BSG Final Paper

The paper is to be an analysis of your strategy and firm performance.

Section 1: What is your firm’s strategy? What were your top priorities? How did this guide your approach to the simulator?

Our firm pursued a combination of strategies, which include both global differentiation and focus strategy and we made moves based on previous industry trends. We agreed on pursuing whatever opportunities look most promising based on the competition that arises.

At the beginning, the top priority was to differentiate from the other companies by being able to dominate three out of four markets which are: North America, Europe-Africa, and Asia-Pacific. We concentrated heavily on three markets so that we could start out strong and take as much market share as possible. We started differentiating ourselves from other competitors by continuously expanding our product line and increasing the S/Q rating. We increased our number of models/styles to a maximum of 500 and invested more in Enhanced styling/ features in order to offer our customers a variety of high quality choices and match their demand. In addition, we also focused on investing more in our brand marketing both for internet and wholesale segments, and we targeted the private-label market since there was a huge demand that wasn’t being met. In Year 14, we managed to hold one of the largest market shares of the industry and we also decided to enter the Latin American Market in order to increase our Image Rating. We also succeeded in increasing the market share and becoming the market leader in the high-end sneaker market with one of the largest product lines. We were looking to become the “Nike” or “Adidas” in this industry but as previously mentioned, we would have to shift this strategy if it was needed. In years 15-17, we continuously worked toward being the market leader in the high-end sneaker market by focusing more on a differentiation strategy. However, in years 18-19 we had to change our strategy for two of the geographic regions which are North America and Europe Africa. We focused on a budget based strategy and we were not charging premium prices for these two regions. Nevertheless, we still continued to focus on differentiation and price premium strategy for the Latin America and Asia Pacific markets while still spending a considerable amount on marketing.
.We worked toward becoming a market leader by also operating in a socially responsible manner as a top priority. There was no pressure to spend anything on the seven initiatives but it was very important for us to operate in an ethical and sustainable way and take interest in social issues rather than focus only on those issues that impact the profit margins. Being committed to ethical practices, we decided to pursue and embrace all seven CSRC initiatives throughout the years.

Section 2: Simulation narrative. I prefer to read about trends and themes, not a year by year rundown of what was done (so translate your journals into something more concise) Discuss how you deployed your management decisions and what justifications guided you. Also, discuss competitors, which teams were a threat and how did their actions impact your firm? Do not neglect to also offer up a short discussion of the larger systemic influences that impacted the entire industry. Then, discuss how successful you were… what challenges did you face? How did your competitors influence you or thwart your actions? How did the overall market and trends impact you? Was there turmoil within your team?

BSG

BSG Journal #1

1. What is your strategy for the firm (your view, not the group)?

So we decided to only concentrate on three markets (US, EU/AF, and AS/PAC) to really start out strong and take as much market share as possible. We looked to increase our star rating to 5.5-6.0 to be a good middle-ground offering to the general public, but we had a feeling that people would target a similar star rating; so, to really separate ourselves from the others, we increased spending in the following marketing areas:

a. Wholesale Marketing by $7,000

b. Retailer Support by $500

c. Search Engine Advertising by $1000

d. Celebrity Endorsements $1,000 Cap and got Bud Birkenstock

In doing so, we were able to get very high sales numbers and overall had the second to third highest market share % in mentioned regions.

2. What is the basis for your strategy going into the next week?

So, for this week, I recommended to the group that we should start differentiating ourselves from others by increasing our star rating and the number of models/styles we offer. In doing so, we can separate ourselves from our main two competitors, Company C and Company H. Also, I saw that they and almost all other firms don’t have as much cash on hand (based on the financial performance summary) so they couldn’t look to spend as much as we do in marketing still. Due to this, I feel we should be able to differentiate and gather more of the market share previously.

One big area that I also mentioned was to really target the private-label market because there is a huge demand that isn’t being met. With roughly 1,000k of demand not being fulfilled, we should look to increase our offered numbers from approx. 200k shoes to 500-600k. In doing so, not only will we get another channel of revenue, but also our image and credit rating will increase.

