Arm & Hammer case analysis
...ntities and therefore have some bargaining power. This is only medium however due to the relatively few amount of suppliers. Driving forces exist that are changing the semblance of the industry. Driving forces in the sodium bicarbonate industry are environmental concerns and slowed growth. Rising awareness and concern for the environment has led to increased governmental regulations of industrial pollution and has influenced consumer-buying habits as well. Companies are constantly looking for innovative ways to decrease toxic by-products in order to prepare for tightened government regulations such as OSHA. Consumers are increasing shopping for environment safe products as well pushing companies to produce environment friendly products. Industry leaders must display competence in all the key success factors within the industry. The KSF’s for the sodium bicarbonate industry are cost containment and marketing. In order to remain profitable, companies must maximize value chain activities in order to maintain competitive prices and still generate a profit. Marketing has also been a do or die for industry competitors. Management teams must be able to capitalize on branding strategies and other established marketing channels in order to keep customers’ attention. Competitors are strong within the industry. In the laundry detergent business, new competitors such as USA Detergents and Hush detergents have shifted the playing field to a pricing emphasis. In the toothpaste market, both Proctor & Gamble and Colgate introduced similar products to those of Church & Dwight which resulted in lowering prices on baking soda toothpaste by as much as 30 percent. In 1997, Crest controlled 27 percent of the market share followed by Colgate, Mentadent, and Aqua Fresh with 19, 11, and 11 percent respectively. In the commercial market, FMC is the closest competitor to Church & Dwight with production capacity of 70,000 tons followed by NaTec that had an estimated annual capacity of 125,000 tons. In addition, 10,000 tons were imported from Mexico. Industry Profile & Prospects The sodium bicarbonate industry is highly competitive due its maturity resulting in slow growth. The threat of substitute products, new entrants and power of suppliers is minimal in this industry although the power of commercial buyers is medium. Driving forces of environmental concern and slowed growth exist that are shaping the industry. In order for the key player within the industry to remain successful, they must display competence in the key success factors of cost containment and marketing within the industry. Although this industry is unappealing to new entrants, the future prospects for seasoned players is favorable given that they are able to achieve competence in the KSF’s and are aware of the driving forces within the industry. Company Situation Church & Dwight has achieved success by successfully branding Arm & Hammer Baking Soda. The company’s mission is to supply customers with quality Arm & Hammer Sodium Bicarbonate and related products, while performing in the top quarter of American Businesses. Due to recent stagnating growth and strong competition within the industry, Church & Dwight has been forced to explore new opportunities to achieve growth, some of which have been unsuccessful. Turning to the company’s value-chain, it is evident that Church & Dwight has been able to maintain control over the primary raw materials used in its production and have therefore been able to establish a core competency in cost containment. This has allowed them to price their consumer products below industry leaders such as Procter & Gamble. Church & Dwight have also managed to build a distinctive competency in marketing with the product branding of Arm & Hammer Baking Soda. This brand name became so pervasive that it could be found on a variety of consumer products in 95 percent of all US households. Financial Analysis An analysis if the company’s financials will provide a “snapshot” of the overall well being of the company. From the 1980’s through the early 1990’s, company sales, on average, increased almost 15 percent annually. From 1994 to 1997 the company increased its ROE by 242.5 percent. Although the 13.7 percent ROE in 1997 is slightly below the noncyclical consumer products industry average, this is still a vast improvement. By analyzing the ROE in greater depth with the DuPont Equation, we can gain a better insight to what these numbers mean. The return on total assets increased from .021 to .070 from 1994 to 1997. This is a 233 percent increase in only 3 years and the 7 percent figure from 1997 is above the industry average of only 4 percent. That means that the company’s assets are doing a better job at generating after tax profits. The total asset turnover slightly decreased from 1994 to 1997 from 1.67 to 1.64. This is much lower than the industry average of 2.2. Total asset turnover indicates how well the company’s assets are doing at generating sales. Alone this can be misleading because usually, sales must be sacrificed in order to generate higher profit margins. Another positive trend is found in net sales and net income. In the 3-year period from 1994 to 1997, Church & Dwight increased net sales by 17 percent and net income by a whopping 300 percent. This company is in a strong financial position to take advantage of future opportunities. SWOT Church & Dwight has established strengths in building a core competency in cost containment as well as a distinctive competency in marketing, specifically, the product branding of Arm & Hammer Baking Soda. In a 3-year period it has increased net sales and net income by 17 and 300 percent respectively which shows that it is financially stable. The company has managed to dominate its niche in the sodium bicarbonate products market because it controls the primary raw material used in its production. Church & Dwight also has a strength in its management structure. They were able to ward off unwelcome suitors by maintaining control of the outstanding common stock and amending the company’s charter. The company also has weaknesses. Arm & Hammer could be falling into a line-extension snare. Placing a well-known brand name on a variety of products could cloud its position and cause it to lose marketing pull. Also, the company has experienced fluctuations in the significance of specialty products sales that can be traced to a series of acquisitions, partnership agreements, and divestitures. Threats for the company exist if they try to become global. Outside of the domestic market, Church & Dwight lack name recognition. They also lack the infrastructure and know how to contain transportation cost associated with exporting. If Church & Dwight decides to compete globally, it will be sensitive to duties, taxes, tariffs, and foreign trade agreements. Opportunities exist for Church & Dwight in developing new uses for the company’s core product, sodium bicarbonate in both the consumer and commercial markets. In the commercial market, the company has worked to combat pollution control in electric plants, lime disposal problems in the utilities industry, paint stripping issues as well as others. In the consumer market they are targeting other environmental issues. Other opportunities exist globally for this company since less than 5 percent of sales come from outside the US or Canada. These opportunities will continue to present themselves as only 10 percent of all US production of sodium bicarbonate is exported. Company Situational Profile & Prospects Church & Dwight has achieved success by successfully branding Arm & Hammer Baking Soda. It has built a distinctive competency in product branding that has led 95 percent of all households in the US to have Arm & Hammer products in their homes. Church & Dwight has also built a core competency in cost containment by controlling the primary raw material used in production. A weakness for the company is the possibility that it could fall into a line-extension snare and cause it to lose marketing pull. Opportunities in the global market are a possibility as well as developments in new product uses. Church & Dwight is in a favorable financial position to take advantage of opportunities for the future. Strategic Problem Faced with recent slowed growth in the sodium bicarbonate industry, intense competition, and global opportunities, how can Church & Dwight maintain a sustainable competitive advantage, continue its growth initiatives, maximize shareholder wealth, and achieve long-term profitability? Strategic Alternatives & Analysis Continue Current S...