Questions: Mobile Phone and Personal Navigation Devices Essay

OverviewAs TomTom, one of the largest producers of broadcast sailplaning pulls in the world, entered 2010 it faced stiff competition from its traditional rivals such as Garmin and from wise competition from kiosk names. Although its sales reached an all term high of 1.74 one thousand million in 2007 by 2008 sales had slipped to 1.67 million. That year the compevery posted a loss of 872 million. The wane in sales continued with 2009 sales slipping to 1.48 billion, although the company managed to post net income of 86 million that year. TomTom employed oer 3,000 employees in 40 countries. Since its founding in 1991, the Netherlands-based company get windd stunner return. It offered an array of information services and devices aimed at the consumer and business commercializeplaces. It led the seafaring commercialize in Europe, and was second to Garmin in the United States.In 2007, it bid Garmin to acquire Tele Atlas in a vertical integration outline to control the map creation process. TomTom paid 2.9 billion for Tele Atlas. As 2009 came to a close, Google announced it would offer turn-by-turn gliding within cubicle phones. Google said the crossway, ab initio limited to driving directions in the U.S. would be free to consumers. As the U.S. and European markets for navigation devices matured, TomTom was faced with hold backings related to the relative emphasis it should place on its stand- altogether navigation devices, built-in navigational units for automobiles and aviation, and business devices and services aimed at companies with large mobile workforces.Suggestions for Using the effortStudents should produce the TomTom causal agency raise since many of them probably feature a GPS unit or white plague a smartphone- based GPS application. The Nintendo case is excellent for drilling bookmans in applying the concepts and analytic tools covered in Chapters 4 and 5. The case provides sufficient information to bequeath students to full y examine the matched forces at play in the private navigation constancy, consider the labors driving forces and separate advantage factors, and examine TomToms subjective situation. In addition, the cases decision focus allows students to consider what TomTom must do to survive in an progressively competitive environment.To give studentsguidance in what to do and think about in preparing the TomTom case for division discussion, we wellly recommend providing sept members with a set of study questions and insisting that they bushel good notes/answers to these questions in preparing for class discussion of the case. You may overly find it beneficial to hire your class read the Guide to Case compend that is posted in the student divide of the Online Learning Center for the 18th edition at www.mhhe.com/thompson. Students go by find the content of this Guide particularly helpful if this is their first experience with cases and they argon unsure about the mechanics of how to prepare a case for class discussion, oral presentation, or create verbally analysis. TomTom New opposition over*This teaching note was prepared by Professor Woody Richardson, disseminated multiple sclerosis State University. We are most grateful for his insight, analysis and contri butions to how the case sens be taught successfully. *In our experience, it is quite difficult to put on an insightful and constructive class discussion of an assigned case unless students cook conscientiously have made use of pertinent core concepts and analytical tools in preparing all-important(a) answers to a set of well-conceived study questions before they come to class. In our classes, we tolerate students to bring their notes to the study questions to use/refer to in responding to the questions that we pose. Moreover, students often find having a set of study questions is useful in helping them prepare oral team presentations and written case assignmentsin addition to some(prenomin al) directive questions you supply for these assignments.Hence, we urge that you insist students spend quality time preparing answers to study questions either those we have provided or a set of your own questions. The case can be used effectively for a written assignment or oral presentation. Our recommended questions for written assignments are as follows You have recently been hired by TomTom as a impudent market analyst and have been asked to assess the attractiveness of the personal navigation industry and determine TomToms competitive strength. Please prepare a 5-6 summon report that evaluates competition in the industry, assesses industry driving forces, and lists industry key success factors. Your report should also include an assessment of TomToms internalsituation and makes specific strategy recommendations that volition allow TomTom to improve its market and financial performance.Assignment Questions1. What strategy is TomTom pursuing?2. How well is the strategy opera tive?3. Does the satellite navigation industry offer attractive opportunities for growth? What kindly of competitive forces are industry members facing and how do the forces influence the prognosis for industry profitability? 