Marketing Objectives

Marketing is the management process involved in identifying, anticipating, and satisfying consumer requirements profitably.

Business is about providing something that someone wants to buy. Marketing assists businesses in achieving their objectives because in identifying customer demand, the business will understand its customers and market better. They will then be able to meet customer needs. JKL is a childcare centre and so marketing is important in terms of meeting the customer needs because it allows JKL to know what parents want in relation to the care of their child/children, more so because JKL wants to be the best childcare centre on the market. This will give JKL a competitive edge, especially now they are facing increased competition from TotsAtPlay.

Market Analysis

Customer v Product Orientation

Customer orientation is where a firm considers what the market wants before trying to produce it.

Product orientation is where a firm produces a product in the hope they can encourage customers to buy and then tries to convince the public that they need it.

JKL could be said to be market-orientated because it was Harriet’s demand for the service that started the business. This is also suggested from the fact that JKL has contracted a marketing  firm to carry out market research (Appendix 1).

Market Segmentation

Market segmentation is breaking down a large market into subgroups or sections that are likely to respond to products in different ways.

Segmentation is important because it allows a firm to target its marketing effort towards those customers who have similar interests. The need to identify and target is crucial in reducing costs and making marketing more effective. It makes it easier to find gaps in the market and niche markets.

Market segmentation can be:

  • Geographical
  • Lifestyle
  • Age (JKL has done this dividing it into 0 to 2  and 2-5)
  • Gender
  • Social Class
  • Residence
  • Behaviour

Market Share and Growth

Market share is the proportion or percentage of the total market sales accounted for by an individual firm. As a day-care, what JKL is selling is places, and according to the information in Appendix 1, UK day nurseries provided 604,500 places in January 2011. As JKL has a maximum of 100 places at each of its 3 centres, that’s 300 places. 300/604,500 * 100 = 0.05% market share.

Since nursery groups (with three or more centres) account for 11% of all available places, that’s 66495. JKL has 300/66495 *100 = 0.45% share.

Market share allows a firm to assess its performance. Problems may arise from the definition of a market. Market share is only useful if the overall market can be determined and measured. It is often more useful to measure the share of a smaller section of the market instead of an entire market.

Marketing Strategy

Marketing Objectives are usually in relation to the 4 brand 20 mg P’s, the marketing mix, and should support the organisations’ main objectives.

  • Prices
    • Consumers  often have pre-conceived ideas about how much they should be paying for something and so if the price is charged too high, it may be viewed as extortionate and is likely to receive few sales. However if prices are too low,  parents would question the quality of the service being offered by JKL.
    • From table 1, it can be seen that JKL and TotsAtPlay charge pretty similar prices with  the main differences being JKL charging £20 less for children’s parties, £4 more for day-care services and £1 extra for after-school club. Since all of JKL’s centres are operating at full capacity of 100 places,  that extra £4 is an extra  £400 weekly over TotsAtPlay if they had the same maximum capacity. If TotsAtPlay did have the same maximum capacity, they would be able to make this  money by having 20 children’s parties as they charge £20 more than JKL for this.
    • Products
      • It  is said all products go through the product life cycle of introduction, growth, maturity and decline. Extension strategies can modify the length of each one.
        • JKL’s products  are: Day care, After School Club, Babysitting, Children’s Party, and evening classes.
  • The Boston matrix also helps in classifying products.
  • Place
    • This is about how the business sells to the consumer
    • Promotion
      • JKL does not seem to need much promotion now as it is operating at full capacity but JKL has a wealth of below  the line methods it can use as it has regular contact with parents and children.

Accounting and Finance

Budgeting

A budget is a management tool and it is for the  purpose of allocating,  controlling and  monitoring resources, especially income and expenditure. There is little mention of a budget in the JKL case study.

Cash-flow forecasting

A cash-flow statement is a documentation of what has happened in the past, while a cash-flow forecast is a prediction of what may happen.

Looking at JKL’s cash flow in Appendix 2,  they appear to have an oscillating net cash flow.

 

Overlook

BPL is currently set in over 200 hectares. To buy the 25 hectare land being discussed will increase BPL’s land by at around 12.5%. Belvoir is a premier sporting country estate which means their target market will primarily be those who wish to take a sporting holiday. Aside from the hotel, BPL seems to have a lot of sporting facilities such as a golf club, a leisure centre which contains a health club and gym and clay pigeon shooting is also mentioned.

As BPL aim to be a top international luxury destination, it will most likely need to be easy to get there and will need to somehow promote itself abroad.

BPL is an Ltd and most of the shareholders seem to be members of the golf club, whose main interest, according to lines 121-122, is to be able to continue playing golf and for this reason invest in BPL. This suggests therefore that Wilhelm Deboos-Parker is likely to have a lot of control over the company. His fastidious attention to detail can be inferred to mean he would like to be involved in everything which is going on, being very hands on, and would most likely then be an autocratic leader. This is further seen from lines 9-10 which states that staff have found he is someone not to argue with, line 89 says that Wilhelm made the decision concerning how tips should be distributed, how this was decided is unknown because Sue and Beatrice outnumbered Chris.

Price Discrimination means that BPL offers different people, the same service at different prices, this is likely to involve time-based price discrimination such as charging people who check-in after 10pm for example more than those who check-in at 4pm, but this may also be charging married and single people differently for the same room. This is most likely because the service BPL offers is price elastic and so they change prices accordingly.  An advantage of this is that BPL will be able to increase revenue by convincing guests to stay who might not have stayed at a higher price. A disadvantage is that there may be administration costs in separating the market to determine who gets what price.

Membership of the golf club is limited, so BPL could make a lot more money if the cap was raised. What is the ethos that BPL is trying to portray by limiting membership?

If the land BPL has been offered is 20% over typical local agriculture land values, then that’s £60,000 BPL could save.

Other factors which BPL will need to consider before deciding if they should buy the land or not include if they can raise the required finance. BPL has current assets of £252,000 which is not enough to purchase the land, although they have £3,952,000 of shareholder’s funds.

AOB stands for Any Other Business.  The picture of Jack James is may have been against privacy legislation, but in the UK, taking photographs in public, however isn’t an issue. If other people can see what you see, then it’s probably ok. Other people more than likely could have seen Jack James’ conduct.

A Maitre’d is the headwaiter of a dining establishment, responsible for ensuring that the connection between kitchen and dining room runs smoothly. Duties include keeping wait staff organized, smoothly dealing with customer complaints and issues, and to serve as the liaison between the kitchen and the dining floor. The Maitre d’ is usually the first person guests of the restaurant interact with and also when reservations are made.

A sommelier is a wine expert trained in wine tasting, pairing wine with foods, wine purchasing, wine storage, and the creation of wine lists. They are to help guests find a wine within their budget that fits their tastes and complements their food.

Objectives and Strategy

Objectives

The corporate aims of a business are its overall purpose, what the business is trying to achieve in the longer term.

