BOOTS
•Give a clear definition of the marketing function - what does it aim to do?
-Marketing is a management process so it requires people to take responsibility for decision-making. It involves identifying the needs and wants of customers. It involved anticipating or predicting what customers might want in the future. It seeks to satisfy the consumer and for the business, marketing is all about making a profit.
-The seven functions of marketing are: Distribution, Financing, Marketing Information Management, Pricing, Product/Service Management, Promotion and Selling.
-Its main aim is to satisfy their customer’s needs and wants while generating a profit for the firm.
•In the light of the definition above, how does market analysis help to meet the aims of the marketing function?
-A Market analysis is an investigation of a Market that is used to inform a firm's planning activities around the decision of: inventory, purchase, work force expansion/contraction, facility expansion, purchases of capital equipment, promotional activities, and many other aspects of a company.
-The following are the dimensions of a market analysis:
* Market size (current and future)
* Market growth rate
* Market profitability
* Industry cost structure
* Distribution channels
* Market trends
* Key success factors
-Market Analysis helps in deciding how to get their target market, achieve and gain a place in the market.
•What would you classify the company's market position to be? Justify your answer.
-Market Challenger. In the market for prescription medicines, Boots’s main competition comes from UniChem (who own Moss Pharmacies) and SuperDrug, which are pharmacies around the UK. A market challenger is a firm that seeks to adopt strategies to challenge market leader’s position.
•What are the key marketing objectives of the company?
-Boots' stated goal is to modernise, become more efficient and be more customer focused. They say that in the past, the business has been a steady performer, but has not 'punched its weight' given the strength of its brand.
-Boots's customer loyalty card, named 'Advantage', is strongly associated with their marketing campaigns. The Advantage card is held by nearly 15 million consumers. It is linked with half of all sales in Boots the Chemists.
-Therefore, the company used the marketing mix technique, where marketing mix is the balance of marketing techniques required for selling the product.
-Furthermore, their other objectives are revenue maximisation, consumer and product focus and to overcome competitors.
•In your view, does the marketing strategy adopted by the company appear to help them to meet these objectives?
-In response to the tougher trading conditions, Boots embarked on a programme of price discounting in the third and fourth quarters of 2003-04. A large 'three-for-two' gift promotion over Christmas 2003, helped to boost like-for-like sales by just over 4% during this period.
-In 2004, the company intends to continue its price discounting. The company aims to continue to invest in this area, planning to spend £5 million on price cuts in the fourth quarter of 2003-04.
-Few issues have risen over the company and the community of loyal customers for Boots are growing every year. Yes, as of now, Boots has 17% of the market share in Britain, behind UniChem with a 40% market share.
•What are the main market segments the company appears to be aiming at?
-Boots is a diversified company, which aims to sell their services and good among a wide range of consumers and customers, despite the age, religion, social class, ethnic grouping and lifestyle of the society. Boots is also a single segment – often selling a specialised product, exclusive goods, medicines, home care products and other necessities.
•What type of market structure does the company operate within - how do you think that might affect their marketing strategies?
-Boots operate in Britain within an oligopoly group. As of now, Boots’s main competition comes from UniChem (who own Moss Pharmacies) and SuperDrug, which are pharmacies around the UK. Boots did price skimming with their products as one of their marketing strategies to gain more customers. They also did market penetration where Booths choose to focus on selling existing products in existing markets, where an example is an introduction of the loyalty card Boots has implemented in their company.
•Try to find out what market share the company has in its market. What are the marketing implications of this information for the company?
-As of now, in Britain, Boots has 17% of the market share, behind UniChem with a 40% market share and SuperDrug. Which shows that Boots are behind the leading top firms, Boots is also the largest pharmaceutical wholesaler in the UK. This information will help Boots try to strive harder to be 2nd or along-side UniChem with their marketing strategies.
Wednesday, February 25, 2009
Wednesday, February 4, 2009
Is Wal-Mart Good for America?
Is Wal-Mart good for America?
Advantages
-Wal-Mart offers a wide range of consumer goods for the people of America.
-It offers these wide ranges of good with low prices.
