The paper 'Performance Consequences of Brand Equity Management' is a great example of a Management Case Study. The company uses a cost leadership strategy to increase efficiency, reduce production costs below the industry average, and enter new markets. This is evident by the company having higher profits and revenue which is greater than the market profits and average revenue respectively. Based on the strategy the company pursued two goals, one having a low selling price which is below the competitive prices in the markets M2AC operates and two, building on brand equity.
This is evident by the company adopting the lowest safety on its products and focusing more on the domestic market which is the US market. With mid-sized companies paying little or no attention to strategy, research has shown that those which adopt a clear strategy like cost leadership and product differentiation will perform better than those which have no strategy (Baum, et al. ). This might have a negative impact on performance as well as the profit margins of the company. The strategy creates a clear direction for the company to follow and this has proven to be an integral input to the performance of the company and firms policy in terms of decision making (Philipsen and Kemp, 2003).
With a high ranking in brand equity in the primary market which is the US, M2AC has enjoyed customer loyalty which is evident by higher revenues generated from the sales than the average industry revenues over the duration under consideration. M2AC has achieved its objective of maximizing shareholders’ equity by generating high profits of $ 308 million compared to other market players with low operational costs and higher market share compared to other companies.
This has shown the effectiveness of the strategy adopted by the company to make profits as profits are affected by business performance (Strench, 2008). Critical analysis of the Changing Environment Based on the performance of the company during the period there were critical changes in the operating market which led to the company adopting new techniques to strengthen its market share. Generally, the operating environment was highly competitive both in the primary market and new markets the company entered during the period.
Competition from other companies in the vehicle manufacturing sector since M2AC had adopted low safety standards hence increasing switching costs, breaking the customer loyalty to other brands, and difficulty in entering new markets. This resulted in the company investing more in Research and Development (R& D) and adoption of sophisticated technology so as to outpace completion and gain access to new markets. M2AC is a highly competitive enterprise with its brands performing well across all markets. The economic aspect of the external environment also affected the company with Hurricane Donald sweeping across the primary market decreasing the inventory by 300 units.
Tough this affected the entire industry there was substantial sales decrease during that period which is evident by a dip in the revenue margins. The company invested in new technology and in R & D so as to compete and gain access to its new target markets. The bargaining power of customers because of the availability of alternatives increased the competitiveness of the companies in the industry.
Baldauf Artur, Cravens Karen S., and Binder Gudrun, (2003), "Performance Consequences of Brand Equity Management Evidence from Organization in the Value Chain", Journal of Product & Brand Management, vol.12, No.4, pp.220-236
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Philipsen & Kemp (2003), Capabilities for growth: An exploratory study on medium-sized firms in the Dutch ICT services and life sciences.