Asian society and gaining the approval of the
Asian people, we hoped that our strategy would facilitate a means for us to become the
global leader in Asian shoe sales.
Even though we would have preferred to keep the excess capacity that would
have been provided by the Ohio plant, the cost of labor was too much of a negative
factor, and thus we made a group decision to close down the plant effective this year. The
repercussions of this decision were that we would have decreased capacity for this year
while the Asian plant was being built. We decided that it still made sense to close down
Ohio and to use Texas to produce as much as possible.
It was important in the first year to make sure that we did not stock out, as this
would have a deadly effect on the sales in subsequent years. Our shipping strategy in this
year (as it was in all years) was to allocate whatever inventory we had based on the
demand forecasts of the individual regions. We also tried to pad these estimates by
sending reserve inventory to make sure that if sales exceeded demands, we would be
prepared to handle the excess demand and avoid any stock outs.
Because we were operating only one plant in the first year, we decided not to
compete in the private label market, purely because we did not have the capacity to do so.
In the branded markets we tried to raise prices a little because of reduced capacity (we
didn’t want to sell so much that we would stock out), but not so much that we priced
ourselves out of the market. In subsequent years we would have a better idea of where the
industry average was in terms of pricing, but because this was the first year, we had
6
limited information to make pricing decisions. Thus we made an educated guess that all
teams would be in the $40 per pair range (branded markets). In following our strategy,
we priced our shoes at $45 in North America, $42 in Europe, and $40 in Asia. We
decided to keep our retail outlets level at the rates set default by the software, but we
wanted to increase significantly our advertising budget, particularly in Asia where we
were trying to announce our presence. Our budgets for advertising were $3000 in North
America, $3,000 in Europe, and $3000 in Asia. We decided not to sign any celebrities,
because we were still not convinced of the benefit it would have in the strategy we were
trying to implement. Also, we were pretty concerned about our margins, so we decided
not to offer rebates for our shoes. Lastly, after reading the manual we decided that it
would be a good idea to increase the number of models available, so we did from 100 to
143.
The only other major decision we had to make in the first year was how to finance
our new facility in Asia. Our original plan was to issue $100 million in short term debt to
finance our new plant that costs $70 million. Unfortunately we made a typo in our
decisions and by accident only issued $100,000 in short term debt. This would become an
issue for us to deal with in the next year.
Even though we didn’t score many points in year 11, we were not disappointed
because we knew that the strategy we were attempting to implement was going to take
some time to become effective. At the end of the week we had scored 52 points, which
landed us into last place. We attribute this mainly to the fact that we had substantially
reduced revenues as a result of substantially reduced capacity (because we shut down
Ohio and Asia was in the process of being built). Low revenues led to low profit and low
7
earnings per share. All these things played a major role in our finishing in last place for
the week, but we were confident that our position would greatly improve once the Asia
plant got up and running.
In year 11 we were focused solely on planting the seeds of our long term strategy.
At the beginning of year 12, our focus was slightly altered. We still took measures to
further the implementation of our long term strategy, but we also needed to focus on
solving some of the problems that were created in year 11.
The first and largest of these problems was the mistake that we made in
attempting to finance our new plant. Instead of issuing $100 million in short term debt,
we issued $100,000. Add a $70 million plant into the mix, and we had a negative cash
balance. Unfortunately the problems didn’t end there. Our bond rating was currently at A
and falling due to a rising debt to equity ratio. This meant that capital was becoming
much more expensive. So we had to find a way to finance this facility without causing
our bond rating to fall any lower. The answer was to issue some additional equity. By
issuing 5,000,000 more shares we were able to finance part of our expansion, but also
able to issue more debt while keeping our debt to equity ratio under control. For the time
being,
we
had
solved
our
issue
with
financing
our
expansion.
Once we had a solution to that problem we could focus on the year’s production,
sales and marketing activities. Since we had new increased capacity provided by the
Asian plant, we decided to help bolster revenues by putting in a bid for private label
sales. In the previous week, team B had the most competitive bid in the private label
market of $28.50. In that year only 1,400,000 pairs were sold in this market. We used this
as our benchmark and decided that it was of vital importance to make sure that our bid
8
was accepted. So because our main concern was to help out our revenue mark, we offered
1,000,000 pairs and attempted to undercut the competition with a bid of $24.00. In
retrospect, this price point may have been somewhat low, but we were still turning a
profit, and we felt that it was imperative to move our inventory.
Our goal in the branded markets was to stay competitive. In the long run we
wanted to be able to lower costs and undercut the competition, but until we were able to
get our costs under control, and see some improvement in revenues, we would have to
just remain competitive. We priced our shoes at $42 in North America, $40 in Europe,
and $39 in Asia. To stimulate sales we offered rebates of $3 in North America, and $2 in
Europe and Asia. In an effort to get our costs under control, we decided to lower
advertising costs in North America and Europe by 50% to $ 1.5 million. In the Asian
markets however, we wanted to stay aggressive. Thus we kept our aggressive marketing
strategy with a $3 million marketing budget, and the signing of Karioki Footsu for $1.6
million per year. To help make ourselves more visible in the area, we doubled the amount
of retail outlets to 1000. We felt this was imperative in establishing ourselves as the
Asian shoe leader because other teams had started to move to the region. We knew that
being the first to the region could provide a big advantage, but we had to make the right
moves.
At the end of year 12 we were very pleased with the progress we had made. We
had captured 43.5 percent of the private label market, 16.1 percent of the North American
market, 23.2 percent of the European market, and an astounding 40.1 percent of the Asian
market. Best of all, our revenues shot up and we showed huge improvement in our class
standings. Our strategy in the private label market was very good, as were our attempts to
9
stay competitive and control costs in North America and Europe. But the real reason for
the results we saw in year 12 have to be attributed to our aggressive marketing and
continued expansion in the Asian markets. As a team we were extremely confident that
our strategies in Asia had begun to pay off and that we were on the fast track to
domination in that market.
A-YO entered into year 13 with the hope of continuing to build upon the success
that we started to see in the previous year. More specifically we wanted to continue doing
what we had done well, and fix what we hadn’t done so well. Last year we saw our
private market strategy as a successful one. So this year we continued in that with some
slight modifications. The first change was in our private label pricing scheme. Last year
we successfully undercut the competition, but we undercut more than we should have,
which cost us excess profit. This year we felt that we would be able to make a better
estimation as to where the competition would be pricing their products in this market.
Therefore we boosted our bid price to $28.50 per pair with 1466 pairs offered. At this
price point we felt confident that we be able to capture some excess profit while still
undercutting the competition, thus ensuring that the entire inventory we allocated to that
market would be unloaded.
One of the things that we thought could be improved upon was our percentage of
market share in North America. We had an okay showing in year 13 with 16.1 percent of
the market, but we knew that sales were certainly below where they should be.
There were a few ways that we could address this issue. The first and most
obvious was that we could take a more aggressive strategy and possibly hire a celebrity.
Having seen the great success we had in Asia after the signing of a celebrity
10
spokesperson, it appeared that this would be a good idea. So we immediately put in a bid
for Sir Charles Dunkem. We also increased our advertising budget from $1.5 million to
$2 million, and added 500 more retail outlets.
Another thing that we could have done would have been to lower prices. However
with all the added costs of advertising, we thought this would put too much strain on our
margins. So we actually went the other way and increased prices by $1 to $41 a pair.
With these changes in place, we were optimistic that we would see a jump in the North
America numbers.
We were overall pretty happy with the performance of European and Asian sales,
and thus tried not to make too many changes to the numbers. In Europe we added 100
retail outlets, but kept everything else the same as in the previous year. By adding places
for people to buy our product, we thought that we might be able to pick up a little extra
market share.
The Asian strategy also saw minimal changes. Like in the two other regions, we
added 500 retail outlets to this market. Again the logic was that we should give people
more places to buy our product, and hopefully we could pick up some more market share.
We also decided to decrease our marketing budget by $1 million. It seemed like a good
area to cut costs, and the general consensus was that it probably wouldn’t hurt us because
we still had the celebrity endorsement. Lastly, in an attempt to improve our margins, we
hiked prices $1, up to $40 per pair.
Overall our current strategy was to stay competitive; we were having too much
trouble with our costs in order to pursue our initial strategy to undercut everyone else. We
11
were confident that if market share continued to grow, we would be able to meet our
goals.
The results from year 13 were not terrible, but certainly not up to our
expectations. In the private label markets we were able to sell 450,000 more pairs of
shoes than in the previous year; however market share fell from 43.5% to 38.7%. In
North America we had taken measures which we hoped had increase our market share;
unfortunately we ended up loosing a little more than a 1%, moving this years total down
to 15%. In Europe we had reasonable gains in sales and market share. Our sales there
jumped about $200,000, and we gained about a percent of market share. The real
disappointment this year was in Asia, where our market share fell from 40.1% to 27.3%.
This was also the only market where we sales marginally decrease.
