Answered: 4-38. What is ToMS’s target market? How…

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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4-38. What is ToMS’s target market? How might this market change in the future?
4-39. What revenue streams does ToMS have that support how the firm competes? How sustainable are these revenue streams?
4-40. What key assets does ToMS possess and how sustainable are those assets?
4-41. What are the major challenges ToMS faces as the firm continues implementing its business model as a means of reaching its mission? Which of these challenges is the most serious and why

grow out of the shoes and be right back to where he
or she started. TOMS acknowledged this criticism as a
valid point, and has responded by putting a program in
place that tracks the children to whom shoes have been
provided. It makes sure the children receive additional
shoes when needed.
in Rwanda, Malawi, and Guatemala. In regard to
distribution, TOMS delivers its products to its retail and
online partners, who in turn sell to their customers.
TOMS does not drop ship or sell on a consignment
basis.
Manufacturing and selling is only the first step in
TOMS's overall process. Its philanthropic efforts come
next. To distribute its shoes, TOMS partners with non-
profits and NGOS in the countries in which it distrib-
utes products. These organizations are called "Giving
Partners." The Giving Partners identify the children in
need. The process of actually distributing the shoes
is referred to as Shoe Drops. Friends of TOMS helps
coordinate the Shoe Drops. TOMS's eyewear/restore
sight and its coffee/clean water initiatives are executed
in a similar manner. TOMS works with Friends of TOMS
TOMS has a number of key assets. It has a healthy
corporate culture, which draws people in. It has an
entire apparatus to get people involved in its initiatives,
including community groups, students, educators,
and others. You can see TOMS's work in this area by
accessing the TOMS Community website (www.tom-
community.com). TOMS also frequently touts the work
of its volunteers on its Twitter account, which is avail-
able at @TOMS. TOMS also organizes events, which
are heartfelt and draw attention to its products and
causes. The most popular event is its One Day Without
Shoes campaign. This campaign was started in 2008
to raise public awareness of the importance of shoes.
It asks ordinary people to go one day without shoes,
just to see how it feels. The point is to instill in people
what a difference a simple pair of shoes can make,
particularly for children. The campaign grows every
year. You can see highlights of the most recent year's
campaign at www.toms.com/daywithoutshoes. In past
years, people from over 25 countries have participated.
Participants have included Kris Ryan, Charlize Theron,
the Dallas Cowboys Cheerleaders, and employees from
Nordstrom, Microsoft, and AOL.
Is TOMS's Business Model Sustainable?
and local organizations to make the distributions.
In regard to channels, TOMS sells its products
through both retail and online outlets. Over 500 retailers The question is, "Is TOMS's business model
around the world now carry TOMS shoes. Its distribution sustainable for the future?" The primary threats to its
network for eyewear and coffee is growing. A string of
TOMS café-stores is on the drawing boards. The café- business model stem from the criticisms it receives,
stores will sell TOMS coffee in a coffee house setting
and will sell TOMS shoes, eyewear, and other products its products, and whether the one-for-one movement
in an adjacent retail setting. TOMS's business model
would not be possible without key partners. Its most
important partners are Friends of TOMS (its nonprofit
subsidiary), the nonprofits and NGOS that distribute its that TOMS sells. On the one hand, selling a physical
products, and its volunteers. TOMS also has a robust
affiliate program.
its reliance on people continuing to pay a premium for
will continue to resonate with volunteers and nonprofit
partners. Another threat is the nature of the products
product mitigates TOMS's risk because it does not
have to rely on donations to fulfill its mission. On the
other hand, TOMS has the dual challenge of managing
a global supply chain while at the same time leading
a worldwide philanthropic effort. The complexity of
Financials
TOMS's revenue comes from product sales. TOMS is a
cost-driven business. It contains costs via its partner-
ships, volunteer network, and by avoiding traditional
marketing. TOMS does very little traditional marketing,
such as print media, radio, and television. Instead, it
relies on word-of-mouth, social media, and prominent
placements in retail stores by its retail partners. TOMS
does not manufacture its products. Instead, it relies
on contract manufacturers and growers (for its cof-
fee) spread throughout the world. TOMS's approach to
manufacturing has raised eyebrows because it produces
products in China, where labor practices are suspect.
TOMS aggressively polices its manufacturers and other
suppliers. It maintains strict standards that everyone
in its supply chain is obligated to adhere to, particu-
larly when it comes to fairness to workers. TOMS's
employees regularly visit its manufacturers to monitor
compliance.
TOMS funds it operations from profits. It also ben-
efits from the work of its volunteers.
Criticisms of TOMS
For some, it may be hard to imagine that TOMS has
critics, but it does. Its critics point out flaws in TOMS's this challenge will grow as TOMS continues to scale
approach, which some go as far as to say threaten the
firm's future.
its business. No company has attempted to scale a
one-to-one business model to the extent that TOMS
is contemplating.
