Week 17

Can you think of an organization that has implemented a “high risk strategy” that has resulted in success (why was it high risk at the time and why was it a success-was it good luck or good judgment)?

High risk strategy: High risk strategy is an organization’s plans and policies in order to achieve the organization’s main objectives/ goals which involve excessive risk in it but expects a higher amount of return.

In my personal view, there are organizations that have enforced “high risk strategy” in order to succeed. One of the reasons for my belief is Wal-Mart Stores that implemented high risk strategy.

In the year 1945, Sam Walton, a former employee in J.C. Penney, purchased Ben Franklin Store’s branch from the Butler Brothers. Talking about Walton’s high risk strategy, it was to sell the store’s products in a very low price in order to increase maximum volume sales. This decision of Walton was full of risks. He had to go through many obstacles as he had to hover around places where he could get lower cost suppliers as compared to any other stores. Not only this, he constantly passed on the savings in order to have the products’ price low. In his first year of ownership, the store had increased its sales up to 45% which further increased to $140,000 in the very next year. This increment did not stop; there was a gradual increment every year. Later he opened the “Walton’s Five and Dime” once his ownership expired and just went on the same way. He then opened his first Wal-Mart Discount City Store only in the year 1962; ever since the company has faced high and low situations but, Walton’s decision has proven to be a great one as it made him very successful.

Talking about Wal-Mart Store, Inc.’s achievements, it is operating retails stores that uses different plans throughout the world. In addition to this, it has franchise of huge departmental stores that gives discounts and also owns many warehouse stores. According to Fortune Global 500 list in 2013, it ranked 2^nd in the world’s largest public corporation with over 2 million employees. It is the largest retailer in the world.

It has three segments, namely:

1.    Wal-Mart U.S,

2.    Wal-Mart International and

3.    Sam’s Club

In the points below is shown some financial information of Wal-Mart for the recent years:

·         The Wal-Mart U.S had 59% of its net sales and has operated many retail stores in different plans in up to 50 states in USA and Puerto Rico in the fiscal year that ended on 31^st January 2013.

·         Wal-Mart International consists of a range of setups for retail stores, Sam’s Club, online retail transactions, that has been operating in 26 countries exclusive of the United States with 29%of its net sales generated by it in 2013.

·         Sam’s Club includes a membership of warehouse clubs that are being operated in 47 states in the U.S as well As Puerto Rico and the segment’s online operations.

At the beginning of the establishment of the company, it was a high risk to lower product price because of the fact that every store in the U.S had common suppliers which really did not favor Walton greatly. Nevertheless, Walton had a clear vision and good judgment because of which he used up all his savings just to keep his costs low and consequently resulted in his favor that the company very successful.

Do the same for an organization which embarked on high risk strategy that resulted in some sort of failure (why was it high risk and why did it fail-bad luck or poor judgment?)

There are organizations which embarked “high risk strategy” that resulted in failure. One organization that resulted failure on high risk strategy implementation would be Apple Company while releasing iPhone 5C.

In September 2012, Apple launched two iPhones namely, iPhone 5S and iPhone 5C. The 5C model was nothing but plastic and it starts with price of $549 in the United States which is same as the iPhone 5. It is way too expensive to buy such mobile made out of plastic.

According to Guy Potter, director and market researcher at Usurv, “the brand is under pressure to deliver excitement and innovation at every launch and this time the initial mood indicates that in that sense it has failed.”

According to the survey conducted by We Are Social, it resulted that very few people i.e. 19% of the customers gave positive feedbacks while 45% of the customers talked about the costs being criticized and hence, gave negative feedbacks. As per many people’s statement, the high price of the 5C is a very high risk factor that might not do well in the market. Even in countries like India and China where they want more product satisfaction with affordable price, the iPhone 5C was still expensive.

In the case of China and other emerging markets, the investors believed that Apple would poise for a land grab but they were completely wrong. All the Chinese as well as the consumers in other emerging markets would not go for 5C because of the model being expensive than what people had expected it to be. Also it is said that all the consumers would rather go for smartphones introduced by other companies rather than 5C.

Being more precise about the 5C’s price, it would cost £469 for 16GB and £549 for 32 GB. Even if a consumer would want the phone with 2 years of contract it would cost about $100, else it would be costing about $500 which is still expensive either way. This is the reason why Apple should focus more on the pricing strategy before introducing it to the market.

So in order to Apple gain its popularity, it should match up its price to compete with Samsung. Markellos Diorinos also said that, “Apple has made a wrong move- if Apple designed iPhone 5C in order to capture emerging markets, then they’ve made a wrong turn.”

One third of the emerging market consumers are agreeing to spend their $100 yet denying to spend an extra penny on price that is extremely risky. This is due to the fact that the market for smartphones is growing rapidly and that is why people are against spending more money. That is where Apple made a huge mistake by making iPhone 5C look so plastic yet expensive. It is known that the market shares of Apple fell 6% just after a day of launching its two brand new models. Also, 4 banks downgraded their recommendations marking Apple to neutral on stocks.

Hence, I would conclude my point saying that it was poor judgment of Apple where they lacked market confirmation without concentrating on all the market demands. They had completely misjudged the emerging markets that are very certain about spending a lot. Apple should have done a study on every aspect before launching it to any emerging market.

Reference:

http://www.theguardian.com/business/2012/mar/09/bank-of-scotland-fsa-serious-misconduct, accessed on  November, 2013

http://facts.randomhistory.com/interesting-facts-about-apple-and-mac.html, accessed on November, 2013

http://passioncapitalists.wordpress.com/2010/06/22/69/?gclid=COu8x7Tii7sCFQcB4godZkQA0g, accessed on November, 2013