3. Access the effectiveness of your strategy

So, overall, our strategy was very effective in the first week, but didn’t live up to expectations as being the market leaders. As mentioned in a previous question, we were ranked 3rd overall in the shoe industry receiving an Investor Expectation Score of 111 and a Best-In-Industry Score of 84. However, we did overestimate the amount of money other companies would budget in their marketing efforts and ultimately, were short of 100-200k shoes in our three markets. If we have decreased our marketing budget by around $2,000, we would have gotten the desired outcomes without being out of stock which could have led to a higher B-IND score and Average Score. We also would have had more cash in our pockets which would have been used to make manufacturing/production/training upgrades. With that said, we know what we did well and what we can improve for the next year and overall, are very happy with starting off strong.

4. What did your group decide to do and what strategic proposals did you forgo (assess what was decided and what strategic proposals were not successful… would they have been successful, in retrospect?)

So, overall, the group did decide to take my proposals or had similar proposals for the next week:

1. Increase the pairs offered to private-label which will become a good source of revenue

and brand/credit image.

2. Increase the number of models/styles from 300 to 400 to diversify the firms offering and increase overall sales.

3. Increase our production by maxing out equipment in both facilities to meet the forecasted demand. Also sell our refurbished equipment to increase star rating while decreasing reject rates. We will continue to purchase new equipment in the future to because we are expecting the need to replace all of our current/previous machines in the next 3-4 years

4. Keep our prices the same to maintain/increase attractiveness and competitiveness; we doubt that other firms won’t increase the prices of their offerings to meet the increased costs inputted. We are also okay with our current profit margins until the next year, but will look to increase them in the future.

5. Pay off our current debts and replace them with smaller, short-term loans. Even if the payment period is decreased from 8-year period to 5, we have managed to decrease our yearly payment amount due to our current credit rating.

6. Increase the marketing budget slightly to compete against other firm’s increased budgets; we doubt that they can reach similar expenditures because they are spread out in four markets compared to our three, but it is imperative to remain the highest spender in marketing to get our desired demand.

With the following decisions made, we are looking to carve our place as the upper-end shoe brand with the largest product line. In theory, we will have the dominant market share if we are able to maintain costs while maintaining our high quality but we will have to see how other firms react and strategize.

One proposal we didn’t pursue this week was to increase our shoe’s star rating due to the very high costs. This is something we will look to target in the near future, but as of right now, we aren’t looking to overspend in case we don’t live up to expectations and the desired profit/revenue. Overall, we moved on from our goal to be the middle-end shoe option due to the competitiveness. Firm A, C, and D are similarly positioned and even though we are the current leader, this can change in the future. So, we decided to move closer in terms of Firm H and their targeted market, but still differentiate by having a higher price/sq-rating ratio. The next moves we’ll make will be based on the results, but as of right now, we played it generally safe.

BSJ Journal #2

1. What is your strategy for the firm (your view, not the group)?

We continued our decision to concentrate on the three markets (US, EU, AS) and dominate them. With that said, I am very surprised that every other firm had the same strategy of increasing the variety and quality of their shoe offerings. Frankly, our firm should still be in the top 3 firms in market share because we have the highest marketing budget, the best gross/operating/net profit margins, the lowest debt, and the best cash flow. It will be very hard for everyone to compete in the same market without making any major changes and because of that, we will have a short-term competitive advantage which we hope will become a sustainable competitive advantage.

2. What is the basis for your strategy going into the next week?

So, for this week, I recommend to the group that we should increase our marketing budget again because other firms have looked to copy our success by concentrating on certain markets like we have. So for that to happen, we would look to:

· Increase Brand Advertising by roughly +$3000

· Increase Retail Support by roughly +$1000

· Increase Search Engine by roughly +$2000

· Spend a maximum of +$12,000 of Celebrity Endorsements (to prevent others from getting endorsements without overpaying; however, we will break even if we get them at our bidding price based on our current profit margins)

Alongside the increase in marketing, I’d also recommend to increase our production capabilities and increase our star rating by:

· Purchasing Option C for both facilities as a one time cost (superior material costs will look to increase based on the current trend, so this will be really cost effective in the long run)

· Increase wages by +1% to have continue increasing workforce productivity

· Increase Best Practices Training to reduce materials cost, increase star ratings, and increase workforce productivity

· Aggressively increase Supervisory Compensation by +6-11% to again increase workforce productivity (and also increases our net profit)

· Continue replacing 1,000 machines because all of our old machines will be scrapped in two years; I am betting that almost all firms will not expect this, so they will have to spend one lump sum to replace all old machines.

· Build a production facility in Europe that can build roughly 2,000 shoes to increase production, to bypass customs/delivery/exchange rates, and to prepare our entry into the Latin Market in the next two-three years.

