Bata Case Analysis-final[1]

Business Strategy

BATA: STRATEGIC CHOICES Case Analysis Assignment

Introduction This case highlights the challenges faced by the Bata Management in the wake of changing market trends in the form of increased competition from the local players as well as the constantly increasing threat of Chinese imports. Bata had traditionally targeted the lower middle and middle class segments of the society and was now contemplating changes in its strategy to be able to survive in the market.

Analysis of Bata’s Current Market Position With the evolving market and changing market dynamics Bata was being given a tough time by its local competitors and other footwear being imported from China. Bata management feared that they would not be able to survive because they could not compete with the low cost Chinese products, hence they embarked on a plan to enter the premium segment of the market to be able to survive, because they felt competition from Chinese products there would be much less. However, in my opinion, their management in the year 2001, made a mistake by committing to go after the premium segment as well, without realizing the fact that their image would be hurt and could get diluted because they were moving into a domain for which their activities were not aligned. Other than the activities too we have to consider the Brand image that Bata had developed over the past 40 odd years of its existence in Pakistan, and this image was by no means that of a brand which could boast about having premium footwear products, in fact Bata was just meeting the basic functional needs of its middle class customers. Therefore their strategy does not seem to be at all well cut out, as from most of their activities it appears that once they were challenged they resorted to a fire fighting approach and tried their hand at almost all possible arrangements, without gauging the fit of the activities to their strategy. It may be concluded that Bata’s management made the fatal error of just enjoying their successes whilst the market was not mature, but when the competitors kicked in and the market approached maturity, they were left in the lurch because of not having made clear trade offs in terms of image, activities & internal coordination and then had to pay the price. Their current predicament has been analyzed in detail using a strategy framework below.

Target Customers Bata had traditionally been targeting the middle strata of the society in Pakistan. In precise terms they were focused more on the lower middle and middle classes. Due to the changing market dynamics the competition had started undercutting their prices and Bata was thinking of shifting its focus towards the higher premium end of the market as well. This basically resulted in it pursuing practices, through which it could not focus its efforts.

Identity – Middle Class families were being offered footwear by Bata as they had shoes ranges for school going children, young men, and even some offerings for women. It can be inferred about the customers that these would be spending roughly around Rs. 300 to Rs. 1500 for a normal purchase.

Behaviors – In terms of the behavioral aspects Bata’s target customers could be quite price sensitive, demanding value for money, looking for utilitarian needs to be met, and not excessively conscious about the shoe lasting for ages and being very sturdy, yet at the same time demanding adequate quality footwear which they can trust to last for a season or two. Bata may also be categorized as a store where usually entire families visit together because of the various offerings that Bata has to offer to them.

Value Proposition for the Customers If analyzed for the value that Bata was providing to its customers their value proposition may be categorized as follows. • Reasonable quality at low or reasonable price • Footwear for the entire family • Footwear catering to various functional needs e.g. sports, casual footwear, formal-semi formal • Conveniently accessible outlets in various parts of the country • Prior to entry of local players and the Chinese imports, some sort of social visibility could also be associated with Bata, as it was one of the two major brands in the country then.

Position of the Firm Variety – Bata although traditionally had product lines catering to the middle class segment of the society, yet recently it had also targeted the higher income segment with certain products.

Needs – In terms of the needs, Bata was in a way successful in positioning itself as a brand having stores with products to meet the needs of almost all members of the family, since it had product ranges for children, men, women etc.

Access – Bata had positioned itself by employing various distribution channels (retail as well as wholesale) to enhance its access for the customers. Their nationwide retail network was one of their key strengths.

Sustainability of the Position Initially Bata as has been elaborated was positioned as brand offering footwear products for the entire family members and for the people belonging to the middle class. But when its management decided to also tap the premium segment of the market, their decision may be categorized as one which cast doubts about the sustainability of Bata’s desired position in the market.

Image – In my opinion Bata’s image would be diluted as a result of it pursuing various segments and trying to cater to their needs. Its traditional positioning would also be impacted and there would be chances of Bata not being able to provide an experience fit to its customers as per their expectations.

Activities – The sort of activities which they employed e.g. manufacturing in-house as well as outsourcing, having four categories of outlets (A,B,C,D) catering to various segments of the society from upper to the lower ones, selling through retail as well as the wholesale channel, would not help in any way at conveying a consistent image to its customers. Hence it can be stated that they failed to make any particular trade offs as far as the key activities were concerned.

Internal Coordination – With Bata engaging a wide array of activities and practices it would be almost impossible to maintain internal coordination and hence achieve optimization.

Sustainability of Competitive Advantage The competitive advantage for Bata based on what they are currently planning to do i.e. trying to offer something for each and every segment would render them pretty uncompetitive. The various levels of fits, that a firm should strive for, would not be easily achievable for Bata given their current moves. The first requirement of having the activities consistent with their strategy would be tough to attain

since with the decision of going after the premium segment, they would be having strategies based on operational excellence as well as dwelling the fact that they would be having product leadership to an extent too, since the premium product seekers look for this as well. Once it would be difficult for them to have the 1st level fit, at that point it would be just impossible to foster the 2nd or the 3rd levels of fit as with conflicting strategies having the activities reinforcing each other and optimizing them would be out of question.

