MBA 671 Business Strategy Game_Company A_Team Presentation_061914 by Binta Auta, Pamela Cole, Mark Susor, Francis Ukpolo

Business Strategy
Company A
Binta Auta, Pamela Cole, Mark Susor, Francis Ukpolo
June 19, 2014

Business Strategy
Company A
• Company Trends
• Strategic Vision
• Performance Targets (2017-2018)
• Competitive Strategies
• Production Strategy
• Financial Strategy
• Strongest / Closest Rivals
• Competitive Action Steps
• “lessons learned” – Crafting a Winning Strategy
2/23/2015
Proprietary and Confidential: Benedictine
University – MBA 671
2

Trends in the Company A's annual total
revenues
2/23/2015
3
Compounded Annual Growth Rate (CAGR) - 15.26%

Trends in the Company A's annual
earnings per share (EPS)
2/23/2015
4
$10.78

return on equity investment (ROE)
2/23/2015
5
Average ROE Year 11-16 - 25.1%

credit rating
2/23/2015
6
A+
A
A+
A-A-A-
B+

Trends in the Company A's year-end
stock price
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7
$200.20

image rating
2/23/2015
8
8991
79
85
767570

Trends in the Company A's annual unit
sales
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9

Trends in the Company A's market
share
2/23/2015
10
34.8%
35.6%
34.5%
32.4%
34.8%
30.8%
25%

Company A Strategic Vision
• Company A strives to deliver
innovation and inspiration to our
customers at a higher quality than
can be found in the market place,
all at reasonable prices.
• Differentiation Strategy
– Company A set themselves apart by
creating a superior shoe, above and
beyond what could be found in the
marketplace
– Priced the shoe competitively
– Free Shipping
– Supported Retailers at a higher level
than competitors
– Decreased delivery times and increased
capacity allowed Company A to keep up
with the demand
2/23/2015
11

Company A’s Performance Targets for
each of the next two years (2017-2018)
2016 2017 2018
EPS 10.78 13.28 15.68
ROE 27.1 29.7 32.8
Credit Rating A+ A+ A+
Stock Price 200.20 242.1 258.5
Image Rating 89 91 92
2/23/2015
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Company A’s Competitive Strategy for
the Internet Market
• Initially priced at $75 with $5 shipping
and offered 180 models across all four
regions. By year 11 we offered free
shipping and increased the pricing to
$85 dollars in North America while
offering more models.
• Our strategy was focused on increasing
our internet marketing share by
– Reducing cost of production to offer our most
competitive prices to our consumers
– We also included free shipping to encourage
customers to make purchase decision
– Offering a high quality product by increasing
our S/Q rating
– Increased spending in advertising
2/23/2015
13

Company A's Competitive Strategy for
the Wholesale Market
• Company A’s initial differential strategy in the Wholesale Market was focused on
providing a superior product. The goal was to provide an 8 star shoe in North
America, and a 7 star shoe in the remaining regions with a minimum of 200
models offered worldwide.
– Superior materials (80% in North America, 70% in remaining regions)
• A second key component of the strategy had to do with distribution. Because our
company looked to provide a superior product to the marketplace; the decision
was made to take no more than two weeks to delivery that product from the time
the order was placed.
– The delivery time standard was improved to 1 week in year 15
• Advertising
– Consistently higher budget than the industry
– Retailer support higher than industry resulted in the maximum retail outlets being utilized for
distribution
– Celebrity appeal was used sparingly to supplement advertising budget
– Rebates were provided above the industry standard to attract new customers and maintain customer
loyalty
2/23/2015
Proprietary and Confidential_Benedictine
14

