Flow of people in the area:
Interview of a shop owner:
Name of the shop: GAME
Owner’s name: John Wells
Type of shop: Computer games shop
Type of ownership: Franchise
- Who are your main customers through out the year?
Mostly teenagers or young adults under 20, sometimes parents come with their child to buy games.
- How many customers do you have each week?
This really depends on many factors such as the weather for example. But on an average week I would have had around 100-250 people visiting my shop and around 60-85 percent of them are the actual customers.
- How much does a customer spend on average each week?
Well, this really depends on the customer, if he/she prefers the games available, then he/she will buy them, and vice-versa.
- What promotion/advertising to you do?
Our franchiser as part of the contract has done this. By I would assume they mainly do it in game magazines.
- What are your major costs?
Some of the major costs include setting up the shop in the first place, costs of renting the place, import of games, employee(s).
From the above questions I asked, I was able to obtain sufficient answers, which would help me in setting up my own shop. Although the type of ownership is different from my future shop, but some of the major costs for example, the costs of renting the place will be the same. Since I will be the owner of my shop, therefore it would be impossible to compare to the amount of research and the advertising standards of the franchised shops because they all have big established companies to support them and do research and advertising for them.
The prices of games (ranged from £9.99-£49.99) I gathered from this shop are exactly the same to those of others because in the game industry, the producer of games decides on the prices of the games produced, called Recommended Retail Pricing (RRP). Different game shops will try to stick to the RRP as much as possible. So there wasn’t much competition in the prices of the product.
The game shop I visited has special plastic bags given to the customer to place their games in. On the plastic bag I noticed that it had the shop’s logo/name, this told me that the plastic bags were used for advertising purposes. So perhaps I should also import some plastic bags where I could put the logo/name of my shop on.
Survey of the competition:
The competition in Oxford Street wasn’t as high as I had expected, as there were only a small number of game shops compared with other shops. The reasons for this was either due to a lack of interest in customers in that area or many potential businesses haven’t yet discovered this market. This meant that my business could gain market share quickly through successful marketing. To make sure of this, secondary research needed to be carried out. Also from the results of my primary research, I’ve found out that my main competitor will be a franchised shop called GAME as most of the people I asked recognise the shop. So in order to be competitive, I will need to carry out research on the competitor’s shop, such as getting a detailed plan of where they are placing the games to attract customers
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Secondary Research:
I have looked for MINTEL report in the Reading library for more information about the gaming industry. Also I have gone through a number of website that offers relevant data to my business
Key Current Business Issues:
- The cost of game consoles has fallen as competition amongst manufacturers has increased.
- Access to games is now available via digital television.
- The market for pirate software is growing in the UK, despite efforts to control illegal trading. However, lowering the price of products has proved successful, as the majority of consumers prefer to have the original packaging, instructions, and guarantee when buying computer games.
- New genres of games are being created. Evolutionary games, which are specifically designed to attract older players and are also targeted at a female audience, are becoming increasingly popular.
Start Up and Running Costs:
In order to set up successful game shop, the start up and running costs of the shop must be considered; therefore I had a look at the information I obtained from HSBC. Some of the major initial costs may include:
- Premises (£20,000±)/month
- Shelving (£3600±)
- Stock (replenishment)
- Electronic till(s) (£2500±)
- Security system (£3000±)
- Promotion
- Staff (£1100±)/month
- Maintenance (£100±)/month
- Power (£600±)/month
Training and Qualifications:
A keen interest in and expert knowledge of the computer games market will be essential to provide a good customer service. The key to the success of the business will be effective marketing. Other skills that may prove useful include retail training, bookkeeping and customer care.
Legal:
A computer games shop must comply with a wide range of relevant legislation, which will include:
The Copyright, Designs and Patents Act 1988
The Copyright (Computer Programs) Regulations 1992
The Health and Safety (Display Screen Equipment) Regulations 1992
The Health and Safety at Work Act 1974 and subsequent regulations.