In BPL’s case:

Strategic:

  • The business aims to be a top international luxury leisure destination with guests attracted from all over the world. (Corporate Strategy as concerns position of business) (Not SMART)
    • Figure 1, a bar chart depiction of the percentage of their guests from differing nationalities, shows that they are making progress in achieving this. Whilst the proportions of their guests from the UK and USA have dropped when comparing 2009 and 2010, other nationalities have increased.
    • This is an example of a strategic level decision because it affects the direction of the entire organisation.
    • For the par 72 Golf Course to contribute to the surrounding landscape and not detract from it (Business Level Strategy as it’s a plan to gain competitive advantage by obtaining goodwill) (Not SMART)

Tactical:

  • To  reverse the decline in revenue and net profit margin in 2011 for BPL (Not SMART)
  • To get room occupancy up to 75% by the end of 2013 (May be Smart)
    • One of the SMART criteria is that objectives must be achievable, and this is questioned by Sue on line 127

Tactics are short-term and strategies are long-term and far-reaching.

BPL’s objectives are determined by:

  • Size and Status of Business
    • BPL can pursue a goal of growth to be a top luxury leisure destination because it’s an established business as opposed to being concerned about survival.
    • The power of stakeholders
      • The most powerful stakeholders in BPL will affect the direction of objectives. In BPL, these are not shareholders because lines 121-122 says most of the shareholders’ investments represent a lifestyle choice and they wish to keep BPL open so they can continue playing golf.
      • This may be the guests (customers) for BPL because lines 7 – 8 say the main focus is on the guest’s perspective and lines 45-47 mention that BPL’s services must reflect guests’ needs and managers are encouraged to listen to suggestions from guests. Guests can therefore greatly influence objectives.
      • Ownership
        • BPL is an Ltd meaning shareholders are the owners and would have the most power but shareholders don’t appear to be that way inclined.
        • External and internal pressures
          • External pressures such as changing market trends can influence objectives for example increasing demand for products may encourage growth objectives.
          • Internal pressures can affect objectives such as the appointment of a new chairperson may completely alter the objectives.
          • Risk
            • Depending on how risk-averse BPL is, they may pursue objectives not as risky as others, seeking stability rather than risk. If the reward outweighs the risk then a risker option may be more tempting.
            • Corporate and business culture
              • BPL’s culture will affect the direction of its objectives. For example, a business that has a caring culture is likely to have different objectives to a business with a competitive culture. BPL appears to be guest (customer) orientated and so will have a culture of satisfying the guest.

Mission statements are descriptions of the overall aims of the business. BPL’s is unknown but can be inferred from lines 2-3. They tend to be aimed at stakeholders in the business and they may:

  • Help a business focus
    • A summary of what the business is trying to do may aid decision making when different options are available and direct objectives.
    • Provide a plan for the future of the business
      • Can be used as a blueprint of the path the business should take as the mission statement is their destination.
      • Make clear to all stakeholders what the business is trying to achieve
        • This should help reduce conflicts and attempt to prevent stakeholders from obstructing the business.

But the problems are that:

  • Mission statements have been suggested as being publicity stunts
  • Staff may not remember the mission statement and a business may not be committed to it rendering it redundant.

Corporate plans are where a business publishes what they plan to do and is similar to mission statements in what it may do and the problems it carries.

Decisions with greater risks usually carry greater rewards. Few methods of reducing risks include:

  • Market Research
  • Situational Analysis
    • This is a marketing term, and involves evaluating the situation and trends in a particular company’s market. Situation analysis is often called the “three c’s”, which refers to the three major elements that must be studied (Customers, companies, competitors)

Stakeholder Objectives

Owners: Generally, owners have an interest in the success of their business, but for BPL’s shareholders, success means survival.

Employees: Some of BPL’s employees have expressed that they wish to maintain if not improve their earning potential.

Customers: They want to have a quality experience obtaining value for money.

Government (Local Council): Job creation

There are potential stakeholder conflicts between Owners and the Government,  and more jobs will result in greater wage costs thereby eating into profits.

The stakeholders who triumph will be the ones who have the most power over the business, but differing stakeholder objectives may cause tension and is likely to reduce efficiency and more.

Planning

SWOT

Strengths:

  • Ostlers’ (the Michelin listed fine dining restaurant)
  • Excellent and imaginative food
  • Golf Club (Have a waiting list)
  • Attracts guests from all over the world
  • Guests find Managing Director, Wilhelm, charming
  • The integrity of BPL’s image

Weaknesses:

  • Reliance of peripheral income streams on the hotel.
  • Tension at monthly meetings and disputes over tips.

Opportunities:

  • £300,000 25 hectare land
    • Off-road driving
    • Shooting

Threats:

  • Change in the law regarding tips
  • Decline in revenue and net profit margins

 

The SWOT analysis  can be used to:

  • Set objectives – defining what the organization is going to do
  • Environmental scanning
    • Internal appraisals of the organization’s SWOT, this needs to include an assessment of the present situation as well as a portfolio of products/services and an analysis of the product/service life cycle
    • Analysis of existing strategies, this should determine relevance from the results of an internal/external appraisal. This may include gap analysis which will look at environmental factors
    • Strategic Issues defined – key factors in the development of a corporate plan which needs to be addressed by the organization
    • Develop new/revised strategies – revised analysis of strategic issues may mean the objectives need to change
    • Establish critical success factors – the achievement of objectives and strategy implementation
    • Preparation of operational, resource, projects plans for strategy implementation
    • Monitoring results – mapping against plans, taking corrective action which may mean amending objectives/strategies.

PESTLE (PEST-G) Analysis

Political: Obtaining planning permission from local council. Any immigration control or caps may affect the achievement of their objectives to attract guests from all over the world.

Economic: Difficult trading year (maybe recession – line 119)

Social:

Technological:

Legal:

  • Change of law on tips.
    • Businesses can no longer use tips to “top-up” staff pay to meet minimum wage
    • Game Act 1831 may affect plans to use land for shooting.
      • The act established a close season in which game birds cannot be killed or taken and this includes all Sundays and Christmas Days

Environmental:

A business analysis might assist in the formulation of strategy because then a business will be able to exploit what it does well, diminish its weaknesses, make use of opportunities and protect against threats.

Business Analysis

Market Analysis

The different market structures are:

  • Perfect Competition – This is a market structure with perfect knowledge, many buyers and sellers, freedom of entry and exit and a homogenous product. Firms usually price takers.
  • Monopolistic Competition – Market with freedom of entry and exit, differentiated products and a large number of small firms competing.
  • Oligopoly – Small number of dominant firms, producing heavily branded products with some barriers to entry.
  • Monopoly – Only one firm supplied the entire output, there is not competition and barriers to entry exist.

The degree of competition in a market will affect how prices are determined. The type of market a business operates in reflects the uniqueness of its product and the presence or otherwise of barriers to entry. This is why business work hard to establish and maintain scarcity, and to develop a USP.

