Assignment 1 Skull Candy Strategic Report Marked PDF

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Assignment 1: Skullcandy Strategic Report ADMN404: Strategic Management Professor: Michael Mauws Naomi Woods: Student ID 2972788 Dated: January 11, 2019 Presentation DIMENSION Technique/ Mechanics   Clarity   5 Support Make use of Visual aids. 4 Appearance   4 COMMENTS 5 Executive Sum...

Description

Assignment 1: Skullcandy Strategic Report

ADMN404: Strategic Management Professor: Michael Mauws

Naomi Woods: Student ID 2972788 Dated: January 11, 2019

Presentation DIMENSION

COMMENTS

Technique/ Mechanics

5

Clarity Support

5 Make use of Visual aids.

4

Appearance

4

Executive Summary DIMENSION Content

POINTS

18

COMMENTS Note the conclusions from each section of the report.

POINTS 3

Succinctness

3

Independence

3

Impact/ Authority

3

Introduction DIMENSION

12 COMMENTS

POINTS

Description/ History

5

Rationale/ Context

Why does Skullcandy need a new strategy?

Limitations/ Foreshadowing

Recommend some resources.

1 4

Organization

4

Mandate

14

DIMENSION

POINTS

COMMENTS

Description

Clearly note the four elements.

4

Analysis

Expand upon the stakeholders.

4

Use of Concepts

4

Conclusions

4

External Analysis DIMENSION

16 POINTS

COMMENTS

Description Analysis

5 Do not discuss Skullcandy in the Microenvironment.

Conclusions

4

Ensure you do not mix the five forces with the Macro issues.

Use of Concepts

4

Note some of the actual substitutes.

4

Internal Analysis DIMENSION Description

COMMENTS Provide more of the current strengths and weaknesses.

Analysis

Avoid providing solutions.

4 4

Use more of the building blocks.

Use of Concepts Conclusions

17 POINTS

4

Do not discuss competitors.

4

16

Grade Calculation SECTION Presentation Executive Summary Introduction Mandate External Analysis Internal Analysis

Overall Mark

POINTS / 10 9.00 6.00 7.00 8.00 8.50 8.00

WEIGHT

MARK

10%

9.00%

5%

3.00%

5%

3.50%

20%

16.00%

30%

25.50%

30%

24.00%

81.00%

Executive Summary Skullcandy reinvented the headphone industry when they arrived in 2003, offering uniquely designed sports headphones. The core products were introduced to specialty stores such as those catered to extreme sports like snowboarding. Eventually, Skullcandy introduced their products to compete in the mass market channels (stores such as Walmart). By 2009, Skullcandy reached sales of $100 million and went public in 2011; further increasing for the year 2012 to $297,686 (Skullcandy, Inc, n.d, page 20). However; by 2013 stock prices and revenues had dropped, the original CEO had left, and stockholders were left worried about the future. Skullcandy has made some improvements to increase their revenues through collaborations but there is still a lot more than can be done to improve profitability to what it was during 2012. The aim of this report is to provide an analysis of Skullcandy; to assess the internal and external factors that influence the company’s survival, competitiveness, and growth. Skullcandy must remain innovative and up to date on the latest technologies to remain relevant within the industry. With companies like Sony offering similar products at discounted prices, it is important for Skullcandy to ensure the products are differentiated through the listening experiences from those offered by larger brands. By offering a unique listening experience for their current customers, they can continue to create brand loyalty.

Through research and development Skullcandy can reach outside of the current customer market by thinking about how headphones fit into the lives of those that go the gym, skateparks, slopes, in the art studios or even in the office. Each customer group needs a unique powerful audio experience that fits into their lives. Introduction/Company Overview Founded in 2003 by Rick Alden, Skullcandy took the headphone industry by storm with the introduction of unique sports headphones that set them apart from the rest of the industry. The unique design of the headphones enabled MP3 compatibility, bold coloring, larger ear cups to suit all customers, and unique pattern designs all labelled with the ionic Skullcandy logo. This design enabled Skullcandy to distribute to over 80 countries worldwide generating revenues up to $260 million. By 2011, Skullcandy was offering complementary products such as phone cases, apparel, Bluetooth speakers, backpacks and secured the purchase of Astro Gaming asserting their spot within the gaming industry and sustain competitive advantage throughout the industry. As of 2015 Skullcandy’s revenues are $266,316 (Skullcandy, Inc, n.d, page 20); and in the NASDAQ stock market the current price per share unknown. At the end of 2011 the share price was valued at $20.00; the same year the company went public. One can only assume the share price has since decreased due to the decline in gross revenue. The company must remain innovative to continue to achieve brand loyalty to achieve sustainable competitive advantage in such a highly competitive industry. This report will analyze the external and internal environment of the headphone industry that Skullcandy is a part of. The financial statements for the year ending December 31, 2015 have been used as there are no further statements available for public viewing. Mandate

