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Fiyta The Case of a Chinese Watch Company

Professor: John Milne

David Steinfeld

207316730

Issue and Recommendation


Fiyta must address increasing competition and changes in the Chinese market to remain a dominant domestic and international brand.

Increased presence and focus in the growing high-end market segment will ensure Fiytas domestic and international success.

Fiyta has the opportunity to create a sustainable and successful future

Fiytas Current Marketing Plan


Product
Men/Women 4 styles each Always improving technology Shifting toward higher end products

Price
Moving toward higher pricing Highest average domestic price

Place
Forward integrated with Harmony World Watch Center (standalone retail) HengLianDa expanded to retail department stores

Promotion
Sponsorships and competitions International Stature Historical value communicated Exceptional sales and service value added

Segmentation
Gender Personality Type

Targeting
High End 18% of revenues Medium 48% of revenues Low end 34% of revenues

Positioning
Technologically advanced National and historic The best space watch

A Static strategy is not sustainable in a changing market

Critical External Issues Facing the Firm


Trade policy can affect international competitors in China Political Opportunity High-End segment expected to grow - Opportunity High industry rivalry - Competitive Threat Price competition in the low end market depressing profits Competitive Threat Domestic sales declining Economic Threat Growing wealth of consumers - Economic Opportunity

There is an opportunity to shift with the market

Critical Internal Issues Facing the Firm


Very strong technological competence - Strength Forward integration at the retail level - Strength A Chinese national and historic brand - Strength 2/3 of units sold in the low end (low margin) market Weakness Low penetration/share in the high end segment (0.1% share) Weakness - Opportunity
Fiyta needs to leverage strengths to create sustainable competitive advantage 4

The Proposed 3-Prong Strategy


Pros:
Takes advantages of the increasing demand for high end watches and leverages distribution network Solidifies position in medium market Products for most segments

Cons:
Efforts are also focused on the low margin low end segment
10% of industry sales vs. 33% of Fiytas sales means competition for a small pie.

Firm image might be sacrificed with introduction of low end brands Products for most segments also a con less focus

High cost and risk of attacking entire market

A differentiation strategy usually targets a price-premium paying customer

Alternatives to Consider
The 3-Pronged Approach
Develop low and mid-level brands for the low end market Purchase a luxury brand Solidify Mid-level stature

High Class
Purchase a luxury brand and focus on this growing, valuable market

Status Quo
Business as usual Maintain stature in the mid-level market

Which strategic direction will best achieve the goals of the firm?

Analysis of Strategic Options


Criteria ranked 1-10 (10 being the most favourable) 3-Pronged Approach High Class Status Quo

Value, mission, competency-compatible

Growth potential (national and international)


Risks

7
6

9
8

4
4

Costs
Totals

6
26

8
34

10
23

A Luxury focused strategy will offer the most benefits for the best cost and risk

Recommendation
High Class: Purchase an international luxury brand
Opens up domestic and international demand for Fiyta Products. Strongly positions Fiyta in a segment that represents 85.1% of domestic sales. Technical knowledge gained from acquisition Leverage distribution network capabilities Diversifies revenue streams away from low profit segments Aligned with the core values, mission, and competencies of Fiyta

Grow share in a lucrative market and solidify firm image

Risk Analysis
Risks
International Luxury brand may not sell well

Mitigators
1) Front line competencies at Harmony World Watch Centre leveraged

International brand may have high acquisition cost

1) Careful evaluation of the price-benefit ratio of international brands 2) Growing profits can potentially outweigh investment quickly 1) Low end markets declining and have low profits 2) Med-level consumers will appreciate the firms positioning

Focus on high-end may give up ground in other segments

Risks exist but are manageable

Concluding Remarks
Increased presence and focus in the growing high-end market segment will ensure Fiytas domestic and international success

Fiytas aggressive expansion into the luxury segment will provide great opportunities for growth in the high end segment Experience as an international brand will help drive growth globally for Fityas products, and services
Opens up an avenue for international growth of Harmony WWC

A strategy defined by growth and profitability will create a sustainable future

The future looks bright for Fiyta

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Appendices

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S.W.O.T Analysis
Strengths:
National and historic brand Technologically advanced products Emphasis on quality Vertical integration Exceptional sales and service value added

Weaknesses:
Less than 0.1% market share of high end Majority of units sold in lowest profit segment

Opportunities:
High-end segment growing Trade policy may protect domestic market Growing wealth of consumers Relatively low market share (upside potential)

Threats:
High industry rivalry Price competition Domestic sales are declining

Internal reflection is critical

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P.E.S.T Analysis
Political:
Trade policy affects domestic competition Space program alliance

Economic:
Growing wealth of consumers Intense price competition in low end segment

Socio-Cultural:
Watches no longer one of 3 elusive items in Chinese culture Desire for mechanical watches has grown Watches seen as trendy fashion accessories

Technological:
Watch technology changing for certain applications

External pressures have great effects on the business

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Long Term Strategy

Track and develop sales and service for the high-end segment Evaluate and purchase target international luxury brand

Use distribution competencies to compete globally

Fiytas long term strategy for international growth

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Financial Analysis Growth Potential in the high end segment


Metrics 000000s RMB Revenue Costs Profit
Fiyta Watches 2006 figures (watch division) Increase to 0.5% of domestic luxury market % Increase

130.53 58.26 72.27

140.73 62.81 77.91

7.8% 7.8% 7.8%

7.8% Profit growth represents a RMB amount of 5.64M or $706,766 USD


Notes:

1) Forecasted figures hold cost-revenue ratios constant 2) 3B RMB high end sales * 85% international brands share *0.4% increase in share= 10.2M

There is a large potential to grow in the high-end segment

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Analysis of Alternatives Risks and Costs


The 3-Pronged Approach
Using resources for unprofitable market Compromising the image of the firm as top quality Costly to establish brands in the low end and purchase an international luxury brand

High Class
High costs Risk of brand failing

Status Quo
Failure to address market trends Left behind by competition

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Analysis of Alternatives Value, Mission, Competency Compliant


The 3-Pronged Approach
Somewhat meets the prestigious image goals of the firm Also sacrifices prestige for low end competition

High Class
Best addresses the pride of products at the firm

Also the best option for continued domestic and international growth

Status Quo
Left behind by competition Not in sync with values and mission

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