Porter’s Five Forces

Michael Porter suggested that in certain circumstances business can influence the market in which they operate, outlining five forces which determine the extent to which businesses are able manage competition in their market.

  • Rivalry among competitors
  • The  threat of new entrants
  • The threat of substitute products
  • The bargaining power of customers
  • The bargaining power of suppliers

Forecasting

Anything a business can predict accurately will reduce their uncertainty and allow them to plan. Most forecasts are based on back data.

Time series analysis involves predicting future levels from past data. The assumption is that past data are a useful indicator of the future.

When identifying the trend, a moving average can be used. If the time period used is even, then centring needs to be used. For example, if a 4 year period is used, the 8 year moving total would also need to be found to find a mid point.

4 Period Time-series analysis for GDP Percentage Change

Year Quarter Percentage change GDP 4 Month Total 8 month Total 4 Period Moving Average
2006 Q2 0.4
Q3 0.5 2.40
Q4 0.8 2.60 5.00 0.63
2007 Q1 0.7 2.60 5.20 0.65
Q2 0.6 2.30 4.90 0.61
Q3 0.5 2.30 4.60 0.58
Q4 0.5 1.60 3.90 0.49
2008 Q1 0.7 0.40 2.00 0.25
Q2 -0.1 -1.90 -1.50 -0.19
Q3 -0.7 -5.10 -7.00 -0.88
Q4 -1.8 -5.60 -10.70 -1.34
2009 Q1 -2.5 -5.30 -10.90 -1.36
Q2 -0.6 -3.40 -8.70 -1.09
Q3 -0.4 -0.60 -4.00 -0.50
Q4 0.1 1.10 0.50 0.06
2010 Q1 0.3 2.30 3.40 0.43
Q2 1.1 2.60 4.90 0.61
Q3 0.8
Q4 0.4

4 Period Time-series analysis for Room Occupancy percentages

Year Quarter Percentage Occupancy 4 Month Total 8 month Total 4 Period Moving Average
2006 Q2 78
Q3 81 321.00
Q4 82 318.00 639.00 79.88
2007 Q1 80 309.00 627.00 78.38
Q2 75 297.00 606.00 75.75
Q3 72 285.00 582.00 72.75
Q4 70 281.00 566.00 70.75
2008 Q1 68 277.00 558.00 69.75
Q2 71 271.00 548.00 68.50
Q3 68 265.00 536.00 67.00
Q4 64 255.00 520.00 65.00
2009 Q1 62 247.00 502.00 62.75
Q2 61 241.00 488.00 61.00
Q3 60 237.00 478.00 59.75
Q4 58 231.00 468.00 58.50
2010 Q1 58 226.00 457.00 57.13
Q2 55 224.00 450.00 56.25
Q3 55
Q4 56

4 Period Time-series analysis for Golf Club Membership

Year Quarter Golf Club Membership 4 Month Total 8 month Total 4 Period Moving Average
2006 Q2 250
Q3 250 1000.00
Q4 250 1000.00 2000.00 250.00
2007 Q1 250 1000.00 2000.00 250.00
Q2 250 1000.00 2000.00 250.00
Q3 250 1000.00 2000.00 250.00
Q4 250 1000.00 2000.00 250.00
2008 Q1 250 1000.00 2000.00 250.00
Q2 250 1000.00 2000.00 250.00
Q3 250 1050.00 2050.00 256.25
Q4 250 1100.00 2150.00 268.75
2009 Q1 300 1150.00 2250.00 281.25
Q2 300 1200.00 2350.00 293.75
Q3 300 1200.00 2400.00 300.00
Q4 300 1200.00 2400.00 300.00
2010 Q1 300 1200.00 2400.00 300.00
Q2 300 1200.00 2400.00 300.00
Q3 300
Q4 300

4 Period Time-series analysis for Golf Club Waiting List

Year Quarter Golf Club Waiting List 4 Month Total 8 month Total 4 Period Moving Average
2006 Q2 315
Q3 301 1218.00
Q4 288 1224.00 2442.00 305.25
2007 Q1 314 1241.00 2465.00 308.13
Q2 321 1251.00 2492.00 311.50
Q3 318 1242.00 2493.00 311.63
Q4 298 1235.00 2477.00 309.63
2008 Q1 305 1204.00 2439.00 304.88
Q2 314 1151.00 2355.00 294.38
Q3 287 1044.00 2195.00 274.38
Q4 245 904.00 1948.00 243.50
2009 Q1 198 780.00 1684.00 210.50
Q2 174 695.00 1475.00 184.38
Q3 163 655.00 1350.00 168.75
Q4 160 626.00 1281.00 160.13
2010 Q1 158 593.00 1219.00 152.38
Q2 145 564.00 1157.00 144.63
Q3 130
Q4 131

Decision Making

Ansoff’s Matrix

This is an analytical tool based on products and markets.

Existing Products New Products
Existing Markets Market Penetration

  • Getting more International guests
  • Increasing room occupancy rates
Product Development

  • Adding shooting to services offered to guests (if given planning permission)
  • Off-road Driving course
New Markets Market Development Diversification

Ansoff’s matrix might assist in decision making because by classifying movements from the existing position the degree of risk can be identified. It is useful for a business aiming for growth.

Diversification is the most risky strategy because a business is moving into a market in which it has little or no experience. Market penetration is the least risky option as it seeks to increase usage. The other two are of middle risk. Increased risk should be accompanied by increased reward.

Decision Trees

A decision tree is a method of tracing alternative outcomes so as to compare them and the business will then be able to choose the most profitable. It can be used when a business is faced with a decision to make.

Decision trees are best used:

- For tactical decision-making

- In familiar situations

- Where the data is reliable

The branch probabilities leading into a single event node must sum to 1.

EMV stands for expected monetary values.

The decision tree in Appendix 1 shows that there are 5 decision points in total. With a decision usually comes a cost, but we only have the costs for the initial decision point.

Advantages of Decision Trees are:

  • Creating the tree diagram may show possible courses of action not previously considered. It can be dangerous to make spur-of-the-moment decisions without considering the range of consequences. A decision tree can help you weigh the likely consequences of one decision against another.
  • Decision trees only consider quantifiable criteria; results usually improve from placing numerical values on decisions.
  • They force management to take account of the risks involved in decisions and help to separate important from unimportant risks.

Disadvantages are:

  • The information obtained from a decision tree is not always accurate. Much of it is based on probabilities which are often estimated. When actual decisions are made, the payoffs and resulting decisions may not be the same as those planned for.
  • Decisions are not always concerned with quantities and probabilities. They often involved people are influenced by legal constraints, PESTLE.
  • Business owners and managers may need to have a certain level of quantitative or statistical experience for the decision tree to be fairly accurate.
  • Time lags may occur which may mean some of the data used may be out of date by the time the decision is made
  • The process can be quite time consuming using up valuable business resources
  • Any change in any data can alter the decision indicated. Decision makers may, in an attempt to encourage a particular decision, manipulate data.
  • Does not take into account the dynamic nature of businesses

ICT Decision Making and MIS

A Management Information System (MIS) uses data from internal and external sources combined into and easy to read format in tables or graphs to help managers make effective decisions and plan appropriately making them essential to decision making.