The Management of Health and Safety at Work Regulations 1999
The Electrical Equipment (Safety) Regulations 1994
The Electricity at Work Regulations 1989
The Sale of Goods Act 1979
The Sale and Supply of Goods Act 1994
The Supply of Goods and Services Act 1982
The Consumer Protection Act 1987
The Trading Description Act 1968
The Data Protection Act 1998 (will apply if maintaining customer details)
The Equal Pay Act 1975
This meant that I have to comply with all of these issues such as checking the safety of all the electronic equipments within the shop by a qualified electrician in order to be a successful business.
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Market size:
In 1999, the value of the video games market topped the £1 billion mark with sales of £1,064 million. This is a rise of 110% on 1995 and up 11% on 1998. Forecast sales for 2000 are £1,289 million, boosted by the launch of the PlayStation 2. (Source: MINTEL)
As you can see, the above data was out of date but it gave me a general idea that the gaming industry certainly has potential.
Market Factors:
Student under the age of 16 are accounting for an increasingly large part of the video game buying market. A report from the National Foundation for Education Research found that the average secondary school pupil has a weekly income of £17, with 16 years olds receiving on average £25. This meant that the student market would be freed from the control from adults thus students themselves can decide where and when to buy the game. Which meant that the students would be the customers as well as the consumers.
The content of video games has become increasingly adult, attracting consumers from higher age groups. Young adults in employment and still living at home have found disposable income rise significantly. The advent of the minimum wage and low levels of unemployment, both results of the recent economic upturn, have meant video game consumers in this bracket are more financially better off than ever before. This meant that there is an increasing game market in the young adult segment.
Bibliography:
HSBC business profile by Cobweb Information
Mintel Report by MINTEL
Data gathered from GAME (shop) manager
Marketing:
Price
Price is a vitally important decision area because although it is a promotional tool in many respects, it is the main source of income to my game shop. If the prices are lowered for promotional purposes for too long, the cash flow within the company, and its long-term profitability could be seriously affected. The price of the product can vary according to the quantities bought, the importance to the customer of price, and the market segment.
Pricing techniques:
- Penetration price, a price that is set low enough to allow a firm to enter a new market. This would cause some losses, as the money gained from the product will not be enough to cover up the cost of promoting it. But I won’t set the price of my games too low or it would make the consumers think that the product is inferior causing them not to buy it. This will be a good method to use during the introduction stage of my shop to attract customers, although it would mean a short-term decrease in profit. But it will introduce my shop to the market.
- Critical point price. Goods are often priced at £9.99, because it seems a much lower price, even though the difference is only one penny. In my games case, the price could be set at £9.99, £19.99 or £34.99. This would make the customers think that the price of the games is actually cheaper.
- Differential Price. I could charge higher prices of my product in small towns and lower prices in large cities where there are more competition. This will help my business to gain maximum profit. However, since I only got one shop at the moment, it wouldn’t be possible to use this method until I have expanded my business.
- Loss leaders. Cheap goods are stacked in wire baskets near shop entrances to attract customers into the shop. In my case, I can perhaps put old and cheaper games in the near the entrance of the store to attract shoppers. This will increase sales by a huge percentage.
- Discount price, a price that persuade customers to buy more products in order to get a cheaper price. I could use this method to empty my stock of old games, which meant more income and less wastage.
- Skimming occurs where the price of a new product is set very high, this is normally due to the unique qualities of the product. I could use this method for any new games that’s out to the market, but first I have to make sure the game or the game’s manufacturer has good reputation so when I skim the price up, there will be people who wants to buy it.
- Cost-plus pricing is fixing the price of a product by adding a percentage allowance for profit to its cost price. This method in theory will never go wrong, it will always provide a reasonably profit for my business but by using this method I will strictly limit the flexibility of the prices of games in my shop which could limit the profit obtained from selling the product.
Product:
Product lifecycle:
Product Portfolio:
From the above diagram shows how the product lifecycles for individual products overlap in terms of time scale, providing the business with a steady source of income and profit. That’s why I have to find a new game, which will be profitable later on whenever an old game is starting to lose its share in the market during the decline stage.
