Ashland Oil Inc Trouble at Floreffe D Case Solution

1. Introduction

In today’s rapidly changing business landscape, it has become inevitable for business organizations to continually assess macro-environment factors and internal strengths/capabilities, and adopt a proactive attitude to ensure long-term survival or success (Henry, 2021). In this article, a detailed strategic analysis has been conducted for ABC Company. The article has highlighted several strategic management issues that ABC Company is currently facing or may face in the long-run.

The article offers important insights into external macro-environmental factors and ABC Company’s existing competitive positioning within the marketplace. Relevant strategic management models have been applied to analyze external and internal business environments and to offer practically viable suggestions for ABC Company’s growth and expansion.

2. External environmental analysis

2.1 PESTLE analysis

PESTLE analysis is a marketing tool or framework that is used by marketers to analyze macro-environmental factors that may have a positive or negative influence on the company (Kolios & Read, 2013).

PESTLE stands for- political, economic, social, technological, legal and environmental. By applying the PESTLE analysis framework, ABC Company can develop a comprehensive understanding and make informed business decisions to ensure sustained success.

Political

Longstanding political disputes between the United States and China, Brexit and a recent war between Russia and Ukraine have created global political uncertainty. As per Corruption Index reports, the worldwide corruption level has increased in recent years (Davis, 2020).

Although, the political environment of ABC Company’s home country is stable due to the democratic system and transparent electorate process. But, ABC Company is present in various countries, each having high corruption levels, unfavorable taxation policies and own political tensions.

Growing political unrest may affect ABC Company’s international operations, limit growth opportunities and threaten ABC Company’s sustainability.

Economic

COVID-19 and related variants badly hit several industries worldwide. Supply chain disruptions, along with reduced consumer spending during lockdown periods, resulted into a global economic downturn (Ivanov, 2020).

But, the pandemic also offered opportunities for businesses like ABC Company to enhance their online presence, diversify supply chains, implement cost-cutting measures and adapt quickly to the new normal to effectively navigate economic downturns.

After the subsequent economic recovery in the post-COVID-19 situation, the GDP growth rate is increasing, and the unemployment rate is declining in the respective countries where ABC Company operates, boosting consumer confidence and spending (Jiang, Wang & Zhao, 2022).

Operating in countries with low-interest rates and moderate inflation rates lowers production costs and increases growth opportunities, making the business environment conducive for ABC Company.

While, frequent currency exchange rate fluctuations may affect ABC Company’s international trade operations, necessitating contingency planning and risk mitigation strategies.

Social

Increasing population and rapid urbanization in the home country and overseas markets presents ABC Company with an opportunity to tap into a large consumer base.

While, a growing ageing population can affect ABC Company’s segmentation, targeting and positioning strategies as ABC Company currently targets young and middle-aged people (Rybaczewska & Sparks, 2022).

People have now become health-conscious and price-sensitive, creating more demand for ABC Company’s affordable products. Online shopping has become a common trend.

Majority of people purchase products/services that are recommended by their favorite social media influencers. It offers opportunities for businesses like ABC Company to employ social media influencer marketing tactics and drive online sales (Masuda, Han & Lee, 2022).

Technological

Due to well-developed technological infrastructure, including advanced ICT infrastructure and a robust R&D ecosystem, the home country of ABC Company is considered among the technologically advanced countries in the world.

ABC Company has an opportunity to engage in government-funded projects that are aimed to fuel innovation and collaborate with local research institutions to enhance digitization efforts and achieve marketing communication and innovation objectives.

A high internet penetration has been observed in countries where ABC Company operates. ABC Company can exploit this opportunity and invest more in e-commerce, digital marketing and data-driven decision-making (Saura, 2021).

Emerging automation trends are necessitating investments in disruptive technologies like artificial intelligence. Businesses like ABC Company are required to redesign their business model and bring automation to enhance operational efficiency and maintain competitiveness (Arents & Greitans, 2022).

Legal

The home country has a stable, modernized, fair, transparent and independent legal system. Overseas markets, where ABC Company operates, have business-friendly foreign investment regulations. They have established antitrust laws to promote fair competition.

There are consumer protection laws to safeguard consumers from fraudulent marketing claims, and data privacy and protection laws to ensure secure handling of employee and consumer data.

Intellectual property protection laws are in place to protect patents. Employment and health and safety laws are also getting stringent with time.

ABC Company must abide by these laws to avoid legal consequences- lawsuits and penalties. ABC Company must ensure strict enforcement of workplace safety standards and make sure that everyone is treated fairly and given equal employment opportunities (Wild & Wild, 2019).