MIS software can be generic, commercially acquired or bespoke. MIS is a tool for data handling, analysis and interpretation.

Advantages:

  • Helps automate the managerial process
  • Creates a competitive advantage
  • Improves personal efficiency by handling large amounts of data

MIS can highlight progress to achieving corporate objectives.

With the information in Fig. 2, an MIS might assist decision making because using past data, it can show trends in the information and make predictions, such as reservation forecasts for example.

As BPL operates profit centres, it can be used to show revenue generated per day/week/month by profit centre.

Possible Implications of Decisions

BPL’s decisions are holistic and can impact on the business at local, national and international level.

BPL is faced with the decisions of:

  • Invest
    • Internal
      • Refurbish restaurant/kitchen
        • Lines 20-31 suggest restaurant and kitchen is already doing very well
        • Upgrade leisure club
          • The waiting list and asymmetric arrangement suggest that the golf club is doing better than the leisure club. So investment might be necessary if leisure club not doing so well.
          • Still not spreading financial risk
          • Untouched departments might be resentful
          • Risk of wasted investment as the changes might not be necessary
  • External
    • Buy shares
      • If in other hotel groups, will provide source of finance which may help their performance and increase competition with BPL, but may be able to exert some influence on the organisation.
      • Will be subject to the successes and failures of the other companies.
      • Will be able to lessen the effects of inflation
      • Place in Bank
        • Opportunity cost – not using money for anything
        • Risk bank closure (Northern Rock)
        • Money loses value due to inflation
  • Opportunity cost – loss of the potential return in the range of £700,000 – £400,000 if the land had been purchased and they had been able to obtain planning permission.
  • Will be unable to extend the list of services offered to guests.
  • May result in unhappy managers
  • May reduce financial risk of BPL being dependant on a single venture.
  • May slow achievement of its corporate aim (to be top leisure destination) by not developing its services, current facilities don’t seem to be  posing a problem.
  • Would still have the problem of complaints from neighbours about clay pigeon shooting. (line 56)
  • The investing options considered are still in the UK, so they would still be vulnerable to the performance of the UK economy. (line 70)
  • May then not be able to create jobs (line 59)
  • Buying the £300,000 Land
    • If able to obtain planning permission
      • Use it for shooting
        • Ethical consequences and activists/animal rights groups
        • Will increase costs to ensure safety here and increase wage bill and staff will be needed to rear and care for game birds.
        • Will be able to reduce complaints by moving clay pigeon shooting facility away from village.
        • Use it for off-road driving
          • More people drive
          • Will need to provide support if cars break down and other things
  • If unable to obtain planning permission
    • Agricultural Use
      • Loss of some of the investment money
        • May offer walks
        • Growing Kitchen ingredients

[----------------------------------------------------

Key:

  • A decision option
    • Related to the above decision option (either other options resulting from it or consequences of it)
      • About the result above (More options and consequences dependent on above).

----------------------------------------------------]

Measures of Business Performance

Employee Contribution

Measuring the contribution of employees towards objectives is important because it allows decisions to be made as to how many employees to get and allows the business to set itself realistic targets as it knows what it’s workforce is capable of. Employee contribution can act as a source of competitive advantage.

Budgets

A budget is a plan of incoming and outgoing monies, expense and income.  It provides target spending levels and profit estimation by allocating particular sums of money for various things.

Budgets help a business achieve their objectives (reverse decline) because:

  • Budgets provide a way of regulating the spending of money and draw attention to waste, losses and inefficiency.
  • They act as a review for a business allowing time for corrective action.

However, budgets might:

  • Lead to resentment because of budgeted figures or lack of their involvement which may result in lack of motivation and targets being missed
  • Cause the business to suffer if it is too inflexible. For example BPL might not be able to…
  • Lose their importance if actual business results are repeatedly very different from the budgeted ones.

The Business Cycle

The business cycle is the upward and downward fluctuations in business activity through the states of

  • Boom (spending, investment and confidence high with profits and wages usually rising)
    • BPL is likely to have a lot of guests at this point as people have more disposable income
    • Recession (where incomes and output start to fall as there is a fall in demand and therefore profits)
      • Guests will start to reconsider leisure holidays and BPL may be making staff redundant.
      • Slump (bottom of the cycle with unemployment high, confidence, spending, investment and profits low)
        • Very few people will be visiting BPL now but BPL will still need to pay its overheads. BPL’s main concern will probably be survival
        • Recovery (where incomes, output, confidence and spending start to rise again)
          • Guests will start coming again and profits should rise.
          • Change of law on tips.
            • Businesses can no longer use tips to “top-up” staff pay to meet minimum wage
            • This will have little effect on BPL if they were already compliant
            • Game Act 1831 may affect plans to use land for shooting.
              • The act established a close season in which game birds cannot be killed or taken and this includes all Sundays and Christmas Days
              • If planning permission is obtained and the land used for shooting, it will be idle on close seasons, Sundays and Christmas Days.
              • Planning permission is legally required and thus, BPL’s actions are restricted unless it can gain planning permission.

Legal Issues

It is in BPL’s best interests to comply with the law so as not to be fined (or even closed) or have key individuals arrested which may affect business survival.

Change

Businesses operate in a dynamic environment and as such they have to accept that changes will occur. Change is caused by:

  • Developments in technology
  • Changes in the economy
  • Changes in consumer tastes
  • Legislation
    • Change of law on tips

BPL has changed its remuneration policy and Wilhelm believes the change was not effectively managed. It is important that businesses respond to change else they are likely to go out of business.

Businesses are likely to face some resistance to change from parts of the workforce and this can be seen in BP through the unhappy comments from staff as they were informed of the changes and the fruitless investigation into the two chambermaids accused of keeping tips.

Some consequences  of this change are that:

  • Some staff may become unmotivated

Resistance to change  is likely to exist because:

  • Workers sometimes fear the unknown. As staff at BPL no longer keep their tips, they have a lot less control over how much they can earn and it is now left to someone else to decide their wage, with any bonus coming from tips unrelated to their hard work.
  • They feared a fall in earnings (lines 92-93).

If change is to be carried out effectively, BPL must take these fears into account and only if employees  feel they can cope with the changes will BPL be operating to its full potential.

In order to remove resistance to change:

  • BPL’s employees should have been kept informed about all changes before they were finalised.
  • As one of the options was giving the tips to all members of staff, then everyone should have been consulted about the changes being considered as this will give them a feeling that they are involved in shaping change and have a stake in its outcome.
  • BPL should have attempted to prevent misinformation and rumours as they would decide their stance in relation to the change based on the erroneous information without knowing the truth.
  • BPL should  try and ensure its organisation culture fits in with its new operations.