For the most part, the mediocre numbers in year 13 can be attributed to horizontal
movement in the European and Asian markets. Unfortunately there was a much bigger
problem looming in North America where for the first time we had stocked out. Not only
that, but we missed the demand by almost double. Up to this point, we had been basing
our shipping decisions on the demand estimation in the software. We then typically
would “pad” these estimates with enough extra pairs to handle any margin of error.
However the projections were off by so much this week, that there was nothing we could
do. Furthermore, we started to realize that we would need to expand capacity for
upcoming years.
When year 14 began we had some serious problems to address. With the stock
outs in North America the year before, we were left with a service rating of 0 in that
region. Our market share would surely take a hit, and if we could not find a way to
12
minimize the effects and regain market share in that region, the game could well have
been over for us. North America was just too important, and it wasn’t likely that we
would be able to make up for losses in that region elsewhere.
There was also an issue of capacity. We had missed the demand in North America
by nearly half. Even if we could have anticipated the actual demand, we may have had
difficulty meeting it with our current capacity capabilities. The first thing we had to do
was fix these problems.
The first thing we did was to maximize production by giving overtime to our
employees. Producing at full force meant that costs would increase, but we couldn’t
afford to stock out again. Producing at full overtime was only a short term solution to our
problem because it would be too expensive every week. We didn’t want to expand our
plant because of the high costs associated with that, so we took the cheaper road and
pursued automation. By ordering automation option A in both factories, we allowed
ourselves 500 additional pairs per worker. The cost was $5 million per factory. So for
$10 million we figured this would be worth it.
Another ongoing issue with our company was our elevated costs that continued to
eat at our margins. To fix this, we decided to use some cash that we had on hand to
purchase back some debt. It would cost us an extra 2% to retire it early, but the benefits
of saving on the yearly interest expense far outweighed it. So we decided to retire our
largest issue of debt, which was about $30 million worth.
We had to alter our marketing and shipping strategy slightly this year to deal with
the stock out in North America for the previous year. Because our service rating was so
low, we knew that out sales figures would be pretty low for the year. So we made sure
13
that we had enough excess inventories in the region to avoid another stock out, then
moved the rest to the private label market to turnover for revenue. We also tried to take
some measures to smooth things over with the shoe buying public in North America by
doubling our marketing budget to $4 million, as well as adding 1500 new retail outlets.
A-YO has always prided itself on having the best customer service in the industry, but in
this time of crisis, we added even more; just another measure to try and regain the trust of
the consumer. To allow for all these added costs, we raised our prices marginally by $1
(keeping up with the industry as well). We also stopped our customer rebates program in
all markets, which as a team felt had run its course.
The European and Asian markets saw a few changes as well. In Europe, we
increased our marketing budget by $500,000 and raised our prices $2 up to $42. In Asia
we raised our marketing budget by $1 million and kept prices steady at $40. The team
concluded that we may be able to pick up more market share if we marketed more
aggressively while keeping prices level. A-YO is convinced that in order to succeed we
need to regain market dominance in the Asian market.
Considering the stock outs in the previous year, the results from year 14 could
have been a lot worse. With that said, the results were still not where we wished they
would be. We did well in the private label market, selling all 400 pairs offered at $32 a
pair. We controlled 21.1% of that market, which was good. As expected, we took a
beating in North America where we captured just 12% of the market. This obviously was
fallout from the inventory problems in the previous year, and we expected that it would
happen.
14
The numbers in Europe were surprisingly disappointing. We increased our
marketing efforts substantially, but ended up loosing almost 10% of market share. This is
likely because our overall cost was too high to compete. Another group had the same
shelf price as us, but offered a $3 rebate. It’s somewhat ironic that our initial goal was to
undercut the competition, and now we are being undercut.
The story in Asia was very much the same. We had increased our marketing
campaign because we knew that it was vital to recapture the Asian market from our
competitors. But again our pricing scheme was marginally undercut by the competition,
which caused us to loose about 5% of our position in the market. There is little question
that we took some hits in year 14, but we knew what we had to do, and we were
confident that we could bounce back in the upcoming years.
In our eyes, we would either establish ourselves in year 15, or fall out of
contention all together. A-YO had weathered the storm as best it could in the previous
year, but now had to be our time. We had lots of left over inventory in North America
because of the stock out from year 13. Thus we knew that we could play a little more
aggressively in the private label market. After we carefully considered the demand
forecast for all three regions, we allocated what was left over into the private label
market. The 2 million pairs that would be allocated to that portion of the business was
without question our most aggressive offering yet. We followed our long term strategy
and undercut the competition at $27.99 a pair. This figure covered our costs and even fed
us some profit, but most importantly it almost guaranteed that we would move all 2
million pairs.
15
In North America, it appeared that our post stock out tactics had worked and our
service rating shot back up to an industry best 194. Just to help our continuing effort, we
decided to increase our advertising budget by $1 million. We also kept our price stable at
$40 per pair, which when combined with the increased marketing efforts should have
yielded positive results.
In Europe the story was similar; we needed to regain market share. In an attempt
to make this happen, we increased our marketing budget by $1 million, and lowered
prices to $41 per pair. The strategy here was almost identical to the North American
strategy, and we were confident our efforts would be successful.
In Asia, as in the other regions, we increased our marketing budget by $1 million
in an attempt to regain market share. However we actually raised our prices in this region
by $1 up to $41 per pair. We felt that this would be an expectable way of making margins
more attractive, while still remaining extremely competitive.
We knew the importance of this year when it started. After handing in our
decisions, we were all but sure we would capitalize on our “last chance” and that the
decisions we had implemented would prove to be the right ones. Unfortunately, there was
bad news lurking over the horizon.
The results from year 15 were bad. A-YO had done the unthinkable and stocked
out in North America again. In the estimation of management, this all but killed our
chances of making a move to the top.
Although the news was overwhelmingly bad, there were some good things that
happened. First off, we did move all 2000 pairs in the private label market at $27.99 a
pair, which was good enough to capture 56.3% of the market. In Europe we captured an
16
additional 4% of the market, selling almost 30% more than we had the year before. And
in Asia, we were able to increase sales by 500,000 pairs while holding our market stable
at around 22%. These good numbers were undoubtedly the result of aggressive marketing
and competitive pricing. So even though the overall tone of the year was negative, it was
comforting to see that our planning paid off in some areas.
As I alluded to before, the really bad news came out of North America where we
stocked out for a second time. Once again, the demand estimates provided by our
software were off by nearly 1.5 million pairs. The real problem was that our service
rating for the next year would be next to nothing, which meant that we would have
significantly decreased sales in that region; not a good sign for the A-YO corporation.
In year 16 we had to regroup. The facts were that we didn’t have much time left,
and that this made it next to impossible to win the game. It was sad but true. We took the
realities of our situation in stride and started to think of ways to finish in the best possible
position. One thing this simulation had thought us, was that sometimes you need to divert
from your original plan in order to perform under different situations. We were not happy
to be where we were, but we still held our heads high, rolled up or sleeves, and got down
to the task at hand; getting into third place.
The first decision we made was to abandon the private label markets for the
coming year. Even though we had stocked out in North America the previous year and
sales were sure to be sluggish at best in the region, we couldn’t afford to stock out again.
The demand figures, which continued to rise, had to be taken with a grain of salt. We
couldn’t win the game but we could still do damage.
17
One of the things we realized, albeit probably too late, was that we needed even
more capacity to keep up with demand. So we decided to expand our Asian plant by 3
million pairs of capacity. The $60 million price tag was pricey, but we saw it as a
necessity. If we didn’t do it, then we ran the risk of further stock outs, which would
potentially land us in last place. To pay for the changes, as well as a stock buyback
(which I will address), we issued $60 million in debt. This seems like a large liability, but
because of our AAA bond rating, we were paying only 4.57%. It would add $6 million a
year in costs, but as I said before, we were in a special situation and couldn’t stand by our
original pledge to keep lower costs.
As I mentioned before, we decided to buy back 1 million shares of common stock.
One of the places we thought that we may be able to pick up points was on stock price
and EPS. In order to get these numbers to go up, we needed to decrease the number of
shares (we had more stock issued than any other company). Thus we bought back what
we could afford to.
In North America we set out again to regain the trust of the consumer. In reality
we knew that it was too late to do this, but we had to try. So again we started to market
more aggressively, increasing our marketing budget again by $1 million up to $6 million
for the year. We also attempted to sign some celebrity spokes people in the area. The
major change we made however was in price. We were lacking in capacity, and even
though it was unlikely we would get enough demand to stock out (given our stock out in
the previous year), we couldn’t take any chances. As a countermeasure we raised prices
to $48. At this price level we certain that it would be impossible to stock out.
18
Given all the new costs we were taking on to fix old problems, we attempted to
cut costs in Europe. We reduced our marketing budget by $1 million down to $2 million
for the year. We also closed 100 retail outlets, which left us will 1000 in the region. To
stay competitive, we raised prices marginally by $0.50 up to $40.50 per pair.
In Asia we kept all our existing retail outlets in tact, but reduced our marketing
effort by $500,000 down to $3.5 million for the year. We also raised prices by $1.50 up
to $42.50 per pair. Our hope here was just to maintain our position in the market.
