In the following case assume that the company is a manufactu

In the following case, assume that the company is a manufacturer of sports watches and other wearable electronic sports technology. A new entrant from China has just entered the market. The new competitor offers low prices, good quality, and good service. You determine that the brand could start to become very well established internationally with one year. Although the breadth of the new entrant’s product line is small (four products at four different price points), it will be possible for it to offer a full line of products (about 8, ranging from low-end to luxury products) within two to three years. Clearly, the new entrant has upset the balance of your firm and those of your competitors. (In this example, you could understand the product as anything from perfume to automobiles, from jewelry to athletic shoes.)

The new entrant offers prices that are about 20% lower than the market currently sees. You believe that its operating expenses are lower and that it wishes to recover a lower profit than is customary in this industry. The company’s strategy is to “buy in” to the market and then recover over time through volume. It is a similar strategy that your firm used 10 years ago to enter into this market.

So, the question is: how do you respond strategically? What areas of the firm must be cut? How do you prioritize the elements of the company and retain current operations in one area and cut in others? To say, we need to reduce our costs by X% across the board is not an answer, because it means nothing without details behind it.

In considering your response to this problem, identify any product that you are familiar with and try to analyze what you could do without: do you need after-sales service? Do you put a high value on customer relations? Is quality always important?

Please note, as with the other question this week, there is no one right answer. All products have different mixes of activity and are perceived differently by consumers.

Solution

Answer:

Question 1: How do you respond strategically?

Answer: In order to manage the lower price entrant in the market, we need to develop the strategy to deal with such problems in future. We can explore following options to manage this scenario strategically as

Question 2: What areas of the firm must be cut?

Answer: In order to manage the new entrant in the market with 20% lower product price, the organization to reduce the product price by reducing the plant expenses and material cost of the product. So in order to achieve this objective, the plant area which is higher in cost needs to reduce their expenses and other areas which are not significant in the organization, needs be cut so that the organization can achieve the desire savings. The plant can keep the area required for current operations and can plant to cut non-current area of plant.

Question3: How do you prioritize the elements of the company and retain current operations in one area and cut in others?

Answer: In order to manage the new entrant in the market with 20% lower product price, the organization to identify and prioritize the key elements of the organization from where the required saving can be generated. Thus the organization can use the cause and effect matrix to prioritize the identified project based on criteria which contains below factors

Based on this criteria, the identified projects can be selected which will be able to deliver the required saving for the organization. This will help to keep the current operations in one area and non-current operation area can be cut down.

Question 4: To say, we need to reduce our costs by X% across the board is not an answer, because it means nothing without details behind it.

In considering your response to this problem, identify any product that you are familiar with and try to analyze what you could do without: do you need after-sales service? Do you put a high value on customer relations? Is quality always important?

Answer: For such case, we can identify the products which are fit for market. Thus if we are providing higher quality in the market and that is not expected by the customer, than we can explore to lower down product quality and explore the cost saving. We need to deliver the product quality as per customer expectation i.e. Fit for market base.

We can provide associated services along with product to keep cost of the product same. We can offer sales and service support for the product. We can provide higher warranty for the product. We can plan to explore other means for managing the customer base.