Moat Strength Analysis
Student’s Name
Institution
Executive summary
The value and growth are essential compete that are involve in business studies. The practice of CRM involved the growth and value and therefore, Slaefroce.com is one of the companies which provide CRM services to the industry. The purpose of this report is to analyze the performance of Salefroce.com and some of the market factors which determine the performance of the company. The products offered by Salesforce.com can help its customers to increase sales margin, promotes positive customer experience, and help a company to create a positive impact on the overall bottom line. Salesforce.com has been in operation for the last seventeen years and the analysis of its annual financial report for the FY 2016, is evident that the company is in fading return Cycle. It presents the analysis of Salesforce.com’ Porter’s five forces and some of the market challenges.
Introduction
Salesforce.com is regarded as the leading firm in Customer Relationship Management (CRM) provision. The main goal of the firm is to assist other firms in managing relationship with their customers to help in bring value and build a long lasting relationship. Salesforce.com provides its clients with an inclusive platform whether they can easily connect with their customers. The products offered by Salesforce.com can help its customers to increase sales margin, promotes positive customer experience, and help a company to create a positive impact on the overall bottom line. According to Al-Arafati (2016) CRM merges all company’s business processes, technologies and people to obtain a single goal, which is to get and maintain customers. A successful Customer Relationship Management (CRM) Solution includes several different fields or departments of business, from sales, customers’ service, marketing and logistic department. However, Salesforce.com provides technological solutions, which covers all the business departmental. Therefore, with Salesforce.com a company can put focus on its customers and its budgets at the same time.
The review of CRM opportunity section of the company
“In what stage is of the Life Cycle is the Salesforce.com Company”
Salesforce.com has been in operation for the last seventeen years and the analysis of its annual financial report for the FY 2016, is evident that the company is in fading return Cycle. With fading cycle, a company is still experiencing economic return and it moves closer to cost of capital as well. According to Al-Arafati (2016), during the fading return cycle a company continues to earn profits, but the earning path decreases comparing to the previous years. Salesforce.com has witnessed the largest competitive market in the digital industry. Digital marketing is described as the use of internet to promote products or services to the customers. It involves the use of mobile devices and social media platform to advertise products and services to customers. It has faced stiff competition from companies such as Adobe and other specialized digital companies in the market.
What are the most significant barriers to entry that competitors face? Explain.
Though Salesforce.com is the leading firm in the provision of CRM in the market, it faces stiff competition from other firms as well. Studies shows that in last decade, there are several firms, which have entered the market to earn a market share and profit as well. However, there are certain barriers to this market and some of the barriers are huge demand for services, large capital investment required from companies to invest, stiff competition from the market prevent small and medium enterprise (SME) from entering the CMR market. Product differentiation is also a key aspect, which act as a barrier to entry for new companies CITATION Pat18 \l 1033 (Patterson, 2018). The existing companies have already created a brand and therefore, dislodging them from the market would be difficult. Government policy and customer loyalty are also barriers to entry into the CRM market. Government policies are some of the rules and regulations establishment by the government to streamline the operations of CRM companies. The license set by these rules and regulations are expensive and therefore, it is difficult for startup companies to obtain license needed for efficient operation in the market.
Review the section on the Cloud Sales
What are the 5 key moat considerations that Salesforce.com must address in this market?
There are several factors, which Salesforce.com must consider to address in the market. Intangible is one of the aspects, which the company must address in the market. It is evident that Salesforce.com has strong price power compared to other companies in the market and therefore, it is able to maintain stable gross margin in the market. It is means that Salesforce.com has been setting up prices without considering cost of goods sold (COGS). The network effect should also be considered by the company to determine the technology which is being used in the provision of services to customers. The network effect in action is also regarded as the system, which is being used to provide service. It is important to have well standardized and user’s friendly applications, which can easily be used by customers to ensure services are provided efficiently to customers CITATION Pat18 \l 1033 (Patterson, 2018). However, other important aspects, which Salesforce.com must address in the market, are cost efficient scale, patent, switching cost and revenue regularly. These issues determines the operations of the company and investors are also keen on these issues and therefore, they are the most considered issues before any investors decides to invest in a CRM company and therefore, it is important for a Salesforce.com to consider them CITATION Mat15 \l 1033 (Lim, 2015).
Which of these are most important? Explain?
