Performance Consequences of Brand Equity Management - Case Study Example

M2AC SIMULATON REPORT COURSE TITLE: M2AC SIMULATON REPORT NAME: INSTRUCTOR: INSTITUTION: DATE: 1. Overview of Simulation The company uses cost leadership strategy to increase efficiency, reduce production cost 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 competition prices in the markets M2AC operates and two, building on the brand equity. This is evident by the company adopting a 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 negative impact on performance as well as the profit margins of the company. Strategy creates a clear direction to 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 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 effectiveness of the strategy adopted by the company to make profits as profits are affected by business performance (Strench, 2008). 2. 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 adopt 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 standard hence increasing switching costs, breaking the customer loyalty to other brands and difficulty in entering new markets. This resulted to 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 market. The economic aspect of the external environment also affected the company with the 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 availability of alternatives increased competitiveness of the companies in the industry. With M2AC adopting cost strategy for market entry and building on brand equity, the company has successfully adopted with the changing environment. When the company entered the German market, the performance was good with a 22% units sold. Competition was tough with the company achieving a 59% competitiveness. The brand equity was not good because of lack of competitive advantage as a result of low safety of company offerings. This affected the brand equity because the market is quality orient and has a high preference to local products. According to ( Baldauf et al, 2003) perceived quality of products by customers is an important resource that can lead a company to achieve competitiveness. The loyalty of the customers to locally manufactured products also posed a challenge to the entry of the firm in the market though the sales were good with no missed sales as compared to the Indian market the company entered. M2AC generally enjoy free entry despite the challenges it faced because in Germans market there was little completion with only one competitor and the company offered a unique product to the market. This helped the company to push sales higher relative to the other market. During the entry in this market M2AC faced the challenge of price sensitivity which is associated with brand equity where customers become less sensitive to price changes and are willing to pay a price premium (Lassar et al, 1995) since they perceive unique traits of the product which no other alternative can provide. This is evident by the company achieving 22% of the total sales in Germany though it had low safety products after establishing brand equity. In the Indian market there was a change of strategy with the company adopting aggressive marketing and advertising to drive sales and build brand equity. Brand equity can be influenced by subjective evaluation of brand aspects by either direct or indirect like advertising contact with the brand (Keller, 1993). The company achieved a sales $ 143 million in the Indian market with no missed sales in the market. High investment in advertising drove the operational costs higher compared to the other markets hence having a negative impact on the total revenue margins. Generally the prices in the Indian market were low as compared to the other markets. To compare this scenario, the percentage of units sold in the US were 14% which generated revenue of $ 478 million while in the Indian market the percentage of units sold were 15% with $ 143 million in revenues. This was as a result of the strategy adopted so as to build brand equity in the initial stages of the market entry. Also in this market M2AC enjoyed an early market entry with only one competitor hence driving profits when competition was low. With the Indian market being price oriented the strategy adopted by M2AC is a good approach to enter the market since the prices would be maintained low with operational costs being low. 3. Review of the Company Structure The success of the company was a result of proper utilization of financial resources and ability to convert these resources to revenues. The return on investment of the company was high symbolizing good application of available resources to make profits. This was achieved through cost reduction investment in technology and R&D and investment in the human capital which is required in the production process. Utilization of Financial Resources M2AC adopted a cost leadership strategy which guaranteed low prices, though the cost of goods was low. The company focused on manufacturing low safety products and product standardization which attracts low operational costs. This provided the company with high contribution margin which was transferred to the profits which translated to increased share value hence the company achieving its objective. With operating expenses kept at minimal values, this guaranteed profits at the end of the period under review. For example, the performance of In the Indian market was successful because the strategy adopted by the company was compatible with product type the company was offering and preferences of the customers. This led to the company achieving a growth of market share of 15% by units sold which is equal to the total market share percentage the