Lipstick and the recession. What’s the link?

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In one of our previous blogs concerning the strategy papers and the importance of being aware of current issues we highlighted the impact of the recession on the number of people that went to cinemas (the number increased as it was seen as a relatively cheaper form of entertainment compared to eating out at restaurants or attending theater).

I was recently buying some cosmetics and got talking to the department manager. She told me about another somewhat unexpected sales success in the current recession.

Namely, that sales of cosmetics have increased. Whilst many women are reducing expenditure on most fashion products the sales of cosmetics has increased significantly. Cosmetics have shown the highest growth in the British beauty market with reports of a 7% rise to £1.2 billion.

Apparently, this scenario is called the “lipstick factor” and originated in the Great Depression of the 1930s when women were eager to look their best to land a scarce job. Reports say that the average woman in the UK in 2010 now has over £70 of cosmetics in her handbag.

So, despite there being a recession on, should the advice be “keep smiling”?

Strategy exams and Toyota. Is it a barrier?

Toyota has been in the news for all the wrong reasons recently. The company has faced strong criticism following reports of unintended acceleration and braking problems. These problems have been linked to a number of deaths. The end result is that millions of Toyota vehicles have been recalled for remedial work.

Akio Toyoda, the boss of Toyota and the grandson of the founder of Toyota, gave evidence yesterday to the House of Representatives Oversight and Government Reform Committee in the States. Whilst this is a very serious problem for Toyota in terms of the damage to its reputation there was a comment made by US congressman John Mica which reminds us of another interesting topic of discussion for ACCA P3 strategy students involving Toyota.

Mica said: “This is an embarrassing day for Toyota and for the thousands of hard-working Americans who work in Toyota plants across the US.”

Whilst Toyota is a Japanese company it can also be considered to be a truly global company. In America alone for example there are over 33,000 direct Toyota employees.

There are numerous reasons why a company may open up manufacturing operations in another country. Access to technology skills, cheaper labour and being closer to its end market are a few examples. For car manufacturers though there is a big incentive for manufacturing in certain countries. Namely, in doing so they remove a potential barrier to entry involving duties on imported vehicles.

In some countries there are excessive duties on imported cars. By manufacturing within the country the cars are built locally and therefore are not imported and hence there is no import duty. This nicely removes a barrier to entry. Of course there are other potential barriers to entry but these will be discussed in future blogs.

Anyway, back to Toyota. They are indeed a global company with recent Toyota figures showing that there are 53 Toyota manufacturing companies outside of Japan in 27 countries.

Avatar, 3D TV and the product lifecycle…

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The science fiction film Avatar which was written and directed by James Cameron has been in the press a lot recently and has had some good write ups by some of the critics. It is an incredibly successful film and today it was announced that it has overtaken Titanic to become the highest grossing movie of all time with worldwide takings of nearly USD2 billion since its premier in London in mid December last year.

Last night I decided to go and see it to see what all the fuss was about. I must admit that I was impressed. The special effects were excellent and with the film being shown in 3D it certainly did create an impact.

3D films have been around for a number of years now and started back in the 1950s with early prototypes of 3D movies including such classics as the 1950s monster movie the “Creature from the Black Lagoon”! Technology has progressed a lot since then though and at last month’s Consumer Electronics Show in Las Vegas there were a number of firms presenting their latest 3D televisions.

This is a useful example of what we would find in the product lifecycle. If you go back over the history of televisions you will find a series of lifecycles. The timeline of televisions has gone from Black & White, through “traditional” colour, to plasma and LCD.

Although the product lifecycle will vary on a geographic region by region basis, in a lot of countries the lifecycle of the “traditional style colour TV” is in decline whilst the lifecycle of the LCD TV is in the growth or maturity stages. What about the new 3D TVs that are being launched this year? It’s safe to say that these are in the introduction stage. As a result the marketing mix of these TVs will be different from the other stages. “Place” for example will be at a limited number of locations and as for “Price” then it’s not rocket science to guess that they will be priced at a premium above the other types of TV that are at different stages of their lifecycles!

If you’re in Australia then of course you can visit the gym at 3am….

