Product

In terms of market potential, Japan is a significant market for prestige cosmetics next to the United States. This market is clearly critical for P&G’s strategic expansion plans in Asia given that the company’s Max Factor brand has barely cracked the $10 billion Japanese beauty market. (Bartlett, 2004, p. 9) Likewise, strengthening the SK-II brand in its domestic market is imperative in its international success. Quelch (1999) notes that highly successful global brands are usually characterized by being “mature and advanced” in their home markets.

(p. 6) However, although SK-II is undoubtedly strong in Japan, its growth is still possible in its home market. P&G will benefit more from further investing on SK-II’s rapid market expansion through product differentiation in the niche market. The company can use the popularity of the core products of SK-II to introduce other products that would enable the brand to capture a significant portion of the market. Undoubtedly, the SK-II’s target market already has a high level of readiness for the brand’s expansion outside of its core products.

This is evidenced by the success of the SK-II foaming massage cloth which took advantage of Japanese women’s established skin care regimen in responding to unmet needs and demands. P&G could leverage its innovative technologies to support SK-II’s focused market niche strategy in the Japanese cosmetics industry by developing highly-differentiated products based on the demands and preference of the affluent and highly discriminating Japanese women. The main risk that a home market-based expansion involves is the reaction from SK-II competitors.

Japanese-based prestige brands are likely to introduce more innovative products in an attempt to compete against SK-II product expansion initiatives. Japan is a highly mature market where consumers are already exposed to a number of brands and have developed their loyalties to these brands, which would make it more difficult for SK-II to expand its consumer base. Although this can undoubtedly be addressed by investing on more sophisticated marketing and product differentiation strategies (i. e.

technologies that would enable consumers to be convinced about the effectivity of SK-II vis-a-vis other brands), the mature characteristic of the Japanese market also entails that there would be limited growth prospects after market penetration. Hence, expansion in the Japanese market could still be achieved but it would contribute very little to P&G’s strategic global interests. Third Priority: Brand Introduction in Europe Introducing SK-II would be more arduous in Europe despite the presence of a highly developed prestige cosmetics market.

Like Japan, Europe is a mature market saturated by major prestige product labels which made competition among brands more intense. The maturity of the European market also effectively made it more difficult for new brands to penetrate and capture a significant share of the market. A major entry barrier to SK-II’s expansion in Europe would be the cultural differences between the European market and the brand’s Japanese market. This would entail the development of versions of SK-II that are specifically adapted to the European consumer tastes and preferences.

European consumer’s lack of familiarity with the SK-II brand also makes it imperative for the SK-II brand to be able to achieve a high level of differentiation from prestige products already in the market. In product development efforts, Procter & Gambles’ established image as a mass-market company in the West could be have negative impact on SK-II’s higher end market segment target as it could be associated with Olay. Thus, it is clear that SK-II’s most reasonable choice for market expansion is China.

By entering the Chinese market, SK-II would not only be able to exercise its immense potential as a brand but would also be sufficiently aligned with P&G’s over-all global strategy by gaining access to a strategic Asian market. In contrast, SK-II expansion in Japan and Europe would be limiting for the brand given that both markets are already mature and offers limited growth opportunities.

Works Cited: Bartlett, C. A. (2004). P&G Japan: the SK-II globalization project. Harvard Business School. Penhirin, J. (2004). Understanding the Chinese consumer. The McKinsey Quarterly, Special Edition.

Introduction

• William Hesketh Lever founded lever Brothers in 1885.
• In the beginning as soap manufacturer but later diversified in to food and personal care products.
• Unilever’s corporate centers are London and Rotterdam. Walls’ Introduction
• Walls introduced in Pakistan in 1997-98. The product line consists from lollies to ice creams. This includes Cornetto, Callipo, Max, Kulfis, Top Ten Choc Bars, Feast, Milky Way and etc.
• Unilever committed its own resources to acquire ‘Polka’ and consolidate the ice cream market for Lever Brothers Pakistan.

Low gearing and reputation as a multinational blue chip give Lever ready access to capital at good terms to fund growth Magnum!

• Magnum was introduced in 15th of June,2001
• Effective weights of mass audience advertising publicly displayed in the summer landscape, would strengthen consumer attachment to the brand and develop strong associations with the summer season
• The first premium-quality ice cream to enter the adult impulse market.

Product life cycle

• If one looks at a category, the product life cycle seems to be an important determinant for all sorts of decisions
• Generally a product should be kept in the growth stage as long as possible.

Magnum’s life cycle

Magnum is in the growth stage. Due to the amount of awareness in the market, and the sales figures crossing targets, the product can be seen in the growth stage. On the PLC, market growth is also associated with increase in sales. This leads to the market becoming more attractive.

Cycle-recycle pattern

The Cycle –Recycle Pattern is adopted because of seasonality of the sale. In Eid,Happy New year, Valentines day,Christmas and other seasonal events the sales follow pleasant upward trend due to the new flavors and varieties introduced by the firm. •

Total quality management

Its all about ever barricading eminence i. e ever improving quality. The quality of the product should be increase with the passage of time to keep customers as well induce new customers. Magnum’s TQM Introduction of new Magnum’s Cup will certainly improve the quality because of inclusion of “choco-topings”. The new Cup will increase the value to the customer because of its “take away” facility. pricing? ”

Magnum’s TQM again

Since Magnum is a premium choc bar and people are paying the premium to get this premium choc bar ,the TQM does have a great vitality in this context. Magnum is thought as a superb quality choc bar that’s why people wouldn’t compromise on the quality . They know “they are paying for the best”

Forecasting and Demand Management

The ice cream market is particularly influenced by the weather and Wall uses a weather index to gauge conditions for sales . Also during peak seasons like Eids, Happy New Year and Independence Day demand is high and rices are lowered so as to compete with the other rivals prevailing in the industry .

Magnum’s sales forecast

In terms of Magnum, this seasonality is relatively low. This is because Magnum is an impulse buying item .In examining the seasonality one must consider the target market of Magnum. Will these people refrain from having a magnum in cold weather? The variation in sales will not be as high or drastic as other ice creams or categories.

Positive aspects for sales

Pakistan’s population growth rate is almost 2% per annum. Urbanization trend on the boom i. people are inducing towards higher life standards of living in cities.

Growth in GDP/capita reflects in the consumption pattern of the people. Improved level of law and order conditions results in more FDI’s hence an attractive market.

Product and product mix

A product is anything that can be offered to a market to and and want of the customer. Product includes different product levels .

• Core benefit: The fundamental service or benefit that the customer is really buying
• Basic product: the marketer has to turn the core benefit into basic product.

Levels of product

• Expected product: A set of attributes and conditions buyers normally expect when they purchase the product. •Augmented product: Augmented product means things beyond the expectation.
• Potential product: which encompasses all the possible augmentation and transformation Magnum’ Levels

The core benefit of the Magnum are satisfaction and the indulgence •The basic product is the premium Choc Bar •Expectations are related with the Magnum is that it would provide that quality others can not. •Potential product,introduction of Magnum in new jar.

Product mix

Product mix is the set of products the company is offering to the customer. •Product mix includes, width, length, depth and consistency.

Magnum’s Product Mix

Unilever is the parent company and it operates in many businesses like tea, soaps, shampoos etc. this includes in width

Length includes different products of the walls like Magnum, Feast ,Cornetto etc. Depth includes variants of the similar product like Magnum, Feast, Sunday all are chocolate related items. Unilever product lines are consistent because most of them are consumer goods. SBU Strategies •Almost every business unit of Unilever including Walls holds a lion’ share in their respective markets. For Magnum. hold strategy is appropriate and its holding by the firm. Corporate and division Strategic planning

Mission statement

The Mission Statement underlines the dedication to the satisfaction of the everyday needs of the customers. Quality is priority in all senses. We are the part of the society in which we operate. Our Vision is “Touching hearts changing life”

The strategic alliance by the Walls with leading fast food corners like KFC and Pizza Hut outlets was an attempt to promote their product.

Marketing channel

These channels are essential to move product from the manufacturer’s warehouse to the consumer’s house. Firms have options to decide levels of channels I. e how many channels does it want to include in the distribution of its product.