The criticism focuses on three main issues. First,
critics argue that TOMS, along with similar organiza-
tions, makes people in poor countries dependent on the
good will of others rather than creating opportunities for
them to take care of themselves. Many social entrepre-
neurs believe that the best way to create sustainable
change in an impoverished country is through educa-
tion, job creation, and trade, rather than aid, which is
what TOMS does. In fact, a mantra among some social
entrepreneurs is "trade not aid." Microfinance, which
provides loans to people in developing countries to start
their own businesses, is based on these principles. The
second criticism is that TOMS has manufacturing facili-
ties in China and elsewhere where human rights viola-
tions have been documented. The third criticism is that
by pouring a large number of free shoes into countries
such as Argentina and Ethiopia, TOMS is inadvertently
stymieing local entrepreneurship. The idea is that by
providing shoes for free, TOMS takes potential busi-
ness away from local companies, which provide not only
shoes but jobs.
TOMS is aware of these criticisms, and in each case
has responded in a proactive manner.
Operations
To produce its products, TOMS manages a global sup-
ply chain. Its shoes are made in low-wage countries
such as China, Argentina, and Ethiopia. Its eyewear is
made in Italy. Its coffee beans are sourced from growers
across the world and are roasted in the United States.
Some of its most popular selections come from growers
(continued)

Transcribed Image Text:Core Strategy Resources Basis of Differentiation Core Competencies • Pioneered the one-for-one business Blake Mycoskie model; diligence in execution has created a strong brand • Creation and management of for- profit/philanthropic business strategy children and people in need that is sustainable • Ability to create passion and excitement about what TOMS is Business Mission Key Assets CASE 4.2 • "One for One" • Strong brand • Business structure: TOMS (for profit) and its collaboration with Friends of TOMS (non profit subsidiary) • Products (shoes, eyewear, coffee) that resonate with consumers) • TOMS volunteers • Ability to change lives • Corporate culture • Relationships with nonprofits that help TOMS distribute products to TOMS's One-for-One Is it Sustainable for the Future? • Web: www.toms.com • Facebook: TOMS • Twitter: @TOMS Business Model: • TOMS volunteers • Interns (that work in TOMS facilities) doing in others (nonprofit partners,• Campus clubs TOMS volunteers, Interns, etc.) • Willingness to learn (Le, responding to critics who point out how TOMS could be doing things better by adopting the best suggestions) Product/Market Scope • Day Without Shoes campaign Target Customer(s) • Consumers who resonate with TOMS one-for-one approach and the company's combined for- profit/philanthropic persona troduction was added in 2014. For every bag of coffee that's sold, TOMS donates an equivalent amount of money to pro- vide clean water and sanitation for people who need it the most. • Shoes, eyewear, and coffee • Branded products (t-shirts, caps) • Misc items sold via the TOMS marketplace • TOMS products are sold worldwide. Shoes have been distributed to 60 countries, eyewear 13, and clean water provided in five 2005 Blake Mycoskie, a serial entrepreneur, needed preak. After starting 5 companies in 12 years, he trav- d to Argentina looking for some time to relax. He et some expatriates who were doing social work in lages on the outskirts of Buenos Aires and asked if he uld tag along. In one village in particular, he noticed at most of the children didn't have shoes. He stopped ew of the kids to look at their feet and saw cuts, rasions, and infections. He knew the villagers were or and couldn't afford to buy their children shoes d wondered what he could do to help. He also knew ere was an inexpensive shoe in Argentina called the pargata. What would be the best way to provide poor gentinean children alpargata shoes? Mycoskie thought about starting a charity but felt e charity model wouldn't work. He envisioned himself king his family and friends for contributions, and knew ay would contribute once, or twice, or maybe even veral times. But it would be hard to continue to ask. hat he needed was an approach that would sustain elf by selling a product that people needed to buy yway. The approach Mycoskie came up with he later bbed "one for one." He would create a for-profit busi- ss to sell alpargata shoes, and for every pair sold he'd nate a pair to a child in need. Mycoskie returned to the United States and set shop in Santa Monica, California. He started TOMS th no shoe industry experience. The company was ginally called Shoes for Tomorrow but was quickly ortened to TOMS. To get started, Mycoskie went from e retail store to another with his unique business idea. few Los Angeles boutiques agreed to sell the shoes. s first break came when the Los Angeles Times ran an ticle about his business. To Mycoskie's surprise, the ticle spurred $88,000 in orders in a single weekend. Fast forward to today. TOMS is now an international and. It's one for one model has been expanded to lude shoes, eyewear, and coffee. As of mid-2014, MS had given away 10 million pairs of shoes in 60 untries, had helped restore sight for 200,000 people 13 countries, and is providing clean water and sanita- n to villagers in 5 countries. The one-to-one model s been tweaked some, but the intention is the same. MS still gives away a pair of shoes for ever pair it lls. Eyewear was added in 2011. Rather than donat- ja pair of glasses for every pair its sells, TOMS do- tes an equivalent amount of money that is used for pht-saving measures, such as eye surgery, medical atment, or a new pair of prescription glasses. Coffee TOMS's Business Model TOMS is known for pioneering the one-to-one business model. A