Business Models and Relationships 2 pages
Pounds Case Study
Business Models and Relationships
F.X. Pounds: Case study
F.X. Pounds: Case study
F.X. Pounds is at a crossroads. For many years it has flourished as a member of a fairly stable industry. However, increased competition, most notably from a larger, more regionally-based company known as Miller Fuel is threatening the F.X. Pound’s future profitability. F.X. must expand and solidify its market base, and find a way to offer some unique brand value, in comparison to its main competition.
The greatest strength enjoyed by F.X. Pounds is that, according to a Porter’s Five Forces analysis, the threat of the entry of new competitors is relatively low in utility markets, compared with more price-sensitive industries. The bargaining power of customers is also relatively low, particularly for coal users, given the three other oil companies operating in the area do not offer coal. However, Miller Fuel offers an even wider array of coal products, along with more extensive goods and services for all energy customers, in comparison to F.X. Pounds. Still, heating remains a necessity for all consumers, which creates a less price-elastic industry structure, which buys F.X some ‘time’ to reformulate its strategic position.
Traditionally, the bargaining power of suppliers is relatively high amongst utility companies, given the limited amount of competition in the market. But competition has increased in recent decades, in the wake of government deregulation and privatization (Michaels 2008). Because of the diversity of offerings provided by Miller Fuel, the intensity of competitive rivalry has sky-rocked. This makes a broad-based cost leadership strategy difficult for F.X. Pounds, given that Miller Fuel operates at a larger economy of scale. A broad-based differentiation strategy that involves offering a highly unique product or range of services to a wide market segment is unwise because F.X. is unlikely to be able to compete with Miller Fuel on pricing or variety of products (Zachman 2007).
More feasible is a combination of a narrowly-based focus pricing strategy which concentrates on a specific market segment and pricing services low for that segment alone. This would likely be the best option — pricing F.X. Pound’s services lower than Miller’s, or offering a more diverse range of ‘lock in’ pricing schemes attractive to only certain types of customers. Concentrating on a market segment that is both narrow and highly differentiated could involve offering senior citizen discounts or discounts for locally-based consumers. This would retain F.X. Pound’s grip upon its current customer base and slightly widen its outreach. Generating more secure consumer loyalty and controlled expansion will suit F.X. Pound’s current size and corporate ethos.
F.X. must rebrand itself as a company that cares about the community, and knows the community well. As Miller Fuels has a superior range of products, F.X. Pounds must offer superior service. It must also solidify a more compelling risk-mitigation strategy. At present, the company spends little on marketing and promotion and offers no innovative services, such as lock-in energy pricing. It focuses only on current customers who are older and likely to remain with the company. ‘More of the same’ is its current approach, and other than owning a small gas station, which is still tied to the fortunes of the fuel industry, it has no way of dealing with future market volatility.
F.X. Pounds has been able forestall change because the market of natural gas has traditionally been that of an oligopoly, with only a few service providers. This has allowed the company to favor more conservative strategies, and to keep product and price differentiation relatively minimal. Now, F.X. Power’s main competition is challenging its complacency in the wake of deregulation. To become truly profitable as an energy company, F.X. should divest itself of its land holdings and focus on remaining solvent as an energy company. Since it cannot compete on size or by offering more expansive services, it should instead focus on providing members of the community with attractive services, such as lock-in energy prices; senior and first-time customer discounts; and discounted services on maintenance calls and maintenance insurance plans. Fears of energy price hikes, particularly amongst individuals with depleted retirement savings are likely to mean increased demand for such cost-mitigating strategies. F.X. Powers must offer a greater and more attractive range of such pricing options to outmaneuver its competition (Kilian 2008).
References
Kilian, Lutz. (2008). The economic effects of energy price shocks. Journal of Economic
Literature, 46(4): 871 — 909.
Michaels, Robert J. (2008). Electricity and its regulation. The Concise Encyclopedia of Economics. Library of Economics and Liberty. Retrieved May 7, 2010 from the World
Wide Web: http://www.econlib.org/library/Enc/ElectricityandItsRegulation.html
Porter, Michael E. (2008, January). The five competitive forces that shape strategy. Harvard Business Review. Retrieved May 7, 2010 from the World Wide Web:
http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1
Porter, Michael. (1980). Competitive strategy. Free Press, New York.
Zachman, Julie a. (2007). Kohl’s department store: Fastest growing retailer in 2007. Journal of the International Academy for Case Studies. Retrieved May 7, 2010 from FindArticles.com at http://findarticles.com/p/articles/mi_qa5452/is_200903/ai_n39234946/