Walls’ channels

Walls’ uses multi level channel marketing. Walls uses backward integration. Walls’ sales men whirl in the streets of the city on their lorries ,I. e direct marketing. Walls’ own supplier make its product available to consumers.

Pull and Push Strategies

The painstaking music produce by the whirling lorries of WALLS let its voice count ,pulling the kids to pull their parents. •The usage of billboards and print media is a device to push up the target customer.

Promotional Tools

In Pakistan, Ice-Cream industry competition may be healthy but there are very few brands to name. Companies have to fight for their market share and use various strategies from price to promotional, which could make them leader in the market. Firms try to compete on the basis of quality, uniqueness and brand name Magnum’s Promotion.

The most commonly used are the major media that includes billboards and posters in the display media •The retailers were provided with free refrigerators by the Walls to motivate them •Since the logo of Walls was endorsed on these refrigerators,the brand was promoted as well.

Pricing

Historically, for most products price has been the major factor affecting the buyer choice •Ice cream companies’ pricing decisions are influenced by both internal as well as external factors:

• Internal Factors
• Survival
• Company’s objectives
• Market Profit Maximization Market Leadership
• Product Quality
• External Factors
• Economic Factors
• Governmental rules and regulations.
• Social concerns.
• Resellers.
• Pricing Strategies
• The management of the Magnum uses “Price Premium Strategy”.

The notion of “Self Indulgence”transferred the brand advertising doctrine to brand experience I. e “have a bite please”. Price doesn’t matter to target consumer of Magnum. What’s wrong with the Price! Its is said that “Magnum is too expensive” It is thoughts as a reason of minimal sales. There are relatively inexpensive choc bar exists. Price is not the problem! The Magnum is targeted to the people of elite class ,higher in the socio-economic ranks. The target set for Magnum’s sales have achieved up to maximum extent. Lowering the price will usurp its supremacy and satisfaction level may decline because of this move.

Marketing management philosophies

The philosophies speak about the different strategic behavior adopted by the firm to sell their product. The philosophies are adopted in the foremost interests of consumers. Product concept , better the quality and the product attributes the better will be the sales. Selling Concept,pushing and pulling consumers time and again , inducing them to buy Magnum, otherwise it will be left un noticed. Marketing Concept,better than that of competitors in satisfying customers’ needs the better will be you share in the market. Magnum’s Marketing Philosophies Customer concept,provide customer what he wants at the price you want The customers decide what we serve to them. Societal Marketing,Walls started a campaign to keep the environment clean in the northern areas to preserve them

Brand decision

Creation ,maintenance ,protection and enhancement of a brand is an art. Brand is a symbol,name,term,design or a system or amalgamation of them. It’s a marketing tool and tactic. A promise by seller to deliver specific set of features and values to the buyer.

Brand equity

High brand awareness of Magnum as a member of Walls’ family. Magnum possess high degree of brand preference. •Customer is satisfied with the brand and devoted to it. Customer doesn’t want to change the brand over price issue. Brand Building Tools The campaign inaugurated by the Walls to “Save the environment” added privileged to the Walls as well its family.

Wall’s “Heart Branding” captures the enthusiasm of the young and the young-at-heart, laying claim to 72% of the frozen desserts market share in Pakistan.

Analyzing competitors

By knowing our Competitors we may be able to predict their next moves, exploit their weaknesses and undermine their strengths

• Who are your competitors?
• What customer needs and preferences are you competing to meet?
• What are the similarities and differences between their products/services and yours?

Magnum’s Competitors Competitors for walls in general are many; in fact they include all the ice cream providers. For Magnum we would like to define our competition strictly in terms of the target market. In this definition we would consider the product category level.

Major competitors

In this list we consider Igloo Quanta to be our main competitor due to similar attributes of the product and a very similar target market. For the purpose of analysis we will group the competitors into two. First we would discuss our main competitor i. e. Igloo Quanta and then the rest in one group Who Is The Competito Igloo Dip Shop Imported Ice creams like Hagen Dazz, Dove, and Galaxy available at places like Aghas Stake Holders . At Unilever we are dedicated to meeting the everyday needs of people everywhere. We participate in the well being of the society ,we live and work . Touching hearts by changing lives RESOURCES Unilever committed its own resources to acquire ‘Polka’ and consolidate the ice cream market for Lever Brothers Pakistan . Low gearing and reputation as a multinational blue chip give Lever ready access to capital at good terms to fund growth. In the local ice cream market not many have the capability to invest in completely new technologies. Financial assets of more than RS. 7 BILLION.

Human resources

People are the driving force for success. HR initiatives focused on encouraging empowerment and transparency in the organization. E-town project brought the Chairman and top team to everyone’s desktops via live streaming video and allowed employees to address their concerns to the panel via a chat server.

Resources

Me and U,an interactive HR portal that brings employee information to to everyone’s desktop. Child Day Care center allowing employees to have their infants in close proximity under very best care

Distinctive Capabilities advantage

Walls has a weather index that helps in describing peak seasons for selling ice creams.

Sharp market sensing. Intimate linking with the customers. Strong channel bonding. Organization and it’s Culture Uni Lever ,a visionary organization. Highly professional Organization with the highly professional people. The society is the family and look after of family is my own responsibility Market Segmentation The Magnum has segmented the market on the basis of income ,social and economic class and esteem level.

Nice marketing strategy has been adopted focusing on the smaller but elite segment of the society as well as of market. Psychographics Segmentation Life style The people from the A/A+ class are considered for customer ship. Personality People having high level of esteem ,standing high on the need hierarchy pyramid.

Behavioral Segmentation Occasions

The Magnum focuses on the occasions when somebody wants to rejoice himself by himself. “I hate somebody nobody hates me! I love somebody no body loves me” Self Indulgence is the underlining theory. Loyalty Status Hard Core Loyals.

Target market

Magnum focuses on the upper niche market. The upper class segment is whom we want to buy our product. These are people who wouldn’t mind spending Rs 25 for an ice cream; rather they would impulsively buy the product whenever they go out for a drive or something. Magnum is “Just for You” The concept of sharing is not embedded Target Market. Target market people from the ages of 18-30, upper class, possessing a very high set of self esteem people .People who have style and don’t mind spending more for better quality, brand value etc

Market Positioning

An art of designing the product of the company and it’s image to occupy a distinctive place in the mind of the target market. Positioning is not what you do to the product. Its what you do to the mind of the panorama Market Positioning .Marketing positioning means how the customer rate your product in comparison with your competitors. The firm should offer a substantial value to its customers to sustain the positioning of its product. Magnum’s Positioning Attribute Positioning For self immoderation User Positioning

Appealing to stylish people Quality and Price Positioning High price for the higher quality Magnum’s Positioning Since a Rs 25 choc bar is quite prestigious bar,so people feel good when buying the Magnum. The higher the price the higher will be the quality & the higher will be the satisfaction level. People rank it as a premium brand with priceless quality Marketing Research System Walls has its own department for Marketing Research. Primary Data is provided by Sales team. Secondary Data is gathered from publications and other sources.

Altadena Computer: Product Launch Plan Team X MKT 571 Altadena Computer: Product Launch Plan Product Description Product Positioning Targeting Market Needs In 2009 approximately 870,000 full-time students were attending Canadian universities. The highest percentage increase of enrollment for undergraduates was in British Columbia (6. 4%) and the highest percentage increase of enrollment for graduate students was in Prince Edward Island (38. 1%) (AUCC. ) With so many students, Altadena Computers has a large base to target and market their special brand of customized laptops.

Because of to the economic downturn the prediction in Canada reflects more people returning to college to increase their job marketability. In 2009, an increase of 4. 1% in undergraduate programs and an increase of 7. 2% in graduate programs validate the predictions. Altadena aims to provide quality merchandise that lasts longer than a few years, replacing the laptop will not be a concern for the student. Altadena employees rely on the students to guide them in designing the perfect laptop. Channel Strategy Market Potential Below is data collected by World Bank of Internet user percentages for United Kingdom and Canada.