The results from year 16 were pretty close to what we expected they would be, so
even though we wished that we had been in a different position to begin with, we were
not all that upset. Our service rating in North America, as a result of the stock out the
previous year, was shot to just about nothing. Yet because of a massive stock out by team
B, we were able to sell almost 1.3 million pairs at $48, which was much more than we
expected.
In Europe we lost 5% of our market share. This was likely because we were the
highest priced shoe in the market, and after shutting down 100 stores, we had less places
to distribute to. One thing I don’t understand is why over eight years, no team ever raised
prices; baffling.
In Asia we held pretty stable, losing about 1% of market share. Our performance
could have been better here, but it certainly could have been worse. We were the highest
priced shoe here by $2.50 per pair, so the fact that we only lost 1% of market share was
bearable. We certainly wanted to remain competitive in our pricing strategy, but with
labor costs rising yearly, and an increased need for capital, it just wasn’t possible this
year.
19
In year 17 our strategy took on a kamikaze like form. We knew that it was not
possible to win, but we now had plenty of capacity and we felt as if we had a legitimate
chance at making a move for third place over the next two weeks. With that in mind, we
first decided to re-establish ourselves in the private label market. We allocated 1.5
million units at a bid of 34.50, and were confident that we would move them all and gain
market share.
In the other markets we took a gamble. After a surprising result last week in North
America with our elevated cost structure, we decided to raise prices across the board. In a
sense, we put it all on the line. We would either see a huge jump in revenues (hopefully
we would benefit from competitor stock outs), or we would price ourselves out of the
market and market share would plummet. With nothing to lose, there was no laying up;
we needed an eagle and a miracle. So we threw caution to the wind, pulled the driver, and
hit it right off the deck. We priced our shoes at $49.99, $47.99, and $47.99 in North
America, Europe and Asia respectively. Now we just needed one of our competitors to
pull a Van de Velde on the last hole.
With the increase in prices, we allowed ourselves some more room in our
margins. So we raised the advertising budgets in all regions by $500,000. It was all on the
line, all that was left to do was to wait and see if our long shot came in.
Unfortunately, the big gamble we took didn’t pay off. In fact, I’m pretty sure the
driver we hit off the deck landed deep in a hazard. And with the exception of the private
label market where we dominated with 57.7% of the market, we got crushed everywhere.
In North America our market share, which was pretty non existent to begin with, fell
even lower to 9.7%. In Europe we lost another 5% ending up at 7.7%. And in Asia we
20
lost an eye popping 10% of market share, falling to 9.5%. What made matter’s even
worse was that our quality ratings had fallen to 66, 66, and 90 in North America, Europe
and Asia respectively. In the previous year they stood at 144, 126, and 194.
The reason for all this bad news was simple, we charged way too much! We took
a gamble, and we lost. But believe it or not, there was a silver lining. We were still way
ahead of the last place team, and while it wasn’t possible numerically to catch the team in
front of us, there was a high concentration of teams at the top, which increased the
likelihood of a tie. And a tie at the top would move us into third place. In the most bizarre
of circumstances, there could be a three way tie, and we would be thrust into second
place.
Overall, we had some bad luck and made some bad mistakes (the worst of which
was allowing our team to stock out in North America twice). If we had to do it all again, I
am confident that we would win. Our initial long term strategy of being the low cost
producer and undercutting the competition was a good one, but we failed to take the
proper steps to implement it correctly. Looking back now, I feel like this game was all
about volume. Given another chance, we would have taken on more debt to expand
capacity. We then would have cut my costs as much as possible, and driven the price
down in the markets, washing out the competition.
When all was said and done, we were disappointed that we couldn’t have been in
the race for market dominance till the end, but we learned some important lessons about
industry, which was the overall goal I’m sure. Being a competitive person, it pains me
that we didn’t win, but in the end we just couldn’t recover from some key errors.
21
Marketing and Product Concept
The marketing team at A-YO was given the task to create a branded image with
the variety of shoes available to consumers. This is a difficult task as it requires both an
innovative and quality product that exceeds the demands of consumers and also a
marketing campaign that excites and inspires our consumer to be A-YO product users.
The executives of A-YO believed that offering our consumers’ two high quality
sneakers that we could position ourselves to dominate market share. The leaders of A-YO
believed that we could be most successful in the manufacturing and marketing of a
running sneaker and a golf shoe. With these products we advertised most aggressively
using ads placed strategically in print, radio and on television. Using a number of
different resources we were able to locate the areas in which our marketing efforts would
be most successful, along with the eventual costs of these marketing efforts.
Before choosing the appropriate marketing campaign, it is important to discuss
the types of shoes that A-YO decided to manufacture. As an athletic shoe manufacturing
company we had a number of options on what we would like to produce, more
importantly we had the option to produce both in the private label market and the branded
label market. Our long term strategy was to be the leader in the branded market, more
specifically running sneakers and golf shoes. In following trends from different regional
newspapers and national magazines we felt that these two areas would be most profitable
in terms of a branded shoe. However we still believed that there was profitability in the
private label market. With our emphasis on the branded label market, we decided that the
best way to build market share was to offer a variety of quality products. Therefore we
manufactured on average 150 different models of these types of shoes. Some years we
22
offered more models of both running sneakers and golf shoes, while other years we
produced fewer models. On average we produced 150 varieties of the branded model.
At A-YO we look to continue our innovative design process to meeting the ever
changing needs of our customer base. Our wide variety of models offered provide shoes
for both the highest level of athletic competition to shoes that allow for comfort in
today’s evolving lifestyle. We want our branded shoes to be stylish, but at the same time
offer performance and durability.
The private label is an opportunity for A-YO to provide retailers with a product
that can be sold for a low cost. Overall our private label shoes can be found in almost any
discount retailer in world. Consumers who purchase our private label shoe are not
purchasing the A-YO brand; rather they are seeking a low-cost shoe to fit their everyday
needs. We believe consumers in this segment trade off between cost and quality and they
must determine what if any shoe is of better quality then the other similarly priced shoes.
We did not use the private label market as a main source of revenues; however the shoes
that we did produce were of the highest quality relative to our opponents within the
industry. We made minimal efforts to advertise our private label, as we felt that they
would be best advertised by the retailers who sold our products.
At A-YO we saw a great opportunity in the running sneaker market, following
trends in both national publications and the global market; we felt that we could make an
impact in this market. Our running sneakers are the new face of both the competitive
runner and those individuals looking for a comfortable everyday sneaker. Included in this
group are great celebrities and athletes. We felt that not only should our running sneakers
be stylish and innovative, but they should also be durable and supply top level athletes
23
with stability and comfort during competition. With this in mind, we emphasized the
need for durability in our sneaker and to achieve this aspect in our model we produced
our sneakers using a significant amount of long wear material. In our first year of
manufacturing we used 47% long wear material in our sneakers. Although using this
amount of long wear material is costly, we believed it would not go unnoticed. We did
push those cost onto the consumer, but they are paying for the best running sneaker in the
market.
The example advertisement for our best selling running sneaker, The Aftermath,
shows the stylish nature that our company brings along with amount quality offered by
the shoe. The advertisement features world famous celebrity Oprah Letterman using the
sneakers during her daily run to McDonald’s and as a stylish and casual everyday shoe.
The Aftermath and its unique design can be found in a number of our different retail
outlets.
Our running shoes were sold using retail outlets in North America, Europe and
Asia with numerous customer service representatives available in each of the regions. We
shipped our product on a bi-weekly basis from our Texas plant and our large Asian plant.
We felt that two weeks for shipment was the optimal solution, which would give our
company the greatest benefit relative to the cost of shipping. Moving the majority of
production capabilities to Asia allowed A-YO to significantly cut down our labor costs
which was evident in our lowered prices. Although we did have to deal with import taxes
in moving our operations overseas, those costs were minimal to what we saved in labor
costs in Asia.
24
A-YO maintains that customer service is its number one priority and therefore we
offered our potential customers numerous retail outlets to purchase our products. By year
17 consumers will be able to purchase A-YO shoes from 7000 retailers in North America,
1000 retailers in Europe, and 1500 and Asia. We offer our customers a substantial
number of outlets to purchase our product. As we continued to expand the number of
retailers available for our customers our service rating rose to the highest in the industry.
The other shoe that A-YO wants to feature as its branded image is a golf shoe.
The golf shoe also relies heavily on durability and long wear material. The most
important part of the golf shoe is its ability to hold up during all types of weather along
with traction control for the player on all types of surfaces. We felt that the best type of
material to use with the golf shoe would be waterproofed leather. Furthermore, because
in many areas golf is played almost yearly and weather ranging from over 100 degrees to
somewhere in the 40° range, we wanted “The Maker” to be both breathable during the
warm weather but also have the ability to hold the warmth in the shoe during the cold.
We also want to stress the comfort that “The Maker” has. We felt that since golf is such a
tedious sport for the feet that comfort is a very important aspect in terms of what our
potential customers are looking for.