company acquired across all markets. M2AC investment in technology and R&D was minimal did not yield the expected result as the inventory uptake in the markets was still low across the markets. Investment in technology and R&D is an important driver of the manufacturing industry and to a great extend adoption of appropriate technology can lead the company in achieving greater market share hence higher profits. According to (Griffith et al, 2000) R&D expenditure helps in assimilating research discoveries of others as well as being a source of innovation to companies. For M2AC to achieve innovation required to pace with competition in the market, the company should adopt a strategy which is backed by research and allocate substantial budget in acquiring best in class technology so as to achieve innovation and improve employee morale and productivity. This could go a long way in improving safety rating of the company’s product which will translate to improved brand equity in the Germany market where market is mostly driven by quality of the products. In this market the company performed well because competition was minimal and availability of a large market, this could change if other companies in the manufacturing invest more in technology and R&D as a way of entering the market. This could lead to lose of market share and drive the costs of operations higher. The HR score for the company was low as compared to other players in the industry which was characterized by low productivity and employee morale. Employee participation in production process is very critical in ensuring that quality products are produce at the lowest productions costs. Research has identified possible causes of low employee performance as use of outdated technology, poor leadership from the top management, inadequate resources and poor compensation policies. In our case, M2AC allocated very low budgets to employee programs which would increase their productivity. For example there were no allocations for training of employees which should be a continuous engagement in ensuring employee morale and confidence is improved. Recommendation In the future, M2AC should adopt a clear strategy on how to acquire and maintain market share. This could be necessitated by investing in R&D to improve innovation and improve on the quality of vehicles offered in the market. This also will improve on product differentiation which creates a unique niche in the market and improves customer loyalty. Improvement in the technology used would improve employee participation in the production process hence lead to higher quality products. Improvements of employees’ benefits and salary score could go a long way in improving performance of the organization in increasing employee productivity. Acquisition of another company which has high efficiency and performance would benefit the company in leveraging financial performance. According to (Dutordoir et al, 2014) indicate that the benefits of a merger are mainly reflected by the synergy. The main synergy for M2AC acquisition is revenue to improve on the quality of products, product diversification and improvement in human resources. Diversification of products in Indian market where the market is price oriented would result to improved sales and a larger market share. 4. Group and Individual Reflection In our group performance there were both effectiveness and ineffective, which led to the performance levels we have achieved and areas where we can improve. Our group performance can be attributed to the following. Market research The group focused more on doing market research in the markets we entered and gathered information about our business. My contribution was to analyze the information sourced, come up with viable solution and solicit for support so as to implement the approach. In my view, I demonstrated leadership skills in bring the team together and improving our work. This was through provision of support to other team and provision of good working environment. My strongest value was being ambitious which helped the group to make strategic decisions on the markets to invest based on the available information. My contribution through communication and soliciting for support on the best approach to take has made it possible to make investment decisions. I was a collaborator where I focused on ensuring all the team members participated towards achieving the objective of the company. Coordination of the team was a challenge to our group to ensure that there was total participation of every member and all the contributions to be taken in to account before the final decision. Improvement in coordination would have yielded better results than what we have achieved. 5. References 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 Griffith, R., Redding, S. and Van Reenen, J. (2000), ‘Mapping the two faces of R&D productivity growth in a panel of OECD industries’, Centre for Economic Policy Research, Discussion Paper no. 2457 http://blog.commlabindia.com/elearning-design/negative-performance-factors Keller,K.L.(1993),”Conceptualizing, measuring, and managing customer- based brand equity'', Journal of Marketing, Vol. 57, Dutordoir, Roosenboom & Vasconcelos(2014). Synergy disclosures in mergers and acquisitions. International Review of Financial Analysis.Ho, Y. W., Merrilees, B., "The performance benefits of being brand - oriented", Journal of Product & Brand Management, vol.17, No.6, (2008) Keller & Donald, (2003), " How Do Brands Create value", Marketing Management, vol.12 Philipsen & Kemp (2003), Capabilities for growth: An exploratory study on medium-sized firms in the Dutch ICT services and life sciences. Read More