Introduction stage:
This is when the product is launched and placed on the market. There is a chance that a product might not be able to succeed in a market due to mistakes made on marketing. But this will not happen to my shop because the games, which I sell, have already been researched and marketed by the producers so basically, I will have less risks of selling these games.
Promotion: Heavy promotion to let customers know about my new shop and to encourage them to visit my shop.
Price: Skimming or penetration to enter the market.
Place: Convenient so that consumers can come and buy my games therefore an increase in sales.
Product: Make sure that I stocked the games people really wanted so I wouldn’t run out of stock.
Growth stage:
After the introduction stage then comes the growth stage where sales start to rise, and costs fall because there are economies of scale in long production runs. The product begins to make a profit at a faster rate. The situation becomes optimistic. The manufacturer could decide to raise the price of the product, but it might be difficult because it would reduce the amount of products sold. My business at this stage will start to have an increase in profit and overall performance. This profit could be saved for future investment such as expansion for my business.
Promotion: Still heavy promotion to encourage even more potential consumers to visit my shop.
Price: Continue to use skimming /penetration pricing to earn more profit.
Place: Unchanged
Product: Increase stock on all types of games due to increase in sales. So I won’t run out of stock.
Maturity stage:
Eventually, the Maturity stage will take over. Sales are still increasing, but at a slower rate. Profits are high. However, there is great competition from new rival products. This is the point where most products make its profit. Perhaps it would be best if now the manufacturer start to prepare market research for the new or improved product.
Promotion: Keep on the advertisements to keep market share, so I will not loss any profit. Also I should start to offer loyalty cards to maintain loyal customers if I had enough spare money from the total revenue.
Price: Price set similar to other game shops due to the amount of competition coming through with similar product(s).
Place: Unchanged
Product: Stop increasing the stock level of games due to the decrease in sale trends but overall sale is still high and therefore still profitable.
Saturation stage:
During the Saturation stage, the market is saturated with many similar products. Sales and profits start to fall but overall performance is still acceptable.
Promotion: Dramatic decrease in the amount of advertising but I wouldn’t stop as the products are still profitable and therefore I must still try to keep my share of the market.
Price: Price reductions can help maintain sales and market share although it would mean that I would have less profit coming out from the games I sold.
Place: New outlet when games were not only sold in game shops but also through Internet ordering, this will create convenience for the customers and therefore another good way to sale my games. Overall this will extend the product lifecycle.
Product: New model/versions of products, with improved features or better design can be produced such as an expansion pack of an already existed game. But this solely depends on the producer of the game and they might decide not to launch another version. Therefore, I should start to look for a new game, which could be profitable later on.
Decline stage:
Finally comes the Decline stage where demands shrinks and sales fall even more. The product starts to lose money and is withdrawn. What I could do now is to do a price cut where prices of the products were cut dramatically in order to clear stocks.
Promotion: All advertisements withdrawn, this would result in losing market share but since the game(s) no longer is profitable, no one really cares.
Price: Reduction in prices trying to empty stock because the game(s) will no longer attract customers to buy. Therefore I will try to let the sales of the declining game(s) break even with the costs related to that game(s).
Place: Unchanged, but overall sales will continue to decrease.
Product: The games I am selling might become obsolete due to the releases of new and improved versions and therefore I will have to withdraw the older one.
The advantage of product lifecycle is that it gives a general idea of how the product will perform in the market. But the disadvantage is that the length of each stage in the product lifecycle cannot be predicted accurately without a number of things such as:
- Technical changes - affects some goods so that they become obsolete.
This will have some effects on my product when the gaming platform changes thus the game responds to the older platform becomes obsolete.
- External factors - affect the demand and therefore the product lifecycle.
This really depends on the current world situation. For example, parents may try to push their children to study more and play less thus affect the entire gaming industry.
- Durability of the product – affect the product lifecycle.
My product will have a fairly long durability but this really depends on the user him/her self.
- Fashion – affects the growth and decline of the goods.
When goods that are in fashion grow and mature very quickly and then go into rapid decline to be replaced by the next fashion. This rarely happens in the gaming industry as reduction on goods always contributes to more sales, hence a longer product lifecycle.
