Based on the fact of ABC Learning Corporations rise and fall situation provided in the case, this report will address the factors which caused such financial changes in the company. With regard to marketing theory, a situation analysis is conducted highlighting the marketing environment and marketing strategy to contribute the success or failure of a business. Through this analysis, it will not be hard to conclude that the ABC Learning’s loss was caused by the improper marketing management. Environmental factors played very important role for ABC Learning’s growth. The marketing strategies applied by the ABC Learning Company may not be very appropriate for its long-term development. Due to these improper marketing strategies, ABC Learning faces its final days. Therefore, on the basis of ABC Learning case analysis, the report will finally make some recommendations in terms of the marketing theories for improving company’s business and sustainable growth.
ABC Learning is a child-care centre which is founded by Eddie Groves and his wife Le Neve in 1988. It was publicly listed in 2001 with 43 child-care centres in Australia and a market capitalisation of $25 million. The company expanded rapidly to more than 2000 centres around the world and peaked at a market value of over $4 billion in the next seven years. Unfortunately, ABC Company faced a great loss in the end of 2008. The purpose of this report is to analyse the root causes of the loss with a view of its environments and marketing strategies.
Obviously, environmental factors have made positive impact on ABC Learning growth and expansion in its child-care business in Australia in the first several years. Environmental factors including cultural and social changes, and federal government policies over the children’s early education and economy factor. As it is shown in the article, social and cultural changes refer to the changing role of women who have to go out to get work and support the family so as to afford the high home prices. Therefore, the need of taking their children to the child-care centres is a must choice for many parents. In addition, the federal government has also been very supportive of childcare industry and provides many subsidies to the childcare centres. The government has made plenty of policies to encourage childcare industry development, such as childcare tax rebate scheme which covered 30 percent of the expenses of approved childcare in 2004 and was even increased to 50 percent in 2008. Another policy made by the government which is very beneficial to the childcare industry is that the government has been encouraging people to have more children with introduction of “baby bonus” scheme. Third environmental factor driving the childcare business grow is due to economy development in those years. During the seven years (2001-2007), the overall economy in Australia developed very well. As environmental factors (also named as marketing environment) can impact upon the organization very much, it is very important for organization to analyse its marketing environment through its run period. Marketing environment include three key perspectives: the macro-environment, the micro-environment and the internal environment (Cant, Strydom & Jooste, 2009). Here in this case, the macro-environment is emphasized. Macro-environment refers to all factors which can influence organization but organization can not directly control. The macro-environment factors include demographic forces, economic forces, natural forces, political forces, cultural forces, and technological forces (Copley, 2004). Apparently, ABC’s development and growth was greatly dominated by the macro-environment, namely, cultural & social forces, political forces and economic forces. While these environmental factors have mainly contributed a positive impact on ABC organization, they also have posed some negative impact for the development of ABC. For example, government also requires comprehensive facilities and adequate qualified staff in the childcare centers, which led to high underlying cost structure. Also the economy is very important for the growth of the organization. In 2008, the worldwide financial crisis significantly influenced many firms and led to many bankruptcies and it also apparently have made negative impact on ABC Learning greatly. Therefore, since the marketing environment is very crucial for business success or failure, firms or organizations should make enough observation and analysis to the business surroundings and its overall environment.
Another obvious factor causing ABC’s fall in its business is its improper marketing strategies. ABC Learning has always been pursuing the growth strategy to expand its business in both domestic market and overseas market. Through its growth strategy, ABC has expanded its business very quickly at all cost at the same time. In 2007, it has opened more than 2200 centers in only a few years. ABC Learning implemented its local and international marketing strategies in a full range. It is widely known that marketing strategy is a very important tool for business growing for organization. Therefore, in order to increase sales and achieve a sustainable competitive advantage in the industry, organization should develop a effective marketing strategy so that it will allow company or organization to maximize its interests by using limited resources (Knight, 2000). An effective marketing strategy requires a strategic planning which is defined as the process of developing and maintaining a strategic fit between the organization’s goals and capabilities in the light of changing marketing opportunities (Steiner, 1997). In ABC case, its marketing strategies are obviously turned out not to be fit with its organization’s capabilities and finally resulted in a great financial loss in 2008. ABC Learning was trying every way to grow the business at a very costly business model. ABC group has 39 companies, which result in a intensive corporate expenses, in addition, it also required outside support, such as recruitment firms to help it with business growth. By only pursuing business growth and expansion in both local and international markets, ABC Learning was not concerned with its capital management. It also ignored its accounting and auditing systems so that it had not been able to find its profits losing. Therefore, in February 2008, reduced profitability and a major increase in debt was shown in its half-yearly financial results.
According to the above analysis, the major reason for ABC’s fall in the business is due to its improper marketing strategies. It expanded its business only by growth strategy at a very costly model. There is actually a better way that ABC could have chosen to expand its business by continuing to raise money and pursue its growth through an acquisition strategy. In this way, ABC Learning could be successful in the long run. Acquisition strategy refers to one firm purchases all or part of assets or property right of another firm and further influence and control the enterprise which is purchased and strengthen its overall competitive advantage so as to realize its operation goal (Yoshikawa, 2003). Usually acquisition is a more effective way for organization’s growth compared with company seeking for development by its internal strength. Acquisition can reduce risk and save cost and avoid difficulties within the industry. Acquisition can effectively save time. Through acquisition, company can expand its scale in a very short time and improve its competitive capability. If company applies internal investment, it will be restricted by the construction period, resources acquisition and allocation so as to slow down the company’s development speed. Acquisition can also boost the company to develop in the overseas market. Once a company enters into a new market environment, it will face with plenty of difficulties including different operation & management method, different operation environment, limitation of government regulations etc. Therefore, by acquisition method, company can fit into the foreign market environment more quickly. ABC Learning was pursuing its development mostly by internal investment. This has increased its capital burden and increased its management difficulty.
Given the above evaluation of alternative managerial decision arising fro situation that ABC Learning is facing now, a few recommendations are suggested. Since ABC Learning now is facing with its fall in business, it is recommended to begin to downsize its subsidiary companies so as to reduce its corporate expenses and reduce cost. It should also slow down the pace of establishing new centres in both local and international markets and concentrate on solving the current financial problems. It is also recommended that ABC could sell some of its centres in the overseas markets, which has already been done by selling 60% of its US business in March 2008. Now ABC Learning should focus on its management reform and concentrate on its development in the domestic market and raise money and pay off the debt. It should begin to integrate the centres in local market as it is known that it has resulted in extensive market coverage with some centres located close together. If ABC Learning wishes to be growing in the future, it should revise its growth strategy and make a suitable marketing strategy for its organization. It is also suggested that ABC Learning in the future should closely research on its environmental factors and use the positive environmental factors to boost its business and avoid the negative factors. In a word, for any organization, environmental factors and marketing strategy are very essential elements for the growth and expansion.
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