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Profile Management Of Abc Electric Company

Essay by 24  •  March 14, 2011  •  1,292 Words (6 Pages)  •  906 Views

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ABC Electric Company

ABC Electric has been in business since 1970. The company makes hand-held arc welders its primary customers are construction firms, shipbuilders, auto-repair shops, and "self-help" amateurs. The company has 30% of the current market share along with four other competitors it has an annual sales of $800 million. The company has a satisfied customer-base. Although, their products are priced above the competitors, customers prefer ABC's welders due to their superior finish, reliability, and durability. Recently, demand for hand-held welders in the U.S. was steadily growing at a rate of 7% rate annually but has currently dropped. However, demands are growing in the West European market, which is currently value at $1 billion. Recently, ABC Electric found its market share and profitability decreasing. Because the company has made some gain in its customer base by improving product, quality and service while maintaining price. Moreover, a component supplier of ABC has raised its price by almost 10%. In addition, industry wide competition has generated excessive price reduction, which help in the fluctuation of the company profitability. Strategic Issues Facing ABC Electric ABC Electric is facing several issues that need to be address in order to stabilize their competitor's growth as well as increasing their market share and profitability. These issues are closely related to their external competitive strategy, which seems to be non-existence on a whole. Base on my brief discussion above, I believe that ABC Electric has in-voluntarily allows, one of its competitors to make advancement by improving its quality and service of their product without increasing price. Due to the fact that, ABC perceived its customers to be immune to price thereby remaining loyal to its product because of the quality and reliability that comes with the product image. As a result, this perceived brand loyalty created a threat to the company. The second issue facing the company is a supplier of whom ABC purchases its electric motors from for its welder has raised the price by almost 10%. In looking at this, the bargaining power of the supplier is very strong because the switching cost might be very high. Moreover, it will become damaging to the company based on the current reduction in price within the industry if the problem is not solved. The company will not be able to compete with their competitors' price. As a result, they will incur further loss in market share and profitability. Finally, there is an industry wide competition for welders, which leads to frequent price reductions. As a result, ABC's cost structure has been affected. In looking at this issue, ABC has relied heavily on its strategy of product differentiation and maintaining its traditional core competency, which is welding machine with limited or no diversification over the years. Now it is force to restructure its competitive strategy by lowering the cost of its product while maintaining quality or force to conglomerately diversify, which means selling new product to new market whereby creating a market niche, such as, the auto industry. The recommendations of the strategic planning committee can help solve these problems in various ways. For instance, the recommendation that was made by the committee to backward integrate to make electric motors would be an excellent move because of the fact that the company will have control over the quality as well as the price of the motor. In addition, by making its own motors the company will be able to reduce the component cost, thereby, increasing the profit it makes on its welders. Not having a supplier can reduce the time and effort of maintaining a steady external relationship. In order to implement this strategy, one must consider appropriate structural mechanisms, which needs to be established as to ensure coordination of activities between welder and motor operations. Moreover, the uses of control mechanisms are important to increase the success rate. By implementing this strategy, ABC Electric will be able to compete effectively with its competitors within the industry base on price thereby improving its profitability and market share. Start making welders for the auto industry should be the first strategy ABC implemented. The base of my argument lies in the advantage they would have to be the first mover with such a product. For example, if this action is successful then the company will have above- average returns until other competitors are able to respond effectively. Moreover, with ABC being the first mover they will have the opportunity to further build on customer loyalty, thereby making it difficult for responding firms to capture customers. However, potential disadvantages may result from being the first firm to initiate a competitive action.

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