One of my favourite countries is Australia. I’ve got some good friends there who are lucky enough to be able to enjoy the sunshine, outdoor life and great food that is present in Australia. They are also a very sporty nation being strong in sports such as rugby, cricket and not to forget surfing!

They were visiting London recently and I was chatting to them (in a coffee shop whilst it was raining outside…) and they were talking about a new chain of gyms that has opened in Australia called Jetts Gym. What was unusual about the gym was that it was open 24 hours a day and was focused on providing great exercise equipment but eliminated the “fancier” parts of a health club such as saunas, Jacuzzis and spas.

They kept the quality of the gyms high but managed to reduce costs by using techniques such as:

  • Locating the gyms in residential areas to encourage people to shower and change at home (save costs by not having large changing facilities).
  • Using full time video surveillance and only using staff during the peak times (save on staff costs).
  • Removing expensive items such as Jacuzzis.

There were clear benefits to the customer in having 24 hour access and the cost of membership was approximately half of the price of the average gym membership in Australia.

Using Bowman’s strategy clock model where does Jetts fit?

I would argue that it’s a low price with a medium to high perceived benefit. Are we looking at a Hybrid on the clock?

Either way, I’m not convinced I’d be using a gym at 3 in the morning!

Christmas parking and Michael Porter.

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You’re all no doubt undertaking some “last minute” revision in the run up to the P3 exam next Wednesday.

Christmas is fast approaching and I always tend to leave my shopping to the “last minute”. Christmas Eve for me is normally a mad rush around the shops trying to buy presents before the shops close. This year I’m determined that it’s going to be different.

I drove into town nice and early yesterday to try to beat the rush of Christmas shoppers but alas it seemed that everyone else had the same idea. Parking is always a problem near Christmas but there were two temporary car parks that had opened up for Christmas.

One was a large open area about 20 minutes walk from the main shopping area. You paid your money to park and simply parked wherever you could. The other one was closer to the shopping area and they actually washed your car whilst you were shopping.

Whether it’s me still being in the P3 mode but the first thing I thought about when I saw the car parks was Porter’s Generic Strategy. Out of the two car parks which one do you think was a cost leadership approach and which one was a differentiation approach? Put it this way, the car park close to the shopping area where they washed your car was 3 times the price of the other one so one of them was charging a premium price for a “different” product.

Best of luck in your exams on Wednesday!

British Airways and Iberia – suitable, acceptable but is it feasible?

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In last week’s P3 ExPand video I talked about the recent announcement of the British Airways (BA) merger with the Spanish airline Iberia. Some form of merger had been discussed on and off since they held talks in the summer of 2008 but now it’s looking like there could be some movement on this.

Students of Paper P3 will be aware that Johnson & Scholes argue that when evaluating strategic options, 3 major areas should be considered. Namely, is it suitable, is it acceptable and is it feasible?

The aviation industry is extremely competitive. In the current economic environment it is safe to say that the merger would help both companies in terms of synergies and hence from a suitability point of view it appears to work.

This issue of acceptability would need to be examined in the context of the key stakeholders of the firms. BA is quoted on the London stock exchange so some key stakeholders would be some of the big shareholders. The share price rose by 7% following the announcement so the shareholders appeared to like the news.

The final area is that of feasibility. An important issue from the feasibility point of view is whether it would get regulatory approval from the European Commission.

It’s suitable, it’s acceptable but is it feasible? Let’s wait and see what develops.

It’s music to the ears…

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I’m a keen concert goer and enjoy listening to all types of music. In my opinion one of the most pleasing sounds on the ear is that of a piano.

Last month, Kemble and Co., the only remaining large scale UK piano manufacturer stopped production in the UK. Its main shareholder Yamaha transferred operations to Asia.

Whilst there is a debate amongst music aficionados around the world as to whether the sound of instruments is different depending on where it was manufactured, what is interesting from a strategy paper point of view is to think about why Yamaha made the decision to transfer production to Asia. There could well be a question in the exam involving relocating production to another country. So why did Yamaha move the production location?