The mission statement at Skullcandy is “to inspire life at full volume through forward-thinking technologies and ideas, and leading-edge design and materialization.” The company believes they can fuse music, art, fashion, and sports together into their products meaning their brand will embody all that stands for fun and youth. This mission and vision is based on the original one Alden had; which was to develop a premium label to introduce premium products to a market that was a “previously commoditized market” that were both differentiated by design and fit from the previously available products Skullcandy has been able to successfully achieve the original vison through collaborations with Hip-hop artists and extreme sports stars to produce specialized products that target the youth (Hill, 2015, page C-84). The core values of Skullcandy are not publicly available but the basic core values that all companies should operate under are integrity, commitment, diversity, and quality. For a loyal customer base, a company must develop integrity and a commitment to providing the best products and services. To create customer loyalty to the brand they must set themselves apart from the competition through highly diverse products. Finally, the quality of the products must be high to keep customers repurchasing and referring new customers to the company Skullcandy focuses primarily on the listening experience of their customers to create the best overall experience for all their customers. Through the unique design of the headphones there have been specialized products to fit the needs from the extreme sports' person to the rap music enthusiast. The company is a public company and therefore, is listed on the stock exchange meaning that the shareholders are the most important stakeholders in the company. It is important that the other stakeholders such as the customers and employees are valued properly to maximize the value to the shareholders. All the stakeholders are valuable to the company success and need to be treated equally and fairly.

External Analysis The audio industry is highly competitive therefore, Skullcandy created an audio brand that reflects the collision of music, fashion, and action sports lifestyles to differentiate themselves. This enabled them to reinvent the head-phones category. Using bold colour schemes, big loud patterns, and unique materials with creative packaging fused together, Skullcandy has grabbed the attention of many young people. Skullcandy is a leader of innovation within the music industry. Porters’ “Five Forces Model” is perhaps the most effective tool to conduct an external analysis of a company; by using the extension of this model known as the “Competitive Forces Model”, six key forces can help to determine the opportunities and threats that face Skullcandy within the industry. The headphones' category has a relatively moderate risk of entry for new competitors. The demand for premium headphones triggers new entrants to try to enter the market. With premium brands like Beats and Skullcandy dominating much of the market share there is a higher barrier for the potential entries for this segment of the market despite there being low barriers for the overall high-tech electronics industry. These premium brands have created high brand loyalty through the innovative design of their products making it more difficult for lesser known companies and brands to enter the market, despite the switching-costs being low many consumers will be loyal to high quality products. Another factor which creates high barriers is the research, development and capital-intensive production, while it is easy to create many products and consumers will often accept simple products, specialized products will still be in demand. Through Skullcandy’s continuous research and development into what consumers want and need they can continue to create the unique products demanded. As a result of the high barriers, the threat of new entrants is relatively low for this sector of the electronics industry. This, however, does not stop potential entrants to try to differentiate their products to create some threat for Skullcandy. However; Skullcandy faces bigger threats from companies already

established within the industry such as Beats, whom can gain international demand by outsourcing mass production to China to reduce production costs to remain competitive. As demand for music related products becomes higher each year there is increasing opportunity for other companies to try to enter the market with better strategies, marketing plans, and products. Substitution of products the highest threat for Skullcandy as companies; there are roughly 600 companies manufacturing headphones who are willing to offer similar products at much lower prices that offer the same satisfaction for customers as higher-end products. To decrease the threat of substitution, Skullcandy has stayed innovative and created brand loyalty through research and development of specialized products to keep customer loyalty. Skullcandy has offered complementary products such as speakers, phone cases and backpacks, therefore, this force is relatively low. However; Skullcandy no longer offers all these complementary products which will gradually increase this threat from competitors whom can create loyalty through offering products Skullcandy does not. Since being founded in 2003 Skullcandy has experienced competitive rivalry from established brands like Sony, to newer brands such as Beats, as there are many competitors with the market segment. Despite there barriers being higher within this segment, the barriers are low for the tech industry making it easy for companies to enter, create brand loyalty through other products and using this to branch into the headphone industry. The rivalry with Beats is the most intense as Beats could imitate Skullcandy’s initial strategy, later developing into a strategy that could help them dominate a large piece of the market share. Both brands offer similar innovative products that are endorsed by celebrities around the world; with Beats having the upper hand since being bought by Apple.

The bargaining power of suppliers is low as there are many suppliers within the market offering cheap materials and with the low switching costs suppliers are often readily available with substitute products. This low power helps to make the industry more attractive and increases the profits for potential buyers. The bargaining power of buyers being the ability for consumers to bargain down prices of products or help to raise the costs through the demand of higher quality products is relatively high for Skullcandy within this industry. With the industry there are so many alternatives for consumers to chose from that they can continuously use this to manipulate the demand for high quality prices and through intense rivalries throughout companies like Skullcandy have no choice but to create more expensive higher quality products. However; through the rivalry with Beats, this could be considered an opportunity to be able to reach out to new customers with Skullcandy’s by offering a complementary product at a lower price. The market saturation does offer a variety of choices for consumers at lower switching costs, thus creating stronger bargaining power; however, Skullcandy can offer its unique fashion forward bold headphones to create brand loyalty which will continue to lower the consumer bargaining powers through continuous innovation and research to ensure products cannot be so easily substituted and consumers are always satisfied. Industry Analysis – Industry Life-Cycle Model The industry life-cycle model (Appendix 2) determines if a company is at the Embryonic, Growth, Shakeout, Mature or Decline stage of their life. Based on the findings of the SWOT analysis Skullcandy is currently in their mature stage as they are well established within the market, and the rate of sales growth has slowed down. Market saturation enabled Skullcandy to reach the mature stage as growth was already relatively low as many companies were already well established. At the mature stage of

