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STRATEGIC

MANAGEMENT
CASE TWO
PREPARED BY: M.BABAR KALAM
(20746)
USHAIR FAREED (20988)
AMIR (20963)
ASIF JAVED (20901)

PRESENTED TO: SIR AHSAN DURRANI


CLASS DAY: THURSDAY

TIMING: 6:30 9:00

INDUSTRYS DOMINANT FEATURES


FEATURE #1: Market Size And Growth Rate
The U.S major home appliance industry in 2002 was a
very successful industry. More appliances were made and
sold in the United
States in 2001 than in any preceding year .The
association of home appliance manufacturers was
predicting slight increases during 2002 in each category
of white goods .After more than 50 years of rising
sales, both in units and dollars the U.S market had
reached maturity. Aside from some normal short-term
fluctuations, future unit sales were expected to grow only
1.9% annually from 2000 to 2005in the U.S.
FEATURE #2: Scope Of Competitive Rivalry

The major home appliance industry was clearly changing


from a purely domestic industry to one in which global
competitors were engaging in battles for market share
and economies of scale.
FEATURE #3: Demandsupply conditions
The U.S. major home appliance industry had consolidated
from around 300 manufacturers in 1945 to only a few
major players in 2002.This consolidation of the industry
over the period was a result of fierce domestic
competition.
FEATURE #4: Buyers needs and Requirements
Buyers needs and requirements are changing rapidly
with the passage of time and the main driver of these
changes is technology

FEATURE #5: Market Segmentation


There were three broad segments in the market major
home appliances, floor care appliances and commercial
appliances.
FEATURE #6: Pace of Technological Change
Technology was advancing at an increasing pace and
played a critical role in achieving success in the market.
Industry members were leaving no stone unturned to
keep up with the rapidly changing technology.

FEATURE #7: Degree of Product Differentiation


The products of the competitors were highly
differentiated in terms of attributes and the technology
used within the products
FEATURE #8: Product
Innovation
Industry members were focused to design products that
improves the quality of the life without complicating daily
living.
FEATURE #9: Vertical Integration
Some of the companies like Hoover were vertically
integrated
FEATURE #10: Economies of Scale
Companies in the industry were investing heavily to gain
economies of scale through upgrading their facilities,
improving their product quality and engaging in
production methods to reduce cost of their products.

Porters 5 Forces Model


ENTRY BARRRIERS

FACTORS

HUFA

Economies
of scale

Small

CAPITAL
REQUIRE
D

LOW

ACCESS TO
DISTRIBUTIO
N CHANNELS

AMPL
E

MUFA

NEUTRA
L

MFA

HFA

COMMENTS

Larg
e

THE
EXISTING
COMPANIES
REAPED
ECONOMIE
S OF SCALE
WHICH
MADE IT
QUITE
DIFFICULT
FOR NEW
ENTRANTS
TO SURVIVE
IN THE
INDUSTRY

