Chester's Company Strategy Annual Report Term Paper

Excerpt from Term Paper :

Chester has been using for several years a "Cost Leader with product life cycle focus" strategy, which implies a focus on the product life cycle diagram, with the introduction of products in the high tech area of consumers and their continuance in the low tech area, until they become obsolete and have to be drawn out of the market.

The strategy that Chester has been using implies, first of all, a keen look on the product's life cycle. Indeed, a product that Chester sends out to the market will follow through on all four of the different phases in the life cycle of a product, namely its introduction, growth, maturity and decline.

According to the company's vision, the product is first of all introduced in the high tech area of the market, addressing specific customers from this respective group. Nevertheless, we do take into consideration the fact that a product gradually becomes technologically obsolete, which means that, in time, throughout the product life cycle, it will turn, throughout the growth, maturity and decline phases, towards the low tech category of consumers. Following on the fact that the company believes in low spending in the R& D. department, as well as the marketing and sales, we aim to gain customers through the initial enthusiasm manifested as the product is launched and capitalize later on through its subsequent evolution within the product's lifespan.

Our mission statement, namely "capitalize with experience" evokes the strategy we are using. Indeed, the mission statement aims at pursuing that category of consumers whose goal is to use products that have already proved an asset on the market, that have had sufficient time to show that they count on the market and that they bring something new. The mission statement also covers the low tech phase of the product, because it shows there is a well defined group of consumers for whom the product will be a match even in its latest phase.

External Analysis

Due to the nature of the company's strategy, the technological factor of the macroeconomic environment is extremely important in our case. The product life cycle is strictly determined by the easiness and speed with which the technological changes occur in our market. Indeed, a sensor may last in the high tech region for several years, but it can also become obsolete in one year only. The company's policies are thus dependant on the way the technological factor is bound to evolve.

If the speed rate with which a new technology appears on the market is superior to one or one and a half years, then the company will need to invest more than it presently does in research and development. It will need to be able to launch the new product into the high tech area of consumers and will need, in this way, to have a certain R& D. policy in place.

There are several other external environmental factors that may affect the company. There are two categories to be analyzed here, first of all, factors that directly affect the sensor industry and Chester and, second of all, but just as important, factors that affect the connecting industries with which Chester operates.

Let's take, for example, the economic factors. As any company operating in a national and global environment, Chester needs to watch out for such factors as changing interest rates, the exchange rate for the U.S. dollar, but also issues such as the rising price for the oil barrel. Indeed, interest rates, for example, will directly affect the financing policy that Chester is leading in the present day, with a rising rate having an impact on the lending costs. As the U.S. economy has surpassed the period of recession that has dominated the period from 2000 to 2002 and is currently facing growing rates in terms of GDP growth, for example, the Federal Reserve has already risen the interest rate to 3%. Compared to the 1% we had to deal with only two years back, we may say that the cost of capital has gradually, but surely increased over this period.

The exchange rate for the dollar is also important in our external analysis. A weaker dollar encourages exports, which were a primary part of Chester's revenues. However, in 2005, the dollar has gained up to 10% on the main currencies (the euro and the yen), which means that the price advantage Chester had on the international markets has gradually disappeared.

A final note to be made in terms of the political factors and here we need to refer to governmental policies and governmental spending. New sensor businesses which Chester represents rely greatly on new industries and new markets, such as biometrics and genetics testing. On the other hand, these types of industries are dependent on government spending for development and research funds. Any decisions that the government intends to take affecting these industries will also have a gradual impact on the way businesses such as Chester's will evolve.

On the other hand, the U.S. international policies, as they have manifested in the last two years, encouraged the development of the armament industry, where the sensors are always welcomed. The "Cost Leader with product life cycle focus" implies, however, that Chester is able to come up with products that will be able to serve the high tech sector of the armament industry, while reaching low tech areas in the later phases of the product's life.

Referring to the sensor industry in particular, we need to mention again the impact of technological changes for the market. The competitors that the company needs to keep in close range are the innovators on each particular sector of consumers that the company is competing in.

Indeed, because the company is competing, at times, both in the high tech and low tech areas of the market, with different products, and because its sole advantage relies on the cost and price advantage, the company needs to keep a close eye on the innovations and actions that the other companies are taking, in each competing market segment. This means that the high tech end of the market, less predisposed to price sensitiveness will be more difficult to control and Chester will have to present sufficient arguments, beside cost, in order to convince the consumer.

Internal Analysis

As we have previously stipulated, the "Cost Leader with product life cycle focus" has practically two phases within the life of a product. First of all, the product is launched into the high tech sector of a market. Up to that moment, the company moderately invests in R& D, but only to the point where the product can actually penetrate the R& D. segment. For the last part of its existence as a product on the market, through the medium and low tech sectors of the market, the investments in R& D. are minimal, only to the point where minor improvements can be brought about.

We will proceed with a SWOT analysis which will be able to identify the main strengths and weaknesses, as well as opportunities and threats on the market for the company.

In terms of strengths, the company has several advantages, but the most important is, in my opinion, the fact that it is able to cover the entire market with different products, at the same time. For many companies, this is indeed a challenge, but at Chester, it has become a reality. Indeed, we need to consider the fact that, while a certain new product has been launched and is located in the high tech zone of the market, several products are entering the maturity and decline phases. From high to low tech, the entire market is thus covered.

The company has several weaknesses worth mentioning as well. The strategy that has been practiced by the company for several years now implies a low cost policy. Indeed, at all levels, from the launch of a new product to its retirement, the company believes in low spending on R& D. And marketing. On the other hand, the sensor industry is a very dynamic one. Companies are willing to invest important budgets on the development of new products, to the point where these could take the place of Chester's portfolio.

We need to accept the fact that we may rarely see, in the high tech area, customers who are actually interested in buying a low priced high tech model. The company's weakness relies on its inability or unwillingness to provide proper solutions in the high tech area.

On the other hand, low spending in the low tech area of the market, where a marketing campaign is needed to still draw attention on the product you are presenting is also a weakness that the company needs to consider.

In terms of opportunities, the company's portfolio of products covers a spectrum of the market large enough to attempt a consolidating policy rather than an expanding one. Indeed, it is my belief that the current strategy that the company is promoting encourages a…

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