BPL has used a total imposed package to implement the change on tips as the managers made the decision without any consultation with the employees.

BPL could have considered an imposed piecemeal initiative perhaps where pooled tips were only for those who worked in the front of house, then maybe everyone. This would have allowed staff to slowly get used to the change and any teething problems can be resolved.

A negotiated piecemeal initiative would perhaps have worked better for BPL because employees would have been consulted, either through representatives or individually. Not only would this have allowed them to get used to it slowly and adjust over time, but they would have known of the coming changes before hand, due to their involvement.

A negotiated total package may also have worked well for BPL because even though employees are consulted, for efficiency’s sake, the change is implemented as a whole.

As it affects earnings, this is a change that possibly should have been anticipated, controllable, and incremental.

Possible Questions

  • Q1(a)         13 Marks (Calculation)
    • Calculate the Net Expected Values for BPL if they bought the land?
    • Calculate the time series analysis of percentage change in UK GDP?
    • Calculate the time series analysis of percentage occupancy for BPL rooms?
    • Calculate the time series analysis of the golf club waiting list?
    • Calculate four ratios using the balance sheet (Current Ratio, Acid Test, Gearing, Debtor days, Creditor days, Stock turnover, Working Capital, Net profit margin, Return on equity)
    • Q1(b)         18 Marks (With Reference to Calculation)
      • Recommend whether BPL should go ahead with any of the options being considered in the decision tree? Justify your view.
      • Recommend a strategy for BPL to continue reducing the golf club waiting list?
      • Evaluate Sue’s objective of a 75% room occupancy rate?
      • Discuss how changes in the UK’s GDP will affect BPL?
      • Recommend a strategy for BPL to reverse the decline the revenue and net profit margin?
      • Q1(b)                   Other 18-23 Marks (Use figures available in case study)
        • How does price discrimination assist BPL in achieving its objectives?
        • How does purchasing the land offered to BPL reflect the needs of BPL’s guests?
        • Should BPL purchase the land? Justify your view?
        • Should the land BPL is purchasing be used for shooting or for an off-road driving course?
        • What should BPL use the £300,000 for?
        • How should the change of BPL’s remuneration policy have been handled?
        • Evaluate how BPL should handle Jack James’ breaches of the conditions of his employment?
        • Recommend what BPL should do about the reliance of the peripheral income streams on the hotel?
        • How can Sue boost the success of her department?

 

SRCL is a LTD (Private Limited Company) which means that it has limited liability. Set up in 1968, it is now 42 years old. SRCL’s are specialists in what they do. A management buyout (MBO) is a form of acquisition where a company’s current managers buy the business from its owners, possibly because this may be to save their jobs, either if the business has been scheduled for closure or if an another buyer would bring in its own managers. It may also be because they want to maximize the financial benefits they receive from the success they bring to the company by taking the profits for themselves. There is also less potential for conflict between stakeholders as managers are now the owners.

The business is UK based and therefore operates on a national market and may not be as affected as multinational competitors by the exchange rates set by Governments.

The fact that SRCL’s stonemasons are experts’ means that their skills will be much in demand and the overhead costs of SRCL in terms of wages and salaries is likely to be quite high.

Who Value of Shares Percentage
Joe Kring £22 800 38%
Fred Emerald £7 800 13%
Six Senior Managers £29 400 49%

SRCL seems to be growing rapidly in terms of turnover. Joe’s approach to business seems to be taking a stakeholder stance, which means they give all stakeholders equal importance, as opposed to a shareholder approach where they would only be interested in making profit.

The market size of the restoration and conservation of famous crumbling building and monuments, in terms of value, according to the case study, is £4 billion. For the 2010 turnover value of £8, 310, 106 means that (£8310106  ÷  £4000000000) × 100 = 0.21 %. This means that SRCL currently has 0.21% of the market.

The 2010 figures on the balance sheet are currently unaudited, but it would appear as though SRCL has managed to increase their working capital because their current liabilities have reduced substantially and their total current assets have increased.

SRCL is going to need some form of waste management for waste from humans or otherwise.

SRCL has the benefits that because it is a LTD, shareholders have limited liability and more people might be prepared to risk their money although profits have to be shared. Control of the company cannot be lot to outsiders, with new shareholders joining with the permission of all current shareholders. There is also business continuity because the business continues if the owner dies.

“SRCL has always competed on quality rather than price” might mean that they have no clear pricing strategy. This also means that SRCL may have lost customers who are more concerned about price, maybe SRCL should consider competing on price and quality.

Bespoke projects means that SRCL will need some way of taking these orders and finding out what the clients want, visiting locations of big jobs. This also suggests that they make use of job production for one-off projects.

From Hampshire, Surrey is 38.2 miles (61.4 km) away and North London about 55 miles (115 km).

As it used to be part of a civil engineering business and currently only does civil stonemasonry, Stonemasonry for the military is a possibility which is open to the business, such as training facilities or fortifications.

It is questionable if accepting small jobs is cost effective for SRCL, are wage, time and material costs of repairing a front step covered in £50, also bearing in mind supply and demand, the exclusivity of SRCL could add value and increase the prices they can charge and maybe SRCL should not just accept any job that comes their way.

SRCL’s Objectives: £10 million (may be SMART, but we’re not told), £15 million by 2015 (Boosting turnover by 50% in the next 5 years) is SMART in form but there is question as to whether 50% is realistic and may not be SMART in that way.  Attract more work in the high value, new-build housing.

The high value, new-build housing is a growing market because of those, according to the case study, flocking to UK.

Joe takes a stakeholder approach to business, which costs SRCL in time, money, paper and privacy, but may brings its own benefits (good PR and fulfilment of their Corporate Social Responsibility [CSR]).

The highest quality at the headquarters, if it cannot be matched by other offices, then there may be varying degrees of quality and risks to SRCL’s reputation.

By purchasing the saw which can satisfy the requirements for most of their work quickly, they have increased capacity because they can produce more in the same space and time that they used before.

The Corinthian shields are labour intensive while the saw indicates that the mass production is capital intensive.

Clare Bennett splitting her time between the Hampshire workshops and various worksites will most likely incur travel costs that may be covered by the business.

The company may want to consider the philosophy of lean production to combat waste. They need a way of turning the stone chips from the machine into a by-product. The fact that Mike thinks a use should be found for the waste from the machine means that he’s sure that the machine is staying and that his concerns about the machine will be briefly considered, if at all. Mike believes the machine is only as good as it’s operator which is a further argument for training.

 

Staff motivation is an issue, how can SRCL ensure job security, possibly by retraining Mike Harris and others. It costs SRCL £400,000 – £500,000 every 3 years for apprentices.

The risk of subcontracting is that they may not do it to the standard of quality customers expect from SRCL. The labour turnover has complicated decisions because they will need to replace those who leave before considering growth. Replacing them will eat into funds for subcontracting.