However, even with these increased costs, we will keep the price the same because we predict others will raise their prices in order to offset costs (there is almost no way for them not to based on past trends/future predictions); when that happens, we will have higher demand for our shoes. We can also afford to lower our profit margin this year.

3. Access the effectiveness of your strategy

So, overall, our strategy should continue to be very effective because of our increasingly high budgets to make these decisions. Based on the financial statistics, there is not much other companies can do to increase their share without making drastic changes and/or incurring high risks. We will continue to hold the major market share and soon look to become the market leader in the next 3-4 years based on some reasonable predictions. Our main goal in the next 2-3 years should be to enter the Latin American Market in order to increase our Image Rating. Our current image rating was boosted due to our private-label productions but I believe this isn’t something that we can rely on long-term as other firms will look to enter based on the profitability and high demand/low supply.

4. What did your group decide to do and what strategic proposals did you forgo (assess what was decided and what strategic proposals were not successful… would they have been successful, in retrospect?)

So, frankly, we will see what my group decides on and forgoes. I feel they will go along with my proposals due to the amount of research and thought I have put into them. The arguments for my decisions are also very strong and backed by the financial and industry reports. Also, there weren’t much decisions that they have brought up specifically.

BSJ Journal #3

What is your strategy for the firm (your view, not the group)?

Honestly, our firm hasn’t had a set strategy and we made moves based on previous industry trends. However, except for Company B and G, everyone is trying to be a dominant, higher end shoe-brand with wide product lines and current, so are we. With that said, we are also able to differentiate from the other companies due to our concentration in only three markets and our very high marketing/branding budget.

1. What is the basis for your strategy going into the next week?

So, right now, we are trying to be the market leader in the high-end sneaker market with a wide product line. Even though our shoe quality was 1 S/Q rating lower compared to everyone else in the previous year, we were able to outsell our competitors (except for Company H). However, this year, we will be able to easily reach a similar, if not higher, S/Q rating due to our production improvements and with the overall highest marketing budget, we will get a drastic increase in demand that the other firms won’t expect. Without making any changes, our projected demand increased by 1,500,000-2,000,000 shoes in our three locations. Now, because we don’t have the capabilities to fulfill this demand, we will look to increase our prices to decrease the overall demand and to get a better profit margin; But we will also look to increase our SE/Brand marketing to reach the right point if necessary.

One thing that a lot of other companies aren’t preparing for (loosely based on the info from page 4) is the automatic scrapping of old production equipment after this year. With $80,000,000 worth of shoe production equipment needed to be replaced in all NA production facilities, there will be some costly decisions to be made. Unlike most, our company has been slowly replacing our machines for the past two years, and will look to do so again this year. So when that time comes, we will only realistically need to spend $20,000,000 on equipment purchases. With that said, we should look to aggressively increase our Facility Spaces and the # of Production Equipment in all the three markets (NA, EU, ASIA) this year to really capitalize on the frenzy to come.

2. Access the effectiveness of your strategy

Overall, we will not expect the same growth of net profit as previous years due to the costs of replacing equipment and increasing our facility spaces. However, starting next year, with the production improvements being made in our new European facility, we will be able to supply the EU demand through it solely while maintaining our S/Q Quality. Our firm will look to save money on shipping costs and tariffs which will increase our profit margins in the long run. We will also be ready to enter the Latin American Market due to the increased production which no company will expect.

3. What did your group decide to do and what strategic proposals did you forgo (assess what was decided and what strategic proposals were not successful… would they have been successful, in retrospect?)

So, frankly, we will see what my group decides on and forgoes. I feel they will go along with my proposals due to the amount of research and thought I have put into them. The arguments for my decisions are also very strong and backed by the financial and industry reports.

BSJ Journal #4

What is your strategy for the firm (your view, not the group)?

As of right now, we hold one of the largest market shares of the industry. In the next three years, we are hoping to increase that share and become the market leader in the high-end sneaker market with one of the largest product lines. We are looking to become the “Nike” or “Adidas” in this industry but with that said, we don’t mind shifting this strategy if needed.

1. What is the basis for your strategy going into the next week?

As we are currently building to be the market leader in the high-end sneaker market with a wide product line, we will be looking to lower our manufacturing costs in hopes of shifting the amount saved to our marketing budget and our S/Q Rating. We are in a better state compared to a lot of the other firms, because I am positive that a majority didn’t plan for the equipment sell-off and will need to purchase $8m worth of production equipment to replace them.