Complementary or competitive product:
Complementary products sell together. The manufacturer of game platforms may also make games. Retailers selling games may also sell game platforms. Customer for one product might be persuaded to buy some of the other items. In fact, the customer would expect this range and may use only the manufacturer or shop that provides it.
Competitive products compete with each other for the buyer’s attention. The same manufacturer may produce many competitive products because consumers have different requirements, so a range of games is on attempt to catch as many buyers as possible.
I think both complementary and competitive products will suit my need because my game shop will be required so sell different games from different producers and different game platforms from different manufacturers.
Product substitution:
- The replacement of one product or product model by another within your own range. Such as an expansion pack of a game replace the original pack with more features and better quality.
- The decision by consumers to change from one brand to another – in this event I have to understand how close my own, or a competitor’s, alternatively substitute product is to my original.
Product differentiation:
This happens when firms try to make the public think that their products are different from similar products made by other firms. Firms want to make their products special and different in the minds of consumers. To do this, they try to give those products a special identity, usually in the following ways:
- They give their products special names, branding them. And will protect these names by registering them as trademarks.
- They also try to make the products different through the packaging. They identify the products by using combinations of colour, design, containers and style of writing that are easily recognised by consumers.
In my case, I cannot differentiate my product because I will not be making these products. The producer will decide on the differentiation of the products. But usually they use the above 2 methods.
But what I can differentiate is my shop, for example, I could place some famous 3D character models from popular games close to the entrance to attract customers. Then they will think this shop is different than the others and therefore will pay a visit to my shop. Also I could decorate my shop according to some game scenery found from popular genres. This will create the sensation that they are physically inside the game, thus create more customer attraction.
I have decided to call my shop GMasters, which stands for Game Masters, because people who like to play computer games will be very familiar with these words, therefore instantly recognise what kind of products the shop will be selling.
USP:
The USP (Unique Selling Point) is the defining reason why customers buy your goods and services. From this I can develop a customer profile. The customer profile identifies the characteristics of my customers and allows me to improve the effectiveness of my advertising and marketing.
The USP for my product will be online ordering. As the technology advances to the Internet age, more and more people seeking purchases/services through the Internet simply because it is faster, cheaper and convenient.
Place:
Games were commonly sold in game shops or CD shops inside large shopping mall/centre or high streets because it was where people (customers) nowadays went shopping. My games should also be sold at these places because there was some competition but not a lot. I think competitions can be a very good thing; it makes the competitors keep searching and launching new product with better price and better quality therefore keep-attracting customers to buy it and thus, stimulating the economy. If there were no competition at all, there won’t be a real market, because the firm will be like a monopoly controlling a specific product that the customer had to buy because it is the only one available. This would eventually weaken the economy.
The reason I chose my shop to be run in Oxford Street is because there is a lot of flowing population where UK mainland customers and overseas customers come together to spend money on shopping goods, and the overall wealth of the population are relatively high in that area, so people will have more cash to spend on more expensive/entertainment goods. This has created a business opportunity for me. But there are some disadvantages of setting the shop in Oxford Street such as the cost of renting the place will be extremely high since it’s in central London and also it would be hard to get supplies from the suppliers because of the traffic congestion and the lack of space in central London.
Channel of distribution:
The channel of distribution is the method by which goods and services are distributed from producers to customers. There are 5 main channels of distribution:
Producer = the maker of the product.
Wholesaler = wholesaler buys goods in bulk, or large quantities, from producers and then sells and delivers them in smaller quantities to retailers.
Retailer = small shops who buys the goods in small quantities from the wholesaler and then sell it at a higher price to the customer.
Customer = the person who buys the product.
For my games, I shall use the Producer-Wholesaler-Retailer-Customer route. Because I will sell my games in small quantities ordered from the wholesaler whose job is to break large quantities of product into smaller batches. This meant that I will have to pay more in order to get my stock but this is the only possible way since I can only hold a small amount of games at a time.
