1.

0 Executive Summary
ELLO is a shoe company that manufactures branded and private label footwear. Our
footwears have been sold in 4 different regions worldwide, there are North America,
Europe Africa, Asia Pacific and Latin America. We have taken over the positions of
managers for the footwear company since year 11 and we have been in the industry
for 7 years. Our company have experienced growth and decline in the footwear
industry due to several reasons. This managers report provides a clear review of the
business operations for ELLO footwear company in the footwear industry for
production year 11 through year 17. Analysis of past performance of the company
would be discussed on the EPS and ROE of the company in the past 7 years. This
report also discussed on the main strategies used by ELLO company as well as the
justifications on the ability to response to changes in the environment. Last but not
least, this report also justified the key points that have been learnt by the co-managers
through past successes and failure. Recommendations for the future are also discussed
in the following report.

2.0 Analysis of past performance

Year

EPS ($)

ROE (%)

Stock Price

11
3.07
18.4
40.62
12
4.03
19.9
55.30
13
2.82
11.9
31.13
14
4.80
17.4
72.04
15
4.16
13.0
50.31
16
2.64
7.5
28.24
17
0.89
2.4
16.21
Table 2.0 Analysis of the past performance, Year 11- 17.

Credit
Ratings
AA
A
A+
A+
A+
A+

Image
Rating
75
66
68
73
69
59
51

2.1 Year-11
In starting year of year 11, the price of the footwear for the internet segment was
$72.99. The co-managers had decided to set the price with 99-cent endings for every
branded and private label footwear in the industry. According to the report of
ScienceDaily (2011), Schindler mentioned that the 99-cent price endings strategy is a
common marketing tool used to attract customers to purchase a product. He has
studied that people perceive a big difference in price when the 99-cent price endings
strategy is used. Therefore, the wholesale price for the shoes in North America and

Europe Africa were $47.99, price for the shoes in Asia Pacific was $40.99 and $41.99
in Latin America. The footwear industry was very competitive as the price set by
other competitors were near to the same. However, ELLO company managed to be at
the second position in the footwear industry with $ 3.07 earning per share and 18.4%
return of equity while the stock price is 40.62.
2.2 Year-12
In the following year which is year 12, the co-managers have decided to decrease the
price for internet segment to $67.99 due to excessively higher price compared to other
competitors which caused low demand orders in year 11. The prices of the shoes for
wholesale segment were remained the same. Futhermore, the shoes for private label
segment were declined except for the Asia Pacific region. However, ELLO company
had once again managed to be at the 3rd position with $4.03 EPS and 19.9% ROE.
2.3 Year-13
In year 13, the co-managers have decided to implement a differentiation strategy due
to high competition in the industry. The company has committed to deliver the highest
quality shoes to the customer at a reasonable price. The SQ ratings of the shoes have
been increased to 7 stars and it has became the strength of the company. The
percentage of the superior materials had increased to 80% and 88% in North America
plant and Asia Pacific plant respectively. Furthermore, the style and features of the
shoes have been upgraded as well in both plants. The cost for the compesation
training in NA plant and AP plant were both increased in order to reduce the rejection
shoes rate. As for the private label segment, the managers decided to pull-out from
the Latin America region and focused only on the other 3 regions. The reason of
pulling out was to mainly focus on the wholesale segment in Latin America. The
company also increased the cost for advertising to $7.8 millions in order to increase
the image ratings and return on equity. Unfortunately, due to high expenditures on
marketing expenses and high cost materials, the EPS and ROE falls to $2.82 and
11.9% respectively. The stock price has also fell to $31.13 and undoubtedly, we have
fell to the 5th position in the industry.

2.4 Year-14
Year 14 was an excellent year for the entire footwear industry. All of the footwear
companies had done well and met the investor expectation. The SQ ratings of the
shoes were still rated at 7 stars in order to emphasize high quality shoe. The comanagers have decided to increased more on advertising and the delivery time had
been shortened to two weeks. In order to do so, the co-managers would have to
increase the price of the shoes in the wholesale segment in order to cover the high
expenditures on the superior materials cost, the marketing cost as well as the high
exchange rate. The increment of sales in private label segment had successfully
increased the EPS and ROE to $4.80 and 17.4% respectively. Futhermore, the value
of stock price had huge increase from $31.13 to $72.04. The credit rating of the
company had also went high to A+.
2.5 Year-15
In order to avoid from any big loss in year 15, most of the strategies and decisions
were remain the same. There were only slight changes have been made to the price on
internet segment and wholesale segment. As for the corporate social responsibility, the
co-managers have decided not to do any CSR programme in order to reduce the cost.
Undoubtedly, the image rating of the company fell from 73 to 69. Besides that, the
EPS and ROE have fell to $4.16 and 13% respectively, as well as the stock price has
fell from $72.04 to $50.31. The main reason of such fall was due to the minor changes
had been made to the decision entry as well as the company did not able to bid for any
celebrity. The other competitors had stong celebrity appeals to increase the market
share as well as the image ratings.
2.6 Year -16
In year 16, the company has suffered a great loss due to several reasons. Firstly, the
company did not able to get the private label sale in North America region which
greatly impacted on the EPS and ROE of the company. The EPS and ROE of the
company have fell to $2.64 and 7.5% respectively, the stock price has also fell to
$28.24. At this point, the company decided to decrease the cost on materials, TQM,
training and compensation as well as marketing cost. The SQ ratings of the shoes
have been decreased to 6 stars as well as the price of the shoes have also decreased in
4 regions. Due to high exchange rates and the company had no plants in Europe
3