The trend of Internet use has significantly increased, doubling in the past decade. In 1990, domestic and international Internet usage was merely nonexistent and has steadily progressed past the year 2000. In 2007, Canada’s Internet usage inclined to 72. 8% while the United Kingdom ascended at 71. 7% and is steadily increasing into 2008. {draw:frame} Case # 1 – Domestic Location – Canada In 2007 Canada’s population reached 33. 0 million. Using the population data, Altadena Computers can estimate potential buyers within Canada.

Internet percentages will be valuable in determining the average annual consumption and a measureable selling price of $950 per laptop. This price may be considered an expensive pecuniary; however, Altadena Computers must realistically visualize price and profits of the investment. At a selling price of $950 per laptop, customer base of 3,300,000, and an annual consumption of 10 percent of Internet users, 7. 28%, Altadena Computer’s market potential is calculated at $228,228,000. Case #2 – International Location – (United Kingdom) SWOT Analysis (Canada & England)

SWOT Analysis (Canada & England) Threats and opportunities are equally justifiable. Yes, Altadena Computers may be a new player in the game but that does not determine a disqualification for Altadena Computers. This only symbolizes a significant role on behalf of Altadena Computers to orchestrate diligence and effective market strategies to compete with existing and forthcoming competition. Currently, management anticipates threats because of increasing competition, transportation costs, pecuniary regulations enforced by the government, and demographic shifts in the market.

However, as there are threats, opportunities also exist. Altadena Computers does more than provide college students with cost effective, premium service laptops, Altadena Computers is providing essential tools and contributing to society’s development. Consider Canadian Internet usage in 2008. According to the Publications section of the World Fact Book, “Internet usage in 2008 was 25. 086 million users from a population of 33. 487 million residents. ” Most Internet users are “educated” meaning they have at least an undergraduate degree.

Therefore, it is imperative that Altadena Computers provide this service to college students because laptops are in high demand for students. Competition In a market of such magnitude, competition is expected to be fierce and strong. Dell, Hewitt Packard, Wal-Mart, MicroCenter, and Fry’s are some of the few dominant competitors in the industry. With the exception of Dell Computers, conveniences these businesses present are their ability to showcase products and provide instant gratification. Customers can assess the product and leave with their merchandise.

Although instant gratification is necessary for some consumers, not all customers require their product instantly. Some would prefer to build their laptop necessities and incur offering provided by Altadena Computers. The logic here is not to dismiss the competition; for the possibility of that occurring is relatively short lived. Altadena Computers is a new and emerging business in the industry. Many lessons can be learned that can be applied that were previously encountered by the competition. Marketing Objectives and Strategy Pricing Market Communication: Canada and England

Communication in marketing channels can serve as the process by which influential information is conveyed, shared decision making is encouraged, programs are created, power is put into effect and commitment and loyalty are built. Communication is the bond that holds together channels of distribution. Marketing communication builds awareness of a business, its products and the business’s position through customer interaction materials such as brochures, press releases, web sites and other forms of direct, indirect and interactive marketing.

Marketing communication represents the “voice” of the brand and is one way to establish a dialogue and build relationships with consumers (Kotler & Keller, 2007, p. 279). Altadena Computer Company must have an in-depth understanding of the company’s target audience and the process of buying, selling, and communicating to customers. Marketing communications are the means by which firms attempt to inform, persuade, and remind consumers—directly or indirectly—about the products and brands they sell (Kotler & Keller, 2007, p. 279).

The marketing communication mix consists of six major modes of communication (Kotler & Keller, 2007, p. 279): Sales Promotion is short-term incentives to encourage trial or purchase of a product or service. Public relations and Publicity are programs promoting or protecting company or product image. Direct marketing is the use of mail, telephone, fax, e-mail, or solicit response or dialogue from specific customers and prospects. Personal selling is face-to-face interactions with prospective purchasers for the purpose of making presentations, answering questions and procuring orders.

Publicity: Canada and England Distribution Strategy: Domestic and International A distribution strategy describes how a business will generate and persuade demand for a product or service. Distribution Strategy involves shifting products for point of formation to points of utilization by the end user, in a cost-effective method. Distribution strategy will identify how a business will manage the brand. Distribution strategies come is various forms: (1) manufacturer ? consumer, (2) manufacturer? retailer? consumer, or (3) manufacturer? wholesaler? etailer? consumers. The process can involve longer channels including agents and brokers Types of Distribution Channels Canada and England Distribution Strategy The primary distribution for Altadena Computer domestic and international customer will be manufacturer to customer. The customer will have access live assistance to make orders and ask questions, through the Altadena Computer website or with a customer service representative that has the knowledge and ability to service Altadena Computer customers. Altadena Computers Distribution Strategy

Altadena Computers must take advantage of the distribution opportunities. For example, gaining permission from domestic and international educational institutions to place brochures in the building were students have access to the information. Another distribution opportunity is setting up a demonstration area at domestic and international universities and colleges to provide information and a glimpse at the product to the potential customer. Customers preferring to buy online will have to fulfill orders and allow Altadena Computers to sell directly to customers.

Customers can also engage in another distribution strategy with Altadena Computers specialized customer service representatives to close deals. Altadena Computers distribution program will focus on the needs of the customer. Financial Information Market Research Conclusion References Association of Universities and Colleges of Canada (2009. ) Retrieved March 7, 2010 from http://www. aucc. ca/publications/media/2009/enrolment_10_22_e. html https://www. cia. gov/library/publications/the-world-factbook/geos/ca. html https://www. cia. gov/library/publications/the-world-factbook/geos/uk. html Common Wealth (2009) United kingdom. opulation. Retrieved 3-7-2010 http://www. thecommonwealth. org/YearbookHomeInternal/139560/ Kotler, P. & Keller, K. (2007). A Framework for Marketing Management (3rd ed. ) New Jersey: Pearson-Prentice Hall. Kotler, P. and Keller, K. L. (2006) Marketing management (12th Ed. ) New Jersey: Pearson- Prentiss Hall. Statistics Canada (2009) Population and demography. Retrieved 3-7-2010 http://www41. statcan. gc. ca/2008/3867/ceb3867_000-eng. htm World Bank, World Development Indicators (2010) Internet_ users as percentage of _ population. Retrieved 3-7-2010 http://www. google. com/publicdata

Global alteration has an impact on clime, demographical and socio-ecological alteration worldwide, and humanity has an influence on planetary alteration. As a consequence of natural catastrophes, eventually climate arguments came up which drew public attending. These arguments showed that something demands to be done. ( Tan, 2008 ) The industries can seek to bring forth environmentally friendly merchandises, extend the merchandise life rhythm, and make a solution for the end-of-life stage of a merchandise. This chapter demonstrates the job of the merchandise life rhythm and gives an penetration into the transmutation.

The industrial revolution set up a additive theoretical account of material watercourses, a system that takes merchandises and throws them off. Toxic stuffs trickle into the nature systems. Furthermore, the waste burning locally generates energy, nevertheless, besides this much more energy is required for new stuff production. ( Hennings, et al. , 2008 )

The whole procedure is named an open-loop supply concatenation. By and large talking, it maps the way from the stuffs to the providers to the terminal consumer. There is no reversal rate from the consumer. There is no return of stuff. The company does non offer any return or recycling system. However, consumers use the merchandise and so at the terminal of the merchandise life rhythm, they throw it off. ( Lebreton, 2007 )

Another possibility is to donate the old apparels to charitable organisations which resell the old apparels to commercial retail merchants in the 3rd universe or in east Europe. In Germany the biggest fabric aggregation is “ Deutsche Rote Kreuz ” with 40,000 dozenss collected each twelvemonth. ( Weissinger, 1999 ) In Switzerland there are four large fabric aggregation houses: Texaid, Contex AG, Solitex and Satex. Texaid is the biggest 1 in Switzerland ; it recollects 17,000 dozenss of old fabrics per twelvemonth. The company ‘s grosss go to relief organisations. The gathered fabrics are classified in different quality categories and removed from waste. ( Truninger, 2005 ) The reselling of these apparels ignited a large treatment, as the pattern destroys local concerns which produce traditional apparels. The effects are that the local fabric industry nearby wholly collapsed, and reorganisation is non possible anymore. Some states have imposed import prohibitions. ( Weissinger, 1999 ) This complex job is good documented in the movie “ oburoni wawu – dice Kleider der toten Weissen, ” which deals with the inquiry of who needs old apparels and how the concern of old apparels works. The movie shows the way the old apparels take and what happens to them when they arrive in the preset state. ( Strobusch & A ; Terpinc, 1995 )

