15 Capstone® Computer Strategies - 15.5 Erie - Niche Cost Leader
15.5 Erie - Niche Cost Leader
The Erie computer team will adopt a Niche Cost Leader Strategy, concentrating on the Traditional and Low End segments. We will gain a competitive advantage by keeping R&D costs, production costs, and raw materials costs to a minimum, enabling us to compete on the basis of price. Our Cost Leader orientation will allow us gain a competitive advantage based upon low prices. Our products will keep pace with the market, offering improved size and performance. We will price below average. We will increase automation levels to improve our margins and to make it acceptable to run overtime (which we can also view as a second shift).
Vision Statement
Reliable products for low technology customers: Erie brands offer value. Our primary stakeholders are bondholders, stockholders, customers, and management.
Research and Development (R & D)
We will concentrate our existing product line into the Low End and Traditional segments. Eat and Ebb will serve the Low End segment. Echo, Edge, and Egg will serve the Traditional segment. During the early years we will migrate (gradually) our Performance and Size segment products (Edge and Egg) to the Traditional segment. We will allow Eat (Traditional) to slip into the Low End while Edge slips into the Traditional segment.
Marketing
The Erie team will spend modestly on promoting and selling products in our targeted segments (Traditional, and Low). Our prices will be lower than average for those segments. While Edge and Echo are being repositioned, we will price somewhat below and discontinue sales budgets as we exit the specialty Performance and Size segments. After we establish our cost leadership position, we will revisit our situation to explore options to improve awareness and accessibility in the Traditional and Low End segments.
Production
We will significantly increase automation levels on our products. However, because automation sets limits upon our ability to reposition products with R&D, we will postpone automation for Edge and Egg until they arrive in the Traditional Segment. We will prefer overtime to capacity expansions.
Finance
We will finance our investments primarily through long-term bond issues, supplementing with stock offerings on an as needed basis. When our cash position allows, we will establish a dividend policy and begin to retire stock. We are not adverse to leverage, and expect to keep debt/equity between 2.0 and 3.0. We measure performance in terms of ROS, stock price, and ROE.