Promotion:
Broadcast
Television = this is one of the most common types of advertising as nearly everyone watches television everyday. But I don’t think I will use this type of advertising simply because it’s very expensive, it will require a lot of money put into it.
If somehow my business manages to expand into a big company, then I might be able to have the amount of money I needed to advertise on TV. And if that happens, the most appropriate time for advertising is around 4 to 8 pm because that’s when most teenagers watch television. It wasn’t suitable to advertise any other time because if it’s too early, the teenagers are still in school, and if it’s too late; they would have gone to bed already. I don’t think Saturdays and Sundays are suitable because most weekends, people wanted to relax a bit after a week of hard work, so they would be most likely to take their children out for a picnic or something, no one really wanted to stay home and watch TV all day. But it is very important to remember that at the end of the advertisement to put where my shop will be because it’s no good advertising for the shop if the customers don’t know where it is. Otherwise the entire advertisement will be useless.
Cinema = this is another good way to promote a product as it was similar to TV promotion in many aspects. The film showing also has influence on the advertising. It would be suitable to show the advert before any rated film according to the rates given to the game, because as my primary research showed, people all ages play games. So I think it would be best to decide whether to put the advert on or not depending on the film that’s currently showing. Also since my business has just started, it wouldn’t be suitable to advertise in the Cinemas simply because it’s very expensive and has less audience, my business wouldn’t have enough money to support this type of advertisement.
Radio = this is the kind of advertising I think will be most suitable in the broadcast section in the early stage of my business because it’s cheaper than the above 2 methods, but it’s also much less effective. Perhaps the customers will have already known the product they wanted to purchase so all I have to tell them is where to purchase their desired products.
Press and Print
Newspaper = this type of advertising is useless for my shop, because my target audience were mostly teenagers and young adults. They don’t read newspapers.
Magazine = I think this type of advertising is quite good, because it’s coloured, attractive and more targeted. The teenagers who are reading it are active. Also it’s not like newspapers where reading once is enough. Magazines can be passed around to other readers and read several times. I could put articles about my new game shop on any game magazines, but it would be very expensive considering the amount of money I get from my shop, so perhaps I should place my adverts on local magazines first rather than national magazines.
Poster = posters can be attractive and build up awareness. They can be put in the shop or on the wall where people pass. The good thing about poster is that passers can pick up the message easily and remember it. Many game producers uses posters to attract potential customers to buy their product, so I think I should design some posters to attract customers to visit my shop in order to get their desired product. I could place my posters around my shop and perhaps on the walls of the underground tunnels since many teenagers nowadays like to travel to London during the weekends.
Leaflet = leaflets can contain a lot of information and could be read again and again by others. It’s also not very expensive to produce compared to the other advertising techniques. It’s colourful and attractive. So I think I should design a leaflet that will be put on the reception desk in my game shop so any customers in my shop could pick one up and read it. Of course I could also send them through ordinary mail or e-mails after I collected some information about the customers who are interested in games through the questionnaires printed on the leaflet. The alternative to that was to distribute the leaflets in local libraries, schools, sport centres, cinemas or clubs.
Sponsorship = this occurs when a business sponsors a local/social event in order to get publicity. I could perhaps sponsor some school events to get the publicity I want since my target audience mainly are teenagers.
Internet = most teenagers and young adults surf the net very often. So it would be useful if I could create a website especially for my shop where people can order their products online. This would be very useful since it’s very cheap and convenient, but of course I will have to consider some safety/security issues.
Direct mail = this is used when the retailer has collected enough information about their customers and know what they are interested in. The business then sends mails through the customers’ doors to tell them about the latest products/services the business offers. But I don’t think I will use this method because I think it’s not very effective. But what I could do is to ask customers to fill in some questionnaires when they visit my shop. Therefore I could gather their e-mail addresses and then later sends e-mails to them. This will be much faster, contains more information and much cheaper than ordinary mails.
Persuasive advertising:
This is advertising that tries to persuade the public to buy a particular product. Persuasive advertising is linked to branding. The advertising tries to create a brand image and to give a brand a separate identity.
Informative advertising:
This is advertising where the main purpose is to inform the public. Informative advertising is usually factual. It does not necessarily set out to sell something.