-Wal-Mart is a huge retailer market where almost all of the basic needs of a person can be bought easily.
-Wal-Mart created thousands of new jobs and allowed millions of Americans to save money with the low-priced goods.
-It lowered export prices between the countries of US and China.
-Wal-Mart's single-minded focus on low costs with helping contain U.S. inflation.
-Wal-Mart's sales is at around $300 billion a year, are equal to 2.5% of U.S. gross domestic product.
-It creates competition in the US, if there’s no competition, there’s no business.
-Wal-Mart provides lower cost of goods therefore lowering the cost of living for millions of lower income Americans.
-Wal-Mart has improved American productivity both of its own, suppliers and competitors and those things help the American economy.
-It has brought significant retail outlets to many rural and small town regions of America, therefore creating development to that region.
-Wal-Mart has been a leader of the use of information technology and it has refined consumer oriented marketing and production through its extensive data on and knowledge of consumer behaviour.
Disadvantages
-Destroys small businesses in local areas.
-Unemployment rate in the US is increasing; therefore people won’t have jobs and won’t earn enough money to buy their necessities.
-Cutting costs, results in putting out businesses because of not agreeing to an increase in sale price, used in the raw materials needed in making the product. (ex: Rubbermaid)
-Low standard of living for employees in China.
-Poor treatment of employees.
-Wal-Mart has an opening price point strategy where low cost items are advertised.
-Chinese manufacturers are said to be dumping, where the Chinese are producing exports and selling them in the U.S. below the price in China, or below what it costs to manufacture and ship abroad.
-The United States is exporting raw materials to Third World countries and importing their manufactured products, which is a reversal of former economic relations.
-Wal-Mart paid its hourly associates an average of $9.64 per hour -- almost $10 less than the average hourly wage the California supermarket workers were receiving.
-Wal-Mart's detractors point to a trail of litigation over pinch-penny issues like unpaid overtime, and to a federal investigation into its use of poorly paid illegal immigrants as janitors
-A basic flaw in the United States-China trade relationship is that we can afford to buy Chinese products, but they cannot afford to buy ours.
Evaluation
-"Consumers get huge benefits from Wal-Mart as long as it has real competition," Mr. Reich said. "The worry is that it becomes so powerful that it can unfairly stifle competition." Despite the fact that consumers from America are able to get things they want for such a cheap price, the consequences are unimaginable for people struggling to make a living. Wal-Mart outsources jobs to poor countries where labour is cheap and supplies products below the margin price of some of the suppliers. Therefore forcing the companies to agree with a low cost sale price. Then Wal-Mart has an opening price point strategy where low cost items are advertised, where it all has got to do with the customer’s perception of the prices. People are losing their business to countries that produce mass production of products that some are just being dumped into the country. It all depends on the person’s knowledge about Wal-Mart. As for me, the right to run a business and the right and privilege to gain as much as for the sake of you business’s survival is vital in every situation, but the cost to do these kinds of acts, not only cause controversial issues for you business but you take people out of their businesses and you leave them unemployed and took their lifetime job away from them.
Source: http://www.pbs.org/wgbh/pages/frontline/shows/walmart/
Advantages
-Wal-Mart offers a wide range of consumer goods for the people of America.
-It offers these wide ranges of good with low prices.
-Wal-Mart is a huge retailer market where almost all of the basic needs of a person can be bought easily.
-Wal-Mart created thousands of new jobs and allowed millions of Americans to save money with the low-priced goods.
-It lowered export prices between the countries of US and China.
-Wal-Mart's single-minded focus on low costs with helping contain U.S. inflation.
-Wal-Mart's sales is at around $300 billion a year, are equal to 2.5% of U.S. gross domestic product.
-It creates competition in the US, if there’s no competition, there’s no business.
-Wal-Mart provides lower cost of goods therefore lowering the cost of living for millions of lower income Americans.
-Wal-Mart has improved American productivity both of its own, suppliers and competitors and those things help the American economy.
-It has brought significant retail outlets to many rural and small town regions of America, therefore creating development to that region.
-Wal-Mart has been a leader of the use of information technology and it has refined consumer oriented marketing and production through its extensive data on and knowledge of consumer behaviour.