A farther option is the Climatex Lifecycle. This procedure is an innovation from the endeavor Rohner. Out of old fabrics, they produce felt, which is used to mulch and to cover the vegetable spot. As a consequence, the landfill is less to a great extent loaded and the old fabrics have a concluding responsibility. ( Weissinger, 1999 ) As it can be seen from the illustration of Rohner Textiles, end product went up 30 % and was accompanied by a drastic lessening in cost after they launched the new sustainability scheme. The Rohner illustration shows the positive consequence for a concern if they launch a closed-loop recycling scheme. ( IEHN, n.d. )

There is a new innovation to recycle polyester curtain. Teijin is a recycling company which specializes in polyester recycling. Today the company is a Recycling Network. Under the mark ‘ECOLOG, ‘ are all companies committed to bring forthing fabrics in mono-material polyester. ‘ECOLOG ‘ fabrics can be recycled easy, as there are no assorted fibres and it can be made easy into a new stuff. ( Outdoortrends, n.d. )

The last possibility in fabric recycling is down recycling. This procedure has been done for old ages now because the rate of return of polyester fabrics was really low. In this instance the recycling companies downcyceld the merchandises to knobs. ( Weissinger, 1999 )

To offer recycled merchandises and the usage of recycled stuffs is an environmentally friendly facet of assorted companies. Nowadays the positive environmental impact of merchandises gives a company a competitory border ; it is a must, non merely an option. Companies secure themselves a great hereafter with a strong sustainability scheme. The “ C footmark ” of companies is set to diminish, as they are under force per unit area from different stakeholders, like non-governmental organisations, consumers and authorities, to make so. This force per unit area on companies encourages them to cut down their C footmark with different commissariats like green merchandises, sustainable procedures and societal duty plans ( CSR ) . However, good communicating and labeling towards consumers is indispensable, to allow them cognize about the green attempts made by the company. ( Jo, 2010 )

Focus on Outdoor Industry

Harmonizing to the study of Luscombe ( 2010 ) , 59 % of participants buy the purchased point for functional usage and for general every twenty-four hours usage. Merely 3 % bargain it for mundane usage. There is a displacement from utilizing out-of-door merchandises in the athleticss sector towards mundane life usage. The study of EOG shows that quality has the highest impact on the purchasing determination, followed by the trade name name. The 3rd factor impacting the determination is the monetary value. This ranking is for Germany. In Switzerland, the ranking is similar. Quality is the victor, followed by comfort, so the proficient characteristics, and last is the monetary value. Recyclability of the merchandise influences the purchasing determination for 62 % of Germans ; whereas merely 60 % of people are interested in purchasing merchandises made of recycled stuff. In the Swiss study, 67 % are influenced by the recyclability of the merchandise in the purchasing determination and 64 % bargain recycled stuff. ( Luscombe, 2010 ) Nowadays, there is a broad scope of reclaimable stuff. It is possible to recycle polyester, polymeric amide and polyurethane. There are two different recycling methods: stuff recycling and chemical recycling. The undermentioned four possibilities are often used in the industry. ( ISOPA, 2001 )

PET-Recycling ( Material recycling )

PET-Recycling became more widespread, as the environmental considerations gain importance. PET bottles have a really short life rhythm, and moreover they are made of rough oil, which causes environmental jobs, as most PET bottles are destined for landfills. As a consequence, a recycling procedure to recycle the valuable primary resources is a perfect thought. The recycling procedure is non really hard with PET bottles. The stuff to be recycled is ‘polyethylene terephthalate ‘ . ( Evans, 2010 )

A short recycling procedure description:

Colored bottles need to be sorted out. Just crystalline bottles can be used for this procedure.

The selected PET bottles have to be cleaned and dried and crushed.

These crushed pieces will be heated.

Through this warming procedure, the crushed pieces are melted and a crimping machine gives the ensuing polyester narrations their texture.

The polyester narrations need to dried.

The quality control has to be passed.

( Evans, 2010 )

This procedure can be performed one time. If there is a jacket made out of this PET recycled narration, the used jacket, which is non functional any longer, ends in a landfill. Nevertheless, some natural stuff has already been saved thanks to PET recycling. In the following paragraph are some illustrations about the measure of PET bottles needed to do certain points. ( Heimann, 2010 )

“ With 20 PET bottles, a ski jacket can be produced. A jumper needs about 63 PET bottles and a sleeping bag is made of 83 PET bottles. ” These are facts found on the bright hub home page ( Evans, 2010 ) . There is besides a negative facet to PET recycling. Since PET can merely be recycled one time, 360A° recycling is non possible. On the other manus, PET recycling is cheaper than polyester recycling, which is explained in the following point. ( Heimann, 2010 )

Polyester Recycling ( chemical recycling )

A Nipponese company has developed the first polyester recycling system named ECO CIRCLE. This is a closed-loop recycling for polyester points. Old polyester merchandises, which are made out of 100 % polyester, can be chemically converted into new polyester natural stuff. ( Teijin, 2009 ) Products which are reclaimable in this manner have the undermentioned label on them:

Figure 6: ECO CIRCLE Logo

( Beginning: hypertext transfer protocol: //www.ecocircle.jp/en/index.htm ) Fleece coats are easy to recycle as they are 100 % polyester. Other coats are frequently a combination of different stuffs. The status for recycling is that the merchandise has 100 % screening truth. The polyester recycling procedure is similar to PET-recycling, but there are some differences as this is a type of chemical recycling.

Collected polyester merchandises are broken down into little pieces.

Granulated stuff is made.

The colouring is removed from the pellets. This procedure requires high energy and important clip.

Through chemical intervention, new polyester natural stuff is created.

New “ Eco Circle ” fibres are created to bring forth reclaimable merchandises.

( Teijin-Fibers, n.d. )

There are different merchandises made by this closed-loop recycling procedure: underwear, T-shirts, jackets, baseball mitts and so on. Swany produced the first closed-loop reclaimable baseball mitt. The list would ne’er stop, as there is an limitless possibility to bring forth pro-ducts with 100 % polyester. ( Teijin, 2009 ) This procedure is criticized, as the fibres are produced utilizing crude oil. Critics say that these fibres should non be produced any longer given the turning trouble with crude oil supplies. However the outdoor industry is acute on utilizing polyester fibres, as this fabric is high quality and stopping points long clip.

Figure 7: CO2 Reduction

There is less ecological harm with this recycling procedure than with the production of new fibres, as per an analysis conducted by the Suedwind Institute ( n. d. ) . This fact is besides apparent in this Figures 10. 77 % less CO2 is released utilizing the recycling procedure than is released bring forthing new natural stuff from crude oil.

( Beginning: hypertext transfer protocol: //www.patagonia.com/pdf/en_US/common_threads_whitepaper.pdf )

This closed-loop polyester recycling reduces the dependence on rough oil, produces less pollution as there is less godforsaken burning and progresses the reuse of old polyester apparels. ( Patagonia, 2009 )

Nylon/Polyamide Recycling ( chemical recycling )

Old fishing cyberspace and rugs can be used for nylon recycling. This recycling procedure is similar to the polyester recycling, but polyamide recycling is more cost- and time-intensive, as the procedure is more sophisticated. The recycled narrations are largely, but non wholly, used for back packs or for bags. The quality is non affected by the recycling procedure. ( Klattermusen, n.d ) The statute law in some states will perchance forbid the disposal of rugs in landfills. With this action, the client will be forced to recycle old rug, but this statute law has non yet passed. However there is a committedness by different companies which supply industrial rugs to take part in a nylon recycling plan. Furthermore there are different roll uping points for old rug in each state. ( Greener-Industry, n.d. )

There are some illustrations of companies which already offer a recycling plan:

Klattermusen

Since March 2009 Klattermusen offers a new recycling and recovery system, “ rECOver. ” Each point which is reclaimable has a sedimentation of one, five, 10 or 20 Euros. If the client brings these merchandises back to the shop, they get the sedimentation back. Each merchandise has an note of the sum of the sedimentation. Another portion of the plan is that used and patched merchandises are donated to a public trust. This recycling plan consists of the following reclaimable stuffs: nylon, polyester, polypropene and metal. It is one of the lone outdoor companies which recycles nylon and polypropene, as it is hard to retrieve these two substances and every bit good as dearly-won. ( Klattermusen, n.d. )