Skullcandy’s life cycle there is still some competition from late entrants to the market. Therefore; Skullcandy must ensure their marketing plan is strong and products are still unique. Macroenvironment There are many factors within the macroenvironment that can have both positive and negative affects on the high-tech industry. Demographic factors are the biggest macroenvironmental factor in the high-tech industry as millennials are on the rise and will eventually dominate the spending worldwide. A factor that negatively impacted the high-tech industry was the sharp rise of the U.S. dollar by about 14% due to the U.S. boom. While economic struggles were rife in many countries around the world, Skullcandy’s Q3 on their 2015 statements shows how this negatively impacted them. Common stock price dropped $3.49 from $11.47 down to $7.98 and even further in Q4 to $6.34. Net sales plunged down to just $45,642 which is a significant decrease from the sales at the end of December 2014 being $96,815. Technology impacted Skullcandy with the increased use of the internet by consumers to pull up reviews of products and products comparisons to aid in their choices. The onset of social media is one of the biggest influencers for consumers, the use of platforms like Facebook enable established brands like Sony to reach a wider audience but may hinder smaller brands. Technology has increased the rate at which information can reach the target audience and stakeholders which can help increase or decrease revenues. Social factors can also aide in a company’s survival, the growth in the use of mobile devices and disposable income is set to increase over the next 5-10 years; this in turn will drive revenues up for many technologically advanced. Millennials are more fashion forward and technologically savvy than the baby boomers therefore, have the greatest influence in technology. With millennials reaching an age where spending habits are becoming prevalent, they will be the generation most likely to splurge on high end products such as

unique headphones like those of Skullcandy. A recent survey showed that 76% of millennials are likely to purchase the latest electronic gadget in comparison to just 49% of the baby boomers’ population. This can create huge opportunities for high-tech companies to continuously develop their products to provide these consumers with the most up to date fashion forward product. Through an analysis of the macroenvironment, it can be seen there are many opportunities for Skullcandy to continue to provide a unique fashion forward product, there is also a lot of room for growth for Skullcandy and other companies alike. There is, however, a definite threat through technological changes, the spending habits of the millennials and the possibility that the next generation coming up may look for a different product. Internal Analysis During the growth phase of Skullcandy, they utilized their resources effectively to get their products out in the market; however, the durability of their competitive advantage was poor. Gaining and sustaining competitive advantage is a major goal of a company. Through an internal analysis we can understand how Skullcandy is using its resources and capabilities to gain competitive advantage over the competition. Skullcandy has successfully created an innovative product for the headphone industry; however, due to many competitors within the market this product is easy to imitate at lower prices. Using an effective market strategy Skullcandy can overcome this obstacle through heavy in-store advertising, tradeshow advertising and sponsorships with major athletes and musicians. With the introduction of social media sites such as Facebook, Skullcandy can reach a much broader audience to create brand loyalty. Through innovation they created a product that was new to the headphone industry and set the pace for other companies. This innovation was initially what sparked customer interest and eventually made Skullcandy into a $200 million a year company. Skullcandy could capture customer interest through their

exceptional customer responsiveness. The initial strategy was to offer their products in specialized stores within the skateboarding and snowboarding industry, this enabled them to create a customizable product to individuals within the extreme sports' industry. The Skullcandy research and development (R&D) team is constantly looking at ways to improve the quality of the products by carefully studying the electromagnetic and acoustic system enabling them to focus on specific aspects of the listening experience to yet again deliver a highly innovative product. Skullcandy’s commitment to R&D has helped to achieve competitive advantage within the market place. By continuing to research the listening aspects as well as customer needs, Skullcandy can gain sustainable competitive advantage over their competitors. The biggest advantage that Skullcandy has had over other brands is one of differentiation. The price tag of the products is on the higher side in comparison to the likes of Sony or Phillips, but their products stand out from the competition. Through the knowledge Rick Alden had of the target market, Skullcandy could create a unique and diverse product which would satisfy the target market needs. Through partnerships with fashion brands like MinkPink; Skullcandy has reached even more customers by not only customizing the listening experience but also customizing the headphone appearance based on gender, colour choices, and lifestyle choices. This has helped and will continue to help create products that are unique and innovative. However; this could also become a potential weakness for Skullcandy as fashion forward products can always be easily imitated by other brands at lower prices. To remain competitive Skullcandy must ensure the R&D team are constantly researching new ways to enhance the consumer’s experience. The market is full of potential customers who are looking for headphones which provide the best listening experience while still looking fashionable. Skullca...