I think I will use both persuasive and informative advertisements for my business because I think it is important to tell the customers what is so special about my shop, in another words, to inform them. Therefore they will come because it’s special and perhaps purchase some products. But on the other hand, I will also have to persuade customers to come to my shop, because this will help me eventually to create my own brand.
Advertising Standard Authority
This is an organisation set up by the advertising industry to protect the public from irresponsible and dishonest advertising. The ASA controls all advertising and sales promotion in the UK, except that broadcast on radio and television. It covers advertising in the press, outdoors, direct mail advertising (including the use of mailing lists), cinema commercials, sales promotions, Internet advertisements and those in other electronic media. The ASA tries to make sure that all advertisements and promotions are:
- Legal, decent, honest and truthful
- Prepared with a sense of responsibility to consumers and to society
- In line with the principles of fair competition generally accepted in business
This meant that the advertisement my business produced must have all of the above requirements in order not to offend the authority.
Sales Promotion
Loyalty cards = these are given for purchases in some supermarkets and multiples. Points provide discounts on goods etc. I could perhaps set up a sales promotion such as this one where customers can save points into their card and get a discount according to the amount of points they have. But I think I could only introduce this type of sale promotion when my business has expanded to a chain of retail stores or has spare money from the total revenue.
Free gifts = Collect enough tokens from the packaging to get a free alarm clock for period of time only. I wouldn’t use this method because games themselves are quality goods, one is enough!
Competitions = Often used by newspapers, which offer cash or other prizes. I don’t think I will use this type of sale promotions because it was not very popular in the gaming industry, so customers might have a hard time of accepting it.
Special offers = Used by many manufacturers. They range from 3p off a bar of chocolate to £50 trade-in on your old cooker. Although many businesses use this method during the introduction stage of the product because it can attract customers. But in my case, I think it would not be suitable because computer game itself is quite expensive to import so it would be too much of a sacrifice to reduce the price in order to attract the customers, I think it would be better to stick with the RRP.
Celebrity appearance = Many producers uses celebrities to attract more customers. I think this is a very good idea to promote your product by arranging celebrities using your product on show. But the cost of this type of sale promotion will be very high considering the amount to money you have to pay to the celebrity. So this method will only be accessible during the mature stage of my business.
Public Relations
Advertising can promote a product. But the downside to that is usually it is quite or very expensive. It would be much more efficient if your firm has your own PR (Public Relations) department. One of the main tasks is sending out press releases to the media in the hope that it will be printed or broadcasted free of charge. But the message you send out cannot be controlled as some, may result in bad public relations. I think I could use this type of advertising technique in my business such as sponsoring a local event in order to get good reputation/publicity amongst the people and that eventually will contributes to the amount of products I sell.
Point-of-sale material
- Posters
- Show cards
- Display stands and cases
- Dump bins
- Wire racks
- Illuminated displays
- Pavement models
Point of sale materials is used commonly in all types of businesses. The reason for this is that the point of sale materials are easier to recognise by the customers, the message can be displayed clearly and transmitted correctly. All of the above POS material are relatively cheap to produce which meant that my business could use them as soon as the shop was set up. This will be my primary promotion tool in my shop during the start.
Market Segmentation:
The market segment for my games are mainly teenagers, because they were the ones most likely to buy games for themselves according to research, therefore they were the customers and the consumers. But according to my secondary research, there is an increasing market for young adults, so perhaps I should also pay more attention into this market, as it is potentially profitable. Overall I will segment the market by different ages of the customers and the game style of the games I will be selling.
Cash flow:
Sources of finance:
Internal sources:
Owner’s funds = sole proprietors will usually use some, or all, of their own money to start their business. I think this is a good idea but I will not use all of my savings to start up my business because if the business went bust, I will then have a serious personal finance problem.
Selling personal assets = very often sole proprietors have to sell a valuable asset, such as a second car to provide funds to start their own business. I would only consider this method as a last option for raising money for my business because if I use this method, I will be putting my personal assets into risk, and if the business failed to succeed. I would probably have all kinds of problems appearing such as personal travel without a car because I sold it to raise money. This would make life very inconvenient.