Proposed Future Strategy I would recommend that Bata should exit from the lower end segment and focus more on the middle and upper middle class of the society, because of the growth in numbers of people belonging to these segments and also because of the rising incomes of its target customers. The market overall is one which is becoming mature and people are quite quality conscious now. Bata in order to deal with the threat of the Chinese imports would have a strategy focusing primarily on customer intimacy as it would be aiming to enhance its brand equity and provide a complete experience for families who come to shop there. Another positive for Bata will be that the customers, who are more aware now, usually do not associate quality and reliability with Chinese products, where as Bata can use its brand to fill this void. Bata should not be pursuing the very high quality and premium products under its Bata brand because of the fact that Bata’s image has been created over its existence of around 40 odd years and trying to just move out of its current segment of the middle and upper middle class people and trying to capture the higher end of the market overnight can be an uphill task for Bata to say the least. In order for this strategy to be executed the following decisions would need to be implemented in these three key areas.

Manufacturing Bata can dwell on its international presence which is its competitive edge and develop a select band of ABUs in Pakistan by importing its best practices from abroad to be able to handle the manufacturing requirements for slightly trendier lines with lesser volumes. It can also utilize its regional expertise e.g. in Malaysia for rubber based shoes and in China for artificial leather shoes and use their expertise and economies of scale to be able to meet the needs of the product lines for which they had some sort of a cost disadvantage and those which are targeting the middle and upper middle class consumers.

Distribution In terms of distribution Bata should lay emphasis on the company owned stores and maybe the Kscheme stores because these are the stores in the retail channel where they can have the most impact by bringing up systems and providing training to the staff present at these stores. Since their access based positioning is to their advantage they can also get maximum out of the franchises by raising their stakes and maybe institutionalizing practices such as having the inventory owned by the franchisees, to make them push the sales of their products whilst making sure that staff present at the franchises is also trained. This will enable Bata to provide a consistent experience to its target customers at all the outlets and enable it to leverage its brand equity. With regards to the wholesale channel, they can conveniently move out of that and stop having their footwear at the independent shops, because having that can dent their chances of maintaining a proper image for their brand.

Brands Considering the fact that the Bata brand has traditionally been targeting the middle class customers, it would be appropriate for Bata to use its Bata brand name only with its traditional product offerings. It would be better advised to move out of the fashion footwear for women, as again prospective buyers in

this segment will not really be able to associate style or fashion with a brand like Bata known for its functional footwear offering utility and reliability etc. So even if they do bring out a fashion brand Bata would not be in a position to challenge the supremacy of local, more responsive and trendy stores famous for women footwear. However they may continue to carry brands like Power, Weinbrenner for which they have exclusive distribution rights and also focus on their successful brands like Bubble gummers. With brands like Slazenger and Hush Puppies which have their own stores in the market as well, Bata might not be able to leverage these brands for its success and may discontinue them.

Strategy Mapping Details With the proposed strategy above Bata would need to make some prominent changes in the way it operates especially in the face that the firm provides to its customers and realign its internal processes to be better geared at achieving the goals laid down in the strategy.

Financial – In terms of financial aspects in order to have better returns ensured for the shareholders, Bata as per the proposed strategy would be banking on its focus on the middle and upper middle class segment through its Bata brand, to enable to it to be a major force and have higher profits through enhanced market share. Also the fact that the renewed brand image will enable Bata to earn premium at the upper middle end of the market will aid the achievement of the financial goals.

Customer – The customer value proposition will also be substantial as Bata would now be offering value for money along with the trust which its customers would have because of the established Bata brand. In terms of access, functionality and selection options it would again be fulfilling its promises of being a family outlet where each member of the family can buy something. The service standards would be strictly monitored and hence an experience fit will be provided to the customers and these customers for this will be willing to pay a bit of premium because of Bata’s brand and hence the competition undercutting Bata on price would no longer be that big a threat.

Internal Processes – As far as the internal aspects of the firm are concerned Bata will need to revamp its operations management processes, customer management processes, innovation processes and regulatory and social processes. Changes in the Operations management processes will allow Bata to have low cost to an extent, through economies of scale attained through specialist regions worldwide supplying the products, as import duties would no longer be a barrier, and other stable high volume products being manufactured locally at the Bata plants. For the brand targeting the upper middle end of the market, Bata will use the expertise of a few ABUs, whose capabilities it will need to develop by importing best practices from its internationally operational units. Hence these ABUs would be able to reduce costs too even for the slightly premium products and achieve specialization in such products. This would be a competitive edge for Bata only, since Bata’s competitors would not have this edge which Bata enjoys because of its international presence. In terms of customer management processes it will need to focus on marketing itself as an outlet meeting all basic needs of the families in its target market segment. For innovation and R&D Bata can rely on its international research centers and with their aid bring newer designs and further enhance its brand image especially for the trendy footwear targeting the upper middle segment. Bata, with regards to regulatory & social processes, can also enhance its care for its employees by allowing more K-scheme stores to open and even help its franchises by providing them with some of the employees Bata plans to lay off, and thereby helping the franchises to resolve their attrition related problems, and also enabling itself to maintain a proper culture even at the franchise stores through those trained employees.

