STRATEGIC MANAGEMENTCASE TWO

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

PRESENTED TO: SIR AHSAN DURRANICLASS DAY: THURSDAYTIMING: 6:30 9:00

INDUSTRYS DOMINANT FEATURESFEATURE #1: Market Size And Growth RateThe 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 RivalryThe 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 RequirementsBuyers needs and requirements are changing rapidly with the passage of time and the main driver of these changes is technology

FEATURE #5: Market SegmentationThere were three broad segments in the market major home appliances, floor care appliances and commercial appliances.FEATURE #6: Pace of Technological ChangeTechnology 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 DifferentiationThe products of the competitors were highly differentiated in terms of attributes and the technology used within the products FEATURE #8: Product InnovationIndustry members were focused to design products that improves the quality of the life without complicating daily living.FEATURE #9: Vertical IntegrationSome of the companies like Hoover were vertically integrated FEATURE #10: Economies of ScaleCompanies 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 ModelENTRY BARRRIERSFACTORSHUFAMUFANEUTRALMFAHFACOMMENTS

Economies of scaleSmall5LargeTHE EXISTING COMPANIES REAPED ECONOMIES OF SCALE WHICH MADE IT QUITE DIFFICULT FOR NEW ENTRANTS TO SURVIVE IN THE INDUSTRY

CAPITAL REQUIREDLOW4HIGHCAPITAL REQUIRED TO START UP A BUSINESSIN THE GIVEN INDUSTRY WAS QUITE HIGH

ACCESS TO DISTRIBUTION CHANNELSAMPLE4RESTRICTEDBOTH THE INDEPENDENT RETAILERS AND POWER RETAILERS WERE PRE-OCCUPIED

EXPECTED RETALIATIONLOW4HIGHEXPECTED RETALIATION WAS QUITE HIGH BY EXISTING COMPANIES

DIFFERENTIATIONLOW5HIGHEXISTING COMPANYS PRODUCTS WERE HIGHLY DIFFERENTIATED

BRAND LOYALTYLOW5HIGHEXISTING COMPANYS PRODUCTS WERE WELL POSITIONED IN THE MINDS OF THEIR CUSTOMERS

EXPERIENCE CURVEINSIGNIFICANT5SIGNIFICANTEXISTING COMPANYS WERE HIGHLY EXPERIENCED IN THEIR JOB

GOVT. ACTIONLOW1HIGHTHERE WERE NO SIGNIFICANT ACTIONS BY THE GOVT. TO DETE THE ENTRY

AVERAGE SCORE4.125STRONG ENTRY BARRIERS

EXIT BARRIERSSPECIALIZED ASSETS

HIGH5LOWTHERE WERE NO SUCH SPECIALIZED ASSETS

FIXED COST OF EXITHIGH4LOWNO SIGNIFICANT FIXED COST TO EXIT

STRATEGIC INTERRELATIONSHIPSHIGH1LOWTHERE WERE DEEP TIES OF EXISTING COMPANIES WITH SUPPLIERS AND DISTRIBUTERS

GOVERNMENT BARRIERSHIGH5LOWNO BARRIERS TO EXIT AT ALL FROM THE INDUSTRY

AVERAGE SCORE3.75EXIT BARRIERS ARE V.LOW

COMPETITIVE RIVALRYCOMPOSITION OF COMPETITORSEQUAL SIZE1UNEQUAL SIZETHERE WERE FEW MAJOR COMPETITORS OF ALMOST EQUAL SIZE

MARKET GROWTH RATESLOW3HIGHINDUSTRY ATTAINED MATURITY SO GROWTH RATE WAS STAGNANT

SCOPE OF COMPETITION GLOBAL1DOMESTICMAJORITY OF THE COMPANIES IN THE INDUSTRY WENT GLOBAL

FIXED STORAGE COSTHIGH1LOWAT ONE END THE GOODS ARE DURABLE SO NO THREAT OF EXPIRY ON THE OTHER END THE SPACE OCCUPIED BY THEM IS HUGE

