Chartered Institute of Management Accountants overview

advertising, point-of-sale literature, exhibiting at trade shows and through a co-Op advertising program. Its factory employs more than 400 people and operates at 85% capacity.

Despite growth in its sales and profitability, CIMA executives are concerned that future growth prospects for existing product lines are limited. CIMA has experienced growing competition from foreign competitors who are offering good products at lower prices. CIMA's management's concerns are not entirely speculative -- the company recently lost approximately $130,000 in sales from two retailers who decided to stock a cheaper competitor.

Quite simply, CIMA needs new avenues of growth but management can not seem to agree on what those avenues should be. Company president Margaret Simon is concerned that CIMA is not targeting segments of the market that have the strongest growth potential, such as the weekender segment, which prefers a lower cost boot for less rigorous hiking than that which is undertaken by mountaineers or serious hikers. The weekender market has heavier competition and has been entered by major shoe retailers such as Nike and Reebok.

Executive Vice President Anthony Simon believes that CIMA should stay in its core markets -- mountaineers and serious hikers -- and simply offer some new, lower cost models that would compete with the foreign boot manufacturers. The proposals offered by Margaret and Anthony Simon both entail roughly half a million dollars in product development and capital costs.

CIMA also is considering whether it should expand its distribution chain. The company has historically shunned mail-order catalogues because they compete with retailers, who handle the bulk of CIMA sales, but company management is reconsidering this position.

Major Strategic Alternatives

CIMA has a number of major strategic alternatives at its disposal. The first option, obviously, is to do nothing. There will always be less expensive alternatives in any market, and CIMA has been experiencing uninterrupted growth. The anticipated market stagnation has not yet occurred. The advantage of this alternative is that it does not require additional capital expenditures or major strategic shifts. The downside is that if the projected stagnation occurs, CIMA may react too late.

The second alternative is to aggressively target the weekender market. The advantage of this strategy is that it places CIMA in a growing, vibrant market with strong sales potential. The downsides are that it could impair CIMA's reputation for producing high-end boots; it would require an investment of half a million dollars for product development and capital costs; and it forces CIMA to compete with major manufacturers, such as Nike and Reebok.

The third alternative is to introduce new, less expensive models in CIMA's core mountaineering and serious hiker markets. The advantage of this alternative is that it keeps CIMA in its core markets; allows for some sales growth; helps CIMA compete against lower priced foreign manufacturers; and does not impair CIMA's reputation for producing high-end boots. The downside of this alternative is that it would require an investment of half a million dollars for product development and capital costs, and it offers a lower sales volume opportunity than selling to the weekender market. Plus, there is nothing to stop the foreign competitors from doing the same thing.

A fourth alternative is for CIMA to expand its distribution channels. CIMA only sells in the Western parts of the United States and Canada and has shunned mail-order business out of fear of that it could jeopardize sales to retailers who compete with mail-order catalogues. The advantage of expanding distribution channels is that it could increase sales without the company having to endure the expenses associated with launching new product lines. The downsides are that it would likely require hiring more sales people; it would take time to build new distributor relationships; and too much mail-order business could offend CIMA's retailer customers.

Decision Criteria

Any decision CIMA makes would have to improve the company from the perspectives of sales, profitability and brand strength. So, we would need to make a decision that would allow for sales growth; would not over-extend CIMA financially; and would not impair sales to CIMA's bread-and-butter markets (particularly retail sales to mountaineers and serious hikers).

Analysis of Alternatives

The first alternative is to do nothing and to see whether the threat to CIMA's core markets actually materializes. Naturally, this decision would not over-extend CIMA financially, but we can not guarantee that it would not lead to overall sales increases or sales increases in core markets. Therefore, we must rule out this alternative.

Our second alternative is to aggressively target the weekender market. This decision is problematic for a couple of reasons. First, although the company seems to be able to afford the half a million dollars it needs to invest in product development and equipment, that is likely not the end of the story. The factory is operating at 85% capacity and is looking to enter a high-volume market. CIMA will likely need to hire new staff and may need a new facility. Second, producing a low-end shoe for weekenders may help CIMA reach a new market and expand sales, but it may impair sales to bread-and-butter markets. In short, CIMA's reputation for producing high-end boots could take a hit. Also, despite rosy projections, we must question how well CIMA will compete against major retailers like Nike and Reebok who can easily out-market CIMA.

Adding lower end models to the core mountaineering and serious hiker markets also is problematic. First, there is an affordability factor. This option requires at least the same investment -- and perhaps slightly more -- than targeting the weekender market, and it produces a lower sales volume than that option. Put simply, it has a worse return on investment. In addition, despite positive sales projections, we can not guarantee that sales will increase. Competitors could react with even lower prices and CIMA could find itself in an un-winnable race toward zero. And CIMA's core customers, who depend on CIMA's quality boots to save their lives, may not be excited that the company is introducing a lower-quality boot. There could be some brand impairment. In the end, retailers may be interested in the move and CIMA could experience some sales increases, but we simply can not advocate this move as a cure-all.

CIMA's final alternative is to expand distribution. This move makes sense for a couple of reasons. First, it is affordable. CIMA will have to hire sales staff to cultivate distributor relationships, but, in theory, sales personnel pay for themselves (they generate more in sales than they are paid in salary). Second, sales will increase. CIMA has neglected more than half of the U.S. And Canada and if it builds even a corresponding market share in those regions, sales should at least double. Also, this move will not require investment in product development. The downsides of expanding distribution are that CIMA could face a capacity issue as it grows; and if it accepts too much distribution from mail-order catalogues, it could hurt sales to retailers. Also, the competitive issues that CIMA is facing in the West will likely be mirrored in other regions.