Environmental

Many countries, where ABC Company operates, have stringent environmental regulations in place due to climate change, extreme weather conditions, high pollution levels and resource scarcity issues.

Increased pressures from government, media and environment protection groups have enforced businesses in urban areas to adopt waste management and green marketing practices. Many businesses have pledged to remove plastic and be carbon-neutral by 2035 (Pedersen et al. 2020).

Due to growing environmental consciousness, consumers have started preferring environment-friendly brands. ABC Company has an opportunity to launch green products, invest in renewable technologies and engage in green business practices to ensure long-term sustainability (Elemeen, 2015).

2.2 Porter’s five forces analysis

Porter’s five forces model was developed by Harvard Business School professor Michael E. Porter in 1979. Porter’s five forces model is used by businesses to identify and analyze five competitive forces that are shaping certain industry (Kabeyi, 2018).

By conducting Porter’s five forces analysis, ABC Company can assess the overall industry attractiveness level.

Bargaining power of buyers

Buyers do not make bulk purchases, but they are able to exercise some power as there are large numbers of competitors available in the industry. Buyers are also knowledgeable about industry competitors/products due to the high availability of information on the internet/social media.

Consumers’ high price sensitivity further weakens the power of suppliers (business organizations). But, it does not impose threat on ABC Company due to its affordable pricing. The level of product differentiation within the industry, where ABC Company operates, is high.

Well-established players like ABC Company have created strong appeal and built loyalty among buyers via effective marketing strategies, raising buyers’ switching costs. Overall, the bargaining power of buyers is moderate (Dobbs, 2014).

Bargaining power of suppliers

There are large numbers of raw material suppliers available in the industry where ABC Company operates. Due to their standardized offerings, buyers like ABC Company have relatively less dependency on any single particular supplier.

Raw material suppliers do not pose any threat for forward integration due to the high capital and extensive market knowledge required. Suppliers’ profits are highly dependent upon well-established buyers (ABC Company) due to bulk purchases and exclusive long-term agreements (Dobbs, 2014).

While, technology suppliers are few in number. Their products are highly differentiated as they offer innovative and advanced technological solutions to meet unique business needs. This increases switching costs for buyers like ABC Company.

Overall, the threat of raw material suppliers is low, and the threat of technology providers is high.

Competitive rivalry

Competition is intense because of numerous existing local and foreign players. ABC Company operates in an industry that has matured and is reaching toward a saturation point.

Some players have high strategic stakes in the industry, which is further intensifying rivalry. Besides high fixed costs, there are high exit barriers because highly-specialized assets or equipment used in production is difficult to sell, relocate or use for another purpose.

However, high product differentiation and strong customer loyalty makes competitive rivalry a weaker force. ABC Company must continually observe market trends and, offer more innovative and differentiated products and build strong brand equity to compete effectively (Bruijl, 2018).

Threat of new entrants

New entrants may find it difficult to enter in the respective industry. Key barriers are- significant initial capital, working capital, research and development, and marketing and distribution costs.

Distribution channels are, however, easily accessible due to the availability of multi-brand retail outlets and low-cost technology platforms (social media, 3rd party e-commerce sites) (Ferrell, Hartline & Hochstein, 2021).

But, many existing players like ABC Company have already developed strong brand recognition and loyalty. They have achieved supply-side economies of scale advantage via their wide supply chain network. All these factors are hard to imitate for new entrants. Thus, the overall threat is low.

Threat of substitutes

The limited availability of substitutes increases buyers’ switching cost. Despite increased price sensitivity due to economic uncertainty, the threat of substitutes is low because the majority buyers are risk avoiders and they are loyal with existing well-established brands like ABC Company.

3. Internal environmental analysis

3.1 SWOT analysis

SWOT is a strategic planning and strategic management framework that can help ABC Company in identifying and analyzing the company’s internal strengths and weaknesses and external opportunities and threats (Benzaghta et al. 2021).

Strengths

ABC Company holds a dominant position in the industry. It has developed a strong brand awareness and recognition. It offers high-quality products at affordable prices. It has a loyal customer base and high market share.

ABC Company has a well-developed IT infrastructure. It has a large employee base. The strong financial health and wide distribution network helps ABC Company in business growth and expansion efforts (Sarsby, 2016).

Weaknesses

ABC Company has a weak organizational culture. It is facing workforce-related issues, such as- a lack of workforce diversity, low employee engagement, low morale, high job stress and high staff turnover.