Disadvantages
-Destroys small businesses in local areas.
-Unemployment rate in the US is increasing; therefore people won’t have jobs and won’t earn enough money to buy their necessities.
-Cutting costs, results in putting out businesses because of not agreeing to an increase in sale price, used in the raw materials needed in making the product. (ex: Rubbermaid)
-Low standard of living for employees in China.
-Poor treatment of employees.
-Wal-Mart has an opening price point strategy where low cost items are advertised.
-Chinese manufacturers are said to be dumping, where the Chinese are producing exports and selling them in the U.S. below the price in China, or below what it costs to manufacture and ship abroad.
-The United States is exporting raw materials to Third World countries and importing their manufactured products, which is a reversal of former economic relations.
-Wal-Mart paid its hourly associates an average of $9.64 per hour -- almost $10 less than the average hourly wage the California supermarket workers were receiving.
-Wal-Mart's detractors point to a trail of litigation over pinch-penny issues like unpaid overtime, and to a federal investigation into its use of poorly paid illegal immigrants as janitors
-A basic flaw in the United States-China trade relationship is that we can afford to buy Chinese products, but they cannot afford to buy ours.
Evaluation
-"Consumers get huge benefits from Wal-Mart as long as it has real competition," Mr. Reich said. "The worry is that it becomes so powerful that it can unfairly stifle competition." Despite the fact that consumers from America are able to get things they want for such a cheap price, the consequences are unimaginable for people struggling to make a living. Wal-Mart outsources jobs to poor countries where labour is cheap and supplies products below the margin price of some of the suppliers. Therefore forcing the companies to agree with a low cost sale price. Then Wal-Mart has an opening price point strategy where low cost items are advertised, where it all has got to do with the customer’s perception of the prices. People are losing their business to countries that produce mass production of products that some are just being dumped into the country. It all depends on the person’s knowledge about Wal-Mart. As for me, the right to run a business and the right and privilege to gain as much as for the sake of you business’s survival is vital in every situation, but the cost to do these kinds of acts, not only cause controversial issues for you business but you take people out of their businesses and you leave them unemployed and took their lifetime job away from them.
Source: http://www.pbs.org/wgbh/pages/frontline/shows/walmart/
Sunday, January 11, 2009
Fuller and Gales Case Study
Fuller and Gales Case Study
1.Try to identify which of the reasons given above is relevant to the case that you are looking at. What evidence is there to support your choice?
Some reasons which are relevant to the Fuller and Gales Case are the following:
• Plugging a gap in the market – where the business may feel that its product portfolio is not sufficient to cater for different customer needs. Relevancy to the Fuller and Gale’s case is that the Fuller business wanted to acquire a business where Fuller’s and another company can complement Fuller’s product portfolio and in that, Gale’s is one choice that Fuller’s thought can help acquire consumers to their business. The Fuller firm’s range of beer seemed to be focused on winter sales whereas the Gale’s range of beer is given out during summer.
Fuller’s acquisition of Gales has been able to combine two or more products in the beer market. The beer market was made up of hundreds of small independent brewers each producing a distinct range of beer. The Fuller and Gales firm then gives them their advantage of getting more revenue from their sales, with the Fuller firm of range of beers given out during winter and the Gale’s range of beer given out during summer.
• Economies of scale – are the advantages of large scale production that result in lower cost per unit produced. A firm acquiring another increases its scale of operations; it has more labour and others. With the acquisition of Gales, Fuller then hopes that it will be able to use the benefits it gains from lower unit of costs to either boost up its profit margin to enable it to be able to compete with its rivals more effectively.
With the addition of 111 extra pubs to Fuller's existing 251 and helped profit at Fuller's Inns jumping to 65%. Gales has been able to boost up the firm’s profit margin and helped in the expansion of the business.
• Capacity – is the amount of output that a firm is capable of producing given its assets. Since the Gale firm is a local family brewery in Hampshire, UK. Small breweries are finding it increasingly difficult to survive. The benefit of Fuller’s acquisition of Gales is the fact that the name of the firm of Gale’s is still intact within the products of the Fuller firm.