Profits = this is the main internal source for a successful business. However, tax, national insurance contributions and the sole proprietors’ money to live on also have to come out of the profits. There is no doubt that this will eventually be my main income. But until I set up my game shop and run it successfully, I will not be able to spend profits earned for business expansion or other purposes.
Depreciation = this is when fixed assets, lose value over time through wear and tear and become out-of-date. Businesses are allowed to deduct a certain amount for this depreciation from their profit so that they pay less tax. This is a good method to reduce the amount of tax I have to pay.
External sources:
Grants and loans = this is when the government guarantees some bank loans made to small businesses. I think it would be very difficult to get grants from the government simply because there are so many businesses competing for it. And plus the fact that the grants mostly were offered to those businesses in developing areas or remote areas.
Mortgage loans = businesses can obtain mortgage loans to buy property. The money has to be paid back over an agreed period. I think mortgage loans is a very good way of financing the business in terms of land ownership but I don’t think this will be suitable for my business because my game shop will be set in Oxford Street in central London. The price of the property there will be very high and there will also be lots of competition due to the further development of the area, so it’s not really worth to spend large amount of cash buying the place. Therefore I would probably choose to rent a place for my shop instead.
Hiring and leasing = these allow businesses to acquire fixed assets by paying for them at regular intervals without spending large amount of cash. I think this is a very good way of acquiring assets without spending too much money instantly. I would probably need to use this method to hire a vehicle for delivering the product to my game shop from the game manufacturers.
Bank loans =banks provide business loans for many different purposes, including loans to start a business. A bank’s decision to lend money or not depends on whether it likes the business plan of the borrower. The bank usually wants security for the loan in case the borrower runs off with the money. This will be my main source of finance during the introduction stage of my business.
Short-term finance:
Bank overdraft = this allows a business to spend more than it has in its bank account. The business pays interest only on the amount overdrawn each day, so this is a relatively cheap way of borrowing.
Factoring = the firm can sell its debts to a factor. The factor pays the firm immediately for about ¾ of the debts. The factor then collects all the amounts due and pays the firm the remaining amount minus the charges for factoring service.
Trade credit = this happens when a firms do not have to pay their suppliers immediately due to the trust /credit built up between the firm and its suppliers. By using the full credit period, a firm can use the money saved for other purposes.
Short-term bank loans = these include starter loans which provide short-term finance for a new business. (see below)
Type of loan Amount Loan period
Business overdraft As agreed 1-12 months
Starter loan £1000+ 2 years
Small business loan £1000-£15000 1-7 years
Business loan £15001+ 1-20 years
Business mortgage £15001+ 1-20 years
Source: adapted from Business Loans, Lloyds Bank
As for my game shop, I think I will choose the small business loan. The reason why I didn’t choose the overdraft is because the bank is legally empowered to require me to pay the overdraft back immediately, so if I haven’t had enough money to repay the bank when it asks, I might then have to sell my assets in order to pay the debts. Fixed term loans give me certainty of funding, so long as I keep up the monthly or quarterly repayments.
I will also have to consider the amount of APR (annual percentage rate) I had to pay. APR is the true annual rate of interest paid when money is borrowed or goods are obtained on credit. Different loan companies offers loans at different rates, so I will have to find a company that offers the lowest APR for the same amount of money I require for the same amount of loan period.
External Influences
Pest Analysis:
P = Political changes, from one party to another in control. I think if the new government introduce a different scheme of education where to persuade parents to pay more attention to the studies of their child. It would have a huge impact on the gaming industry. This would cause a decrease in the size of the market.
E = Economic changes such as an increase in the rate of interest. This would depress the business economy, cause redundancies and lower spending levels. If this happens, the gaming market might be affected, as teenagers will have less pocket money to buy computer games. Also the cost of game consoles has fallen as competition amongst manufacturers has increased, therefore I could not gain greater profit in selling game consoles. One way out of this will be to offer bundle packs to customers such as for £259.99, one could get a game console and 5 games of your choice. However, the market for pirate software is growing in the UK, despite efforts to control illegal trading. The solution for that will be to lower the price of products, as the majority of consumers prefer to have the original packaging, instructions, and guarantee when buying computer games.