ABC Company has less presence on emerging social media platforms like TikTok. It has drawn criticism over plastic use in product packaging (Robinson, 2020).

Opportunities

ABC Company has the opportunity to bring automation and invest in robotics tools to enhance work efficiency. It can leverage the growing trend of green production and consumption by introducing green products, eco-friendly packaging and engaging in sustainable business practices.

It has an opportunity to modify business strategies with changing demographics and consumer preferences. By making strategic alliances with other businesses, it can diversify its product portfolio and introduce healthy products and accessible items for old-age people (Austin, 2010).

ABC Company can expand into emerging markets with huge growth potential. It can employ merger and acquisition and social media influencer marketing strategies to acquire market share in emerging markets.

Threats

Global political unrest and economic uncertainty can affect ABC Company’s operations. Inability to cope with cyber incidents, increasing pressures from environment-protection groups and non-compliance with environmental laws can cause negative brand reputation and legal penalties.

Growing aging population can affect the sales of ABC Company and threaten business survival due to its ABC Company’s prime focus towards young and middle-aged people. Intensifying competition can impose a threat on ABC Company’s existing market share.

3.2 VRIO/VRIN analysis

VRIO/VRIN framework was developed by Jay Barner in 1991. VRIO/VRIN is an internal analysis tool that can be used by business organizations to analyze internal tangible and intangible resources and capabilities (Ariyani & Daryanto, 2018).

ABC Company can conduct VRIO/VRIN analysis to identify resources and capabilities that are valuable, rare, inimitable, organized/non-substitutable and are a source of sustainable competitive advantage.

Valuable

ABC Company has a rich brand history and substantial internationalization experience. It has a talented customer support and R&D team, contributing to innovation and excellent customer service.

It has strong financial resources, state-of-the-art production facilities and a well-developed technological infrastructure. ABC Company holds patents for its best-selling innovative products, giving it a competitive edge.

ABC Company has a wide supply chain network. Strong brand equity shows ABC Company’s effective brand-building capabilities. It has strategic partnerships/collaborations with 3rd party e-commerce businesses and multi-brand retailers, driving sales and profitability (Chatzoglou et al. 2018).

Rare

ABC Company’s rich brand history, strong financial position and brand equity, technological resources, internationalization experience, patents for well-differentiated products and exclusive agreements with suppliers are rare within the industry. Many competitors lack these resources/capabilities.

Inimitable

ABC Company’s resources and capabilities that are hard to replicate or imitate for competitors include- strong financial resources, patents, substantial international expansion experience and exclusive contracts with suppliers due to the significant time, effort and external support required.

Organized

ABC Company is well-organized to fully exploit resources and capabilities. It has a talented procurement, R&D, marketing and customer support team. It uses CRM software. Effective training programs are designed to equip customer support staff with the required skills (Ariyani & Daryanto, 2018).

Non-substitutable

ABC Company’s resources/capabilities that are considered non-substitutable include- financial resources, proprietary technology and exclusive agreements with key technology suppliers. There are no readily available alternatives or substitutes for these resources/capabilities within the industry.

3.3 Marketing mix (7Ps)

Marketing mix term was introduced by Neil Borden in the early 1950s. The 4Ps of the marketing mix model was devised by Jerome McCarthy in the 1960s and published in a book titled ‘Basic Marketing: A Managerial Approach’. Later, three additional Ps were introduced by Booms and Bitner in the 1980s.

The latest 7Ps of Marketing Mix model comprises- product, price, place, promotion, people, process and physical evidence.

Marketing mix is a marketing tool that comprises a set of actions or tactics that ABC Company can use to market/ promotes its products/services to customers (Fumagalli & Baskin, 2023).

Product

ABC Company offers a wide range of well-differentiated, high-quality products to meet the needs of the target market. ABC Company augments its product by offering value-added services like free or exclusive access to particular features, extended warranties and excellent customer support (Singh, 2012).

Price

ABC Company has adopted an affordable pricing strategy that caters needs of price-sensitive consumers. It offers discounts, loyalty points and bundling options to attract and retain customers (Nagle & Muller, 2018).

Place

ABC Company has employed Omni-channel strategy. It distributes products via both offline and online channels. Customers can access products through physical outlets, websites, social media sites and mobile apps. It has collaborated with multi-brand retailers and 3rd party e-commerce businesses.

Promotion

ABC Company promotes its brand and products via traditional offline and online marketing communication channels. It creates brand awareness via celebrity endorsements.

ABC Company sponsors events and engages in public relations activities to enhance brand visibility. It advertises products on social media channels and notifies offers on emails (Thomas, Chen & Iacobucci, 2022).