Now that we have our third production facility up and running in Europe, we should be able to fulfill all the demand in the region which will save us a lot of money from tariffs and shipping. In the near future, we will look to create a fourth production facility for the Latin American Market in order to save similar costs: Compared to every other market, our profit margins are very small (5% vs 15%) which we won’t mind for the next two-three years to keep a high image rating.

One thing that we did notice is that the majority of the companies who have similar offerings are now looking to increase their marketing budget, so in turn, we will as well to maintain our dominance. It is something that we will have to consider moving forward if companies still look to position themselves similarly to ours as it will become increasingly competitive.

The final part that we will be concentrating on is to raise our ROE by repurchasing more stock while handing out small dividends. We would like to at least meet investor expectations which will get increasingly difficult based on the competition.

2. Access the effectiveness of your strategy

The effectiveness of the strategy will depend on how our competitors react, but we do feel we are in a better position compared to others. We still have one of the highest profit margins, the best credit status, and one of the highest image ratings. We will look to continue in doing so, but we are looking to spend $1.8m to increase our production capabilities which we won’t have to move forward.

3. What did your group decide to do and what strategic proposals did you forgo (assess what was decided and what strategic proposals were not successful… would they have been successful, in retrospect?)

So, frankly, we will see what my group decides on and forgoes. I feel they will go along with my proposals due to the amount of research and thought I have put into them. The arguments for my decisions are also very strong and backed by the financial and industry reports.

BSJ Journal #5

1. What is your strategy for the firm (your view, not the group)?

For the next year, we will continue to establish our firm as the market leader of the industry through a differentiation strategy. By the next year, we will enter a minimum efficient scale which will allow us to have one of the highest, if not top, economic value. I believe we will reach our goal of becoming the Nike/Adidas of our industry.

2. What is the basis for your strategy going into the next week?

With more firms (especially firm A with C & D) rising to compete in the same market segment we will look to increase our product line, our S/Q rating, and marketing budget. However, we are able to actually save on costs in 3 out of 4 geographic markets due to our investment/growth in production capabilities in all regions.

In order to increase demand for our product, we maxed out the product offerings from 400 to 500. Along with incremental spending of Styling Enhancements and the Quality Program, our S/Q Rating has increased by .5 points. With the increased spending in brand/SE marketing, these three tactics elevated our projected demand in both internet sales and wholesale with a 17.1% in Asia being the lowest of our projected market share.

Even with the increased spending, we are able to grow our profit margins due to our investments/growth in production capabilities. We are reaching a point where all four manufacturing facilities are able to fulfill their own regional demand (even with high reject rates), allowing us to shift some of the costs saved from tariffs and international shipping costs to other decision areas. The only region that has a smaller profit margin is the North American market due to the increased competitiveness, but we are able to make up for it through the increased margins in the other regions substantially.

Finally, one important area we have started concentrating on is in raising our EPS and ROE by aggressively repurchasing our stocks and continuing to pay dividends.

3. Access the effectiveness of your strategy

The effectiveness of the strategy will depend on how our competitors react, but based on projected numbers and personal competitive assumptions, our strategy will continue to be as effective, if not more so. Our overall measures have increased substantially from our EPS shooting from $8.58 to $11.99, our ROE increasing from 25.7% to 29.7%, our net revenues increasing by 22.5%, and our net profit increasing 37.2%. We are also confident in our abilities to hold high marks in both credit rating and image rating with industry-leading scores of A+ and 100 in respective categories.

4. What did your group decide to do and what strategic proposals did you forgo (assess what was decided and what strategic proposals were not successful… would they have been successful, in retrospect?)

My group has decided to implement all mentioned strategic proposals but have shifted some numbers to increase our scoring measures. Most of our moves, if not all, have been very successful and we hope to maintain it.

BSJ Journal #6

What is your strategy for the firm (your view, not the group)?

There isn’t much difference in our strategy for the next year. We are looking to maintain our position as the market leader in the industry along with a differentiation strategy. However, we are about to reach a peak in market share and therefore, will look to lower our operating costs more to gain a better profit margin. At this point, we still have the second highest net profit margin, but we will have to rethink our overall strategy if we cannot maintain it.

1. What is the basis for your strategy going into the next week?

We have increased our S/Q Rating from 8.3 to 9.0 to increase our projected demands, but we will stop increasing the S/Q rating as it has reached its peak in attracting new customers and cost-effectiveness. The money that could be spent on increasing the rating will be better served in increasing our marketing or administrative efforts which we have also increased slightly in terms of SEO marketing, brand marketing, and retailer support.

