Saturday, June 11, 2011

Case Analysis of Compass Records: A good strategy Implementation (Con)


Now, let me write all “Treats” and “Weaknesses” in accordance with the case to analyze SWOT matrix (W – T) as follows:

Treats

T1: “The $32 – billion music recording industry was dominated by a handful of large, multinational corporations, which accounted for 86 percent of the market for global recorded music”
T2: “The global market for recorded music had stagnated ever since”
T3: “According to the Recording Industry Association of America (RIAA), the industry had registered no growth in any single year since 1995.”
T4: “By 2003, the recorded music sector had shrunk to 1993 levels ($32 billion), and annual dollar sales were estimated to have declined at a compound annual growth rate of 5 percent.”
T5: “And yet something like 98 percent of all records sell fewer than 5,000 copies, so if your benchmark is a million, or even 100,000, you’re obviously overlooking a lot of good music that sells well enough to deserve being out there.”


Weaknesses

W1: “Within the context of the global music business, Compass Records was tiny (very low market share).”
W2: “Brown estimated that 40 percent of Compass Records’ albums sold 5,000 units or more.”
Regarding to W –T analysis, we can mix all above mentioned to find out a new strategy as follows:
(T1, T2, T3, T4, T5, W1, W2)

New Strategy: Compass Record should focus on target sales of 5,000 copies and follow up the variety of albums. In fact, the new strategy is to increase the number of albums and target sales of 5,000 copies instead of going up the sales for an individual album.
This strategy can be translated to a combination strategy included all Intensive strategy in which we have Product development + Market penetration + Market development. It is clear, this is Corporate Level Strategy (C.L.S) of company as the strategy in action. For Business Level Strategy (B.L.S), Compass Records can gain competitive advantage from Focus strategy – Type 4 or 5 (Michael Porter’s Five Generic strategies) in which strategies such as Market penetration and Market development offer substantial focusing advantages. But we have also added Product development and we do not usually use market penetration and market development accompanied by product development strategy to be exchanged to focus strategy (type 4 or 5).
What is going on?

Here, I can say to you: “Sometimes small firms are supported by large multinational corporations, even though all of them are the competitors.”

This is just like to an Umbrella. In the field of structural engineering, it is the similar to Hanging Bridges or refers to my article of “

"The Supporter Systems (sleepers) in the Nature for Tunneling" on below link:


 in the field of geotechnical engineering.

How can we expand this strategy to other goods?


Let me focus again on the characters of this market:

-Sales unit benchmark for 86 percent of market is 1000,000 or 100,000
-The growth rate of revenues has been declined and stagnated
-The same raw materials with the variety of finished goods
-Consumer price is approximately the same for all different products

The good strategy:

Regarding to above factors of market, major multinational corporations allow the small firms as well as utilize from scare resources such as land, labor, capital and entrepreneurship to produce the finished goods in which scare resources are the same the recorded albums.
Only you should find out the target sales of goods in market for instance, in this case, it is 5,000 copies from each album.
When the cost of goods sold has a significant increase (high PPI), we should care about the least sales units as target sales and look at the benchmark of major competitors in which two important factors are dominated:
1) The variety of goods with the same raw materials
2) The same price of different products


 

Note:  “All spreadsheets are available. The people, who are interested in having my spreadsheets  of this case analysis as a template for further practice, do not hesitate to ask me by sending an email to: soleimani_gh@hotmail.com or call me on my cellphone: +98 9109250225. Please be informed these spreadsheets are not free of charge.”