Goretex

In 1993 Gore launched a undertaking named “ Gore Balance Project, ” which received the European Outdoor Award for Innovation. It was the first possibility to recycle in the dress industry. The purpose of this plan was to recycle fabric laminate, but the clients were non ready at that clip to take part in the undertaking. As a consequence of the low engagement degrees, Gore had to halt this recycling undertaking. Gore company coined the term “ balanced-project. ”

Old Goretex-coats will be deconstructed into their belongingss and reused. ( Gore, 2007 )

VAUDE /Sympatex

This company is a rival to Goretex. They invented a 100 % reclaimable membrane which is made of O, C and H. These constituents are easy reclaimable, like PET bottles. Additionally there is no fluorcarbon used, and they have the bluesign standard enfranchisement. The bluesign strandard will be explained in Chapter 3.5.2. VAUDE is the official spouse of Sympatex. They produced a new out-of-door aggregation under the slogan “ Reduce, Re-use, Recycle. ” The aggregation is high quality, therefore long-lasting, and it made of 100 % reclaimable polyester.

Fjallraven

In 2012 the first reclaimable coats will be sold. ( Fjalleraven, 2010 ) The company has three different constituents in their recycling plan, “ ECOSHELL. ” First, fluorocarbon is non used any longer in the coats. This chemical substance was used in the membrane for impregnation. It is a really effectual substance, but on the other manus it has several negative effects. One point is the substance is found in the nutrient concatenation, secondly, the decomposition clip is over 30 old ages and last but non least it is really hard to recycle. That ‘s why they now use a new substance which is natural. It is a new process invented by Rudolfgroup. The name of the new substance is BIONIC. Second the company is cognizant of the planetary heating, which is besides affected through the recycling plan. “ That ‘s why they support an environmentally friendly aureate criterion undertaking, they have non-polluting energy production every bit good they cut down the dependence on fossil fuels ” ( Fjalleraven, n. d. ) . Last but non least, they employ the “ Eco Circle ” recycling system for polyester. The combination of all three points are indispensable to the company, as all influence the environment. ( Fjalleraven, n. vitamin D. )

Figure 8: Recycling Program of Patagonia

Patagonia Inc.

( Beginning: hypertext transfer protocol: //www.patagonia.com/web/eu/popup/common_threads/index.jsp ) In 1993 Patagonia produced SynchillaA® jackets from sodium carbonate bottles. In 2005 the “ Common Threads Garment Recycling Program ” was launched. This take-back plan collects old polyester merchandises to recycle into new narration. Customers have two different possibilities to take part in the recycling plan of Patagonia. One would be to return the points to the shop – frequently they have a box there – and the 2nd possibility is to direct it straight by station to Patagonia. They collect all the garments and direct them by ship to Japan, where the recycling procedure happens. ( Patagonia, n. d. ) “ Wear it out ; drop it off ; we recycle it ; it lives onaˆ¦ ” is the claim of Patagonia ‘s recycling system, as it can be seen in Figure 11.

Recycling Companies

Teijin

The whole company has different sections. The biggest portion is the scope of man-made fibres. Teijin is the lone company that provides a recycling plan in polyester. These recycled polyester fibres can be used for fabrics in the car, outdoor and dress industries. “ Eco Circle ” was launched in 2002. This recycling plan is environmentally friendly. Nowadays 200 companies are involved in “ Eco Circle. ” The tendency is that different states such as the U.S. , China, Europe and Japan have a higher environmental consciousness than all immature clients, which increases the reclaimable market. ( Shrestha, 2009 )

Polartec

This company produces utmost conditions protection fabrics, insularity beds and lightweight wicking base beds. Polartec is used in many countries, like the Marine Corps, Navy, Army and Air Force, every bit good as in the out-of-door industry. Thankss to coaction with companies which offer recycled narration, the recycled merchandise line has risen from less than 1 % to over 30 % in over four old ages. This fact leads besides to a decrease in emanation and energy ingestion. Since 2010 they have partnered with Unifi, as they produce ‘Repreve ‘ narration which is made out of recycled PET bottles. Polartec is confident that with this partnership the recycled merchandise line will turn steadily. ( Polartec, 2010 )

Unifi

It is a company which produces multi-filament polyester and nylon textured narrations. These man-made fibres are non merely produced from natural stuff but besides from PET. This fibre is on the market with the name ‘Repreve. ‘ They produce polyester fibres every bit good as nylon fibres. The nylon fibres are made out of consumer fibre waste, whereas the polyester fibres are made out of both consumer fibre waste and consumer plastic waste like PET-bottles. In a lb of ‘Repreve ‘ narration, there are 27 processed PET bottles. These sustainable and recycled fibres are chiefly used by the dress industry, but they are besides used in the furniture and auto industries. A partnership between Polartec and Unifi shows the tendency in the outdoor industry to utilize ecological narration. ( Repreve, 2008 )

Recycling Ecologically Worthwhile?

The contention environing recycling is large. On the cyberspace there are different forums where this issue is being discussed. In this chapter merely some statements out of assorted web logs, web sites and interviews held at the OutDoor Freidrichshafen will be highlighted.

Maverick ( n.d. ) is convinced that presents planetary heating, natural instability and H2O deficits are scare tactics. This fact, that the universe is stoping, needs to be stopped, through recycling. This is a crutch, because people who recylcle believe they are profiting the environment, but the recycling procedure itself consumes a batch of energy and causes sometimes more pollution than natural stuffs, harmonizing to Maverick. Maverick ( n.d. ) describes the crutch as follows: “ In a mode similar to medieval Christians purchasing indulgences from priests to be forgiven for their wickednesss without really making anything, recycling may be something we believe to be right and effectual merely because we ‘ve been told it is. ”

The consequence should be, that people reuse merchandises and alter their consumer behaviour. ( Maverick, n.d. ) Furthermore, a web log from May ( 2007 ) describes the PET recycling as an unuseful pattern. First of wholly, a batch of C is emitted anyhow, as the bottles need to be shipped to China and the new apparels back. Second the apparels made out of the old PET bottels are non recycable any longer and will stop in a landfill. The apparels are at that place for over 24,000 old ages until they are smoldered. About the transportation cost, Heimann ( personal communicating, July 17, 2010 ) comments that presents, Europeans are so addicted to Asia and to America, that the ships are geting anyhow. These ships have to return to the state of beginning, and it makes no pots to make so without lading. ( Heimann, 2010 )

The company Teijin conducted a research survey about the energy ingestion in a closed-loop recycling system with polyester. The consequence indicates that with the resources saved, energy and CO2 emanation is besides reduced. This computation is made by mensurating the CO2 emanation and energy needed for the recycling procedure, every bit good as that emitted and needed by the production with natural stuffs. To have new polyester, rough oil is needed. To bore rough oil, far more energy is needed than the sum recycling requires. The consequences are shown in the figures below.