Though the consequence of this is the conflict of some of the groups in the stakeholder groups, where an example is the Gales brewery which closed down in Hampshire and the production was transferred to the Fuller’s brewery and 21 people lost their jobs and 150 years of brewing tradition in the town of Hampshire disappeared.
2.Of the reasons that you have identified, which do you think is the most significant reason for the acquisition and why?
The most significant reason for the acquisition of Fuller of the Gale’s firm is that it is trying to pull a gap in the market. The range of beers that the Fuller Brewery has isn’t sufficient enough to sustain all of their customer’s needs. The Fuller Brewery then wants to acquire another business where it may be able to raise their profit margin and to be able to sustain almost every need of their customers. With the acquisition of the Gales firm, the usage of the Fuller firm’s range of beers which are given out during winter and the Gale’s range of beer given out during summer has benefited them well and almost gained all of the profits from two of the long and important seasons of the year. Besides the fact that the Fuller firm wanted to pull a gap in the market but they also want to gain a high spot in the market.
3.Discuss the extent of the impact on the different stakeholders of the business that you have selected.
• Employees – when the Gales brewery in Horndean, Hampshire, was closed down in March 2006 and production transferred to Fuller's brewery in Chiswick in West London. 21 people lost their jobs and 150 years of brewing tradition in the town disappeared. The employees from the Gales brewery became affected by the acquisition of Fuller of Gales. The 21 people who lost their job are locals working for the business, and the people who took away their job are people who own big businesses.
• Customers – the customers will have doubts about the closure of the brewery and the move to Chiswick on whether it will affect the taste of beer, whether the price of the beer will raise or fall, and whether it means that Gale’s beers are easier to access or become less widespread.
• The local community - Pressure groups like the Campaign for Real Ale (CAMRA) were not convinced. Other cases where breweries had been acquired by larger brewers had not only seen the traditional breweries closed down but also the beers they produced discontinued. About 5,000 people had signed a petition calling for the 158-year-old brewery to be kept open.
• Shareholders – the shareholders of the Fuller’s firm would be happy with the excellent raise of profit they are getting with the acquisition of Gales. Fuller reported that like for like sales for the estate, including Gale's pubs, grew 4.3 percent for the six-month period. Fuller saw a profit increase of 65 percent to 13.8 million pounds for its 362 pubs and hotels as it invested 6.6 million pounds in its estate during the first half. But probably not so much with Gale’s, since Gale’s is a local family-run brewer, where I doubt that there are even shareholders.
1.Try to identify which of the reasons given above is relevant to the case that you are looking at. What evidence is there to support your choice?
Some reasons which are relevant to the Fuller and Gales Case are the following:
• Plugging a gap in the market – where the business may feel that its product portfolio is not sufficient to cater for different customer needs. Relevancy to the Fuller and Gale’s case is that the Fuller business wanted to acquire a business where Fuller’s and another company can complement Fuller’s product portfolio and in that, Gale’s is one choice that Fuller’s thought can help acquire consumers to their business. The Fuller firm’s range of beer seemed to be focused on winter sales whereas the Gale’s range of beer is given out during summer.
Fuller’s acquisition of Gales has been able to combine two or more products in the beer market. The beer market was made up of hundreds of small independent brewers each producing a distinct range of beer. The Fuller and Gales firm then gives them their advantage of getting more revenue from their sales, with the Fuller firm of range of beers given out during winter and the Gale’s range of beer given out during summer.
• Economies of scale – are the advantages of large scale production that result in lower cost per unit produced. A firm acquiring another increases its scale of operations; it has more labour and others. With the acquisition of Gales, Fuller then hopes that it will be able to use the benefits it gains from lower unit of costs to either boost up its profit margin to enable it to be able to compete with its rivals more effectively.
With the addition of 111 extra pubs to Fuller's existing 251 and helped profit at Fuller's Inns jumping to 65%. Gales has been able to boost up the firm’s profit margin and helped in the expansion of the business.
• Capacity – is the amount of output that a firm is capable of producing given its assets. Since the Gale firm is a local family brewery in Hampshire, UK. Small breweries are finding it increasingly difficult to survive. The benefit of Fuller’s acquisition of Gales is the fact that the name of the firm of Gale’s is still intact within the products of the Fuller firm.