CAPACITY INCREASELARGE2SMALLSOME OF THE COMPANIES TO ACHIEVE ECONOMIES OF SCALE INCREASED THEIR CAPACITY

DEGREE OF DIFFERENTIATIONCOMMODITY5HIGHALL INDUSTRY INCUMBENTS WERE PRODUCING HIGHLY DIFFERENTIATED PRODUCTS

STRATEGIC STAKEHIGH5LOWMOST OF THE COMPANIES WERE WELL ESTABLISHED GLOBALLY

AVERAGE SCORE2.57STRENGTH OF COMPETITIVE RIVALRY DOES EXIST MODERATELY

THREAT OF SUBSTITUTE PRODUCTSTHREAT OF OBSOLESCENCE OF INDUSTRYS PRODUCT

HIGH2LOWDUE TO RAPID CHANGE IN TECHNOLOGY THERE IS A THREAT OF OBSOLESCENCE

AGGRESIVENESS OF SUBSTITUTE PRODUCT IN PROMOTIONHIGH5LOWNO CLOSE SUSTITUTE PRODUCTS AVAILABLE

SWITCHING COSTLOW5HIGHNO CLOSE SUSTITUTE PRODUCTS AVAILABLE

PERCIEVED PRICE/VALUEHIGH5LOWPERCIEVED PRICE IS LOW

AVERAGE SCORE4.25VERY WEAK THREAT OF SUBSTITUTE PRODUCTS

POWER OF SUPPLIERSNO. OF IMPORTANT SUPPLIERSFEW1MANYNO. OF SUPPLIERS PROVIDING THE REQUIRED MATERIAL WERE FEW

SWITCHING COSTHIGH1LOWIT IS HIGH DUE TO LONG TERM CONTRACTS AND ALLIANCES

AVAILABILITY OF SUBSTITUTESLOW4HIGHSUBSTITUTE MATERIALS WERE AVAILABLE

THREAT OF FORWARD INTEGRATIONHIGH5LOWNO SUCH INTENT OF SUPPLIERS

IMPORTANCE OF BUYERS INDUSTRY TO SUPPLIERS PROFITSMALL2LARGESOME WHAT UNIMPORTANT

QUANTITY PURCHASED BY THE INDUSTRY OF SUPPLIERS PRODUCTLOW4HIGHDUE TO FEW SUPPLIERS ALL THE MATERIAL WAS PURCHASED FROM THEM

SUPPLIERS PRODUCT AN IMPORTANT INPUT TO THE BUYERS BUSINESSHIGHLY IMPORTANT1LESS IMPORTANTMATERIAL PURCHASED WAS OF UTMOST IMPORTANCE

AVERAGE SCORE2.57SUBSTANTIAL POWER OF SUPPLIER

POWER OF BUYERNO.OF IMPORTANT BUYERSFEW5MANYSEVERAL BUYERS

THREAT OF BACKWARD INEGRATIONHIGH5LOWNO CHANCE

PRODUCT SUPPLIEDCOMMODITY5SPECIALITYHIGHLY DIFFERENTIATED SPECIALITY PRODUCT

SWITCHING COSTLOW2HIGHVERY LOW

%AGE OF BUYERS COSTHIGH4LOWMOERATELY LOW

PROFIT EARNED BY BUYERLOW3HIGHONLY INDUSTRIAL APPLIANCES EARNED PROFIT

IMPORTANCE OF FINAL QUALITY OF BUYERS PURCHASELOW5HIGHDUE 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 servicesAVERAGE SCORE4.14

Overall Industry attractivenessFactorsUnfavorableNeutralFavorable

Entry Barriers4.125

Exit Barriers3.75

Rivalry among existing firms2.57

Power of buyers4.14

Power of suppliers2.57

Threat of substitute4.25

Total score (AVERAGE)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 INNOVATIONAn 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 ofthe group, which is determined by the size ofthe circle.According to this graph, Whirlpool, GE,Electroluxare put in one strategic group, which accountfor 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 middlesegment to super premiumof the market but still owned apositionof strong regional contender in terms of competitive orientation. Despite having its regionalposition, 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 INDUSTRYINDUSTRY MATRIX(CPM)

KSFSWeightCompany Whirlpool RatingCompany Whirlpool Weighted ScoreCompany GE ratingCompany GE Weighted ScoreCompany Maytag RatingCompany Maytag Weighted Score

Technological Related(Smart Appliances based on A.I)0.341.241.241.2

Manufacturing Related(Lean + Six Sigma)0.1530.4530.4530.45

Distribution Related(independent dealers + power retailers)0.1530.4530.4530.45

Product Innovation(latest designs)0.230.620.430.6

Marketing Related(advertisement campaigns)0.220.420.430.6

Total13.12.93.3

Less than 2.5 = weakBetween 2.5 and 3.15 = Average Greater than 3.15 = Strong