The reason is clearly due to cost savings due to economies of scale, synergies and utilising spare capacity at some of their other production facilities in Asia.

In 2 years time, Kemble is due to celebrate its 100th birthday. It will still celebrate its birthday but they will be blowing out the candles on the cake in Asia and not the UK.

A strategic alliance with local farmers.

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I always tell my students that they need to look around at their surroundings to see what is happening and see if they can link it with the  syllabus in any way. Doing this will make it easier to remember concepts and ideas.

I was lucky enough to visit Germany recently to do some work. I noticed an unusual vending machine and it made me think of strategic alliances.

Strategic alliances can come in a variety of forms including the very large formal Joint Ventures such as Sony Ericsson (a 50:50 JV between Sony and Ericsson) and co-operation agreements such as the airline alliances of Sky Team and Star Alliance.

What was unusual about the vending machine that I saw? The thing that caught my eye was that the vending machine sold fresh farmers produce such as milk, eggs and sausages rather than the typical selection of snacks that you would find in vending machines.

Farmers are facing a tough time at the moment. Distribution channels can be a problem for farmers. If they sell through the large supermarket chains they can end up in a weak negotiating position. Selling direct to the customer is something that a lot of farmers don’t have the skills or facilities to undertake.

Some further investigation found out that a number of farms have collaborated with a vending machine manufacturer to stock these machines in several towns in Germany. This alliance is helping both parties. The farmers for example now have a great new distribution outlet. The customers also appear to be pretty happy as they get fresh local produce in a convenient location. The fact that the “middle man” is removed also means that the produce is priced very competitively.

Will we see this expanding to other items and other parts of the world?

Iceland, Computers and PESTEL Analysis

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One of my best ever trips was when I visited Iceland. It is a fantastic country with some great people and some truly dramatic scenery. There are also some very large whales and some very cute puffins!

Their financial crisis has been in the headlines over the last year or so but there was an interesting piece of news that was recently reported. Iceland has a year round cool climate and chilled fresh water. At the same time the number of computer servers that are needed around the world to store the ever increasing amount of data that the world is generating is growing rapidly.

A key component of data storage is to keep the servers cool. With Iceland’s below average temperatures it means that the cost of cooling servers is significantly less than in other countries with average or above average temperatures. Some businesses are now putting the cool Icelandic climate and the increasing server storage demands together and data parks are being designed and built in Iceland.

The cool temperatures and developed business environment in Iceland make it an ideal place for such a scheme to work.

Now, back to the exams. What exactly does this news have to do with exam? Given the exam is just around the corner I’m hopeful that I don’t need to explain what PESTEL analysis is and I’ll leave it up to you to decide which out of P, E, S, T, E and L the cool climate of Iceland relates to!

Not-for-profit organisations face several challenges.

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I had to recently go into hospital for a minor operation on my knee. The nurses and doctors were fantastic there and thankfully everything is now fine with my knee.

The hospital I was in was a classic not-for-profit (NFP) organization and during my time there it really made me appreciate the challenges that NFPs face when setting objectives.

Hospitals have a significant number of stakeholders with a high level of interest. Patients like me are stakeholders with an obvious high level of interest in matters. Other local individuals who are not patients are also interested in case at some stage they need to use the hospital. The doctors, nurses and admin staff are also stakeholders with a keen interest in the activities and the government is another stakeholder interested in the hospital.

In summary, NFPs are different from most other organizations when it comes to stakeholders in that there tends to be a wider range of stakeholders with a high interest in a NFP organization than compared with other organizations.

Another issue that occurred to me during my stay was that there are a number of objectives that the hospital needs to balance. Two obvious ones are the quality of care given to a patient when he’s in the hospital versus treating more patients.

A final area I thought about was the classic finance term of Cost Benefit Analysis. Costs within hospitals are easy to measure but the benefits can be inherently difficult to measure. For example, how would they measure the benefit of reducing the waiting time for a knee operation by one month or 6 months?

You are not necessarily expected to be able to provide all the answers to the challenges of running a hospital in the exam but it is important to have an understanding of the challenges that a NFP organization faces when running its business.