We used the same distribution system with our golf shoe as we did with our
running sneakers. Using our plants in Texas and Asia, and moving the product on a biweekly basis to our retail outlets in North America, Asia, and Europe we felt that
strategically positioned ourselves to capitalize on out product. We used completive
pricing strategy that took into account all off the factors that made our shoes great.
Although the prices were different for each region we realized that some area, such as
25
North America, were more likely to pay a higher price for our athletic shoes based on
their willingness to pay.
The most important step in developing the marketing strategy was to identify our
target market for potential shoe sales. In order to obtain our target market, we used the
SRDS, The Lifestyle Market Analysis (2005). Our target market for the running sneaker is
males in an age range of 18-44, who are primarily married with at least one child, most
often under the age of two. The median age for these males is 41.0 year old. The most
desirable consumer of A-YO’s “The Aftermath” running sneaker is a married male age
18-34 as their index score is a remarkable 226.
More often then not our clients are home renters as opposed to home buyers,
although the highest percentage of our ideal customers earns $100,000 and over (22.5%
of total). The median income of our clients is $58,193. Members of this category often
travel for business, enjoy foreign travel, and attending cultural or artistic events. Many
also look for self-improvement and are involved in community or civic activities. On top
of running and jogging, members of the group enjoy bicycling frequently, snow skiing
frequently, playing tennis, and horseback riding.
Additionally clients of the running and jogging profile look for moneymaking
opportunities, while often owning real estate investments. They are most interested in
electronics and new technological innovations. This information gives a detailed profile
of who our potential customer base will be.
With this in hand it is important to determine where the majority of these potential
customers are located throughout North America. This allows A-YO to strategically place
their advertisements throughout the region. Our marketing team decided to make a
26
minimum of 50,000 households in order to qualify for out advertisement campaign.
Therefore a place like Laredo, TX, which is number one in the lifestyles rank for all
running and jogging clients would not be used by are marketing team as it lacks the
sufficient number of household to qualify (12,416). The top geographic areas in which
the A-YO running campaign will be run include the following: Honolulu, HI; Austin,
TX; San Diego, CA; El Paso, TX; Harlingen-Weslaco-Brownsville-McAllen, TX; Salt
Lake City, UT; Los Angeles, CA; Washington, DC; San Francisco-Oakland-San Jose,
CA; and Houston, TX. These are the top 10 geographic locations for running and jogging
clients and therefore we will strategically plan out marketing campaigns around these
regions.
As mentioned before to reach our client base we will use radio, television and
print ads. In terms of our print ads we will use two magazines primarily to reach our
customers. Using the SRDS, Consumer Magazine Advertising Source we were able to
calculate the costs for all of our print ads. The prices are based on 2005 US dollars and
the resource covers nearly every published magazine in America. The first magazine is
Men’s Health, which is a nationally published magazine for men that covers a variety of
topics including nutrition, fashion, and fitness. It is published 10 times a year and
available worldwide. We think that the best approach for inserting ads in Men’s Health is
to use a one page full color advertisement. If we sign up for a full years worth of
advertisements we can purchase them for $119,540 per magazine.
The other magazine that we will run our print ads in is called Runner’s World,
which is nationally published magazine for both male and female runners. It offers the
latest news in the running world along with running tips and product updates. Our
27
marketing approach for Runner’s World is to put a full page advertisement in each
month. The advertisement will be in color, if we sign up for a full year then we will be
charged $68,150 per advertisement.
The other market that A-YO was looking to target is the golf market, which is
rather different characteristically from the make up of our customer base for runner and
joggers. As far as golf is concerned, we are targeting males age 25-64 both single and
married. Primarily these clients are home owners and not home renters with 25.6% of the
households making $100,000 and over. This brings the median household income to
$66,203.
Among activities other then golfing, our client play tennis, can often be found on
the ski slopes and enjoys running and jogging. He can often be found traveling for
business usually on airlines. In his free time he enjoys watching sports on television,
drinking wine and sailing or boating. Members of the golf clientele often hold stock and
or bond investments, along with real estate investments.
Using the same criteria as with the running and jogging group, the marketing team
took the characteristic of our golfers and developed an ad campaign to fit his needs. With
the ad campaign developed we located the top 10 geographical locations where are
clients most often resided. Again we used the criteria of minimum 50,000 households in
order to qualify. The geographical locations that were selected include the following:
Grand Rapids-Kalamazoo-Battle Creek, MI; Green Bay-Appleton, WI; Minneapolis-St.
Paul, MN; Lansing, MI; Palm Springs, CA; FT. Myers-Naples, FL; Traverse CityCadillac, MI; Salt Lake City, UT; Rochester, NY; and Milwaukee, WI.
28
The print publications that we will use to run our golf shoe advertisement are Golf
World and Golf Digest. Both magazine are published for readers in the world of golf,
they cover issues regarding the latest trends, course recommendation, gold tips and latest
equipment available. Golf World is published on a weekly basis, and A-YO’s marketing
department believes that the best approach is to use a full page 4 color advertisement on a
weekly basis. If we sign up for a contract that covers 48 advertisements then we will have
to pay $15,694 per week. As far as our approach with Golf Digest, a magazine published
on a monthly basis with similar features as Golf World, we want to have a full page
advertisement in each month’s addition in 4-color. This will cost A-YO approximately
$60,035.
Our total print advertisement campaign for one year will cost approximately
$3,486,932.
Decision Making Techniques and Strategy Formulation
Our group’s decision making techniques were very analysis driven, as we were
presented with industry reports from year to year. Our decision making techniques
intended to reach strategies that would emphasize our strengths, as well as exploit our
competitors’ weaknesses. We reached these decisions by comparing ideas and weighing
their pros and cons, and then we would democratically decide which idea was best suited
to meet our short term goals and still be coherent with our long term strategy. Although
much of our decision making involved analysis, we also factored in group members’
individual intuition. We initially decided upon a long term strategy and set forth the
29
necessary short term goals to institute it successfully. Our analysis consisted of whether
we were making our goals and what needed to be done to stay on track.
The style of our group’s leader had a significant impact on our strategy
formulation and decision making activities. Our leader was not dominating and was
willing to listen to all suggestions from other group members. Every suggestion or idea
was explored and discussed, weighing the pros and the cons. Our leader made sure every
person in the group was involved in the decision and no one person was dominating our
strategies. With a democratic style, our leader made sure our strategies were
representative of the ideas of all the members in the group. With an analytical style, our
leader stressed the importance of examining the short term and long term effects of our
decisions and making sure they were coherent.
Our group was very goal oriented and the achievement of our goals drove our
decision making process. If we were not reaching our goals, we examined what was
happening and decided if we needed to switch strategies or alter the present strategies. As
well, from year to year we analyzed our goals to see if they were still relevant or if they
needed to be altered. Our risk taking propensity also had a significant effect on our
strategy formulation. Early in the simulation, we were willing to take some large risks,
hoping that they would pay off big in the end. As our strategies and decisions became
less and less successful, our willingness to take risk halted, for fear of digging ourselves
into a hole in which we could not get out. Towards the end of the simulation, we needed
to make a big move from the bottom, so naturally our risk taking propensity shifted again
and we were willing to take larger risks in hopes of larger gains. Our risk propensity
30
shifted throughout the simulation and had a significant effect on our decisions and
strategies.
As with any successful group, interpersonal communication and conflict
resolution are probably the most important aspects. Except for the occasional off-subject
fight about the Red Sox and Yankees, our group did not have any major conflicts or
arguments. When conflicting ideas would arise, each idea was examined and explored by
discussing the positive and negative aspects of each. After examination, we would decide
logically and democratically which decision would help the company the most and was
most corresponding to our long term goals.
As far as our interpersonal communications, they also had a significant impact on
our decision making strategies. Everyone in our group knew each other quite well and
had been friends for several years. This fact made it very easy to share ideas from day
one. Due to the fact that we were all friends, we were also able to speak very candidly
with each other. That is, we were not afraid to tell one another that their idea was dumb,
for fear of hurting their feelings. Although we explored every idea thoroughly, we were
not hesitant to give criticism, which is usually not present among a group of strangers just
getting to know each other and trying to be polite. Our ability to speak openly with one
another without fear of offending someone gave us the opportunity to carefully analyze
each decision in order to better our strategy formulation.
As well, environmental uncertainty played a fairly significant role in our decision
making techniques. Not knowing what other teams were planning on doing from a year to
year basis affected our decisions in the sense that we did not want to take on too much
risk and chance falling far behind. As well, we tried to factor environmental uncertainty
31
into the analysis of each competing proposal in order to determine the best decision for
the situation.
One of the most important factors in our decision making techniques and strategy
formulation was our cognitive style, or our balance of analysis versus intuition. Our style
of thinking focused mostly on analysis of data within our industry and our firm in order
to make decisions. Although our strategies relied heavily on analysis, parts of the
decisions were based on instincts or feelings. Approximately seventy percent our
decisions were based on analysis, whereas about thirty percent were intuitive reactions to
the situation. Looking back, perhaps we put too much faith in our analysis and should
have listened to our intuition more often.