We are still increasing facility space in all regions to continue to meet regional demands. We have also decreased our budget in compensation and training due to the costs; there was a small tick in rejected pairs, but not enough to overset the savings made in reducing wages. Due to these changes, we have slightly increased our profit margins in all three segments (internet, wholesale, and private-label) in all four regions.

Finally, we have repurchased 500 stocks to raise our EPS and ROE aggressively.

2. Access the effectiveness of your strategy

Based on our competitive assumptions and projected numbers, our strategy will still be very effective. Our projections show that our EPS and ROE should reach $13.44 and 28.7% respectively while our Credit and Image Ratings reach the max scores of A+ and 100. Other important measures show that our net revenues and profits will increase to 14.4% and 10% which does indicate that our growth rate will slow down in the future.

3. What did your group decide to do and what strategic proposals did you forgo (assess what was decided and what strategic proposals were not successful… would they have been successful, in retrospect?)

All of my strategic proposals were accepted due to the projections that appeared. However, we will need to rethink our strategy in the next 2-3 years and see if we can still maintain our lead or be proactive about changing our strategies in the future.

BSG Journal #7

1. What is your strategy for the firm (your view, not the group)?

Still not much of a difference compared to last year as we want to position the firm as the market leader combined with differentiation. We expected to reach a peak in market share, but we are projected to increase our market share in three out of the four markets. We will continue to increase production in these three markets while lowering our operating costs. As mentioned previously, we will still consider changing our strategy if necessary.

2. What is the basis for your strategy going into the next week?

So, we are basing our strategy and our projected performance for year 18. For year 17, we have overestimated our revenue, profits, and overall performance and missed some of the investor expectations, but for this year, we have better management of our overall projections/estimations. We have conservatively estimated the competitive assumptions to make sure we won’t make the same mistakes and based on the data, we are expecting the following measures:

· EPS: $16.71

· ROE: 31.7%

· Credit Rating: A+

· Image Rating: 100

· Net Revenue Change: +21.1%

· Net Profit Change: +38.4%

3. Access the effectiveness of your strategy

Based on our competitive assumptions and projected numbers, our strategy should be very effective. We have lowered the overall production costs by reducing certain parts of worker’s compensation, material usage, and spending in the Quality Program. We have also increased our marketing efforts in Search Engine Marketing, Celebrity Endorsements, and Brand Advertising to get more brand visibility. We have also increased our prices very slightly to make sure we get the desired operating profit margins. In our next year, we will look to increase our market share in the Latin American Market as we have a large, temporary competitive advantage in terms of operating costs.

4. What did your group decide to do and what strategic proposals did you forgo (assess what was decided and what strategic proposals were not successful… would they have been successful, in retrospect?)

The strategic proposals were accepted due to the great projected results. We believe it will be successful, but we will see how it goes based on actual competitive efforts. Last year, we didn’t reach our projected numbers due to one company increasing their marketing budgets from basically $0 to over $1-2 billion in one year.

BSG Journal #8

1. What is your strategy for the firm (your view, not the group)?

We have changed our strategy based on the geographic region. In NA/EU we have shifted from a price premium to a budget-based with a differentiation strategy concentrating on marketing. However, for AP/L.A.m, we are still maintaining the price premium strategy with very high marketing.

2. What is the basis for your strategy going into the next week?

So, we are cautiously optimistic for our strategy due to our projections for year 19.
For year 18, we have still overestimated our overall sales, revenue, profits, and overall performance and missed our investors’ ROE expectations. However, even if we don’t reach the desired sales, we are likely to maintain ahead due to a substantial increase in operating profit ($ per pair sold) for all regions. We’d like to argue that we have conservatively estimated the competitive assumptions to make sure but we’ll wait to see.

· EPS: $18.64

· ROE: 31.0%

· Credit Rating: A+

· Image Rating: 100

· Net Revenue Change: +11.4%

· Net Profit Change: +29.7%

3. Access the effectiveness of your strategy

Our current strategy for this week is looking to be very effective based on our overall projected numbers. Even though we don’t reach the highest overall operating profits, we are well above the mean due to the changes we have made. We will remain holding one of the largest, if not largest market shares in all regions. The changes in strategy will help us move forward and if we need to change our strategy again, we will.

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