People

ABC Company has hired knowledgeable and talented customer service staff. It has fostered a customer-centric culture within the organization. It provides regular trainings to staff to reduce customer complaints and enhance customer experience.

Process

ABC Company has adopted effective quality control measures, embraced e-commerce solutions and implemented a CRM system to streamline internal processes and relationships with customers. It continually monitors, reviews and improves the email subscription management process (Jain, 2013).

Physical evidence

ABC Company has created a visually appealing shopping atmosphere inside physical outlets via attractive in-store displays, lighting and decoration items. Brand logo is designed with a blend of colors that matches with brand identity. ABC Company also has a user-friendly website.

4. Porter’s generic competitive strategies

Michael Porter identified three generic strategies that can be used to achieve a competitive advantage within the industry. These are- differentiation, cost leadership and focus. Focus strategy, aimed at niche segment, is broken down into two strategies- differentiation focus and cost focus (Tanwar, 2013).

ABC Company can either select one among three generic competitive strategies or choose a hybrid competitive strategy- a combination of both cost leadership and differentiation, to compete effectively with competitors.

Differentiation

ABC Company has adopted a differentiation strategy as it makes R&D investments to produce high-quality and innovative products for a broad and diverse consumer base. It offers excellent customer service.

However, in order to differentiate well from competitors, ABC Company must continually innovate its manufacturing processes and marketing communication practices. It should invest in innovative and advanced digital/e-commerce solutions (Pulaj, Kume & Cipi, 2015).

Cost leadership

ABC Company has achieved economies of scale advantage. It has taken several cost-reduction initiatives throughout the supply chain. But, in order to attain a low-cost leadership position in the industry, ABC Company should bring automation and adopt lean manufacturing principles (Wilson, 2010).

ABC Company should also negotiate favorable contract terms with raw material suppliers. Cost leadership strategy has better alignment with ABC Company’s affordable pricing strategy. By lowering costs, it can attract more price-sensitive customers and achieve higher profit margins.

Differentiation Focus

ABC Company can concentrate on a niche or particular segment- health-conscious and environment-conscious old-aged people and introduce a healthy, eco-friendly product line with unique features to attract that specific consumer segment (Pulaj, Kume & Cipi, 2015).

Cost Focus

ABC Company can focus on health-conscious and environment-conscious old-aged people and partner with socially-responsible brands that offer eco-friendly and healthy products to share the financial burden. Such partnerships can result into reduced manufacturing and marketing costs.

5. Ansoff’s growth matrix

Ansoff matrix is also known as Product/Market expansion grid. Ansoff matrix was developed by Igor Ansoff in 1965. Ansoff matrix is a strategic planning tool that helps marketers when making strategic decisions regarding business growth/expansion (Gurcaylilar-Yenidogan & Aksoy, 2018).

Four strategic options are available to ABC Company- market penetration, market development, product development and diversification.

Market penetration

ABC Company has the option to penetrate deeper into an existing market. It can intensify marketing efforts to attract more people in the existing market, can offer attractive discounts, sales incentives and loyalty programs to boost sales, and can engage in cross-selling/up-selling activities (Alkasim et al. 2018).

Market development

ABC Company can sell existing products into new, untapped markets. It can enter into emerging economies with huge industry growth potential. It can partner with local brands to better understand local trends and customer preferences and adapt marketing strategies accordingly.

Product development

ABC Company can launch new products and sell into existing markets. It will need to increase R&D efforts to bring innovation. It can introduce green products to meet the evolving needs or preferences of existing customers.

Diversification

ABC Company can diversify its product portfolio and launch new products into new markets. It can adopt either a related or unrelated diversification strategy.

By pursuing a related diversification strategy, ABC Company can introduce a healthy products category for new market, i.e., health-conscious customer segment (Yin, Zhang & Zhang, 2017).

While, in the case of an unrelated diversification strategy, ABC Company can introduce merchandized product categories for a new target audience- merchandized shoppers (Park & Jang, 2013).

4. Conclusion

The detailed strategic analysis of ABC Company has offered some meaningful insights. ABC Company operates in a complex and dynamic business environment. Growing political and economic uncertainty, changing demographic patterns and people preferences along with intensifying competition may threaten ABC Company’s strong competitive positioning within the marketplace. ABC Company is suggested to capitalize on key strengths to exploit opportunities, adapt marketing strategies according to evolving market trends, adopt a hybrid competitive strategy and choose the right business expansion strategy to maintain relevance and competitiveness in the industry.

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