Case in point - Analyze why market share is falling for a Footwear Manufacturer Client

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Strategy Interview Question - Analyze why market share is falling for a Footwear Manufacturer Client

Interviewer:  It is the year 2021. Our client is a Footwear Manufacturer who has been facing a sudden decline in profits. They have seen a drop in their market share and slipped to second position. Please identify the root cause of the issue and provide recommendations.

Analyze the drop in Market Share for A Footwear Manufacturer


Priyanka: I would like to get some clarification before I start solving the question. 
Interviewer: Yes, please go ahead. 
 

Priyanka: What type of footwear does our client manufacture? - formal, casual, party wear, etc. Who are our primary customers? - kids, adult, male, female, etc. 
Interviewer:  Our client manufactures all kinds of footwear and serves all age groups & genders. 

 
Priyanka:  Which geography does our client operate in? And who are the competitors in the geography? 
Interviewer:  The client operates across pan India. There are some 5-6 big players in the country, and our client is one of them. 

 

Priyanka:  Does our client sell through both offline & online channels i.e., omnichannel approach? 
Interviewer:  The client sells offline only. 
 

Priyanka: Is this decline in profits occurring in a specific geography? Has this been observed only for our client or are other players also witnessing the same? 
Interviewer:  The decline is across Pan India. You can assume that the issue is more pertinent to our client, but other players have been impacted as well. 

 

Summary 

Priyanka: Our client who is a major footwear manufacturer has seen a sudden decline in profits across India. The decline is not specific to our client. We want to understand the root cause of the decline in profits & help him solve this. 
Interviewer:  Yes, that’s well summarised. 

 
 

Priyanka: A decline in profit can be due to a decrease in revenue, an increase in cost, or both. Do we have any idea what has been affected? 
Interviewer: Although both have been impacted, you can proceed with the analysis of the revenue side first. 
 

Priyanka: Ok, a decline in revenue can occur due decrease in price, quantity sold, or some change in product mix. 
 

Revenue = Volume (Quantity sold) X Value (Price) X Variety (Product Mix) 
 
Our client has a mix of partywear, casual, formal, etc.  

Is there any decline in any of the above factors? 
Interviewer:  Can you think about a change in the product mix? 

 

Priyanka: Ok as I understand it is the year of Covid-19. A lot of people are staying and working from home and the demand for partywear, and business/formal footwear has declined. There is increased demand for flip-flops or casual footwear as people are usually at home.  
Interviewer: Yes indeed. So, our client has not been able to adjust the product mix as per the change in demand and hence has been missing out on the revenue. Other competitors have pivoted well. 

Can you also think of why there is a fall in quantity sold? 

 

Priyanka: The decline in quantity sold could be either demand-led or supply-led. While I can explore both sides of it, is there a specific side you want me to look at first? 

Interviewer: Please explore the supply side. 

 

Priyanka: To understand the supply side issue, I would like to look at the value chain of our client. 
Product Design & Development -> Procurement of Raw materials -> In bound logistics -> Manufacturing & Production -> Packaging & Warehousing -> Marketing & Branding -> Sales & Distribution -> Customer experience & After sales  

 

  • Product Design & Development: Focuses on research & trend analysis and understanding customer preference for footwear 

  • Procurement of Raw materials: Sourcing raw materials like leather, and rubber and ensuring all the quality checks are in place 

  • Inbound logistics: Managing the movement of raw materials to manufacturing facilities 

  • Manufacturing & Production + Packaging & Warehousing: Manufacturing footwear on the assembly line & packaging the final product to be sent out to the warehouses 

  • Marketing & Branding: Promoting the brand & creating visibility through digital marketing, email marketing, or local posters. 

  • Sales & Distribution: Managing offline & online sales channels and developing strategies for sales to target specific customer segments and demographics.

  • Customer experience & After sales: Providing warranty and repair services if footwear gets damaged. Collecting customer experience while shopping offline in the store or online in the form of reviews and ratings. 

 
Interviewer: Can you break distribution further?  

 

Priyanka: Yes, so sales and distribution would involve  

  • - Managing relationships with retailers 

  • - Selling online through their own platform or through third-party players like Amazon, Myntra, etc. 

  • - Offline in brick-and-mortar stores or franchised stores 

We discussed earlier that our client sells offline only through their own stores.  

Interviewer: Yes, that’s correct. 

 

Priyanka: What does the distribution strategy of the other competitors look like? 

Interviewer: Other players have an omnichannel strategy. 

 

Priyanka: As I understand correctly, our client has been selling offline through stores. Due to Covid restrictions, customers have moved to online channels and there is a boost in e-commerce. Since our client owns physical stores, they also pay a lot of rent and staff salary. This is also leading to increased costs for our client. 

Interviewer: What do you suggest then? 

 

Priyanka: Here are several strategies which our client can consider: 

  1. Establish online channels: The client needs to enhance their online presence through their own website or other e-commerce applications. They should also invest in digital marketing to elevate their brand online presence and drive online sales. 

  1. Diversify product line: Given that customers prefer home footwear due to COVID-19, we should introduce new products focusing on comfort and durability. We can also start a new product line focusing on shoes for healthcare professionals fighting against COVID-19 and treating patients. We should invest in predictive analytics so that we can maintain our product line by forecasting demand better. 

  1. Solidify our supply chain: Our client should focus on regional manufacturing and the use of local raw materials so that the supply doesn’t get disrupted through lockdowns. 

  1. Customer loyalty and stickiness: We can build repurchase behavior with loyalty awards and personalization. We can also engage with them through email marketing. 

Interviewer: That was a great discussion. Thank you. 

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-- Technomanagers


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