The anxiety or psychological stress of the group did not play a major role in our
decision making techniques, but it did surface on occasion. In some instances, certain
individuals had multiple assignments coinciding with one another which may have
affected the effort or input levels to the decisions. Towards the end of the simulation, our
group started to become stressed about the written portion which possibly could have
affected our decision making abilities.
Mintzberg proposed three modes of decision making, with each one having their
own distinct characteristics. The first mode he proposed, the entrepreneurial mode,
requires one strong leader that makes bold, risky decisions on behalf of the organization.
Within this mode, strategy making is focused on finding new opportunities, as opposed to
trying to resolve existing problems. This mode is also characterized by dramatic leaps
forward in the face of uncertainty, due to the aggressive nature and willingness to take
32
risks. The primary focus of this mode is growth through the active search for new
opportunities.
The second mode that Mintzberg proposed, the adaptive mode, is quite the
opposite of the entrepreneurial mode. This mode has been referred to as “disjointed
incrementalism” because the organization adapts in small unconnected steps to a difficult
environment. According to Mintzberg, strategy making within this mode reflects the
division of power among members of a complex coalition, such as unions, managers, and
owners. He also notes that this mode is characterized by reactive solutions to existing
problems, not the proactive search for new opportunities, as with the entrepreneurial
mode. This mode is also characterized by the fact that there are no clear goals that can be
maximized, and the decisions and strategies, which are not interrelated, never deviate far
from the status quo.
The planning mode, the third mode of decision making proposed by Mintzberg, is
characterized by formal analysis which is used to plan detailed integrated strategies for
the future. Mintzberg describes this mode as the systematic attainment of goals through
analysis and scientific techniques to develop objective, logical, factual and realistic plans.
Within this mode the analyst plays a major role in assessing the costs and benefits of
competing proposals. Also within this mode, decisions and strategies are interrelated and
complement each other, unlike the adaptive mode.
Within our group, our mode of decision making mostly resembled Mintzberg’s
planning mode with some aspects pulled from the adaptive mode. Initially, our group
intended to only use the planning mode, but as we became less and less successful we
started making decisions in a way that was more related to the adaptive approach. In our
33
first year, we laid out a long term plan and set the short term goals that we needed to
obtain in order to make this plan successful. We decided each year we would analyze our
results and compare them to where the other firms in the industry were and where we
thought we needed to be. We knew our company was not going to come charging out of
the gates and lead the industry right away, but we had confidence that our plan would be
very successful in a few years.
Our main focus was the analysis of our results and our competitors’ results in
order to make decisions for what needed to be tweaked within in our plan to get us where
we thought we needed to be. Within Mintzberg’s planning mode, analysis is the key
component to strategy formulation. We analyzed the data to see if we were on track and
to see where our competitors were headed and what their key focuses were. From this
analysis we reached conclusions that aided us in deciding what needed to be done the
following year in order to strengthen our advantages, as well as exploit our competitors’
weaknesses. A major component of our decision making process was comparing different
strategies, which involved weighing their costs and benefits against each other. This
practice is also a key aspect of Mintzberg’s planning mode.
Another similarity to Mintzberg’s planning mode is the fact that our decisions and
strategies are interrelated; that is they complement each other and work together to
solidify our plan. If we implemented a decision, we analyzed the effects that it would
have on other parts of our company and made sure all aspects of the company were
working together. We tried to make sure our short term strategies corresponded with our
long term goals. This aspect gave us some trouble as we fell further and further behind as
the years passed.
34
With our lack of success came a shift in decision making practices and we began
to absorb aspects of the adaptive strategy. As we began to fall behind, we lost focus of
our long term plans and zeroed in on correcting current, existing problems. As noted by
Mintzberg, the adaptive mode involves reactions to existing problems, as opposed to
exploring new opportunities. Our main concern became fixing the current problems from
year to year and we lost sight of new opportunities that could have helped us in the long
run. As Linblom put it, it was if we were “muddling through” from year to year, just
trying to milk enough cows to bake a cake. Our strategy became completely reactive,
rather than proactive.
Our decision making strategies initially shadowed Mintzberg’s planning mode,
where we used analysis to form decisions and strategies that corresponded with each
other to obtain systematic goals in order to achieve our long term plan. As we were
falling farther and farther behind, our decision making strategies became reactive and
focused on current problems, which is characteristic of the adaptive mode. Our decision
making strategies never entered the entrepreneurial mode, due to the fact that we had
many sources of input to consider and could not be dominated by one person’s vision or
by one single goal.
Competitor Analysis Report
When comparing companies in the same industry in order to successfully achieve
the highest forms of competitive analysis, a corporation should implement competitive
benchmarking. Nearing the end of the Business Simulation Game (BSG), A-YO finds
itself towards the bottom of the shoe industry at the moment, remaining in fourth place.
35
To achieve an intelligent benchmark of the competition, A-YO looked at the success of
the leading companies at the moment—Cool Runnings and Ebox—in order to determine
how to climb the ladder of the shoe industry.
In order to grasp the true importance of competitive benchmarking, A-YO has
compared our company to the leader of the real word, Nike. Currently, Nike is known
around the world as the leading producer of athletic footwear and apparel, and the
numbers support the claims. The Nike product lines sell themselves, but throw in
uncanny marketing, unmatched customer service, and undeniable quality of the product.
Achieving success in the athletic footwear industry is not an easy task, but by comparing
A-YO to Nike gives our company a better idea of success.
Strategic management and decision making allows for six different types of
competitive benchmarking. These include: strategic, process, cost, internal, external, and
best-in-class. For A-YO’s analysis of Cool Runnings, Ebox, and Nike, our company
chose to use external and best-in-class benchmarking because we have decided that these
types apply more to the BSG than any other types.
External benchmarking will allow A-YO to compare the business activities of our
firm to the leading companies in the BSG. As for comparing our company to Nike, we
will implement the best-in-class benchmarking method, permitting A-YO to identify with
their unmatched achievements in specific competitive activities or business practices.
Since Nike has proven to be successful in the long run, A-YO may utilize techniques or
processes if they are beneficial to our company.
As mentioned earlier, our company is currently fourth in the standings and has not
been able to climb out of the hole too far. Early in the BSG, A-YO made a few costly
36
errors that hurt our long-term plan and killed our initial strategy. A-YO has made strides
but our major problem has been inconsistency, which we hope to correct with
competitive benchmarking. In order to improve, our company looked at the five different
categories that impacted the standings after every year: sales revenues, after tax earnings,
return on equity, bond ratings, and the overall value of the company (stock price).
The total sales revenue in the seventeen year period for A-YO came to
$1,174,244, with after-tax earnings of $220,790 and earnings per share (EPS) of $3.39.
This put our company in fourth in each of those respective categories. A-YO’s EPS was
actually lower than BeeBok, the weakest company, but our profit out totaled them by just
over $100,000. On a positive note, our return on equity (ROE) was a solid 22.35%, good
for the second best overall, but still over eight percent less than the leader in this
category, the Dominators. Like most of the other companies, our bond rating was the best
possible, a AAA rating, a status we shared with all but one company, BeeBok. Arguably
the most telling statistic, company value (stock price) was down towards the bottom at
fourth. A-YO has $648,000 in shares, and a stock price of only $72, where as the leading
company, Cool Runnings, more than doubles our price at a whopping $156 ¼. In all of
the categories except for bond ratings, A-YO was below the industry average.
When comparing the leaders of the athletic shoe industry in the BSG, there are
noticeable similarities between Cool Runnings and Ebox. In sales revenue and after-tax
earnings, Ebox was the slight leader over Cool Runnings. Ebox posted sales revenues of
$1,583,588 with after-tax earnings of $343,432 and an EPS of $7.31. In comparison,
Cool Runnings earned sales revenues of $1,492, 934 with after-tax earnings of $301, 792
and an EPS of $7.30. However, neither company was the leader in ROE, with Cool
37
Runnings having the third best rate at 21.92% and Ebox surprisingly having the worst
return at only 19.41%. Similar to A-YO, both of the leading companies in the industry
had a bond rating of AAA, sadly, the only rating our company did as well as both of
them. Finally, the overall value of the companies has Cool Runnings edging out Ebox
with a slightly higher stock price. Cooling Runnings has less total shares at $937,140, but
has a higher stock price at $156 ¼ per share. Ebox has more total shares at $984,550, but
has a slightly lower stock price at $140 ¾ per share. Both of the stock prices of the
companies are remarkable, and there is no question why these two companies are at the
top of the overall leader board.
After taking a look at the cold, hard numbers, A-YO must look and determine
why the numbers of the leaders are so dominating. In order to fully analyze the five major
categories of the BSG, our company must look at how those numbers were achieved by
Cool Runnings and Ebox. The first thing A-YO looked at was plant capacity to determine
how big of a factor that would play in benchmarking these companies. Looking at the
numbers, Cool Runnings has three different plants—Texas, Europe, and Asia—while
Ebox manages a plants in all four locations—Ohio, Texas, Europe, and Asia. Like Cool
Runnings, our company decided to shut down the Ohio plant early on in the BSG, but our
plan was not as successful. Ebox has attempted to corner the North American market and
has been quite successful, while Cool Runnings looked to remain competitive in all areas
of the world.