Learning & Growth – In order to attain its goals as per the new strategy Bata will need to put quite a lot of effort into training its human resource, especially those at the outlets to provide consistent quality service to its customers so that customers can associate the same experience with whichever outlet they visit of Bata. Investments would also need to be made in raising the requisite human capital which would be able to better handle the dynamically changing environment and thrive through increased coordination. Information capital would need to be developed to allow better forecasting and trend analysis etc. for the Bata management and also to meet the growing needs of internal coordination. This emphasis on developing information capital will be a key feature allowing Bata to get closer to its customers as part of its revamped strategy with more focus on customer intimacy. A culture of empowerment would need to be fostered and younger energetic management would need to be given the responsibilities so that they may fill in any leadership void, if created. However overall longer leadership stints for top executives e.g. CEOs would be needed to allow them to take the company towards its goals by implementing the strategy. With these changes in place, Bata would be in a better position to cope with the various challenges posed to it, by its immediate environment. STRATEGY MAPPING

Financial Perspective

Customer Perspective

Internal Perspective

Learning & Growth Perspective

Improved cost structure with ABUs and International specialized regions as suppliers

Expand Revenue Opportunities with more focus on the target segment

Enhance Customer Value due to Improved Experience at Outlets

Quality , Reasonable Price, Reliable product, Improved availability with access , Product range selection, functional products, brand image, catering to the needs of the whole family

Operations Management Supply, Production and Distribution setup revamped

Customer Management Building the brand, to acquire, retain and finally grow through more customers

Human Capital More Training, Empowerment to have better employees at outlets—Making it a better experience for the family

Information Capital Enhanced use of IT to have more data on customers to get to know them better and meet their needs

Innovation Processes Relying on its international research centers to come up with better tailored products for its target segment

Culture Emphasis on providing the same experience at all outlets to customers and having a culture of improved service

Long-Term Shareholder Value

Customer Value Proposition

Regulatory & Social Processes Providing opportunities for employees and franchises to have better operations e.g. by adjusting employees there or having more Kscheme stores

Leadership Empowerment would help nurture better leaders who would be able to continuously serve Bata and implement the strategy

Sustainability of the Proposed Strategy Value Offered to Customers as per the Revamped Strategy Target Customers Middle and Upper Middle Class Segment Families

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Footwear for the entire family A consistent level of service and experience at all Bata outlets Quality, robust and reliable footwear Certain medium-high quality international brands through licensing Conveniently accessible outlets all over the country

Position of Bata •

Variety – It can afford to have more SKUs because of its developed ABUs , licensed international brands, regional specialized units worldwide . Moreover its variety will be limited to the functional footwear good for a season or two and not include highly trendy/fashion lines as it was previously planning to pursue .

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Needs – It will be catering to the needs of the families that it plan to target in the middle and upper middle class segments. Its offerings will cover majority of the footwear that a normal family looks to wear in their everyday lives barring very special occasions .

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Access – In terms of access Bata will have an edge over all its competitors with sheer number of stores, and when through training of employees a standardized experience will be provided to the customers, this access will further strengthen Bata’s image.

Sustainability of Bata’s Position Key Trade Offs • Image – With the current strategy Bata will not be diluting its image by going for two opposite ends of the market and will be focusing more on the middle and upper middle segment , which is closer to the segments that Bata is known to have targeted traditionally. It will be able to build on its brand history of 40 years and have an image of a store having reliable, functional, footwear for the entire family. •

Activities – Bata will have activities in which unlike the past it will be focusing on its target segment , e.g. the discontinuation of A,B,C,D category stores and focus on only those which will target the upper middle and middle class families . It will move out of the wholesale channel and build its retail operations to better cater to the customer needs.

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Internal Coordination – With activities aimed at satisfying the needs of the target market Bata will have an opportunity and the need of improved internal coordination. With trained and empowered manpower and management and systems in place with enhanced use of IT, through enhanced coordination there would be chances of optimization.

Sustainability of Competitive Advantage Activities like more emphasis on training , empowerment of management, improved IT infrastructure, developing ABUs, utilizing international research centers, developing the retail channel----will all be consistent with the strategy focusing on customer intimacy and will also be reinforcing each other (This would ensure at least 1st and 2nd order of fits with chances of moving towards the 3rd order as well)

Strategy Focusing on Customer Intimacy