Figure 9: Decrease of CO2 Emission thanks to Recycling

( Beginning: Leaflet Teijin, Japan ” ECOCIRCLE ” )

The laminitis of the “ Red, White and Green ” Blog, Jennifer Grayson, is convinced about the positive facets of the recycling procedure. In 2005, recycling saved an one-year norm usage of energy of 9 million families. This has a direct impact on planetary heating. There is another positive point which concerns employment. The recycling and remanufacturing sectors account for about one million occupations. ( Grayson, 2009 )

The outdoor industry has been criticized for the environmental harm the concern causes, every bit good as for the bad on the job conditions. However the industry has made an attempt to antagonize these negative facets by cut downing their C footmark and by using societal policies every bit good as back uping environmentally friendly undertakings. Some illustrations of eco-conscious methods to accomplish betterment are shown. ( Jo, 2010 )

1. CSR

Corporate societal duty ( CSR ) is an of import manner for a company to demo its duty towards the societal and ecological environment. A competitory border is received by utilizing CSR as a scheme to separate between trade names. ( Jo, 2010 )

2. Life Cycle Analysis

The entire impact on environment has to be understood if the company is interested in bring forthing green merchandises. This impact can be analyzed thanks to the cost construction. This is possible through analysing the life rhythm of a merchandise. All has to be considered, the natural stuff, fabrication, the distribution, every bit good as the usage of the merchandise and last but non least, its disposal. With each measure of the procedure, costs are associated. ( Ciambrone, 1997 ) A cost illustration is shown by Ciambrone ( 1997, pp.1 ) :

Design costs

Stocking/handling costs

User/operating costs

Disposal costs

Fabrication costs

Shipping/transportation costs

Reuse/recycle costs

Compliance/licensing costs

Reducing the cost besides reduces the environmental impact. A company should seek to cut down the life rhythm costs of their merchandises. ( Ciambrone, 1997 )

3. Ecological Footprint

It is a mensurating tool to sort merchandises and services, a company, an organisation, industry sectors, single life styles, vicinities, metropoliss, parts or states. In an LCA, the ecological footmark is ever calculated. What impact a merchandise or a company has on the environment and on the society will be measured. An analysis of the merchandise or the company will be done. There are different standards, such as recyclability, emanation used to bring forth the merchandise and resources used. All factors are evaluated and a computation shows the consequence. The thought behind this is that clients have the possibility to compare the merchandises or companies based on their environmental friendliness. ( Global-Footprint-Network, 2010 ) Goverments and consumers play a active function in forcing frontward the demand for an ecological footmark. ( Jo, 2010 )

4. Bluesign Certificate

To cut down the environmental footmark of the fabric industry, the bluesign criterion was created. Each fabric and yarn maker can use for the certification, but to measure up, it needs to run into the high criterion defined by bluesign. Each company is analyzed exactly. The points evaluated by bluesign ( 2010 ) are the undermentioned:

Resources productiveness

Consumerism

Sewage H2O

Discharged air

Job safety

( p. 24 )

Retailers and clients can acquire a good orientation about assorted companies thanks to this alone criterion from bluesign. ( bluesign, 2010 )

In the hereafter, companies have to take the duty for cut downing their C footmark. Additionally if the credibleness has to be steady, companies have to be crystalline with their sustainability steps. ( Jo, 2010 )

Drumhead

From the recycling position, a rethinking is besides taking topographic point. Closed-loop supply concatenation are needed in all industries. The open-loop supply concatenation does non hold a long life any longer. The best scenario would be if merchandises are used and reused until the merchandise loses its map, at which point it should be recycled. This manner, the merchandise does non complete as waste at the end-of-life stage but has a possibility to last in another merchandise ( downcycling ) or as the same merchandise ( upcycling ) . These procedures help to protect the environment.

In every organization, the role played by marketing is a very critical one. It is marketing that determines whether or not the organization will sell its products Functionality or if it will bangle up things and fail to make a profit (Baker 2003). As such, it is critical that a lot of emphasis is placed on marketing. However, it is also how the marketing is approached that will determine whether it will succeed or not.

To do effective marketing, the nature of the market ought to be considered because unlike in monopolistic or highly regulated markets where one can afford to sell with minimal marketing, free markets call for a lot of strategic marketing (Kotler 2009). It is on this basis that I believe the design of the product as opposed to the function ought to be given the most priority in marketing.

Product functionality vs Product design

Free markets are characterized by, among other aspects, a large number of sellers that sell identical or closely identical products (Kotler 2009).

This makes it very difficult for marketers to make sales unless they devise strategic marketing plans. This is because the level of competition is very high and only the best placed seller will get to attract customers. Therefore, the design of the product comes in handy here. If the product is well designed and is appealing, then it will get noticed faster (Cravens 2002). A point in question here is that these free markets, which are the current order all over the world, are full of identical goods.

Product Functionality is therefore not as important a factor when selecting the products for all of them plays the same function. Product functionality is the key to brand success versus product design is the key to brand success. The issue is getting the customers to choose a certain product from many others that do the same work. The answer is design. The better designed the products, the more likely that they will be purchased (Proctor 2000). Product differentiation is a good way of doing this. The marketer can make the products to be more appealing by making them unique. People have innate tendencies to be attracted to good, unique, and lovely things.

That ought to be the marketing secret – utilizing what is natural to make sales. Customers, before caring to ask the cost of a product, will get attracted to it by what its appearance is. The more attractive it is, the more it will attract customers and the more sales that will be generated (Kotler 2009). Little wonder then that leading retail chain stores like Wal-Mart invest a lot in packaging. Once a customer is attracted to the product, it becomes a lot easier to convince one to make a purchase (Gilligan 2009).

Therefore, product design is more important than its product functionality.

Conclusion

Marketing is very important in the life cycle of any product. If marketing is done successfully, then the product is likely to become a leading brand in the market in spite of the competition. Given that free market systems have become dominant in the world today, it is critical that good marketing strategies are adopted to overcome the stiff competition brought about by presence of identical goods or those goods that are close substitutes.

The appearance or design of the product, therefore, is a more important aspect than its function because it is the design that will draw the customer to choose a product from many similar or identical ones.

References

1. Baker, MJ 2003. The marketing book. Butterworth-Heinemann Cravens, D 2002.
2. Strategic marketing management cases. McGraw-Hill/Irwin Gilligan, C 2009.
3. Strategic Marketing Planning. Butterworth-Heinemann Kotler, P 2009.
4. Principles of Marketing. Pearson Proctor, T 2000.

Corporate governance is a necessary part of the strategic management process. It is used to monitor and control managers’ strategic decisions to prevent managerial opportunism and other risks associated with mismanaged firms. Specifically, corporate governance relates to the shareholders and the relationship they have with the firm, and involves guiding strategic decisions so that the interests of the shareholders and those of the decision-making managers are aligned to better predict future stock performance and overall efficiency of the organization.

An efficient organization results not just from strong and ethical leadership, but also from minimizing conflicts of interest and general oversight in the “election of directors, the general supervision of CEO pay and more focused supervision of director pay… ” (Hitt, Ireland ; Hoskisson, 2004). In today’s corporate landscape, often the owners are not the managers. The managers are the people who run the company on a day-to-day basis and are responsible for operations. However, due to the separation of ownership and decision-making responsibilities, the owners may be out of touch with the firms daily activities.

This is where corporate governance comes in because a well-functioning organization will encourage the free-flow of information across all stakeholders in order to minimize managerial misconduct and maximize effective strategic decisions. At Emerson Electric Company, a highly diversified, “Fortune 100 conglomerate with over 50 autonomous divisions,” the CEO, Charles Knight’s strategic mission is to achieve “the lowest cost consistent with the highest attainable quality and performance” (Davis ; Paige, 1991).

He is ultimately responsible for the company’s successes and failures and initiates strategies to protect profitability. When Emerson Electric does not meet its annual goal of 15% growth, he implements a “cost-cutting” strategy to ensure Emerson maintains its “29 consecutive years of increased earnings” (Davis & Paige, 1991). Since Emerson Electric is a global entity, the governance mechanisms are more complex. Managers of multinational firms must understand that differences exist in corporate governance across the global economy in order to control costly strategic errors that may jeopardize the future of the company.

Furthermore, global changes in governance are occurring with companies developing a board of directors with more members that are independent, ethnically diverse, and from a wider range of professional backgrounds (Hitt, Ireland & Hoskisson, 2004). The three internal governance mechanisms commonly used in modern organizations include ownership concentration, board of directors, and executive compensation. Ownership concentration refers to the number of shareholders and the percentage of stock owned.

There are different types of shareholders and therefore divergent incentives to monitor management. Large-block shareholders are individuals or entities that own at least five percent of a corporation’s stock and usually instigate stringent governance mechanisms. Most large-block shareholders are no longer individual shareholders, but rather institutional owners with considerable power and position to “influence a firm’s choice of strategies and overall strategic decisions” (Hitt, Ireland ; Hoskisson, 2004).

Emerson Electric’s positive history of increased earnings should be lucrative enough to attract sufficient large-block shareholders to balance the concentration of power between the board of directors and the CEO. Having several institutional owners is positively correlated with higher levels of monitoring which can encourage managers to avoid ineffective strategic decisions (Hitt, Ireland & Hoskisson, 2004). The board of directors is another governance mechanism because shareholders elect the board.