The business can respond to labour turnover issues by hiring more apprentices 4 years before those who will retire reach the retirement age retire. They can also use the usual labour turnover strategies concerning earnings and transport. They could even try getting more young people and ingrain within them the culture that the managers would like to see at SRCL.

The marketing manager needs to choose between organic growth, inorganic growth, and diversification. The other three elements of the marketing mix which are not mentioned are price, product, and place.

The Stone Federation is the official trade association for the natural stone industry. The Federation co-ordinates all aspects of the industry and provides those who request it and users with a first point of contact for information, advice and guidance in sourcing an appropriate material and a reliable service which is evidently beneficial for SRCL if they have won an award from them.

RoSPA is The Royal Society for the Prevention of Accidents and have been recognising health and safety success for over 50 years. The president’s award which SRCL won is categorised on the RoSPA website as an achievement award. The President’s Award is given to businesses who have gained 10-14 consecutive gold awards. Gold awards are given based on their health and safety performance, which SRCL most have obtained for 10 years as stated in the case study. The next step up from the President’s Award is the Order of Distinction which is for 15+ consecutive gold awards. The Order of Distinction award is the highest level that can be attained. SRCL has now received the President’s Award for 4 years, which means that at the next assessment, it should receive an Order of Distinction.

All the managers are not aligned with Joe’s vision for SRCL which could be problematic.

 

That the name of the business is F N Lyte suggests that was named after another member of the Lyte family, so George is not the founder, but is now the owner through major shareholdings. It is small business, regardless of if it is judged by the number of employees or the profit levels or the number of building it has.

That George is hardly in his office and managing by walkabout means that he won’t be easy to locate. The highly skilled craftsmen and likely to bring  high wage costs to LCL, and the job of these highly skilled craftsmen because LCL has almost new CAM equipment and it has case designers.

The exports made by LCL will be affected by exchange rates making it very volatile.

As LCL wants to show that it always acts with integrity and honesty, it may then be obliged to refuse Major Doodes’ order because it is in doubt. CSR stands for Corporate Social Responsibility.

Constraints which may affect the LCL include legislation by government, maybe affecting the acquisition of aluminium.

LCL adds value by changing raw materials into a finished product, but also more subtly through their reputation for quality, therefore creating an image for their products in the mind of consumers which may persuade them to pay more for their products as they believe they are getting more for their money. As a result of the added value, LCL may be able to achieve a high profit margin on each sale, covering their production costs, but this may be neutralised by what Shelia, the Finance Director, considers being over-engineering, whilst on the other hand, this may have contributed greatly to the added value.

LCL’s products are consumer durable goods and it operates in the secondary sector, turning raw materials into finished products.

LCL’s USP (unique selling point) is their reputation for quality. Factors that may affect LCL’s future success include effective employees, effective managers, sources of finance, reliable suppliers, loyal customers, effective marketing, a clear business plan and luck.

LCL is more product-orientated, therefore doing little marketing and not focusing as much as they can on profitability.

The opportunity cost of not accepting Major Doodes order is that they won’t meet their  targets. If they do accept it, their reputation is at stake.

The fact that the other members of the senior team feel George’s views dominate too much suggests that although, George listens to the views of others, he does not take it into account. This is also an indication of resentment in the senior team. The extent to which LCL and George are considered to be one may explain the reluctance of the managers to make any decisions in his absence. He does not delegate the authority or train others or give the opportunity for others to make decisions.

LCL’s Stakeholders

Shareholders/Owner – George Lyte, Banks, Minority Shareholders
Managers – George Lyte, Dave Short, Chris Hodder, and Shelia Ranger
Employees – Highly Skilled Craftsmen (20)
Customers – Major Doodes, Musicians, IT companies, aerospace industry, manufacturers of scientific instrumentation, companies that participate in exhibitions and trade fairs.
Governments – EU, USA, Australasia and others
Suppliers –

Indirect Stakeholders

Suppliers – Supplier’s Banks (while they do not directly supply LCL, they supply LCL’s suppliers with finance and financial services, therefore allowing LCL to be supplied.)

Importance and Impact of Each Stakeholder group on the business:

It may be said that LCL takes a stakeholder approach to business as opposed to a shareholder approach because it needs to.

Owners – George as a majority shareholder has the most influence on the business. With a 60% share of the business, his decisions can not in theory, be effectively opposed. The other shareholders with a total of 40% of the shares cannot exert much control or influence the business too much individually or collectively, other than withdrawing their financial support.

Managers – They make all the tactical and strategic decisions. They have a lot of control in the short term, more so in their own departments and divisions of the business. George still has overall control here as managing director.

Employees – They have operational control of the business and as highly skilled workers, they may not be easy to come by. They have even more control with industrial action because they cannot operate if the workers go on strike. Geroge doesn’t have much choice but to listen to their views, which he enjoys doing.

Customers – These are also of great importance to LCL, because some of them are hard won as mentioned in the case study. Due to LCL’s size (and bank loans), LCL needs their customers to survive.

Governments – The Governments of all LCL’s markets has great control over LCL’s future success, which is at the same time limited. The government could enact new or amend existing legislation to affect, the way LCL trades, obtains materials, taxes that LCL must pay, LCL’s exports and imports and trade relations. If the governments do not specifically target LCL, any changes they make will also likely affect other businesses in the same market in similar ways, therefore not affecting LCL’s position. This is however dependant of the skill of management at LCL and how lucky LCL is.

Suppliers – A refusal to supply LCL will very much destroy LCL because they seem to have quite a trusting relationship (which may weaken, because of the worry from the banks of LCL’s suppliers). LCL does appear to have any alternative suppliers, but they do make items for stock.

As can be seen, George, in effect controls the strategic and tactical running of the business. If not using the weight as the owner of LCL through his shareholdings, he can do so as the Managing Director.

What George enjoys doing is also what LCL must do to survive, so showing just how intertwined the two are and George may be holding the business back.

Finance

LCL currently uses overdraft, which it seems, may no longer be available, as a source of short-term finance to obtain working capital. Another source of finance for LCL appears to be trade credit from its suppliers because the supplier’s banks are worried that someone else might not be as trustworthy, which means that LCL currently gets trade credit but that George is good at paying them off. LCL itself also offers trade credit as can be seen from the balance sheet.

LCL could possibly raise finance through the issuing of shares but this is likely to result in George losing some control of the business.

The retained profit for LCL seems small in comparison to the other figures on the profit and loss account. The business may also have access to some Government assistance.

Reading from the Balance Sheet, Everything physical the business owns comes to a total value of £92,050.  This means that their building and machinery are individually less than this. They all add up to this figure.

Since it has been mentioned in the case study that LCL IS George in many ways, any questions asking about George may also want to know about LCL, or vice versa.

 

Holies Crisps is a Private Limited Company and so has limited liability and is not on the stock market. It also has greater sources of finance, including the private sales of shares.