Our company chose a different route; after closing down the plant in Ohio, we
built and opened a plant in Asia and eventually expanded on that in year 16. The goal
with an Asian facility was to have a larger plant in order to increase production at a
38
cheaper cost. The labor costs in Asia were a lot cheaper than Ohio and our company
figured the money could be maximized in other areas. However, both of the leading
companies also decided to build plants in Asia inevitably, but only Ebox kept the Ohio
plant open. One mistake A-YO made that the leaders avoided were not opening a plant in
Europe, which took away from our market share in that continent. Cool Runnings and
Ebox has the ability to produce more shoes per year than A-YO, which equates to higher
sales across the board. With three and four plants respectively, Cool Runnings and Ebox
utilized and maximized their plants to the full potential, while A-YO let some golden
opportunities slip away.
When turning the attention to price, A-YO had the most inconsistent pricing
pattern in the industry, with prices fluctuating on a yearly basis. In the beginning, our
goal was to provide quality shoes at an affordable, competing price, but in the past few
years our prices have skyrocketed. After year seventeen, our prices were the highest in all
three markets reaching $49.99, $47.99, and $47.99 in North America, Europe, and Asia
respectively. Cool Runnings and Ebox maintained very similar selling prices throughout
the duration of the BSG. At the end of year seventeen, Cool Runnings sold for $40.50 in
North America, $40.50 in Europe, and $40.00 in Asia. As for Ebox, their company had
even more affordable pricing at $39.00 in North America, $39.25 in Europe, and $39.00
in Asia. Both of the companies outsold us by a considerable margin in all three markets
and their demands were through the roof. Our position in the market share percent was
slipping considerable as A-YO could not manage to control more than ten percent in any
of the markets after the seventeenth year. North America produced a 9.7% share, while
Europe produced a 7.7% share, and A-YO’s largest investment, the Asian market slipped
39
all the way down to 9.5%. Cool Runnings and Ebox absolutely have dominated the
market share in the three different markets, and the numbers prove it.
Looking at the quality and service ratings of A-YO and the two industry leaders,
there are some noticeable correlations and differences. For the most part, our quality
rating ranged from the high 90s to just about 120 in all three markets. Our competitors
had very similar quality ratings, but on average were better the A-YO and both of their
companies never slipped below 100. As for the service ratings, our numbers were
extremely inconsistent on a year-to-year basis, and probably the worst due to some
internal mistakes (ex: the stock-out problems in North America). Recently, in the last few
years, our service ratings have been high in all three markets, although that could be short
lived. Some years our company has not been able to keep up with the demand in North
America, thus forcing A-YO to stock-out. As for Cool Runnings, their service rating has
been increasingly consistent in all three markets ranks among the best; year seventeen
was their best years in North America and Europe. Ebox was not as highly rated in the
service department as Cool Runnings, but provided more consistency than A-YO and
were middle of the pack in the industry. Recently, however, their company has been
slipping in service in the Asian market. In general, quality and service are extremely
important goals in any business, and our plan included both characteristics.
Unfortunately, some of the ratings do not favor the outlook of the company to the general
public, but A-YO is a brand that is for the customer.
Turning the attention to the number of retail outlets and advertising budgets, the
A-YO company has used a lot of money to appeal to consumers. Our company has stayed
consistent with the number of retailers in each market, especially recently. At the end of
40
year seventeen, A-YO was working with 7,000 retailers in North America, 1,000 retailers
in Europe, and 1,500 retailers in Asia. Cool Runnings had similar numbers at the end of
the last year, with 6,500 retailers in North America, 1,500 retailers in Europe, and 1,500
retailers in Asia. Over the past few years, their company has remained comparably
consistent as well. The other industry leader, Ebox, had an interesting pattern in the North
America market, increasing their number of retailers almost every year. They ended year
seventeen with 6,500 in North America, 1,500 in Europe, and 1,750 in Asia.
In taking a look at the advertising budgets, A-YO was the leader among
advertising expenses throughout the BSG. When the company first opened the plant in
Asia, A-YO decided Karioki Footsu would be a wise investment because of the consumer
appeal index. Currently, A-YO is looking to change our poor image rating, so the
company has six celebrities representing our products. Among our smorgasbord of
celebrities, our company has signed Jose Montana, Oprah Letterman, Sir Charles
Dunkem, Monica Sellars, Jacques LaFeet, and Pele Payless. Although having celebrities
connected to our company product is a positive, our company could have utilized our
budget more effectively. Instead, A-YO went a little celebrity-happy and signed half of
the available list. As for Cool Runnings, they chose to restrain themselves after week
seventeen and have elected not to have a celebrity. Ebox, however, has signed one
celebrity—Mikee Nikee—who has a high consumer appeal at a lower cost. Our image
rating will most likely improve from the miserable showing the previous year, but A-YO
will definitely feel the short term effects in the company budget. By minimizing their
advertising budgets, Cool Runnings and Ebox haven’t sold out, yet both companies
remain at the top of the leader board.
41
As mentioned earlier, the most telling statistic to look at when comparing multiple
companies is the overall value of each firm, or the stock price. When all is said and done,
the heads of the company want to know how much money they are making or losing. Our
stock price was only $72 per share, well below the industry average ($111 ¾) and the
leaders’ (Cool Runnings $156 ¼, Ebox $140 ¾). The current value of our company is
terrible and that does not help the other parts of A-YO. Contributing to the company
value, the after-tax earnings also provide the company with competitive advantage
against our competitors. Our EPS was the lowest of any of the five companies at $3.39,
over two dollars less than the industry average and almost four dollars less than the
leaders. A possible explanation is the decreased number of units sold over the past few
years, adding to a low profit per unit sold. Costly errors and poor decisions have been the
difference between A-YO and the industry leaders.
By benchmarking the two leaders of the athletic shoe wear industry, A-YO has
learned more about our own company and more about the competitors. The leaders have
used their budget wiser and made smarter production decisions than our company. Our
initial plan seemed like a unique idea, but it ultimately backfired. With a change of
implantation strategies, our company can compete in the long run, but has no chance in
the short run.
When looking at the real world of the athletic shoe wear industry, our company
benchmarked Nike, the leader of their industry. According to the company profile found
on www.nikebiz.com, Nike is “the world’s designer, marketer, and distributor of
authentic athletic footwear, apparel, and equipment and accessories for a wide variety of
sports and fitness activities.” The athletic company manufactures their products from
42
manufacturers who produce other globally know products and who work under
independent contracts. Nike owns six other companies including Cole Haan Holdings,
Inc., Bauer Nike Hockey, Hurley International LLC, Nike IHM, Inc., Converse Inc., and
Exeter Brands Groups LLC. Each of these subsidiary companies contributes to the yearly
success of Nike’s overall plan for achieving success.
Some of the financial highlights of Nike in 2004 include total net revenue of
$12.25 billion dollars and a total net income (after-tax) of $945.6 million dollars to lead
the industry. As of May 31, 2004, Nike had employed around 24,000 workers in over 800
factories. Workers in the contracted Nike factors reached up to 650,000 men and women
around the world. Nike is so successful that they have never had any work stoppages or
interruptions in their operations due to labor disagreements. Employees at Nike are
satisfied and enjoy their jobs working for the leader in the athletic shoe wear industry.
To achieve past, current, and future success, the overall business strategy of Nike
“focuses on delivering value to the shareholders, consumers, suppliers, employees and
the community…by bring[ing] inspiration and innovation to every athlete in the world.”
Nike has five key issues in their corporate responsibility strategy, including the
following:
-Understand issues and impacts
-Set long-term strategy and targets
-Drive business integration and align incentives
-Drive industry change through multi-stakeholder partnerships
-Measure performance
43
With this five point plan, Nike wants to maintain past success into the present and the
future, especially with an ever changing world we live in. Also, Nike wants to implement
this plan in order to reach out to shareholders and consumers. The leaders of Nike feel
that the shareholders and customers are a large part of the success of the company and
want them to feel appreciated as a part of the overall company.
According to www.marketresearch.com, Nike was reported to be the most
popular athletic shoe wear brand in the world, as almost a quarter of the survey reported
purchasing the Nike brand name. In order to benchmark A-YO to Nike, our company
decided that it was necessary to ignore the private label and focus only on the branded
markets, for the obvious reason that Nike is branded. Also, Nike has caters their products
to the whole world, expanding beyond North America, Europe, and Asia. Nike products
reach Central and South America, Asia Pacific, the Middle East and Africa. Unlike our
company, Nike is the largest in the industry, and our company could not compete with
their success but would love to implement their strategies to be successful. Nike
overcomes competition like Reebok and Adidas with a one-two combination of
intelligent advertising and a new growth formula.