HIGH

CAPITAL
REQUIRED
TO START
UP A
BUSINESSIN
THE GIVEN
INDUSTRY
WAS QUITE
HIGH

RESTRICTE
D

BOTH THE
INDEPENDENT
RETAILERS
AND POWER
RETAILERS
WERE PREOCCUPIED

EXPECTED
RETALIATION

LOW

DIFFERENTIATION

BRAND
LOYALTY

EXPERIENC
E CURVE

GOVT.
ACTION

LOW

LOW

HIGH

INSIGNIFICAN
T

LOW

HIGH

EXPECTED
RETALIATION
WAS QUITE
HIGH BY
EXISTING
COMPANIES

EXISTING
COMPANYS
PRODUCTS
WERE HIGHLY
DIFFERENTIATED

HIGH

SIGNIFICAN
T

HIGH

EXISTING
COMPANYS
PRODUCTS
WERE WELL
POSITIONED
IN THE
MINDS OF
THEIR
CUSTOMERS

EXISTING
COMPANYS
WERE HIGHLY
EXPERIENCED
IN THEIR JOB

THERE
WERE NO
SIGNIFICANT
ACTIONS BY
THE GOVT.
TO DETE
THE ENTRY

AVERAGE
SCORE

4.125

STRONG
ENTRY
BARRIERS

EXIT BARRIERS
SPECIALIZE
D ASSETS

FIXED
COST OF
EXIT

HIGH

HIGH

STRATEGIC
INTERRELATIONSHIPS

GOVERNMEN
T BARRIERS

HIGH

HIGH

LOW

THERE
WERE NO
SUCH
SPECIALIZED
ASSETS

LOW

NO
SIGNIFICANT
FIXED COST
TO EXIT

LOW

THERE WERE
DEEP TIES OF
EXISTING
COMPANIES
WITH
SUPPLIERS
AND
DISTRIBUTER
S

LOW

NO
BARRIERS
TO EXIT AT
ALL FROM
THE
INDUSTRY

AVERAGE
SCORE

3.75

EXIT
BARRIERS
ARE V.LOW

COMPETITIVE RIVALRY
COMPOSITION
OF
COMPETITOR
S

MARKET
GROWTH
RATE

SLO
W

SCOPE OF
COMPETITIO
N

FIXED
STORAGE
COST

EQUA
L SIZE

GLOBA
L

HIGH

UNEQUA
L SIZE

THERE WERE
FEW MAJOR
COMPETITORS
OF ALMOST
EQUAL SIZE

HIGH

INDUSTRY
ATTAINED
MATURITY
SO
GROWTH
RATE WAS
STAGNANT

DOMESTI
C

MAJORITY
OF THE
COMPANIES
IN THE
INDUSTRY
WENT
GLOBAL

LOW

AT ONE END
THE GOODS
ARE
DURABLE
SO NO
THREAT OF
EXPIRY ON
THE OTHER
END THE
SPACE
OCCUPIED

BY THEM IS
HUGE

CAPACITY
INCREAS
E

LARG
E

DEGREE OF
DIFFERENTIATION

STRATEGIC
STAKE

AVERAGE
SCORE

COMMODIT
Y

HIGH

SMAL
L

HIGH

2.57

SOME OF
THE
COMPANIES
TO ACHIEVE
ECONOMIE
S OF SCALE
INCREASED
THEIR
CAPACITY

ALL INDUSTRY
INCUMBENTS
WERE
PRODUCING
HIGHLY
DIFFERENTIATED
PRODUCTS

LOW

MOST OF THE
COMPANIES
WERE WELL
ESTABLISHED
GLOBALLY

STRENGTH
OF
COMPETITIVE
RIVALRY
DOES EXIST
MODERATELY

THREAT OF SUBSTITUTE
PRODUCTS
THREAT OF
OBSOLESCENC
E OF
INDUSTRYS
PRODUCT

AGGRESIVENES
S OF
SUBSTITUTE
PRODUCT IN
PROMOTION

SWITCHIN
G COST

PERCIEVED
PRICE/VALUE

HIGH

HIGH

LOW

HIGH

LOW

DUE TO RAPID
CHANGE IN
TECHNOLOGY
THERE IS A
THREAT OF
OBSOLESCENCE

LOW

NO CLOSE
SUSTITUTE
PRODUCTS
AVAILABLE

HIGH

NO CLOSE
SUSTITUTE
PRODUCTS
AVAILABLE

LOW

PERCIEVED
PRICE IS
LOW

AVERAGE
SCORE

4.25

VERY WEAK
THREAT OF
SUBSTITUTE
PRODUCTS

POWER OF SUPPLIERS
NO. OF
IMPORTANT
SUPPLIERS

FEW

MAN
Y

NO. OF
SUPPLIERS
PROVIDING
THE
REQUIRED
MATERIAL
WERE FEW

SWITCHIN
G COST

HIGH

LOW

IT IS HIGH
DUE TO
LONG TERM
CONTRACT
S AND
ALLIANCES

HIGH

SUBSTITUT
E
MATERIALS
WERE
AVAILABLE

AVAILABILITY
OF
SUBSTITUTE
S

LOW

THREAT OF
FORWARD
INTEGRATION

HIGH

IMPORTANCE
OF BUYERS
INDUSTRY
TO
SUPPLIERS
PROFIT

SMAL
L

QUANTITY
PURCHASE
D BY THE
INDUSTRY
OF
SUPPLIERS
PRODUCT

SUPPLIERS
PRODUCT
AN
IMPORTANT
INPUT TO
THE
BUYERS
BUSINESS

AVERAGE
SCORE

LOW

LARG
E

HIGHLY
IMPORTANT

2.57

LOW

SOME WHAT
UNIMPORTANT

HIGH

LESS
IMPORTANT

NO SUCH
INTENT OF
SUPPLIERS

DUE TO FEW
SUPPLIERS
ALL THE
MATERIAL
WAS
PURCHASED
FROM THEM

MATERIAL
PURCHASED
WAS OF
UTMOST
IMPORTANCE

SUBSTANTIAL
POWER OF
SUPPLIER

POWER OF BUYER
NO.OF
IMPORTANT
BUYERS

FEW

THREAT OF
BACKWARD
INEGRATION

HIGH

PRODUCT
SUPPLIED

SWITCHIN
G COST

COMMODIT
Y

LOW

SPECIALIT
Y

MAN
Y

SEVERAL
BUYERS

LOW

NO
CHANCE

HIGHLY
DIFFERENTIATED
SPECIALITY
PRODUCT

HIGH

VERY LOW

%AGE OF
BUYERS
COST

HIGH

PROFIT
EARNED
BY
BUYER

LOW

IMPORTANCE
OF FINAL
QUALITY OF
BUYERS
PURCHASE

LOW

HIGH

LOW

MOERATELY
LOW

HIGH

ONLY
INDUSTRIAL
APPLIANCE
S EARNED
PROFIT

DUE TO INTENSIVE
R&D BUYERS
EXPECTATIONS
ABOUT QUALITY
ALSO
INCREASED+QUALITY
OUTPUT BY BUYER IS
ALSO REQUIRED ***

***BUYERS POWER IS MORE IF THE industrys product is not


important to the quality of the buyers products or services
AVERAGE
