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Team Consultant: Provided the following proposal;
Chosen growth strategy for your Foleo business: Related Diversification
Product/service/business suggested to support the growth strategy:
Foleo Watch (smartwatch)
Phone is android, the watch is android, the watch will use google assistant.
Allows users to message and make calls.
Fitness tracking: eg. tracks walking and running distance, calories burnt etc.
Foleo have their own app store – ‘Foleo Scapp Store’.
Other important information
“The Manager, Brian Williams, was given six months to produce a fully functional “Foleo Scapp Store”, with a bank of at least 200 newly created Self-Contained Applications, or “scapps”, that would be available only to Foleo Fones’ customers.” (Read below).
“…in late 2016, Brian Williams decided to put together a proposal to the Board suggesting that they allow outside programmers and app developers to submit their apps to the Foleo Scapp Store for testing. If the apps met the Foleo standard, then they could be uploaded to the Store for a fee and the programmers would keep a percentage of the revenue generated from the sales of the Scapp.” (Read below)
The sales for Foleo’s SliFone continued to grow. However, James and Leon soon recognised that the Foleo customer was not able to use their phone to the full extent of its capabilities, so they began negotiations with Apple and Google to allow the users of Foleo Fones access to the commercial “apps” they had for sale in their “App” and “Play” Stores. Apple proved to be a more difficult participant at the negotiating table, but eventually in 2013 a deal was done with Google, and SliFone users were then able to access the “Play Store” to purchase apps for use on their phones.
Whilst this was a significant milestone for the boys, as they now had established an influential strategic partner in their industry, the situation needed to be managed carefully, as Foleo Fones were now, to some extent, accountable to Google. Not only did Foleo Fones pay a substantial licensing fee to Google for access to their “Play Store”, they also were required to provide them with monthly reports on sales of SliFones and other business data. James and Leon felt that this significantly reduced their independence in the market, potentially leaving them vulnerable to take-over threats and pressure to comply with Google’s increasingly unrealistic demands for Foleo’s business data.
In the short term, the Board accepted that, whilst the arrangement with Google was not ideal, it was a “necessary evil”. Over the course of the initial licensing contract, the boys became more uncomfortable with their impeded independence and the sharing of their business data with Google, so before the agreement expired, they set about trying to remedy the situation.
Eventually, in early 2014, Foleo Group Ltd established a new business called FOLEO SCAPPS. The boys recruited a staff comprised of a Business Unit Manager, six programmers and four salespeople. The Manager, Brian Williams, was given six months to produce a fully functional “Foleo Scapp
Store”, with a bank of at least 200 newly created Self-Contained Applications, or “scapps”, that would be available only to Foleo Fones’ customers. This meant that the early days of this subsidiary were consumed with R&D, market research, programming and planning. Over this period, the Foleo Scapps generated no income at all, in fact it drained the resources being produced by the other profitable businesses of the Foleo Group.
However, by the end of 2014, the Foleo Scapp Store went live and sales for the Scapps began to flow into the business. 2
The number of Scapps that Foleo were able to offer consumers tripled in the first year and this trend continued over the next two years. James and Leon recognised that this business had the potential to contribute high profits for the Foleo enterprise in both the short and long term. They realised that they needed to invest more resources into this business unit to realise this potential, so in early 2016, the Board authorised the employment of more programmers, a marketing staff, sufficient funds to “update” the working environment, and an increase to the R&D budget of 20%. This move had proven to be effective, with the 2016 turnover for Foleo Scapps increasing by 30% over that for the 2015 year.
The Foleo Scapps Store was also being approached regularly by external programmers who had some good ideas for new Scapps, so in late 2016, Brian Williams decided to put together a proposal to the Board suggesting that they allow outside programmers and app developers to submit their apps to the Foleo Scapp Store for testing. If the apps met the Foleo standard, then they could be uploaded to the Store for a fee and the programmers would keep a percentage of the revenue generated from the sales of the Scapp. The Board agreed that this strategy was not only profitable, but would rapidly increase the number of Scapps available in their Store, ultimately building Foleo Scapps reputation in the marketplace.
Foleo Retailing NZ:
During 2014 and 2015, the sales from across the Tasman had been steadily increasing. New Zealand customers had been purchasing the SliFone since its launch in 2009, however the 2014-15 years showed a significant spike in sales. Leon’s technical team were able to effectively modify the phones for the NZ network with few instances of incompatibility being reported, so the Board were, at that time, considering a formal entry into the New Zealand market. Eventually, in early 2016, FOLEO RETAILING NZ was established to “test the waters”. The Board appointed a Business Unit Manager, David Matthews, who was responsible for establishing Folio Kiosks into 4 of the major cities in New Zealand: Auckland; Wellington; Queenstown; and Christchurch, and due to local regulations, these kiosks were able to sell not only the accessory products, but also the SliFones themselves. This move saw an escalation of sales to the NZ market of 35% and the Foleo Fones manufacturing business found itself struggling to keep up with this increased demand.
To be designed by the company, externally manufactured and then sold through Foleo Retailing NZ.
What is the ‘real-life’ company you have selected to support your group’s proposal:
This strategy has been extremely successful for Apple and has been one of their biggest drivers for growth. Not only does it create additional revenue, it increases customer stickiness and the likelihood of buying phones from them in the future. This is due to the ecosystem effect and the compatibility adjacent products have from the same manufacturer. However, barriers to entry are high for some products which could make this strategy difficult.
For example, Apple dominates the tablet market with the iPad and breaking this would prove challenging
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