Though the consequence of this is the conflict of some of the groups in the stakeholder groups, where an example is the Gales brewery which closed down in Hampshire and the production was transferred to the Fuller’s brewery and 21 people lost their jobs and 150 years of brewing tradition in the town of Hampshire disappeared.
2.Of the reasons that you have identified, which do you think is the most significant reason for the acquisition and why?
The most significant reason for the acquisition of Fuller of the Gale’s firm is that it is trying to pull a gap in the market. The range of beers that the Fuller Brewery has isn’t sufficient enough to sustain all of their customer’s needs. The Fuller Brewery then wants to acquire another business where it may be able to raise their profit margin and to be able to sustain almost every need of their customers. With the acquisition of the Gales firm, the usage of the Fuller firm’s range of beers which are given out during winter and the Gale’s range of beer given out during summer has benefited them well and almost gained all of the profits from two of the long and important seasons of the year. Besides the fact that the Fuller firm wanted to pull a gap in the market but they also want to gain a high spot in the market.
3.Discuss the extent of the impact on the different stakeholders of the business that you have selected.
• Employees – when the Gales brewery in Horndean, Hampshire, was closed down in March 2006 and production transferred to Fuller's brewery in Chiswick in West London. 21 people lost their jobs and 150 years of brewing tradition in the town disappeared. The employees from the Gales brewery became affected by the acquisition of Fuller of Gales. The 21 people who lost their job are locals working for the business, and the people who took away their job are people who own big businesses.
• Customers – the customers will have doubts about the closure of the brewery and the move to Chiswick on whether it will affect the taste of beer, whether the price of the beer will raise or fall, and whether it means that Gale’s beers are easier to access or become less widespread.
• The local community - Pressure groups like the Campaign for Real Ale (CAMRA) were not convinced. Other cases where breweries had been acquired by larger brewers had not only seen the traditional breweries closed down but also the beers they produced discontinued. About 5,000 people had signed a petition calling for the 158-year-old brewery to be kept open.
• Shareholders – the shareholders of the Fuller’s firm would be happy with the excellent raise of profit they are getting with the acquisition of Gales. Fuller reported that like for like sales for the estate, including Gale's pubs, grew 4.3 percent for the six-month period. Fuller saw a profit increase of 65 percent to 13.8 million pounds for its 362 pubs and hotels as it invested 6.6 million pounds in its estate during the first half. But probably not so much with Gale’s, since Gale’s is a local family-run brewer, where I doubt that there are even shareholders.
Saturday, January 10, 2009
Jessops Case Study
Task 1:
Build up a picture of the business and to understand where it has come from.
Jessops is the largest photographic retailer in the UK. It was founded in 1935, so a lot has changed since then, but one thing has remained constant: the exceptionally high standard of customer service. In fact, recent research found that 94% of customers rated the service they received as excellent (67%) or good (27%).
That's been the cornerstone of the Company's success, and its phenomenal growth proves that the approach is working. The store portfolio now includes over 230 stores nationwide and the whole group turned over £350 million in the year to 30 September 2006.
The emphasis in store has always been on the customer, now more so than ever. As the popularity of digital imaging continues to grow, the Company's Spacemix system lays out stores with four distinct areas to more accurately reflect customer demand:
* Camera hardware, which includes cameras, camcorders and camera phones
* Accessories, where customers can find many of the extras they might need for their equipment
* Digital Photo centre, which gives every customer a comprehensive range of digital photo printing options, plus enough kiosks to virtually eliminate waiting. It also includes printers and scanners
* Customer Service, an area where the customer can get any help they might need. Of course, help is on hand throughout the store but this area is dedicated solely to service.
Whatever they're looking for, customers have a huge range of cameras, camcorders, camera phones and accessories to choose from. And if they can't find what they need in store, they can have it ordered.
Task 2 (A):
What does it mean for a company to 'float' on the Stock Exchange?