It is the responsibility of the board to oversee the management of the firm and ensure that the companies’ actions are in accordance with the maximization of shareholders’ wealth. Shareholders monitor the firm’s actions through the board, whose members are elected to support the interests of the owners “by formally monitoring and controlling” upper-level management (Hitt, Ireland ; Hoskisson, 2004). However, diffuse ownership limits the amount of oversight actually performed by board members.

In addition, there are several types of board members: insiders, related outsiders, and outsiders. Insiders are upper-level managers, related outsiders are consultants and others who have a relationship with the company and outsiders are independent individuals who have no relationship with the firm. Research shows that “firms with more independent outside directors tend to make higher-quality strategic decisions” (Hitt, Ireland ; Hoskisson, 2004). This is a good strategy that Emerson Electric can employ to ensure sound strategic decisions.

The board must be highly vocal and question managers’ actions regularly as the board is equally responsible for any faulty judgments of the CEO since they select the CEO. Lastly, since Emerson Electric is a global competitor they should have an ethnically diverse board including a board member from Lao Chiang to represent the ACP division, and professionals from outside the fan industry as well. Executive Compensation is a mechanism used to entice managers to act in the interests of shareholders through the payment of salaries, bonuses, and employee stock options.

The general consensus is that executives should be paid based on their performance. However, linking compensation to the firm’s financial performance over an extended period of time is difficult to assess as “strategic decisions are more likely to have long-term… effects on a company’s strategic outcomes” (Hitt, Ireland ; Hoskisson, 2004). Executive compensation simply is an incentive for managers to make decisions that will maximize shareholder wealth, and “are imperfect in their ability to monitor and control managers” (Hitt, Ireland ; Hoskisson, 2004).

While the rationale for paying managers with stock options is to entice them to make sound decisions that will maintain or increase the stock price, it must be used carefully as not to create a conflict of interest. An agency relationship exists when the owners are not the people who manage the firm. When the owner hire decision makers to manage the daily operations an agency relationship has been created. In addition, an agency relationship is created when someone is hired to perform a service to or for the firm, including consultants.

This relationship results in a separation between ownership and managerial control which if not properly controlled, can be problematic due to conflicting interests. Managerial opportunism is the term used to describe managers acting in their own best interest to the detriment of the shareholders. It must be checked through the establishment of corporate governance and control mechanisms. Emerson Electric has an agency relationship with their CEO, Charles Knight, subpack vendor, Lao Chiang, and even foreign operations intern, Ken Powers.

Knight is responsible for the day-to-day management of the firm, developing cost-effective and profitable strategies, and increasing shareholder wealth. Lao Chiang is a contracted vendor responsible for providing parts for the Air Comfort Products Division. And Ken Powers is a summer intern responsible for making recommendations regarding the sourcing of the ceiling fan subpacks. While the responsibilities of each party is completely different, the nature of the relationship is the same. Each party is responsible for providing goods or services. Each agent must make decisions and act in the best interest of Emerson Electric.

Sometimes executives, including those with stock options, will make decisions that reflect their own personal welfare and is detrimental to the firm, including overdiversification and making the type of decisions such as those taken by Enron management who falsely inflated earnings to not only increase the stock price, but also to lower their own employment risk. These types of not only unethical decisions, but illegal as well, can have serious ramifications and can destroy a company’s reputation and bankrupt a firm. This is why executive oversight is a necessity.

Even though the CEO is ultimately responsible for the strategic direction of the firm, having a team-based decision-making process is also a solid idea when using facts and data to back up decisions and taking few calculated risks. References Davis, E. W. & Paige, K. L. (1991). Emerson electric company ACP division: The fan subpack sourcing decision. Darden Business Publishing, University of Virginia. Pp. 1-21, Primis pp. 92-112. Hitt, M. , Ireland, R. , & Hoskisson, R. (2004) Strategic Management: Competitiveness and globalization (6th ed. ) Mason, OH: South-Western Cengage Learning.

Destin Brass president Roland Guidry is concerned with the competitive trends of the company products. He and his staff are worried that company profits are falling in regards to these competitive problems. Analysis: Destin Brass Company manufactures three items dealing with water purification systems: valves, pumps, and flow controllers. The company has been seeing some problems dealing with competition within some of the product markets they produce. Ronald Guidry had two basic questions they wanted answered dealing with this case.

Why was it so difficult for the company to stay competitive in the pump market?  Why has the company not seen any competition in the flow controller market even with a recent raise in their price to consumers? These questions aroused from Guidry when he realized that the company wasn’t making the standard 35% gross profit margin in pumps. This was the case because the company was forced to reduce the selling price in pumps away from the target price ($97. 10 to $81. 26) due to stiff competition. Management also realized the excessive gross profit margin of 42% in flow controllers even after a recent 12. % increase in price. The answer to the questions raised by management is directly related to how the company is accounting for their overhead relating to each product. The company had been using a traditional way of allocating overhead.  This was a simple and inexpensive way for the company to accomplish this task. However, it really didn’t accurately assign overhead to each product. Destin realized this and had it controller, Peggy Alford, design a revised way for allocating overhead. Exhibit 3) This revised system didn’t seem to answer any questions or alleviate any problems that Destin was having. Activity Based Costing (ABC) was another possibility to allocate overhead and helps answer the questions above. Traditional Cost system: The traditional cost system that was currently being used was a fairly inexpensive way for the company to allocate overhead cost. This system was used to generate a standard unit cost that was then used to produce a target selling price based on the 35% profit margin set by the company.

The structure used to assign overhead to each product to arrive at a standard cost was a very inappropriate method for the company to use. There are a number of reasons that this way was inappropriate. First, the only way overhead is allocated using this system is by assigning overhead to production to each product on the basis of production-run labor costs.  The table above shows how the overhead rate was generated for use in the traditional cost system. Using this rate it allocates $4. 39 of overhead for every $1. 00 of run labor used in the product which the labor was applied.

This per unit overhead rate is then added with a material and direct labor per unit cost. Adding these three cost up will give you the standard unit cost for producing each product.  This system basis all overhead on labor and therefore is not a very accurate way to distribute overhead cost to each product. Take for instance the flow controllers which have a labor usage of . 40 hours per unit. Using the overhead rate above of 439%, overhead allocated to each flow controller is $28. 10. This only takes into account direct labor and nothing else.

This creates a problem because even though Flow Controllers take . 40 hours to produce they only use . 20 hours of machine usage. Compare this machine usage to . 50 machine hours to produce each valve which uses . 25 labor hours and . 50 hours to produce each pump which uses . 50 labor hours. This shows that flow controllers are incurring more cost then needed when dealing with machine usage. This problem of over allocating overhead to certain products is also true when dealing with machine depreciation. Machine depreciation accounts for $270,000 of the total overhead, a large percentage.

With the overhead rate being determined by labor using this traditional system, machine depreciation is being determined by how much labor is being used to produce each product. In reality machine depreciation should be allocated to overhead using how many machine hour it took to produce each product. With 4,000 flow controllers being produced at a machine usage of . 20 hours they accounts for 800 total machine hours. This number is very small in comparison to valves and pumps which take 3,750 and 6,250 total machine hours to produce, respectively.

This means that flow controllers should be allocated less machine deprecation overhead due to the relative small number of total machine hours used. However, since the overhead rate is only calculated using labor in the traditional system Flow controllers are being over allocated. The table below shows how much machine depreciation is being allocated to overhead using the traditional method based on labor hours. The table below shows what machine depreciation would be if it were calculated using the number of machine hours used produce each product line.

Based on the previous two tables allocating machine depreciation based on direct labor hours can give the company a false cost on how much it cost to produce each unit of a particular product. Pumps are being allocated $19,350 ($175,600-$156,250) too much machine depreciation. With the company producing 12,500 pumps that’s a per unit over charge of $1. 55. While this is only showing the differences in machine depreciation, the other overhead cost associated with Destin producing it products also vary. With these overhead cost being miss-allocated for, there is the potential for Destin to be using bad data to price its products.