S = Social changes involves changing attitudes and lifestyles such as teenagers nowadays spends more time on leisure and entertainment than ever before. So this has created many business opportunities in the leisure and entertainment areas. Also new genres of games are being created. Evolutionary games, which are specifically designed to attract older players and are also targeted at a female audience, are becoming increasingly popular, which means that I should increase my stock in this kind of games.
T = Technology changes creates opportunities for new products and product improvements and new marketing techniques such as the Internet and the e-commerce. I will use the Internet as another route of ordering games to convenient the customers. This way it would increase sales of my shop thus more profits.
My business has very little effects on the environment. One factor might be the use of plastic bags contributing to what’s called the White Pollution. To solve that problem was to use paper bags instead of plastic ones. A goods example comes from the shop called MUJI where they use paper bags to place the product in instead of traditional white plastic bags.
Conclusion:
A game shop set in Oxford Street probably won’t be successful because the rent in that area is way to high, this will mean that my business will have problems with cash flow as soon as the shop was set up. However, there were also many other factors, which would affect the business’s success. They were mainly political, economical, social and technology factors as mentioned and explained above in PEST analysis.
The information I gathered from my primary and secondary research showed that customers in the game industry will pay whatever it costs for the games they wanted provides that the game itself wasn’t ridiculously expensive. Therefore I have found out which kind of games most people like. The results showed quite an even distribution, which mean that I have to have enough stock for every type of game. But of course, the results I gathered from my primary research might not be very accurate/reliable as the number of people I interviewed was limited. So perhaps I should increase the amount of people I interview in order to improve the overall accuracy/reliability of my research.
Since the rent for my game shop in Oxford Street is too high. Perhaps I should set up my business somewhere else such as Ascot or Slough where the rent of the land/building is much cheaper. This will make it much easier to run the business as the pressure of getting enough money to support the business was dramatically reduced. Also lower rent meant that I would have more spare cash from the revenue to expand my business elsewhere or alternatively to use the spare cash on advertising in order to get more customers to visit my game shop. Apart of selling games, I could also sell any other items related to the games such as key rings, magazines, and collectable cards, in another words, selling complementary products. This will increase my market share over competitors’.
My business has very little effect on the local environment. However, one factor might be the use of plastic bags, contributing to what is known as the White Pollution. To solve that problem was to use paper bags instead of plastic ones. This will make the customers think that my business not only cares about the amount of money made but also cares about the local environment, which would results in good public relations.
The future of my business could be to expand into a partnership business or to become a private limited company. I think to become a partnership business will be the best way for my business in the future mainly because the partners will have limited liability according to the government’s new business structure (LLP, limited liability partnership), which meant if there are problems in the cash flow of the business and the business running into debts. The owners will only have to sell the business whether or not it’s enough to pay the debt. The owners are not required to sell their personal belongings for the business.
In limited companies, the shareholders could be anyone related to the original owner of the business, which means there would be people without any specific skills that might be useful to the business, where as in a partnership, most partners are professional people and will have the skills required for the business and thus will make the business more successful.
However there will be many disagreements in a partnership business such as the sharing of profits, the control of the business, the different responsibilities of each partner, resentment that one partner is not doing his/her share of the work. But by drawing up a detail document called the Deed of Partnership can solve all of these problems. Inside that document will cover all of the possible points of disagreements that could arise and their solution.
I think the local demographic data could have been useful for my business because I will be able to see what percentage of the general population in my area are teenagers and young adults, and therefore make decisions whether or not it is worth it of setting up a game shop in that area. Also the sagacity life cycle groupings could have affected my final decision about setting up the business because that piece of data can tell me what percentage of people in the area have spare money to buy leisure and entertainment goods.
But overall I think a game shop in Oxford Street will not be successful. But I have managed to save myself a lot of money through these research and analysis.