Africa and Latin America, the company had started to suffer losses in distributing the
shoes. Unfortunately, we had fell to the 6th position in the footwear industry.
2.7 Year-17
Year 17 was the last year and it was a terrible year to ELLO company. The EPS and
ROE of the company had fell terribly to $0.89 and 2.4%. The main reason of such
outcomes was the company did not managed to sell any shoe in private label segment
in 4 regions. The wholesale segment were doing good because the co-managers have
decided to increase the models availability of the shoes. The company did not met the
investor expectation and therefore the company had fell to the last position of the
footwear industry.
3.0 The main strategies pursued
ELLOs company strategies are to compete actively in 3 segments which is the
wholesale segment, internet segment and private-label segment.
Differentiation strategies have been adopted by ELLO in wholesale and internet
segments, because there were too many standardized or similar products in the market
and was proven to be too competitive for ELLO to operate in that industry. We also
found that, even if we able to sell the shoes, the profits would be very low due to
strong competition in the industry.
Therefore, we decided to implement the first mover advantage by offering high
quality footwear with 7 stars S/Q rating in Year 13 which was different from the
competitors. Our strategy was to deliver the highest quality shoes while maintaining
at a competitive price. By applying differentiation strategy, we could avoid from price
war within the industry and command a better price for our products.
Since then, ELLO updraded the features and styles of the shoes to clearly set
ourselves with the competitors. Firstly, we strived to create superior product features,
design, and performance by increasing the usage of superior materials for our
footwear, enhanced styling and features and also emphasize on TQM and Six Sigma
quality programs. Secondly, we also improved our customer service by using several
approach in different time such as offering free shipping, shortening delivery time,
and offering better rebate service and also improved in retailer support and utilization.
We believe that if we provide better customer service, our customer would be
impressed and satisfied hence attract more customers. Thirdly, we also pursued in
4

production R&D activities. We constantly engaged in production R&D that could

improve our product quality and reduce wastage. In year 15 and year 16, we had
successfully upgraded our plant in North America and Asia for our assembly line to
reduce reject rate by 50%. The increment of the compensation and training for the
employees have increased the productivity and reduce reject rate. Lastly, we also
understand the importance of marketing and brand building activities. Emphasize on
marketing and brand buildings activities helped us to increase our brand image and
also strengthen our brand name. We mainly focused on advertising because it has
tremendous effect on the value perceived by the buyers therefore increase their
confidence to purchase our footwear. Due to strong competition, we constantly
increased our advertising budget to bring out the best effect.
However, due to the sudden rise in the exchange rate and also increasing competitors
in the 7 stars footwear industry, our company has forced to decrease the SQ ratings to
avoid price war as the costing for our shoes were too high. We choose to produced 6
stars footwear because the cost was lower. However, the strategies above remain the
same. We continuously emphasized on marketing activities such as increase fees in
advertising and celebrity appeal, and increased our shoes models in the late stage of
the competition add promotion.
For our private-label, we choose to use the best cost provider strategies. This sector
proved to be very unpredictable and competitive, competitors may choose to leave or
come in anytime and private labels may require us to make adjustment. This strategy
fits ELLO well because we could adjust our price more efficient with appealing
attributes required by the private label and also able to response to the external threat
such as exchange rate more effectively.
4.0 Ability to response to changes in the environment
In a very competitive industry and rapid changes over the year, we have tried to adapt
with the drastic and unexpected situation. For the first three years, nothing much
changed only minor alteration. The year after was quite challenging as other
companies started to put the head into the game, adjusting with the price, push their
marketing efforts, bid for celebrities and offered the best price for private label.
Changes such as the price and SQ ratings affected us as it pushed down our revenue
and company market share.