HCL has a growing reputation which means it is gaining market share in an existing market. The company is 5 years old. HCL produces a range of ‘top-quality hand-fried’ products. The business supplies over 6000 independent retailers such as high class stores, farm shops, health food shops, delicatessens and ‘gastro pubs’. HCL products are sold in top-end retailers so this helps to support and develop brand image because retailers will add their own mark-ups to cover their own costs and make profit. Loyal customers of these retailers will become loyal customers of HCL through association and familiarity should they shop elsewhere. The products go direct from HCL to retailers to customers; this is quite a short distribution channel and so not only gives HCL more control, but reduces costs of transportation and large support departments and relation with intermediaries. Richard owns 80% of the business, the rest is owned by a private equity firm. Richard used venture capital to start. Richard borrowed money from the bank to start and experienced a 70% revenue growth in the second year.

Richard carried out market research before he started which means HCL is a market-orientated business. He could have used sales data for this. HCL’s competitive advantage is that it can offer things different from its competitors, and its USP is that its crisps are hand made and unique.  HCL can perform market research through its sales data.

HCL’s Corporate Goals are:

  1. Growth (Increase capacity [new factory])

HCL’s Marketing Objectives are:

  1. Develop new products.

The farm had been a major potato grower for supermarkets but as Richard is now using the potatoes to produce crisps, he will not be supplying as much, if any at all. Richard has past experience with supermarkets and they nearly finished him as a potato farmer and may eb another reason he doesn’t want to trade with them. HCL transports goods or pays for them to be transported to retailers (“It supplies” line 3).

HCL produces 10 different flavours of potato crisps. HCL operates in the ‘better for you’ niche and has 10% of this growing niche. HCL has a 0.5% market share with 9 billion of crisps packets sold annually in the UK.

HCL Market Share

9 billion packets sold nationally in a year. HCL has 0.5% of these sales:

0.5 x 9 000 000 000 = 45 000 000 (45 Million).
60 million people in UK.
45 million ÷ 60 million = 0.75 per person. (or 15 million people who don’t have one packet of HCL crisps per year).

 

 

HCL farms 900 acres but h grows 250 acres of quality potatoes but with low yields and so still has to buy raw materials in. The raw materials will be everything except potatoes because Richard is a potato farmer. HCL might consider growing reduced quality potatoes with greater yields. The potatoes grow on the farm next to the factory meaning delivery is immediate and HCL operates a JIT system because of the proximity of the farm.

HCL has small production runs of 60kg adding value by batch production.

 

Production Process

When frying the crisps, they are stirred once with hand held paddles; this can be eliminated to speed up the production, reduce human labour costs and free hands for other jobs. Burnt or clumped crisps are removed by hand (could be set up as a new differentiated product or sold at discount prices; could also be crushed for powdered crisps -> innovation->lean production). HCL operates a 9 Stage production process.

 

HCL has no clear pricing policy and this may add to the uniqueness and appeal of the products because there is no fixed pattern to pricing that can be identified.

 

De-layer by moving Martin into the executive committee will not only reduce the lines of communication, it will motivate Martin and it means that Martin will be better placed to make decisions because he is more in touch with HCL because of his wide span of control and knows better than anyone else how the business operates. Doing this however, would be contradictory to Richard’s leadership style because Martin would not have to report to him as much and Richard will have less to do with those in Martin’s chain of command. Martin can indirectly make decisions because he reports directly to Richard, he can run suggestions by him, which he may not be able to do if there was someone between Martin and Richard. This is a functional/hierarchical structure. Richard doesn’t feel that the structure needs to be changed as he thinks it will only be required if HCL’s current growth continues for 5 more years. HCL is a centralised organisation because all decisions are made by the executive committee (line 79). Richard wants to keep “in closer touch with the market” as he is very autocratic, he will be helping Sam for the foreseeable future and he is responsible for 29 out of 34 people.

Independent retailer would have left. Most likely because the independent retailer wouldn’t then have a unique product and could not compete with supermarkets. If their retailers had left HCL, this may have resulted in HCL not being able to charge premium prices because supermarkets would want to sell the products much cheaper than independent retailer might. Richard stopped supermarkets selling his products because he wanted to retain the feel of a family business and he could not do so if his products were on mass production for supermarkets.

The supermarkets issue was widely reported giving HCL free promotion. This news however may not please people who want to be able to buy HCL’s products from the supermarkets.

There are 35 people in HCL altogether which classifies HCL as a small business according to the Department of Trade and Industry because they have fewer than 100 employees.

 

Richard expects the non-potato crisp market to grow rapidly and this may be as a result to bad press (line 44-45).

HCL can in response to bad press increase non-potato ranges.

Things that HCL pays for are:

  1. Harvesting
  2. Materials

Second Production Line

  1. Reduced land to grow potatoes on, because he wants to build it on the farm.
  2. He wants to build it because of a recent growth in sales and this may not last.
  3. Increase capacity.

Existing Factory (New system?)

  1. Opportunity costs are: Can’t get more quality control staff, number of new products that can be launched.
  2. Loyal employees will feel Job Insecurity with new system, if their job is safe or if it will affect their rate of earnings.
  3. Downtime while new system is installed
  4. With the high levels of debt this will bring, payback is not encouraging.

 

 

 

    January 2009 February 2009

Jan – Feb

Product Unit Size Price* (£) Quantity Price* (£) Quantity % change in price % change in demand PED
Potato Crisps
Ready Salted

15 x 200g

22.48

7,100

22.00

7,300

2.4

2.8

1.2

Unflavoured

35 x 50g

20.00

2,200

20.00

2,200

0

0

0

Cheese and Red Onion

35 x 50g

19.20

3,148

19.50

3,200

0

1.7

0

Non-potato crisps
Beetroot

24 x 40g

22.00

748

21.30

761

3.2

1.7

0.5

Parsnip

24 x 40g

21.05

890

20.60

900

2.1

1.1

1.9

Mixed Vegetable

15 x 150g

32.48

1,200

32.48

1,463

0

21.9

0

* Price paid by retailer per box.

    February 2009 March 2009

Feb – March

Product Unit Size Price* (£) Quantity Price* (£) Quantity % change in price % change in demand PED
Potato Crisps
Ready Salted

15 x 200g

22.00

7,300

22.22

7,154

1

2

2

Unflavoured

35 x 50g

20.00

2,200

20.50

2,167

2.5

1.5

0.6

Cheese and Red Onion

35 x 50g

19.50

3,200

20.00

3,305

2.6

3.3

1.3

Non-potato crisps
Beetroot

24 x 40g

21.30

761

20.30

782

4.7

2.8

0.6

Parsnip

24 x 40g

20.60

900

21.63

891

5

1

0.2

Mixed Vegetable

15 x 150g

32.48

1,463

33.50

1,312

3

10.3

3.3

 

    February 2009 March 2009

Jan – March

Product Unit Size Price* (£) Quantity Price* (£) Quantity % change in price % change in demand PED
Potato Crisps
Ready Salted

15 x 200g

22.48

7,100

22.22

7,154

Unflavoured

35 x 50g

20.00

2,200

20.50

2,167

Cheese and Red Onion

35 x 50g

19.20

3,148

20.00

3,305

Non-potato crisps
Beetroot

24 x 40g

22.00

748

20.30

782

Parsnip

24 x 40g

21.05

890

21.63

891

Mixed Vegetable

15 x 150g

32.48

1,200

33.50

1,312

 

 

Organisational charts shows the hierarchy of the business, who is in charge and how the people within the business relate to each other.

