PROJECT FINANCIAL ANALYSIS OF SALTON INC. Consider the competitive forces at work in the small-appliance industry. Do you think Salton can sustain its unusually high profits and return on equity on this industry? The competitive forces of Salton Inc. are as shown in the table below (The Business week, Issues, P 49-53)Bargaining Power of SuppliersPower of suppliers comprises of all the forces which are essential for the suppliers to have either high or low bargaining power. In the case of Salton Inc. the bargaining power is high. This has resulted due to high switching cost from the company’s product to other competitor’s product in the market.
In addition, the products offered by Salton Inc. have low substitutes in the market. Bargaining Power of CustomersThis is very sensitive because it determines the company’s performances in terms of sales volume. The Salton Inc. is in a position to sustain its unusually high profits and return on equity on this industry because the customers who are targeted are not price sensitive. In fact the customers can clearly differentiate the products from those offered by competitors in the market.
Threat of New EntrantsDue to constant and consistent introduction of new features in the products provided by Salton Inc. new entrants has found more difficult to enter into the market. The company has a large share of the market and has won the loyalty of customers. This strategy of improving the quality of products as enabled the Salton Inc. to sustain its unusually high profits and return on equity on this industry (Pederson, p. 79)Threat of SubstitutesThis competitive force does not exist in the Salton company because the company has close customer relationship and high switching cost which customers faced incase they decide to switch.
For comparison purposes, the online exhibits for the case give a ratio analysis from eVal for four of Salton, s competitors: Applica, Maytag, Sunbeam and Whirlpool. Based on the Dupont analysis, how has Salton generated such a large return on equity relative to these other firms? Do you see any noteworthy changes or trends in Salton’s ratios over time? Salton Inc. has been able to perform well in the market despite of high competition from companies such as Applica, Maytag, Sunbeam and Whirlpool.
Some of the strategies used by the company to maintain its leadership position in the market include the reduction in cost of production which enables lowering of the prices of products offered by the company. Furthermore, the company entered into licenses agreements with foreign companies such as White Consolidated Industries, Inc. which has not only helped to increase the number of customers targeted in the market but also increase the popularity of the products in the market. Finally, the company adopts price strategy as a tool of retaining the customers in the market.
Though the customers were less price sensitive, the company’s management thought that the strategy is important in defending the market share. Other strategies which Salton Inc. adopted include improved customer care services, product differentiation, personal selling etc. All these strategies have enable Salton Inc. to generate large return on equity relative to its competitors in the market (Clyde and Brown, p. 323)