The team decided to adopt the strategy of Broad Cost leader to attempt to gain a competitive edge over the competitors. During round 5, the team’s market share had fallen from 19.77% to16.86%. below is a figure illustrating the market shares of the companies during round 5.
The Broad Cost leader strategy was aimed at increasing the company’s market share by increasing the cost of products and supplying products that were uniquely superior to those of competitors. Such products would help enhance customer loyalty to our product line.
The strategy however did not succeed in increasing sales since total sales fell from the all-time high of $ 179,948,861in round 4 to $ 176,416,313. This may be attributed to increased concentration on reduction of variable costs from $ 125,646,796 to $ 117,640,260. The company also succeeded in utilizing the plant better in round 5 compared to round 4. The figure below summarizes the sales for this period.
The sizes of all products in all the markets were kept the same from the previous rounds. However prices for all the products were increased marginally. This was in accordance with the strategy of broad cost leader and partly contributed to the increase in sales revenue and drop in market share. As the law of demand states, increase in price causes reduction in demand. However, the differentiation of products caused development of customer loyalty which is better than plain increases in sales revenue. Below is how the company performed on customer satisfaction.
The sales promotion budget for all the products was also increased which contributed to the rise in market share. Marketing helps build a good image for the product and increase consumer’s awareness of the products. In round six, the marketing budgets should be reduced since the company has already established customer awareness and recognition for the brand.
The company’s productivity index rose from 116.07% in round 4 to 116.60% in round 5. The team however had to put in 8% overtime to achieve this improvement. There was also need for an emergency loan of $ 24,956,822 to improve the productivity of the company. The figure below analyzes the company’s productivity.
The company’s market share was higher in the high-end segment compared to the low-end segment, which could have contributed in the negative ROS. Its size segment share was also considerably lower compared to that of most of the competitors. Then figure below shows the analysis of our company’s market share.
The company made a loss of $ 5,419,920. This could be attributed to the increasing cost at which the company operated. The prices the company charged for its products could not yield enough sales revenue to offset the cost incurred in production of those items. Below is a cash flow statement for the company analyzing various costs and revenues.
The value of the inventory at the end of round 5 was 0.00. This means that each of the potential units of inventory was not sold during the round and therefore, stock was not maximized. Not selling all the potential units of stock may be one of the reasons why the company made the loss. The figure below is the balance sheet of all assets and liabilities held by the company in all the rounds. Inadequate sales may cause the company to lose its competitive edge to competitors. It is necessary to have enough stock at all times to meet consumer’s demand. Otherwise, they will opt to go to competitors.
The figure below summarizes the overall company performance in this round.
Product line performance
The performance of various products offered by the company was closely monitored to see the effects of the strategy on performance. Our products were Baker, Bead, Bid, Bold and Buddy. Baker had a market share of 23% selling 2600 units to the market segment. It was the best performing product under a promotion budget of $1300. In the traditional market segment, Baker ranked second in terms of consumer awareness at 91%. However, accessibility of the product was at low 41%. The company has to work on this and improve accessibility. Baker’s overall market share was at 22.7%, higher than the expected 20.1%.
In the low-end market segment our product Bead had a market share of 13%. It had a marketing budget of $1300. Customer accessibility to the product was higher at 53%. The list price for bead was $17 while that of baker was $23. The reason why baker had a higher market share than bead could be because it was better differentiated than bead. Clients have a tendency to prefer differentiated products because they are perceived to have more advantages and better quality than the rest. Bead’s market share overall was at 13.1% higher than the expected 9.4%.
In the high end market segment, bid had a market share of 16%. The list price in this market segment was at $38. The low market share could be attributed to the high unit price charged compared to the low prices of competitor’s products. The accessibility of the product on the market was average at 49%. However, increasing the products’ accessibility could have increased its market share compared to those of competitors. Bid had a 16.3% overall market share higher than 12.4% expected market share.
Our product bold was in the performance market segment. It had a low market share at 22%n and selling 990 units. The product was the lowest priced compared to those of competitors in this market segment but the low price was not enough to attract enough customers. The low customer accessibility at 33% may have been a key factor in lowering the product’s market share. Increasing the promotion budget may help the company realize more market share in this segment. Bold had an overall market share of 22.4% lower than its expected 32.4%.
Buddy was the product we fielded in the size segment. It had the lowest market share at 11% selling 490 units. One of the reasons for the low market share could be the high price of $33.50 while competitors charged comparatively lower prices. The high price may have been a factor that discouraged most potential clients from consuming the product. Buddy also had the lowest customer accessibility in this market at 33%. However, buddy managed to exceed its expected market share of 5.9% by achieving an overall market share of 10.7%. below is a summary of performance of our product line. The figure below summarizes how our product line performed.
Functional area strategies and performance
Our strategy required us to have a strong financial fall back position in terms of capital and acquisition of additional products and more investment in upgrade activities of the main fixed assets. To achieve this, it was necessary to get an emergency loan which we did. As already described, our main strategy was to invest in product differentiation to make our products more desirable to the clients. To become a market leader in terms of prices, we needed to improve our products and differentiate them from those of our competitors.
We also had several issues with the levels of our inventory. Therefore, for the next round, we will adopt the policy of keeping a maximum of 1/6 of all sales as our stock. Excessive inventory could cause dragging of the cash balance and the overall performance of the company. On the other hand, having low inventory levels could cause shortages and inability to meet the customer’s demands. This could lead the client to migrate to a competitor’s products.
Our sales strategies worked since most of our products achieved a higher market share than we had expected. Our sales target for the next round will stay within reasonable limits to ensure they are workable. One of the most effective ways to ensure that the sales forecasts are realistic is to keep the current demand situation in mind. The strategy was good enough to gain the company leverage valued at 3.69, higher than any of the competitors’. The figure below summarizes the yields realized from adopting the different strategies.
During the previous rounds, enough money was spent on product promotion and creating awareness among the consumers. During these later rounds, less money will be spent since consumers already know about the product. The money can be utilized better by investing it in the sales budget. this could help uplift the company’s performance. Better budget planning can be useful in helping the team reduce need for loans to supplement the already allocated money.
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