firm's business model is a plan or recipe for how it creates, captures, and delivers value to its stake- holders. TOMS's business model is unique in that it combines the goals of a for-profit company with the am- bitions of a philanthropic organization. TOMS's business model template is shown nearby. The following is a brief overview of each of the major sections of the business model template. Financials Operations Product (or service) Production Revenue Streams Channels • Online (TOMS.com, Zappos.com, etc.) • Product sales, which include shoes, eyewear, and coffee • TOMS branded products (t-shirts, sweatshirts, caps, and TOMS flags) • Misc items available via the TOMS Marketplace, including Accessories, Home & Bath Products, and a small number of Tech Products • All sales trigger a commensurate gift to people in need. • Products (shoes, eyewear, & coffee) are made by contract manufacturers• Retailers (Nordstrom, Whole Foods, which are carefully selected and monitored • Products are shipped directly to retailers or online outlets for sale to their customers (TOMS does not dropship) • TOMS collaborates with nonprofits to distribute the shoes and eyewear Friends of TOMS and to provide dlean water for those • Nonprofit partners in need etc.) • Products distributed to children and adults in need via Friends of TOMS, Core Strategy nonprofit partners, and TOMS volunteers Cost Structure Financing/Funding TOMS's mission is “One for One." The mission is made • Cost-driven business Low fixed/high variable costs • Major categories of costs: Product manufacturer, distribution of products to people in need, salaries and general administrative • Initial capital infusion of $500,000 from founder Blake Mycoskie • Profits from business operations • TOMS customers/supporters volunteer their time to get products to adults and children in need and to spread the word about TOMS. Key Partners possible by the way TOMS is structured. TOMS has two parts. TOMS is a for-profit company that manages the overall operations and logistics. Friends of TOMS is a nonprofit organization that assembles volunteers, deliv- ers the shoes, and coordinates the eyewear/site restora- tion and coffee/clean water initiatives. An important decision Mycoskie and his team made early on, when TOMS was strictly a shoe company, was that the cost of providing shoes to children in need would Toms: Barringer/Ireland Business Model Template be built into the shoes' selling price. The same approach now applies to eyewear and coffee. As a result, as long as TOMS sells its products, it can fulfill its philanthropic mission. It does not need to rely on donations, as most charities and nonprofits do, to sustain itself. TOMS's strategy is built on selling practical prod- ucts. Shoes, eyewear, and coffee are products that are sold widely. Its shoes are pricey ($54 to $80 for a pair of simple slip-ons), but people know that when they buy TOMS shoes they are paying for a pair that will be donated to a child in need. TOMS relies heavily on vol- unteers, interns, and partners to do much of its work. Many of the people who volunteer and work with TOMS shoes, eyewear, and coffee. The company also has a are motivated by the company's mission, which changes "Marketplace" that sells a variety of items, including lives. In some countries, shoes are required in order to attend school. Owning a pair of shoes provides a child a pany's "one for one" mission still applies, just in a differ- chance to be educated and to have a better life. TOMS is not reluctant to share these types of realities, which deeply resonate with volunteers and customers. TOMS has almost as many interns, for example, working in its facilities as employees. Friends of TOMS works with non- profits and NGOS to distribute its products. It does this • TOMS volunteers • Top brands, such as Ralph Lauren and Element Skateboard • Affiliates (via the TOMS affiliate program) © 2014 Bruce R. Barringer and R. Duane Ireland efforts are making a difference, and it involves a lot of people in what it does. These factors have enabled TOMS to build a strong brand. Its core strategy is also working. It has remained sustainable without needing donations. TOMS has also excelled at creating excite- ment and passion in others for what it is doing. It does a lot to elicit this. For example, every two weeks a group of TOMS volunteers travels to Argentina or another part of the world to make a “shoe drop," which is the term that TOMS uses for distributing shoes. Anyone can apply for the trip, and for many it is a life-changing experience. Every shoe TOMS gives away is placed on a child's foot by a TOMS volunteer. Volunteers pay their own travel ex- penses, but the trips are organized by TOMS. TOMS also listens. It has both proponents and crit- ics that are vocal in their feedback. Rather than ignoring the feedback, TOMS reacts, which encourages addi- tional feedback. For example, one source of criticism that TOMS has faced is that when it gives a child a pair of shoes, it is a one-time event. The child will eventually in part because local organizations, already embedded in a country, know the needs better than TOMS does and can direct the company. An example is TOMS's partner- ship with the Seva Foundation to implement its eyewear/ restore sight program. The Seva Foundation runs sight programs in Nepal, Tibet, and Cambodia. It is uniquely equipped to help TOMS make the best use of its dollars. TOMS's product/market scope now includes jewelry, household items, and tech products. The com- ent form. If you buy a $140 Turquoise Alba Necklace, for example, your purchase will get you the necklace and provide 11 meals for a child in need. Resources TOMS has been diligent in the execution of its one-to- (continued) one model. Its products are appealing, its philanthropic

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