Flotation refers to the act of a previously private company to be publicly traded by issuing shares and soliciting the public to purchase them (in business terms, also called as “going public”). By this process, the company engages in an IPO or Initial Public Offering, which consists of its preliminary issuance of stocks and bonds available to the investing public with the aim of intensifying their resource funding.
How does this help a firm achieve growth?
Being listed in the Stock Exchange gives the company/firm several benefits such as:
- Tax Benefit
If your company is listed it pays less tax.
- Outreach to investors for future finance need
By doing an IPO (Initial Pubic Offering), the company may obtain sufficient funds to finance their projects for the future. This is because it is now publicly traded which means that the company’s ownership or interest is now made available to investors in the form of stocks and bonds. Raising funds and acquisition of additional assets will now prove to be an easier task for the company since its stakeholders now consist of investors who definitely have a share of the company’s interest.
- Increased visibility
Since the company is now publicly traded, it is most likely and reasonable to say that it will be regularly advertised in the most common means of communication. This is for the reason that strengthening the visibility of the company will enable it to attract potential investors who may provide additional resources for the firm.
- Liquidity
Listing on the Exchange generally increases the liquidity of the listed securities. Entrepreneurs may love to develop one project successfully, run it in a transparent way and then change it into cash when needed for the sake of developing another one.
- Attract Foreign Investment
Being a listed company can help attract foreign investment in the firm, opening up opportunities for business expansion and modernization.
- Prestige
Being listed in the stock exchange raises the prestige of a company immeasurably. A listed company presents a positive public image. This image plays an important role in boosting the company’s credibility.
Task 2 (B):
What process would Jessops have had to follow in preparing for its flotation on the stock market?
During flotation, the following steps are advised to be followed for more efficiency and effectiveness:
1. Choose the right advisers to guide you through the process. Advisers give you a glimpse of future scenarios which may include possible setbacks and advantages. Choosing the right advisers proves itself to be a critical part of the decision to do public since failure to recognize threats and inability to adapt to such will only bring business failure.
2. Make sure your accounts and legal structure comply with the rules and regulations of the market you're joining.
3. Nominate someone in the company - typically the finance director - to take responsibility for the process. The finance director is probably the most competent person in the company to take charge of the flotation process since he is highly knowledgeable of the financial status of the company as well as the sources of its fund, outstanding debts, solvency, liquidity and profitability figures. Having him take responsibility will enable the company to move in the most objective manner.
4. Decide what type of flotation you want:
An introduction is the easiest and cheapest option, and is used if enough of a company is already in public hands - perhaps for a move from Alternative Investment Market to the Main Market, for example.
In a private placement your shares are offered to selected institutional investors. This allows you to raise capital with lower costs - but the reduced shareholder base could mean a reduced market in your shares further down the line.
In an initial public offer (IPO) shares are offered to the public and investing institutions. This can help you raise more capital but is the most expensive route to market.
5. Prepare a prospectus which will contain the key information about the company and the share offering. Remember that you're legally responsible for the accuracy of any information within this document. This will prove the credibility of the company to its target investors and so it follows that information must be true and reliable.
Task 3:
What has happened to Jessops share price since flotation?
Jessop’s share prices experienced a boost in sales after its flotation probably because of the increasing demand for digital cameras. However, after some time, the company experienced a decline in performance as evidenced by their issuance of profits warning. This can be attributed to following problems they may have encountered due to their decision to float in the market (listed in Task 4).
Task 4:
What problems are likely to have faced Jessops in taking this step in its growth?
Assess the measures which the company could have taken to avoid these problems.
1. The most apparent reason is that when a company decides to float in the market, it will probably become vulnerable to market fluctuations beyond the company’s control. Unlike a private company, publicly traded corporations’ worth is dictated by current market trends. If, for example, the demand for digital cameras decreases, then the company’s worth also decreases relative to that demand, therefore this particular decrease in their worth (or the perceived value of the company) shall make their company less attractive to investors since the pubic may not see their operations profitable given the scenario.