It is established that Saleforce.com has built the most competitive advantage economic scale and network effect in the industry. The firm closed its 2015 operations with a 19.7% with worldwide CRM software market share which is one of the best standing in the stock market compared to other firms such as Microsoft Company. It is therefore, the leading company in the CRM industry in terms of market share and stock performance. It is followed by SAP which has 10.2% share and then Oracle Corporation with 7.8% market share. Microsoft and Adobe corporations have 3.6% market share and it is projected that the market grew by 12.3% during the FY 2015 CITATION Mat15 \l 1033 (Lim, 2015). However, Salesforce.com added about 150 points in the market share, which is viewed as the highest addition to the market compared to other competitors, which registered less. The scale of Saleforce.com has allowed the company to improve and get large range of services necessary for customer satisfactory in the market. The services offered require large cost of switching, which has allowed Salesforce.com to have high customers’ retention rate compared to other companies in the market.
Briefly summarize how Porter’s Five Forces apply to this market.
Porter forces analysis is a strategic management tools which is used to analyze and industry to understand some of the underlying levers of profitability in a given industry. Therefore, Saleforce.com managers can use the management tool to develop understanding how five competitive forces can create influence to profitability and therefore, develop a strategy to improve performance of the company. The five porter’s forces are threat of new entrants, bargaining power of suppliers, bargaining power of buyer, threat from substitute products and rivalry among the existing players CITATION AlA16 \l 1033 (Al-Arafati, 2016).
Table 1: Salesforce.com’ Five Porters Forces
Threats of New Entrants
Bargaining Power of Suppliers
Medium
High
Bargaining Power of Buyers
Threats of Substitute Products or Services
High
High
Rivalry among the Existing Competitors
Medium
Threat to new Entrants
The CRM industry is experiencing constant new entrants, which bring innovation and some of the new ways of doing things and therefore, it put a lot of pressure on Salesforce.com. It forces the company to lower pricing strategy and therefore, reducing costs. Slaeforce.com must manage all these challenges and create an effective barrier, which can protect its competitive edge in the market CITATION Jim15 \l 1033 (Chappelow, 2015). Salesforce.com can address the issue regarding threat to new entrants through innovation of new products, which can bring customers to fold. It is also important for the company to build capacity. Salesforce.com should involve in research and development to improve content and services being offered to customers. This will ensure that the company increases its market share and profit as well.
Bargaining Power of Suppliers
It is evident that all most all the firms in the Application industry purchase raw materials from several suppliers. The suppliers in the dominant position can decide to decrease the margins for Salesforce.com and therefore, it can earn in the market. However, power suppliers in the industry use their negotiation power to apply high prices and therefore, this affect the prices offered to customers.
Bargaining Power of Buyers
Customers demand the best services from companies and they want the best to be offered to them and paying the minimum price. There are smaller and more powerful customers with bargaining power. Therefore, customers have higher bargaining power and therefore, they can easily seek for an increased discount and other offers.
Threats of Substitute Products or Services
There are new products which are being invented to meet customers’ needs and this makes the industry profit to reduce. In last decade, other products such as Dorpbox and Google Drive have been developed to substitute storage hardware drives. Therefore, the threat to substitution in the market is high. It is therefore, offers a high value proposition which is uniquely different from the current products which are being offered in the industry.
Rivalry among the Existing Competitors
The rivalry among the key players in the market usually affects the performance of a company and the market. It forces prices to decrease and therefore, decreases the overall profitability of the industry. Salesforce.com operates very competitive products and therefore, the rivalry in the industry is high.
Competitive Advantage in the market
The most competitive advantage of the Salesforce.com is its market share and brand in the industry. It has been in the market for over seventeen years and therefore, it has established itself as the leading provider of CRM. It has experienced and skilled employees and involved in market research and development. This has allowed the company to compete and remain the leading firm in the provision of CRM services. The market is very competitive and therefore, salesforce.com must improve its performance to be able to remain the most profitable firm in the CRM industry.
The technology disruption, which affect the Salesforce.com are channels such as brand voice, cloud computing technology and online management software which have been made available in the open market for free download and use. The establishment of cloud computing might affect the performance of companies like Salesforce.com since many customers would prefer to use cloud compute services rather than tradition CRM. Therefore, technology disruption is likely to reduce the market share of Salesforce.com and decrease profitability of the industry as well.
References
BIBLIOGRAPHY Al-Arafati, A. (2016). Customer Relationship Management and Five Forces Analysis in
Nonprofit Organization in Oman. International Journal of Scientific and Research Publications , 12 (2), 2-15.
Chappelow, J. (2015). Porter's 5 Forces. International Journal of Business and communictaion ,
2-34.
Lim, M. (2015). 5 economic moats I look for in a company before investing.
https://fifthperson.com/5-economic-moats-i-look-for-in-a-company-before-investing/ , 2-16.
Patterson, M. (2018). Save Money and time with CRM. International Journal of business
communication and management , 21 (5), 2-15.
