Wave Riders

SWOT Review

Strengths

„X Well ÐŽVestablished company that started in 1970

„X The company is the leader of the Rescue/Military sector with an estimated market share of 38%.

„X Products of Rescue and Military are very competitive with many unique features.

„X Only company that produces single boat to meet rescue and military specifications.

„X Low cost of production compared to the market price of inflatable boats.

„X Economy of scale will result in lowering cost/product which can result in generating higher profits if sales increased.

Weaknesses

„X CompanyÐŽ¦s Board is running the company in a very traditional way

- Board is very reluctant to any change introduced by senior management.

- Decision making process is centralized.

- Sales techniques are old fashioned. (labor intensive based on personal representation)

„X Lack of strategic direction within the firm, the company had been suffering from declining profitability for four years without taking any corrective actions.

„X Some senior managers are not feeling empowered, while others donÐŽ¦t see need for change.

„X Conflicts between senior managers as the company are not having a unified strategy.

„X Some senior managers are not competent.

„X Declining Market share in the leisure sector (19%) compared to SurfZA (32%) and Hagen (49%).

„X Declining profitability for four years starting from 1990.

„X Increasing volumes of non-sold stock.

„X Extremely low return on capital (4.5% last year).

„X High distribution costs (13% of the total turnover) and inefficient tendering process.

„X Inappropriate marketing strategy. (They thought that lowering prices will increase the demand)

„X Technical problems in the ÐŽ§Sea HorseЎЁ and ÐŽ§Spray99ЎЁ which had negatively influence the customerÐŽ¦s perception of the product.

Opportunities:

„X Consumers of Leisure sector are very loyal to the products they purchase.

„X Consumers of Leisure sector are not price-sensitive.

„X WaveRiders Rescue boats are perceived as safer as itÐŽ¦s divided into six compartments whereas competitors are only dividing it into three compartments.

„X Potential savings due to economy of scale if production increased.

Threats:

„X The market of inflatable boats is declining despite its growth for 20 years (for both sectors).

„X Negative views being publicized in Media about the companyÐŽ¦s products.

„X Strong competition from other two major players in the market, whom are adopting up-to-date management approaches.

„X The demand of Rescue/Military sector is strongly affected by allocated public spending, which means that if public spending is declining, the sales of these products will decline as well.

„X A possible price-war with companies discounting to sell off stock may arise.

„X Increase of raw material prices above inflation rate will lead to getting one of the major competitors out of the business.

Case Analysis

This is a classical case of decline in profitability due to sudden declines in market size growth rates. The companyÐŽ¦s problems werenÐŽ¦t addressed for the past 20 years as the market growth continuously resulted in the growth of companyÐŽ¦s profits.

In order to analyze this case, and suggest strategies, I recommend using the famous: ÐŽ§Revenues ÐŽV Expenses = ProfitsЎЁ model.

Revenues

Five Years Sales History

Leisure Sector 1990 1991 1992 1993 1994

WaveRiders 1,170 1,100 1,060 1,000 900

Industry Total 5,150 4,910 4,850 4,700 4,700

Market Share 23% 22% 22% 21% 19%

Rescue/Military Sector 1990 1991 1992 1993 1994

WaveRiders 1,100 1,080 980 930 950

Industry Total 2,800 2,700 2,600 2,500 2,500

Market Share 39% 40% 38% 37% 38%

The above tables suggest that the companyÐŽ¦s market share is on a downward trend in the Leisure sector, which can be one of the reasons of the declining profitability. ItÐŽ¦s worth noting that the companyÐŽ¦s turnover has been increasing due to increase in prices and not due to increase in sales.

The companyÐŽ¦s marketing director is suggesting that the company is using old-fashion and ineffective sales techniques that if changed, would have a great impact on increasing the companyÐŽ¦s market share and revenues.

Another important factor affecting the companyÐŽ¦s revenues is the decline in market size, which is an external factor that requires further analysis and investigations.

Costs

ItÐŽ¦s clear from the five-year financial summary in Data Card 1, that the main reason of declining profit is the growing operating expenses. From 1990 to 1994, revenue figures were growing but profitability margins are declining which raises a great concern over the costs of operation.

1990 1991 1992 1993 1994

Turnover 2100 2120 2148 2226 2325

Operating Profit 156 132 116 105 97

Profitability Margin 7% 6% 5% 5% 4%

The

...