the Wholesale Market
• The number of models manufactured was expanded to 250 worldwide in year 16
to provide an additional incentive to our customers; who are not only looking for a
superior product, but also want a variety of footwear to choose from.
• Production also played a key role.
– High percentage of superior materials utilized
– A 2% pay increase was provided to all employees on an annual basis.
– TQM (Total Quality Management) / Six Sigma, incentive pay and best practices training was utilized
with all employees
• Most importantly our S/Q (Service/Quality) image rating was maintained at a high
level through our corporate citizenship / sustainability efforts, superior materials,
models offered and our industry leading advertising efforts.
– Models Available
– Rebate Offer
– Retailer Outlets
– Retailer Support
– Delivery Time
– Celebrity Contracts
2/23/2015
Proprietary and Confidential_Benedictine
15

the Private-label Market
• Private-label market
utilized to maximize
plant utilization
(113.5%)
• Produced a 5 star
shoe and priced
bids to win the
business while
maintaining
excellent operation
margins.
• 100% of pairs
offered were sold
2/23/2015
16
Year 10 11 12 13 14 15 16
North
America
Pairs Sold (000’s) 185 100 300 513 514
Market Share 25% 16.7% 49% 81.9% 81.6%
Bid Price $35.00 $40.00 $45.00 $44.98 $42.99
Margin per Pair $10.73 $10.23 $15.56 $17.16 $15.04
Europe-
Africa
Pairs Sold (000’s) 185 180 300 395 395
Market Share 25% 35.6% 36.5% 72.3% 61.2%
Bid Price $35.00 $40.00 $45.00 $44.98 $42.99
Margin per Pair $8.56 $11.85 $16.45 $18.76 $15.83
Asia-
Pacific
Pairs Sold (000’s) 185 174 781 782
Market Share 25% 35.4% 86.8% 74.8%
Bid Price $35.00 $33.00 $35.98 $35.75
Margin per Pair $13.56 $9.85 $12.90 $14.16
Latin
America
Pairs Sold (000’s) 185 100
Market Share 25% 19.6%
Bid Price $35.00 $40.00
Margin per Pair $9.73 $10.23

Company A's Production Strategy
• Company A was able to grab a 32.3% market share in the Wholesale Market in
year 11 by providing a quality product, manufactured with superior materials,
minimum of 200 models in all regions and internet market, and a robust
advertising budget.
• With the Year 11 market share success, company A immediately expanded plant
capacity with the following plant capacity decisions:
– Bought 600,000 of available plant capacity in North America (Year 12) for $22.8 million
– Built new 2,000,000 capacity plant in Europe/Africa (Year 13) for $96 million. Used to meet demand
in Europe-Africa while reducing warehousing and related transportation costs (import tariff /
negative exchange rate adjustments).
– Planned to build a 1,000,000 plant in Latin America (Year 18) for $44 million. Plant will be used to
meet demand increasing demand in Latin America while reducing warehousing and related
transportation costs (related import tariff / negative exchange rate adjustments).
• Utilized Private Label Market to fill excess capacity until demand
– Plant Utilization: 6 year average: 113.5%
• Company A utilized the Private Label market to fully utilize plant capacity and thus reduce overall Cost of Pairs Sold (COPS).
– Private Label Cost of Pairs Sold (COPS) and warehousing expense is the lowest in the industry
2/23/2015
Proprietary and Confidential Benedictine
17

• Plant Upgrades – Reduce rejects, improve
productivity, increase S/Q image rating, and
reduce operating expense
– Option A (Reject Rate Reduction) in North America
and Asia-Pacific Plants for $15 million (Year 11),
Europe-Africa plant for $5 million (Year 14)
– Option D (worker productivity) in Asia-Pacific plant for
$14 million (Year 15)
– Option B (production-run setup) in North America and
Europe/Africa plants for $36.8 million (Year 16) in
anticipation of increasing number of models offered.
• Produced over 40% of our product out of Asia
Pacific market to take advantage of cheap
labor
• Branded Market Segments production
provided
– Lowest warehouse expense per pair in the industry
– Lowest administrative expense in the industry
2/23/2015
18

• High percentage of superior
materials utilized to ensure market
differentiation
– 8 star shoe in North America, and a 7
star shoe in the remaining regions
– Superior materials (80% in North
America, 70% in remaining regions)
– Support S/Q Image Rating
• Employee training and
compensation designed to produce
high quality shoes with low reject
rates
– A 2% pay increase was provided to all
employees on an annual basis
– TQM (Total Quality Management) / Six
Sigma, incentive pay and best practices
training was utilized with all employees
2/23/2015
19