2. Another problem that could have faced Jessops is the “internal control” of management. When a company decides to issue stocks or bonds for ownership in the interest of the company, stockholders are likely to interfere in the company operations to protect the investment they have allocated in the firm. This interference may have caused conflict on which decision to follow since each stockholder has their own personal interest. Management control is the primary issue when a company goes into flotation since the previously private company may give up some management control to the point that it might risk being taken over. This change in control adversely affects the company since the goals and objectives will be re-aligned.
3. The cost of flotation could have been substantial to the company that it’s enough to affect their operations. Their expenses regarding the flotation process could have re-aligned their financial structure in a manner they have not predicted before the flotation considering that the expenses a firm encounters during flotation doesn’t end with the public offering since it also entails added professional costs to hire competent financial advisers and top management executives to oversee their company’s financial status.
4. Public companies will have to comply with additional requirements which may have been a burden for Jessops. This would include a minimum financial requirement, legal requirements and other documentations which can be a big challenge for a company that is still in thed beginning phases of being a publicly traded firm. Failure to comply with regulatory requirements may even cause a company to file for bankruptcy.
5. Employee Relations can also be an issue. Since flotation involves a change in management style, employees may be demotivated with the people who are currently running their operations.
6. Business Managers may have been distracted with the flotation process that they find it hard to deal with investors afterwards. The flotation process may have taken a lot of their focus that they failed to bring in additional resources to the company by attracting investors who can finance their projects. This lack of focus will certainly have its repercussions in the overall standing of the company since a publicly traded company heavily relies on their investors to gain sufficient funding resources.
Build up a picture of the business and to understand where it has come from.
Jessops is the largest photographic retailer in the UK. It was founded in 1935, so a lot has changed since then, but one thing has remained constant: the exceptionally high standard of customer service. In fact, recent research found that 94% of customers rated the service they received as excellent (67%) or good (27%).
That's been the cornerstone of the Company's success, and its phenomenal growth proves that the approach is working. The store portfolio now includes over 230 stores nationwide and the whole group turned over £350 million in the year to 30 September 2006.
The emphasis in store has always been on the customer, now more so than ever. As the popularity of digital imaging continues to grow, the Company's Spacemix system lays out stores with four distinct areas to more accurately reflect customer demand:
* Camera hardware, which includes cameras, camcorders and camera phones
* Accessories, where customers can find many of the extras they might need for their equipment
* Digital Photo centre, which gives every customer a comprehensive range of digital photo printing options, plus enough kiosks to virtually eliminate waiting. It also includes printers and scanners
* Customer Service, an area where the customer can get any help they might need. Of course, help is on hand throughout the store but this area is dedicated solely to service.
Whatever they're looking for, customers have a huge range of cameras, camcorders, camera phones and accessories to choose from. And if they can't find what they need in store, they can have it ordered.
Task 2 (A):
What does it mean for a company to 'float' on the Stock Exchange?
Flotation refers to the act of a previously private company to be publicly traded by issuing shares and soliciting the public to purchase them (in business terms, also called as “going public”). By this process, the company engages in an IPO or Initial Public Offering, which consists of its preliminary issuance of stocks and bonds available to the investing public with the aim of intensifying their resource funding.
How does this help a firm achieve growth?
Being listed in the Stock Exchange gives the company/firm several benefits such as:
- Tax Benefit
If your company is listed it pays less tax.
- Outreach to investors for future finance need
By doing an IPO (Initial Pubic Offering), the company may obtain sufficient funds to finance their projects for the future. This is because it is now publicly traded which means that the company’s ownership or interest is now made available to investors in the form of stocks and bonds. Raising funds and acquisition of additional assets will now prove to be an easier task for the company since its stakeholders now consist of investors who definitely have a share of the company’s interest.
- Increased visibility
Since the company is now publicly traded, it is most likely and reasonable to say that it will be regularly advertised in the most common means of communication. This is for the reason that strengthening the visibility of the company will enable it to attract potential investors who may provide additional resources for the firm.
- Liquidity
Listing on the Exchange generally increases the liquidity of the listed securities. Entrepreneurs may love to develop one project successfully, run it in a transparent way and then change it into cash when needed for the sake of developing another one.
- Attract Foreign Investment
Being a listed company can help attract foreign investment in the firm, opening up opportunities for business expansion and modernization.