It shows those in authority, their span of control, who is responsible for who, and interdepartmental (between departments) communication.

Advantages:

  • The formal relationships between people and departments in an organisation can be highlighted.
  • They are useful source of information for new employees to know where they are and where others are in relation to them.

Disadvantages:

  • They are static, and the organisation structure is likely to change regularly.
  • They do not show informal relations between departments.

Leadership Styles

There are many different styles of leadership, most of them can be categorised into one of the following groups:

  • Authoritarian (Autocratic)
    • The leader makes all the decisions
    • Others are told what to do
    • Everything is closely monitored and watched
    • Paternalistic
      • Means Father-like
      • The leader tries to do what is best for their workers
      • The leader might consult before making decision when and as appropriate but still decides what will be done.
      • Democratic
        • Decisions are made by the people.
        • Participation, worker involvement is decision making.
        • Laissez-faire
          • Means ‘Let-it-be’ (French)
          • Employees are left to do what they want
          • They are perceived as professionals who will get on with their work and do it well.

 

A business will need to be able to raise money to start and keep running. There are different sources of finance and ways of making money.

A business has internal and external sources of finance.

Internal

  • Retained profit

Profits made by the business in previous years which have been kept.

  • Working Capital

Reducing the amount of stock being kept, delaying payments to creditors and encouraging debtors to pay on time.

  • Sale of Assets

Selling anything the business owns, like buildings or vehicles.

  • Depreciation (Long Term)

Taking a regular fixed amount out of profits every year to help pay for replacement of assets in future years.

External

  • Debt Factoring (Short-Term)

A debt factoring company pays the business some of the money it is owed.

  • Overdraft (Short-Term)

This is a short-term bank loan which allows the business to spend more money than they have that they will pay back almost immediately.

  • Trade credit (Short-Term)

The business can encourage any other businesses dealing with them to wait longer for their payment so that they can have sold all the goods and have the money to pay.

  • Venture Capital (Medium-Term)

Loans to small risky business without asking for security in return for a share of business ownership or profits.

  • Bank Loans (Medium-Term)

Money loaned by a bank, to be paid back monthly over a period of time, with interest.

  • Leasing  (Medium Term)

This is paying to use an asset belonging to another company for some time, usually if the cost will not be as great as buying the asset for themselves.

  • Hire Purchase  (Medium Term)

This is paying to use an asset belonging to another business for some time, and after paying, the asset now belongs to the paying business.

  • Share capital / equity  (Medium Term)

Limited companies can sell shares to raise money.

  • Changing business status  (Medium Term)

Changing the legal status of the business can help generate funds; a sole trader can become a partnership, for the funds the partner brings.

  • Sale and leaseback  (Medium/Long Term)

This is selling an asset to another business and then leasing it back from the business; pay to use it after selling it.

  • Debentures (Long Term)

This is a long term loan by a business, 15-25 years, with a fixed interest rate.

 

After a product is launched, it goes through certain stages known as the product life cycle. There are different life cycles which a product could have.

Flop – If the product never picks up and is a failure

Short-Life – A product which sold, and did well, but only for a short time.

Extension Strategy – These are products which sell well but as they start to die, increased usage is encouraged.

False Start and Restart – A product that starts and seems not to be doing very well, starts to die and then rapidly grows.

Long life – This is a product which survives for a very long time and retains good sales.

 

This is the division and categorisation of the larger markets and the market as a whole into smaller identifiable groups.

Market share is the percentage of sales in particular market which belong to one business.

There are different criterions used to segment a market. A market can be segmented by

  • Geographical Segmentation
    This divides the market based on where consumers live.
  • Demographical Segmentation
    This is dividing the market into who the population is made up of, so consumers are divided into their social class grouping, e.g. Middle Class (Middle management, administrative or professional like teachers, nurses or managers).
  • Requirement Segmentation
    The market is divided into what consumers require and expect of the product. E.g. design may be foremost on some consumers list, whilst others are more concerned with safety.
  • Behavioural Segmentation
    The behaviour of consumers can be used to segment the market, e.g. groups of shoppers who buy a certain item every time.
  • Buyer-readiness segmentation
    Consumers are groups according to how prepared they are to buy the product
  • Lifestyle Segmentation
    Using the way consumers live to define what they are likely to spend money on
  • Geodemographic Segmentation
    This is a combination of geographical and demographical segmentation, they are first divided into where they live and then divided into what type of people live there.

 

Market research is collecting and interpreting data about customers, competitors and the market itself.

There are two types of market research, primary research, which is data, collected yourself, and secondary research, which is data already collected, not by you.

Primary research can be done by:

  • Questionnaires
  • Focus Groups (Small group of people to talk in-depth with about the product)
  • User Groups (Testing products in a small area)
  • Postal Survey
  • Telephone Surveys
  • Customer Interviews
  • Test Markets
  • Technology – Internet feedback

Market research can be used to investigate:

Market Size and trends

  • Number of customers and changes in their spending
  • Approximate size of market
  • Number of sales out of potential sales and percentage market share

Market Segments

  • Actual and potential customers
  • Needs of different groups of consumers.

Customer Preferences

  • What customers request of product
  • What they are prepared to pay
  • How best to promote
  • How customers wish to buy

Competition

  • Who is the competition
  • Percentage of market share owned by competitors
  • Strengths and Weaknesses of competitors

Market research can produce two different types of information, they are:

  1. Qualitative:
    This is targeted, in-depth, detailed data from interviews to understand human behaviour and the reasons that govern such behaviour.
  2. Quantitative:
    This is data which is more numbers based and so requires large numbers of participants.

There are also two methods of collecting research data and performing research. They are:

Desk Research:

  • Sales Records
  • Customer Information
  • Survey Data
  • Commercial Data (Purchase other business’ reports)
  • Government data (Censuses, The Office of National Statistics, Euro Stat)
  • Information about competitors (websites, products, prices, annual reports)
  • Other publications (from libraries and banks, journal articles, research documents)

Field Research:

  • Observation (Monitoring consumers)
  • Experimentation (Testing new ideas)
  • Surveys (Questionnaires)
  • Interviews

Advantages of Market Research:

Helps identify the need and wants of customers

Allows a business to respond more quickly to changes in the customer needs

Allows businesses to spot gaps in the market

New products or services can be launched with confidence

Disadvantages of Market Research:

Research may produce useless information if not properly organised

Sample may be unrepresentative and there inaccurate

© 2012 Obolynx Educator Suffusion theme by Sayontan Sinha