Nike products are seen everyday, over hundreds of times a day, by millions of
people around the world. The advertising and publicity the company demands is
phenomenal and demand and profits rise. Over twenty years ago, Nike made one of the
smartest business decisions ever: signing a young college basketball player from the
University of North Carolina. Michael. Jordan. At 6’6”, 216 pounds, Michael Jordan was
on his way to becoming the greatest athlete in the history of sports, and Nike was going
44
to reap all the benefits. Although he is retired now, Jordan was the most recognizable
athlete in the world in this past generation.
Twenty years later, Nike may be on to something again, this time, an even larger
investment. Lebron. James. At only twenty years old, Lebron James has had arguably the
greatest first two years of an NBA season ever. Ever. Better than Jordan, Magic, or Larry.
His NBA jersey for the Cleveland Cavaliers has been the highest selling jersey since he
was drafted. His NBA shoe has sold more than any other basketball shoe in the basketball
part of the industry (translating to a 40% increase in the stock). Nike signed him to a
seven year, $90 million dollar deal, looking to capitalize on the status of his popularity.
Now Nike is looking at this kid from Akron, Ohio, straight out of high school, to help
turn more profits than ever, as part of the new growth formula.
Our firm was not as lucky as Nike. We didn’t sign the future of sports. A-YO was
stuck with overpriced celebrities when desperately trying to repair our image in the three
branded markets. Our advertising costs kept piling up and our company did not get much
return on those celebrity investments. Unlike Nike, advertising was more of a detriment
to our firm, as A-YO spent more money than necessary.
According to an article found on Lexis-Nexis, from The Oregonian, Nike plans to
implement their new strategy this year. The article, entitled “Nike Sees Subsidiaries as
the Key to Growth Under New CEO,” discusses some of the companies owned by Nike
as mentioned before. The subsidiaries of Nike are all relatively small companies and are
not yet well know internationally could be bringing in up to fifty percent in gains when
the year ends. The main focus of the new wave of these Nike subsidiaries includes surf
products, dress shoes, and discount apparel. Nike understands how important the brand
45
names have become and wants to diversify their options as a company. Nike has also
been linked to rumors of possible expansion with more acquisitions to further increase
their market share. Unlike Nike, A-YO had inconsistent market share and the value of the
company was dismal at times.
Nike is an amazing corporation and an even greater leader for the athletic shoe
wear industry. Benchmarking Nike was a necessary part of A-YO’s competitive strategy
plan and applying Nike’s advertising schemes to our company would be the most
beneficial decision.
.
To continue to see the difference between our company and the competition, the
A-YO company also elected to analyze the business strategies of the leading firms (Cool
Runnings and Ebox) and the last place firm (BeeBok). In the real world, the athletic shoe
wear industry is a competitive and cutthroat business; in the class room and on the BSG,
no one is going to get fired and the money is not real. That being said, as the current
fourth place team, the industry does not seem very competitive overall, however, the top
of the totem pole is up for grabs. With the small possibility of a two- or three-way tie on
the leader board, competition heats up on a year to year basis. On the flip side, our
company can probably do no better than third place, and the last place team, BeeBok, will
most likely remain in the cellar. Since we want to achieve more success, it is imperative
for our company to fully analyze and understand the strategy of the leaders. On the other
hand, the BeeBok company could be used to determine what pitfalls to avoid and when to
avoid them.
The model our company used to classify and define the strategies of our
competitor’s will be the Porter Typology. In this model, our company will analyze
46
competitive threats, identify the needed business level competitive strategies, all in order
to gain competitive advantage in the athletic shoe wear industry.
Cool Runnings and Ebox are the toughest of competition, as proven by their
shrewd business management on a year to year basis. The competitive threat of Cool
Runnings is the company’s increasing demand in the North American and Asian markets,
especially in the last few years. Their company offers low prices, maintains solid quality,
service, and image ratings in both markets, and offers sizeable customer rebates. As for
Ebox, the competitive threat possessed by this company is there ability to maintain the
stability they have reached over the course of the BSG. Their company offers the lowest
prices in the North American and European markets, but still maintains the lead in overall
sales revenue and after-tax earnings. Similar to Cool Runnings, Ebox maintains above
average ratings in quality, service, and image, but also minimizes their cost. Also, as
mentioned earlier in the benchmarking sections, both of the leaders control a lot of the
plant capacity, with Ebox continuing to operate in four plants, while Cool Runnings still
has three plants. With our lack of capacity in certain markets, our outlook is not good. As
for the last place team, BeeBok, they possess minimal threat in overtaking the fourth
position from our company any time soon. There market share in the private-label market
has remained consistent through most of the BSG, and their European market share is
increasing rapidly, so A-YO will keep an eye on that. However, if our market share
continues to decrease and their company makes a few changes, changes could be on the
horizon and A-YO could be saying “OH NO!”
For the business level competitive strategy, our company has realized we are not
the cost leader, but in fact, we are among the worst when analyzing costs. Our company
47
is slowly losing market share in all the markets and demand is decreasing as well. Also,
the selling price in each branded market is higher than any other company, and the
numbers are not even close. Differentiation is the chief concern when discussing other
firms in the athletic shoe wear industry. Cool Runnings and Ebox control the overall
plant capacity in the industry, while selling their products at low costs in each market.
In order to compete with the leaders of the industry and hold off any up and
coming companies, A-YO must take counter actions immediately. Our company needs to
build another plant to expand our plant capacity, preferably in Europe. By opening a plant
in Europe, A-YO can work on expansion with lower costs than opening a new plant in
North America. Also, A-YO must avoid any more stock-outs in North America or any of
the other markets—that disaster seriously affected our business decisions and put our
company in a bit of a pickle. A-YO must find ways to cut costs, especially in the
advertising department, where we have too many celebrities with not enough return on
our image. Our company needs to formulate a new plan and stick with it, and use our past
mistakes to learn and achieve success.
After analyzing the competitive benchmarking of our firm, the leaders of the BSG
industry, and Nike, the A-YO company has learned valuable information about us and the
competitors. When looking at our firm’s competitive strategy, as well as other members
of the industry, we pinpointed a new direction in which our company should head, based
on results of other companies’ success and failures. By implementing a new strategic
plan, the A-YO company can rise to the top of the athletic shoe wear industry.
48
SWOT Analysis
Strengths
As a company in a competitive industry, we feel we must set ourselves apart from
the others in some way. Our pride requires us to always improve upon previous mistakes
in an effort to become more efficient and profitable. One of our strengths was our
commanding share of the private-label market. While other companies lag in this sector
of the industry we strive to gain a further advantage. As of the year ending on
12/31/XX17, A-YO controlled approximately 58% of the private-label market. We
serviced 16% more of the market than our nearest competitor. That competitor was the
only competition in this section of the industry; BeeBok controlled the remaining 42%.
Our belief is our high model availability led us to the domination of this sector. We
offered 150 different models while BeeBok offered a fraction of that at 50. Other
strengths of ours include our high quality and service rating in the branded markets.
Although we did not command a large portion of the market, we did offer excellent
service and quality to our customers. Our service rating of 203 in North America was
clearly the trend setter in North America branded markets industry. This approach was to
create a service-oriented and people friendly environment. In our Branded Markets in
North America, Europe and Asia, we make every attempt to provide the highest quality at
an economically convenient price to our deserving customers.
Our strongest market is the private-label market where we offer 150 different
models; that is three times the amount of models offered by our competitor. A-YO is able
to provide this many different athletic shoe models because of the importance we place
on our production process. We demand high levels of output from our production process
49
to suffice our customer demand and expectations. Every attempt has been made to ensure
the highest quality is passed along to our customer.
In our branded-market sections, we have excellent service ratings in North
America, Europe and Asia. Out rating is above 200 in North America and Europe which
is higher than any of our competitors. In Asia, although our service rating is high it lags
the regions leader by a few points. With that said we out perform the industry average in
terms of service rating in each of the markets by an average of 51 points.
Customer loyalty and satisfaction is a goal of ours and we have taken measures
to ensure that our customers are indeed happy by offering them a variety of models at the
highest quality. We take pride in our service and hope our consumers understand the
difference between our brand and our competitors.
Weaknesses
Every company has their share of business processes they can improve on.
Identifying such weaknesses enables a business to understand possible threats and gain
competitive advantage if they take proper measurements to eliminate such faults. Despite
having a relatively high quality rating; in comparison with our direct competitors in the
athletic shoe industry we lag the industry average by about 9 points. With our primary
focus on service we allowed other companies the ability to gain market share by offering
shoes of higher quality at a lower cost. Additionally, these high service ratings came at a
greater cost judging by the $6.95 more we charged on average for our product in all three
regions of the branded market. This suggests possible cost structure failures and
inadequacies that need to be analyzed and possibly reconsidered. Recent ratings in the
50
Branded Markets have proven an inadequacy in A-YO effort towards high quality and
exemplary image. Often, companies face much strain, including governmental
regulations and fierce competition that they neglect to stress quality and promote positive
brand image.
