THE ARDEN COMPANY The Arden Company operated in a slow growth business offering
ID: 1115683 • Letter: T
Question
THE ARDEN COMPANY The Arden Company operated in a slow growth business offering acommodity product for which total demand was highly price inelastic. The product was sold through industril distributors by both the Arden Company and its seven competitors. Six of these competitors very small factors in the industry who operated only locally or regionally and none hada greater market share than 4%. The strongest ofthe competitors was the Columbia Corporation which in the past two years had increased its market share by a bit less than two points, with almost all of the increase coming from Arden. Recently, a new young and aggressive team had assumed the top management posts at Columbia and it was well known that this team had given first priority to achieving a significant improvement of Columbia's position in the market. Management at Arden, therefore, was faced with the need for designing a marketing strategy which would be effective in meeting this potential challenge. To provide a basis for strategy planning, Arden's management compared their economic structure with Columbia's. Their analysis produced the following information: were Companies Arden Columbia (S millions) 61% $403 $217 46% 48% 22% $146 S121 17% 45% Current market share Current dollar sales Breakeven point Safety factor Variable margin rate Loss in variable margin from a 5-percentage-point drop in unit price Volume gain required to offset 5-percentage-point drop in unit price 46.86 Equivalent share point gairn Capacity utilization s20.15 S7.30 7.5 80% 18.25 2.9 75% OUESTIONS 1. What is Columbia's strategy likely to be? 2. What should Arden's countere-strategy be?Explanation / Answer
Ans 1. Columbia's cooperation is facing competition from one of the most prominent players in the market i.e. Arden Company which holds 61% of the market share. The new player was able to take two percent of the market share from Arden . From the data stated in the question it seems that Columbia's strategy is to cut on the safety factor during the production. Every company in the manufacturing space insures that proper safety measures have been employed while the production process is going on. This avoids for any mishappening and reduces the impact if there is anything that takes place despite.
Low safety checks would imply that company has done cost saving at the stake of it's employs. This makes the breakeven point of Columbia to way less than Arden. This provides Columbia with an opportunity to increase it's volumes further and increase it's market share further.
Ans 2. However the strategy applied by Columbia helps it grow but not organically. Growth when it comes at the cost of the safety of it's employees can be a major peril. But in the present scenario it is the need of the hour for Arden to employ cost cutting measures. But Columbia's strategy should'nt be replicated as it would make the entire industry vulnerable. It should look to cut it's unecessary cost via innovation. This will not only help the company to reduce it's breakeven point but would also make the company more sustainable in the long run.
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