- Prestige
Being listed in the stock exchange raises the prestige of a company immeasurably. A listed company presents a positive public image. This image plays an important role in boosting the company’s credibility.
Task 2 (B):
What process would Jessops have had to follow in preparing for its flotation on the stock market?
During flotation, the following steps are advised to be followed for more efficiency and effectiveness:
1. Choose the right advisers to guide you through the process. Advisers give you a glimpse of future scenarios which may include possible setbacks and advantages. Choosing the right advisers proves itself to be a critical part of the decision to do public since failure to recognize threats and inability to adapt to such will only bring business failure.
2. Make sure your accounts and legal structure comply with the rules and regulations of the market you're joining.
3. Nominate someone in the company - typically the finance director - to take responsibility for the process. The finance director is probably the most competent person in the company to take charge of the flotation process since he is highly knowledgeable of the financial status of the company as well as the sources of its fund, outstanding debts, solvency, liquidity and profitability figures. Having him take responsibility will enable the company to move in the most objective manner.
4. Decide what type of flotation you want:
An introduction is the easiest and cheapest option, and is used if enough of a company is already in public hands - perhaps for a move from Alternative Investment Market to the Main Market, for example.
In a private placement your shares are offered to selected institutional investors. This allows you to raise capital with lower costs - but the reduced shareholder base could mean a reduced market in your shares further down the line.
In an initial public offer (IPO) shares are offered to the public and investing institutions. This can help you raise more capital but is the most expensive route to market.
5. Prepare a prospectus which will contain the key information about the company and the share offering. Remember that you're legally responsible for the accuracy of any information within this document. This will prove the credibility of the company to its target investors and so it follows that information must be true and reliable.
Task 3:
What has happened to Jessops share price since flotation?
Jessop’s share prices experienced a boost in sales after its flotation probably because of the increasing demand for digital cameras. However, after some time, the company experienced a decline in performance as evidenced by their issuance of profits warning. This can be attributed to following problems they may have encountered due to their decision to float in the market (listed in Task 4).
Task 4:
What problems are likely to have faced Jessops in taking this step in its growth?
Assess the measures which the company could have taken to avoid these problems.
1. The most apparent reason is that when a company decides to float in the market, it will probably become vulnerable to market fluctuations beyond the company’s control. Unlike a private company, publicly traded corporations’ worth is dictated by current market trends. If, for example, the demand for digital cameras decreases, then the company’s worth also decreases relative to that demand, therefore this particular decrease in their worth (or the perceived value of the company) shall make their company less attractive to investors since the pubic may not see their operations profitable given the scenario.
2. Another problem that could have faced Jessops is the “internal control” of management. When a company decides to issue stocks or bonds for ownership in the interest of the company, stockholders are likely to interfere in the company operations to protect the investment they have allocated in the firm. This interference may have caused conflict on which decision to follow since each stockholder has their own personal interest. Management control is the primary issue when a company goes into flotation since the previously private company may give up some management control to the point that it might risk being taken over. This change in control adversely affects the company since the goals and objectives will be re-aligned.
3. The cost of flotation could have been substantial to the company that it’s enough to affect their operations. Their expenses regarding the flotation process could have re-aligned their financial structure in a manner they have not predicted before the flotation considering that the expenses a firm encounters during flotation doesn’t end with the public offering since it also entails added professional costs to hire competent financial advisers and top management executives to oversee their company’s financial status.
4. Public companies will have to comply with additional requirements which may have been a burden for Jessops. This would include a minimum financial requirement, legal requirements and other documentations which can be a big challenge for a company that is still in thed beginning phases of being a publicly traded firm. Failure to comply with regulatory requirements may even cause a company to file for bankruptcy.
5. Employee Relations can also be an issue. Since flotation involves a change in management style, employees may be demotivated with the people who are currently running their operations.
6. Business Managers may have been distracted with the flotation process that they find it hard to deal with investors afterwards. The flotation process may have taken a lot of their focus that they failed to bring in additional resources to the company by attracting investors who can finance their projects. This lack of focus will certainly have its repercussions in the overall standing of the company since a publicly traded company heavily relies on their investors to gain sufficient funding resources.
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