In addition, market share steadily decreased over the years in the branded market
as a result of many factors including higher prices, lower quality and a decrease in
demand. After year 17, our market share in North America, Europe and Asia were 9.7%,
7.7%, and 9.5% respectively. This is our greatest weakness for our closest competitor
doubled our market share in North America and Europe and tripled our market share in
Asia. This is reflected in our number of sales in these respective regions and carried over
to our image rating.
Despite having a relatively large profit on a per shoe basis, our lack of market
share in combination with this high pricing model and sub-standard quality rating is
proving to be disastrous. This raises questions in regards to our pricing model. In XX17,
our total sales revenues shorted the industry average by $75,469. Our revenues totaled
$186,992 while the leader nearly doubled our total revenue at $354,446. With our
revenues and profits significantly below the industry average we recognize a serious
problem with our pricing model and approach to the overall market. A complete overhaul
of our approach to the athletic shoe industry is in order as well as an evaluation of our
pricing model.
Although we make a great effort to provide the highest quality athletic shoe, our
quality rating in the branded markets has reached last place in North America and
significantly below the industry average in each of the other regions. Unfortunately, we
51
have let the industry average out perform us in year 17. In North America our rating is 9
points below industry average, in Europe 6 points and Asia we are 13 points below the
respective mark. Our leading competitor in North America has crushed our rating by 17
points, in Europe by 24 points and in Asia we have been outdone by our best performing
competitor by 26 points. Keep in mind that roughly 20 points represents about 20% of
our total quality rating in each of the markets.
Through a series of ratings, we have recognized a significant problem in the area
of brand image. In each of the three regions our brand image rating is approximately half
that of the industry average. In comparison to the leaders of the individual markets, we
lag the best by 64% in North America, 67% in Europe and 60% in Asia. This is a
prevalent problem due to the fact more money has been allocated over the years to
endorsements by celebrities. In two of the three markets we exceeded the industry
average in terms of advertising dollars for the year 17. Other contributors to this low
image rating can be the lack of customer rebates that are offered by our company as well
as the stock out problems that plagued us in the past years. Historically, our image rating
has mirrored the industry with a fall off in the rating occurring this year. We should look
to allocate our advertising budget in different directions because current celebrity
endorsements are not providing the expected increase in sales as expected. Sub-par
quality, high prices and a lack of units can all contribute to our below average image
rating. As stated earlier a total business plan overhaul is in order and other options should
be pursued.
52
Opportunities
In order to move forward and become a successful company, we must look
toward our future assess the opportunities it presents. There are three key opportunities to
consider. Private-label demand forecasts are in the same direction as our growth in the
area. Likewise, keeping production levels steady, we can continue to capitalize on
competitions stock outs. Lastly, industry reports prove there has been a consistent
dependent relationship between selling price and number of units sold. With competitor
prices low, lowering our price per shoe could create an opportunity to takeover a larger
percentage of the market.
An exciting opportunity is present in the private-label market. We currently
command 58% of the market. Based on the consistent history, the demand for these
products seems be steadily increasing. With our current portion of the market, we intend
to extend upon this domination by responding to the customer demand as their
purchasing quantity increases.
Our next opportunity comes in the event of a competitor stock out. In the past we
have fallen victim to a product stock out and have had revenues significantly effected as a
result. When companies cannot service the demand brought forth, consumers look to
other companies for products. In year 17 A-YO added the sales of 220,000 pairs of
shoes, 7,000 in North America and 213,000 in Asia. By keeping production levels
healthy, we can capitalize on this opportunity by providing the products that other
companies are unable to due to stock outs.
The third opportunity is not as clear as the previous two and involves reevaluation
of our pricing strategies. In comparison to the market average and our direct competitors
53
our price per unit is relatively higher. In addition, according to headline news companies
with production plants in Asia will be forced to pay higher wages to workers as a result
of new government regulations effective in year 19. With the future increase of wages in
Asia looming, firms will be forced to increase their production costs. A-YO already
demands about $50 a pair and would benefit from lowering their price per unit, becoming
more competitive in the process and providing the ability to gain market share.
Threats
As is the case with opportunities, each business must assess possible threats. In
any business the most important aspect of everyday practices is realizing and recognizing
threats. Otherwise threats can snowball into reality and can lead to the damnation of you
particular trade. With compensations costs on the horizon in Asia, it is important to
recognize the current relationship between the compensation package offered and the
production levels of employees. It is clear that worker productivity is below average in
the Asia plant coincidently, total compensation received by employees is also below the
industry average. Low wages can lead to employee unhappiness which can result in a
further decline in production or even a strike. This can lead to greater costs to a company
and cause other labor and governmental issues.
Another threat to consider is our significant lag in market share in the branded
markets sector. A-YO athletic shoes cannot afford to loose anymore ground in any of the
three regions. Two other threats that pop out when looking at the balance sheet are the
non-existence of cash and the days of inventory on hand. These are two tell-tale signs that
the business is in trouble. The industry average for inventory is 77 days. Having a full
54
year worth of inventory on hand associates high cost and poor management. In addition
our liquidity of assets is absent. Any profitable organization needs some level of cash on
hand for purchases and various other activities. What these two measurements say, is that
the company is not running at an efficient level. Costs are being shelled out to storage
and there is no cash mobility.
Poor cash management is an obvious threat and the effects can be felt throughout
the company. Consequently, higher prices are passed along to the customer. In addition,
it is important to keep employee morale high. If employees are unhappy, it will show in
their work; both qualitatively and quantitatively. The low levels of employee salaries can
cascade into future employee problems. Some common problems include strikes as well
as walk outs. As a direct result, we have found worker productivity to be directly related
to their compensation. This issue of concern only pertains to Asia, given the current data
and the changing regulations that will be imposed starting in year 19. A-YO views this as
a potential problem and will employ immediate action into reversing the concern.
As mention prior, a good business is one that recognizes opportunities and more
importantly realized risks. A-YO is conscious of risks associated with compensation in
Asia and poor cash and inventory management overall. Moving forward these threats will
be dealt with in a timely manner.
Future Strategies
Great companies not only assess current strengths, weaknesses, opportunities and
threats they plan for the future. An effective and efficient company will implement
55
strategic action plans both to minimize risk and threats and to maximize strengths and
opportunities. We propose the following to future management.
In order to maximize our strengths A-YO must continue offering large varieties of
private-label market athletic shoes. This will continue to set us apart from the competition
giving us an important advantage in market share. We must set ourselves apart from the
rest. In addition, we must continuing offering high levels of service to all our customers
in North America, Europe and Asia. We must build upon our current pricing plan and
current quality rating. By decreasing the price per unit and increase the level of quality
we hope to increase the demand for our label. If our shoe becomes more affordable and
of better quality we will finally command the portion of the branded market we desire to.
To maximize the present opportunities, we must build upon our strengths which
as of the end of year 17, was our private-label brand. In doing this, we must consider the
demand of this sector of the industry and improve our already commanding market share.
To do this we must continue offering a wide variety of athletic shoe models, and cater to
the demands of the customer, which have been dictated in the past to be high quality and
low price. Increasing demand in this sector should have a direct effect on our production
levels. This entails our production processes becoming more efficient thus elevating the
amount of units produced. We must go beyond the expectations and minimums; take
advantage of stock outs, and produce levels of shoes beyond that of our demand in order
to compensate for other companies stock outs.
To minimize weaknesses we must first look into our cost structure. We must
scrutinize the current ways in which we incur costs and attempt to reduce those.
Essentially, to minimize this weakness we must maximize net profit per pair by cutting
56
costs and strategically incurring costs in an advantageous way. For the coming years, we
should focus on improving quality and maintaining good employee-employer
relationships. In order to improve quality ratings, we must produce our products with a
higher percentage of high quality raw materials. Perhaps a new marketing strategy is in
order to let our customers know that our main objective is our desire to improve quality.
This will in turn give A-YO a better image rating and cut the amount of money paid to
celebrity endorsers. Between adding more quality materials to production and a strategic
marketing campaign, A-YO should be able to improve its quality rating and hopefully
increase demand and sales revenues. Our final strategy in minimizing weaknesses is to
improve upon our poor cash and inventory control. There are direct costs associated with
having too much inventory on hand and additional troubles associated with having a lack
of cash on hand. Inventory management is directly related to the amount of units
demanded and sold. By improving our other business processes and becoming a more
desirable product, inventory lag should decrease.
Lastly, employee discontent should be addressed and seriously considered. One of
the most important aspects of business is maintaining happy and hard-working
employees. In order to minimize employee unrest we must increase wages and incentives
in order to bring those numbers closer to the industry average. Improving employee
morale will in turn increase their productivity and quality of work. In addition to the
mandatory adjustments required by new law, A-YO must stay aggressive with incentives
and compensation packages to stay parallel with the industry standards.
Through the steps listed above, we at A-YO believe that future management can
improve upon the areas listed as weaknesses and threats. Additionally, we believe that
57
our strengths and opportunities should be exploited to their full potential. A-YO is
confident in its company analysis and put full trust in the decisions derived from the
company data.
58