4. What are the strengths and weaknesses of TomTom? What are the threats and opportunities facing the company? 5. Do you think TomToms shift to value-added services and fashioning Personal sailplaning Devices a smaller portion of total revenue will be enough to accept it in the near future? Is this strategy self-consistent with the needs of markets orthogonal North America and Europe? 6. What recommendations would you make to TomTom anxiety to improve its competitive position in the satellite navigation industry, withdraw advantage of market opportunities, and defend against out-of-door threats?Teaching Outline and Analysis1. What strategy is TomTom pursuing?For the most part, TomTom has followed carrefour growth and market development strategies w ith clear emphasis on differentiating its carrefour. Its 2007 eruditeness of Tele Atlas was clearly demonstrative of vertical integration. Through the old age its acquisitions and patent development display elements of an repelling basis of competitive attack based on pursuing unbroken product innovation to draw sales and market handle away from less innovative rivals. A good use of the history section of the case is to have students classify or label TomToms historic actions related to products and markets into product development or market development. The results dexterity search like the following table.Time Action Described in Case StrategyEarly 1990sSoftware development for handheld computers to commercial applications.Product ontogeny & Market Development1996 Announced first navigation software Market Development2001 Entered Mobile auto satellite navigation market Market Development 2006-2008Acquired Datafactory AG to power TomTom WorkAcquired employ Generics for Mobility Solutions.Acquired Tele Atlas for map creationProduct DevelopmentProduct DevelopmentVertical Integration2009 TomTom for the iPhone released Market DevelopmentThe TomTom Group consisted of TomTom (Business to Consumer), Tele Atlas (Business to Business), have (Commercial Fleets), and Automotive (Auto Manufacturers & Suppliers). In response to the economic downturn that began in 2007, increase competitive threats, and growth declines in the U.S. and Europe, the company shifted its business mix toward value-added services. The effectiveness results of this attempt to make personal navigation devices (PNDs) a smaller similarity of total revenue were at best uncertain.2. How well is the strategy operative?The short answer is that up until the global economic downturn inception in 2007 and continuing in 2008, TomToms strategy had produced outstanding results. However, as the losses in 2008 indicate, the strategy bears scrutiny. The downward pressure on prices due to competi tion and the slowing of discretionary expenditures due to the global recession produced a financial strain on TomTom. An examination of Case Exhibits 3 and 4 reveals the following trends from the first Quarter of 2008 to the first quarter of 2009 European tax income Down 22% North America Revenue Down 52% Global PNDs sold Down 29%.At the same time, the sell price and boilersuit operating margins had been decreasing since 2007.The gross profit margins from 2006-2009 were asfollows 2009 2008 2007 200650.6% 53.3% 56.0% 57.6%This caused net income to drop much more precipitously than the decline in sales. Couple this information with a debt load over 1 billion due to the acquisition of Tele Atlas and the company appeared to be in a financial bind. For all of 2008, the company posted a loss of 872 million.3. Does the satellite navigation industry offer attractive opportunities for growth? What kind of competitive forces are industry members facing and how do the forces influence the outlook for industry profitability?The outlook for industry profitability is not what it was 5 years ago. Students should be able to develop an outlook by using ostiarys Model of Industry Attractiveness as discussed in Chapter 3 of the text.Rivalry among Competing SellersRivalry will intensify as industry growth in US &Europe slows. Margins will continue to decline. Firms will com ingrain to utilize capacity through further price cuts. Growth in China & India would mitigate the rivalry intensity.BuyersBig Box stores exert voiceless pressure on price, terms & delivery. political machine makers also exert strong influence owing to their purchasing power.SuppliersVery limited influence as all key components are controlled through vertical integration. panic from flip-flop ProductsMajorThreat Cell phones for PNDs predicted to dominate by 2013. Less Threat Fleet management & Automotive markets.Potential New EntrantsNokias acquisition of Navteq signals their intent to integrate ph one and navigation services. Googles announcement also signals its entry into the market. Up until recently the industry was much more attractive. tangible maps were not much of a threat as a substitute, but by 2009 the industry was undergoing a sea change regarding cell phones as substitutes. For the younger consumers who have never not known cell phones, the prediction that navigation be a common feature will be a strong force in the market just as many in this generation only wear watches as musical mode ornaments because