This could help explain the competition problem the company is facing and will be discussed later in the paper. A second way that this traditional cost system is inappropriate for Destin to use is because it only gives the company one option in dealing with a price change. Since all overhead is figured using direct labor hours if Destin wanted to change it cost associated with overhead, then the only way would be to change the direct labor dollars. This severally limits the company by having only one “pool” to change prices. Revised Unit Cost System:

Destin Brass Products controller Peggy Alford put together a revised cost allocating system in an attempt to better allocate overhead based on activities. This system separates material related overhead and labor related overhead and determines corresponding rates to plug into your unit costs. (Exhibit 3) The table below shows the separation of the two types of overhead used in the revised method. The revised system is better than the standard system that Destin Brass currently uses to allocate overhead. It takes into account the problem in the standard system which based all allocation of overhead only from direct abor dollars. In correcting this problem the revised structure now takes into account material related overhead which has no relationship to the labor costs of machining. While this dilemma was corrected in the revised system other problems aroused questioning the accuracy of the system allocating overhead to the right products. When looking at the “other overhead” section in the table above packing and shipping overhead is included. This creates a problem when the overhead rate for this group of cost is determined using machine hours.

Let’s use flow controllers again to better understand the problem that is created. In the revised cost system all overhead not dealing with materials is allocated to products using $42. 59 per machine hour used. With flow controllers taking . 20 hours of machine time to produce the “other overhead” is assigned to the standard cost at $8. 52 per unit. With valves and pumps both using machine time of . 50 hours to produce each unit, this systems creates an advantage for the flow controllers. Although flow controllers use less machine time they require more shipping and packing cost.

Flow controllers require a total of 22 shipments to its customers compared to only seven for pumps and one for valves. With this being true the majority of the $60,000 assigned to packing and shipping overhead should be allocated as cost to flow controllers. Despite this fact the allocation can’t be done because of how overhead is assigned based machine hours used. The following table shows the current overhead assigned to packing and shipping based on the revised system of using machine hours as the basis for overhead allocation.

The next table shows what packing and shipping overhead would be based on a percentage of total shipments company wide. The second way shown is the better way to allocate overhead based on packing and shipping costs because it takes into account how many shipments and necessary of each product line. Looking at flow controllers again you can see that this product line requires 22 of the 30 shipments. This is a cost of $44,000 that is directly related to the flow controllers. With the current revised system represented in the first table, flow controllers only were allocated $4,430. 0 of cost associated with packing and shipping. This is only 10. 1% of the cost that should be allocated. With this Revised System for costs Destin Brass would still be using bad data to set prices of it products. This could be one possible answer to the questions asked in the beginning by the company. Another problem that arises if this revised system is put into place is one that is similar to the previous problem. Destin Brass manufacturing manger John Scott is quoted in the case as saying “(the company) probably spends one-half of our engineering effort on flow controllers.

If this is the case, then like before flow controllers aren’t being allocated enough overhead with regards to engineering cost. This is shown in the following two tables. The table on the left shows the amount of engineering overhead being currently allocated to flow controllers. The table on the right shows what the allocation of engineering cost should be to flow controllers based on the estimated number of 50% of total engineering.  This again is another possible reason for the competition and price problems that Destin Brass is facing.

Both of the above methods really restrict the company from implanting changes in price and/or cost. The methods have few “pools” for management to implement changes using and result gives poor data. A System with the possibilities to implement changes easily is activity based costing. Activity Based Costing A system that would benefit Destin Brass greatly would be to implement activity based coasting as a means to allocate the overhead costs associated with its products. This method traces the costs of resources to the activities consumed.

The problem identified in the two previous systems would all be eliminated if ABC where used at Destin. The ABC method is used by applying all direct cost (direct labor and materials) towards the product coast based on the coast summary. (Exhibit 1) Indirect cost (Indirect labor and materials and depreciation) are then applied to each product at a rate that set by the amount of the activity used to produce the good. The amounts used in this case are estimated based on how many transactions occur in total and are caused by each product. Exhibit 5) This way of allocating overhead better illustrates how much cost goes into each product based on the amount of components and runs is needed to complete each product. With this being true flow controllers now have representation to the cost being occurred and the overhead allocated to them. Flow controllers numbers are now more accurate because of the fact the all transactions needed to complete the product are used in generating an allocation rate. Each flow controller is made up of 10 components and that are being produced in 10 runs.

This will account for the company to have 100 transactions (10×10) in order to produce the good. The numbers that Destin came up with using this method are shown in Exhibit 4. With each overhead cost being rated by itself for each product, the company has better data to make sound decisions with. They also have better control on implementing changes. As with the previous methods management could only change labor or machine hours to effectively change coast. With the ABC method each cost is rated separately and therefore a change to a cost would be easily done.

When comparing the product unit coast obtained from the three methods discussed in this paper, the companies’ problems dealing with competition and price are easily reasoned with. The following table shows these unit costs for each product line using each of the three methods: This comparison table shows that Destin Brass was allocating its overhead in a way that gave decision makers faulty data. By looking at the numbers obtained using the ABC method and comparing them to the two other methods answers to the two questions raised by the president can be answered.

The first question of why was it so difficult for the company to stay competitive in the pump market is explained by the above chart. Destin had believed its production cost for pumps to be $63. 12. With this being said when Destin had to lower their price due to stiff competition the company felt they were no longer going to be able to obtain the desired 35% profit margin. However if Destin new the true cost of producing each pump unit was $37. 70 then lowing the price to stay competitive would have been no longer and issue because the company would still be over the 35% mark.

The second question raised by management at Destin Brass dealing with why the company has not seen any competition in the flow controller market is also easily answered using the above table. Destin believed that its standard unit cost for producing flow controllers was $56. 50. Using this cost number the company set a target selling price of $86. 96 to obtain the desired 35% profit margin for the company. When potential competitors looked at this price they felt there was no way they could make a profit in this product line.

The potential competitors most likely had a cost of producing a flow controller some where around the price we obtained using the ABC method of $100. 91. Even when Destin raised the price of flow controllers by 12. 5% to $97. 07 competitors would still not want to enter the market based on our selling price. These questions are also easily answered by looking at the following table which take the unit cost obtained using the ABC method and comparing them with last months selling prices: This table shows that the flow controllers were priced to low based our current cost.

The company would have incurred a loss of 4% gross margin if this were the unit cost we used last month. Again this shows why now competition was forming because any other company using the ABS method would incur a loss as well. If Destin where however to make a 35% margin at its new unit cost of $100. 91 it would need to sell the flow controllers at $155. 25. This increase in price might fuel some competition. Potential competitors might see this new price Destin is selling at and feel it is a favorable market to get into now competition can sell above their production cost.

Pumps are also easily analyzed using this table. Now that the company has an ABC unit cost of $48. 79 they can better compete in the price wars the take place in the pump market. At the price Destin was selling pumps at last month of $81. 26 the company would now be making a 40% gross margin using the ABC cost. This leaves Destin the option of lowering the price in pumps $75. 06 in order to stay competitive and maintain market share. At this price Destin would still be making the company desired 35% profit margin.

Net income would not change in the flowing month if the ABC method were to be implemented. This is assuming there are no changes in production, sales, or costs. This is strictly saying that the way you account for overhead as no impact on net income. The ABC method total overhead costs, it only changes how those costs are allocated for internal purposes. With this information shown the ABC method for allocating overhead to products is far superior to anything Destin Brass had used before. The ABC method takes into account all overhead cost and the components involved in each product.

In summary a company’s profitability of a product depends on the allocation rules used internally. Recommendations: I would recommend to Destin Brass president Roland Guidry to implement the ABC method for allocating overhead. This method alleviates the two problems he had at the beginning of the case dealing with the question of competition and price. The ABC method will also let Mr. Guidry better control his cost and prices by providing him with a way that’s easier and more effective. I would recommend to Mr. Guidry that he lower the price of the pumps in order to remain competitive in that market.

He should lower pump prices as long as he stays at or above the 35% gross margin he wants. I would also recommend that he slowly raise the prices of flow controllers. With the unit cost a lot higher than where it was this price needs to raise and try to obtain the 35% margin. Mr. Guidry should keep a close eye on the competition in this market. As the price is increase potential competitors might enter the market. He should raise the price for flow controllers as long as competition stays to a minimal to retain the market share Destin has already obtained.