Company A's Finance Strategy
• Company A felt dividends should be paid every year at the expected growth of the
industry, 6%.
• If this meant taking a one year loan to do so, this was worthy of the interest
charged.
• In Year 15 and Year 16, stock repurchases occurred, resulting in a positive effect on
Company A’s EPS, and a decrease in the funds borrowed.
• Company A plans to continue paying dividends in line with the market’s growth.
• Stock will continue to be repurchased.
2/23/2015
20
Year 14 Year 15 Year 16
Target Actual Target Actual Target Actual
EPS $6.75 6.98 6.90 8.37 7.00 10.38

Company A's Finance Strategy Cont.
• By choosing debt versus equity,
Company A was able to manage its
business without involving
additional decision makers.
• Profits were Company A’s to
manage and delegate.
• Most loans taken were short term
loans, paid back quickly, and then
the relationship was terminated.
• Over time, as revenues increased
cash flow was greater, and the need
to borrow cash for short term debts
dissipated.
• The increased cash flow improved
Company A’s credit rating as a result
2/23/2015
21

Strongest/Closest Competitors
Internet Market
• Company C was our closet
competitor in internet
marketing, with Company D
being a close second. Company
D was able to capitalize on their
high celebrity appeal while
Company C offered competitive
prices and more models on the
internet. We focused on
producing better quality and
increased our spending in
advertising to compensate for
the loss of celebrity appeal in
the final years.
2/23/2015
22

Wholesale Market
• Company C was our strongest
competitor in wholesale marketing.
Company C had similar strategy to
ours by improving the quality of
their shoe and offering high number
of models. This strategy was able to
set both Companies apart from
other competition. Our celebrity
appeal was the lowest in the
industry, but we were able to
compensate by focusing on
increased advertising, retailer
support, outlets utilized, which
ultimately led to high sales volume.
2/23/2015
23

Private Label Market
• Increase percentage of
superior materials usage
• Focused on gaining higher S/Q
rating than competition
• Enhanced features/styling
• Increased plant capacity and
took advantage of private-label
in the L.A market
2/23/2015
24

Company A’s actions planned to out-
compete close rivals in the next two years
• Increase spending on advertising,
particularly in celebrity
endorsements.
• Continue to focus on improving
our S/Q rating across the board.
• Increase models offered and
maintain competitive internet
pricing
• Continue to reduce production
cost while increasing capacity in AP
plant
• Continue to repurchase stock
2/23/2015
25

Company A’s "lessons learned" about
crafting a winning strategy
• Having a clear long term vision is key.
– Company A knew what type of shoe they wanted to
sell and what type of market they wanted to attract.
• Short term goals should impact production
capabilities that will benefit long term
strategies
• Understanding global capacity to adjust
production was also key
– Understood the capacity demands in the market
place.
– Recognized a demand for more production early on.
– Bought capacity and then built an additional plant
– Understood how company decisions were
forecasting to impact capacity needs with the
company
– Bid remaining capacity to private label at
competitive rates to offset normal plant costs
2/23/2015
26
• First to market – We captured
market share by quickly establishing
a superior product; supported by
robust advertising and TQM / Six
Sigma quality programs in our
manufacturing plants.

Company A’s "lessons learned" about
crafting a winning strategy
• Our focus on product differentiation
by providing superior quality turned
out to be beneficial
• We learned not to underestimate the
value of celebrity appeal, but also
learned that increased spending in
advertising and retailer support can
compensate for low celebrity appeal
• Customers love free shipping,
numerous models, enhanced styling
and low prices
• Consistency in the chosen approach
plays a big role in crafting a winning
strategy
2/23/2015
27

MBA 671 Business Strategy Game_Company A_Team Presentation_061914 by Binta Auta, Pamela Cole, Mark Susor, Francis Ukpolo

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