they are never without their cell phone. These tech-saavy consumers may eschew separate devices for navigation.4. What are the strengths and weaknesses of TomTom? What are the threats and opportunities facing the company?Strengths Weaknesses Brand Name Recognition office creation capabilities Innovative features Mapshare Points of Interest Traffic updates Automotive partnerships European market share Sales declines Shrinking margins Debt load since Tele Atla s acquisition congenator weak sales outside Europe & theUnited States Stand alone (separate) productsThreats Opportunities PND unit sales decline Multifunctional devices (cell phones/smart phones) popularity is growing Strong Competition from Traditional competitors Garmin & Magellan Strong Competition from new competitors Nokia & Google Potential legislation to specify/ban navigational devices from autos Aging satellites that support GPS Growth of India & China 65% of U.S. adults dont own any kind of navigation device of any kind High fuel prices encourage better egest management & fuel efficiency for consumers Environmental concerns encourage better egest management & consumer behavior to be green5. Do you think TomToms shift to value-added services and making Personal Navigation Devices a smaller portion of total revenue will be enough to sustain it in the near future? Is this strategy consistent with the needs of markets outside North America and Europe?This is a dif ficult question. Certainly the move to reduce the companys reliance on PNDs, a product category with declining sales, prices, and margins seemed a prudent measure. The efficacy of this strategy will estimate on at least two key questions. How fast will the PND market continue to shift to cell phones? If the analysts are correct and the cell phones will dominate the delivery for personal navigation devices then TomTom may need to accelerate its plans to reduce its dependency on this category. Students should recognize that as the demand for stand-alone PNDs declines the price will drop even more precipitously. How fast can TomTom grow its non-PND business lines?One bright potentiality bright spot for TomTom could be the demand for more partnerships with car makers. Car makers will likely offer navigational devices as standard features kind of than luxury options. TomTom could be well positioned (if it chooses to do so) to garner a share of this market similar to its deal announced at the end of 2008 with Renault. Of course, the car makers would continue the downward price pressure, but would represent a powerful market opportunity.Of course, should legislation be introduced to ban navigational devices in automobiles this would have a profound effect on TomTom and its competitors. Some students will be quick to post out that the markets in China and India would be dawdle the U.S.and Europe and would therefore be ripe for market penetration without any significant outlay for new product development. However, better students will point out that China and India both have significant cell phone penetration and they may actually be more desirous of product integration and multi-bfunctionality.6. What recommendations would you make to TomTom management to improve its competitive position in the satellite navigation industry, take advantage of market opportunities, and defend against external threats?First, there appears to be no magic bullet capable of victorio us a strong 2 player such as TomTom to get one in the industry unless Garmin were to make a major misstep. The diffi culty of making a recommendation is further exacerbated by the move to cell phones for PNDs. However, TomTom might consider some of the following actions. Focus on information solutions, specifically the Better Routing & Better Traffic information goals mentioned in the case. Provide these solutions disregardless of type of device. Defend and Develop markets not dependent on cell phone devices (e.g. coast guard, maritime, aviation, and fleet management markets.) Seek more self-propelled partnerships use the Renault and Avis experiences to ramp up sales in this area. Extend product life attempt to recoup R&D efforts by seeking markets in developing countries where the disposable income may be reaching the sceptre to adopt PNDs. Aggressively market fleet management solutions. Develop more applications/partnerships similar to the iPhone experience. Find a way t o ride the dragon. Find a way to participate in the growth in multifunctional cell phones. stock-still a small portion of this huge market would be passing lucrative.EpilogueImmediately following Googles October 28, 2009 announcement mentioned at the end of the case, TomTom and Garmin offered Black Friday discounts of 25% upto 40% on some units. In 2010, the company generated sales of 1.521 billion with a net income of 108 million. TomTom announced in a February 25, 2011 Reuters report by Roberta B. Cowan that it faces such a rapid decline in its key market for personal navigation devices (PNDs) that its shift into new businesses may not be fast enough to compensate. The company forecasted that the overall PND market would decline by 10 to 15 percent in 2011 and that its earnings would not grow.