SCORE

4.14

Overall Industry attractiveness


Factors

Unfavorable

Neutral

Favorable

Entry Barriers

4.125

Exit Barriers

3.75

Rivalry among

2.57

existing firms
Power of buyers
Power of suppliers

4.14
2.57

Threat of substitute
Total score
(AVERAGE)

4.25

3.56

MAJOR DRIVERS OF CHANGE IN


THE GIVEN INDUSTRY
(JUSTIFICATIONS)
INCREASING GLOBALIZATION
After the domestic market attained maturity the best
option available to the industry to keep the returns high
and to stay competitive was to look for global ventures.
Europe had a market share 25% larger than U.S. Markets
in Asia, Eastern Europe, and Latin America had become
more important to world trade as more countries had
changed to a free market economy. Industry analysts
expected appliance markets in these areas to grow at a
rate of 5%-6% annually between 2000 and 2005.

PRODUCT INNOVATION

An ongoing stream of product innovations tends to alter


the pattern of competition in an industry by attracting
more first time buyers, rejuvenating industry growth, and
creating wider or narrower product differentiation among
rival sellers. In the given industry the focus of companies
was moving from traditional appliances to smart
intelligent appliances able of sensing and responding
based on fuzzy logic systems.

MARKETING INNOVATION
As mentioned above the industry attained maturity and
the only means of reaping fruit from it was through
innovations such as marketing innovations .When firms
are successful in introducing new ways to market their
product or are successful in repositioning it to capture
value from the customer, they can spark a burst of buyer
interest, widen industry demand, increase product
differentiation and reshape customer demand to their
advantage.

Strategic Groups within the


Industry

This graph inculcates three dimensions in it. One is


Market segment, which ranges from discount
segment through premium segment; second is
competitive orientation, which varies from niche
through global player; third is the combined
market size of the group, which is determined by
the size of the circle.
According
to
this
graph,
Whirlpool,
GE, Electrolux are put in one strategic group, which
account for major chunk of the market. These firms
pretend to be the closest competitor of one
another. As,all of these three firms are having
global presence and, overall, they are catering to

discount through semi-premium segments of the


market.
Moreover, Maytag makes up its own strategic
group as it is catering from middle segment to
super premium of the market but still owned
a position of strong regional contender in terms of
competitive
orientation.
Despite
having
its
regional position, Maytag proved to be a strong
contender in the market as it has taken the global
firms head-on and has given them really tough
time through its innovative products.
Haier and Bosch-Siemens are shown in one
strategic group as these are global aspirants and
tapping upscale markets in US industry. Vikings
and Sub-Zero are niche players, each producing
one exclusive premium quality product line, makes
up another strategic group.

KEY SUCCESS FACTORS IN THE


INDUSTRY
INDUSTRY MATRIX
(CPM)
KSFS

Weight

Company
Whirlpool
Rating

Company
Whirlpool
Weighted
Score

Company
GE rating

Company
GE
Weighted
Score

Company
Maytag
Rating

Company
Maytag
Weighted
Score

Technological
Related
(Smart
Appliances
based on A.I)
Manufacturing
Related
(Lean + Six
Sigma)
Distribution
Related
(independent
dealers +
power
retailers)
Product
Innovation
(latest
designs)
Marketing
Related
(advertisement
campaigns)

0.3

1.2

1.2

1.2

0.1
5

0.45

0.45

0.1
5

0.4
5
0.4
5

0.45

0.45

0.2

0.6

0.4

0.6

0.2

0.4

0.4

0.6

Total

3.1

2.9

Less than 2.5 = weak


Between 2.5 and 3.15 = Average
Greater than 3.15 = Strong

3.3