For SQ ratings, we would not know what would the competitors would do, either to
increase or decrease. We decided to move apart from them by using differentiation
strategy. Therefore, we can still be competitive in the industry. Each year, we
observed the changes and the pattern of our competitors in term of pricing both
wholesale and internet, their performance and SQ ratings. The major changes that we
did to adapt with the industry was the pricing, marketing effort and SQ ratings. At
first, our SQ rating was at 5. Throughout the year, we increased it by 1 and the
maximum was 7. The reason why of we did not go beyond because we could not
compete with our competitors with higher SQ rating and their pricing was quite low
too. On the other hand, we did not want to get influenced and controlled easily by our
competitors in terms of pricing.
Futhermore, we had slightly decrease our price for the first 3 years from $48 to
$46.99 for wholesale segment. The years after, we increased the price due to higher
SQ rating. Price was vary for different continent and for the Asia Pacific region
usually have the lower price. With 6 competitors in the market, we worked hard to
compete and observed each other strategy based on the competitive intelligence
reports. Some companies in the industry were playing with the price structure until we
or perhaps other company get the negative impact. There was a year that we need to
lower down our SQ rating from 7 to 6 as we could not compete with the company on
the top. We tried to play safe in order to generate revenue and market share. It was
indeed a very competitive industry with companies offered a low price with high SQ
ratings. That was how we adapt to changes, either we push up or lower it down.
5.0 Key points learnt
First of all, the main key point that we have learnt throughout the BSG is always
move faster and do bigger before our competitors do. It is relatively important to be
one step ahead of the competitors because the company will have the first mover
advantage. For example, the competitors have built new plant in Latin America region
to avoid from high tariffs and high exchange rate but our company was yet to build
one therefore we had to bear with the high cost expenditures. Besides that, ELLO
company had not bid for a celebrity to the point that all of the competitors ROE and
EPS had increased due to their celebrity appeals, only then ELLO company started to
bid for a celebrity.

Secondly, the key point that we have learnt is we must develop a strategic vision and
mission statement at the first place. Strategic vision and mission statement able to
provide a clear direction and strategic path to the company. The company should
commit to the vision and mission as it will shows us where are we going and why.
ELLO company did not have a strategic vision and mission statement therefore the
company had continously changing the strategic plans. For example, ELLO company
constantly changed the SQ ratings of the shoes. At the first place, we commited to
deliver the highest quality shoes to the customers but in the end we failed to do so.
The reason for not commiting till the end is because we were unsure on our strategies
and decisions. Thus, clear strategic vision and mission statement are strongly needed
before any decision has been made.
Lastly, the key point that we have learnt is do not get influenced and controlled easily
by your competitors. The competitors constantly reduce the price of the shoes in
wholesale segment and private label segment. They set their prices as low as they
could to the point that the operating profit has became negative. It was a commit
suicide way for the competitors to operate the footwear company as the main
objective of the game is to increase the net profit. ELLO company did not get
influenced or controlled by the competitors because the company would have suffer a
great loss if we follow the same way. Instead, ELLO company did a differentiation
strategy which increased the SQ ratings of the shoes and sell it at a standard price.
6.0 Recommendations for the future
Due to limited capital availability, we did not build a plant in other regions. However,
the demand in other regions was growing, building plants in foreign regions have
became an option to expand. ELLO did not able to build a plant in Europe-Africa and
Latin American. It then caused our production cost to be a lot higher than our
competitors who build a plant in other regions. Therefore, establish a plant in foreign
country can avoid from high exchange rates on cost to export our product to other
regions
Secondly, it is better for the company to contract with celebrity figures as soon as
possible. Endorsements from appealing celebrities enhance the brand image of the
footwear company and it positively affects consumer purchase. Company with more
influential celebrity lineups enjoy an advantage in marketing their shoes over those
companies without a celebrity endorsement. Therefore, footwear company should
7

contract with celebrity figure before the competitors start to do so because once the
competitors started to bid for a celebrity, the bid price will go higher to the point that
the expenditures on celebrity endorsements will be exceeded.
Thirdly, plan the stategy wisely is relatively important to the company. Once the
strategy has been chosen, stick with it over a long period. Strategy should be set based
on long run but not short run. We believed ELLO should be a dominant-business
enterprises, which having a major core business that involved themself in wholesales
and internet segments that accounts most of their total revenues. Then small amount
of revenues can be collected from private-label segment which is more competitive
and

unpredictable.

The last recommendation is to increase SQ rating for the product across the continent.
By increasing SQ rating, ELLO company can compete with other competitors at the
same level. Perhaps at this time, pricing will not be a problem. Look back at the
financial history and the competitive intelligence reports. From there, you can learn
and observe the pattern of your own company and also fellow competitors in the
industry. It is important to analyse your industry together with the competitors so you
are on the right track. It is important to evaluate the competitors. Building capacity
also can be method to push the company up. Another tips can be consider is to borrow
less. That will make the company financial stable and refinance it when the company
think it is time for it. Also to issue stock shares even at beginning of the year.

7.0 References
ScienceDaily 2011. 99-Cent Pricing May Not Be Worth the Penny, Says Expert. [press
release] 12 September 2011.
Thompson, A., Peteraf, M., Gamble, J. and Strickland, A. 2013. Crafting and
Executing Strategy. 19th ed. Singapore: McGraw Hill.
Truist. 2013. Why Corporate Social Responsibility is so Important in 2013. [online]
Available at: http://truist.com/why-corporate-social-responsibility-is-so-important-in2013/ [Accessed: 16 Nov 2013].