Supply and demand: Susan and Peter need to know about supply and demand. Supply and demand is backbone of market economy. Supply represents how much the market can offer. Demand refers the quantity of product consumers want to buy at a certain price.
Inflation: Everyday living costs increasing all over the world. But income is not increasing like costs e.g. in 2003 petrol price was 75p per litre now £1.07 per litre. But in 2003 national minimum wage was £4.20 now £5.52. Increased in 6 years only £1.32. But cost of petrol price increased by an average of 32p per litre. That means our wages only increased by £1.32-32=£1.00 in 6 years. And if we include all other living costs it will show we are expending more than we are paid. Susan and peter will need to know about inflation because it there any changes place on near future and if they increase their product price it will affect their business.
New budget 2008/2009: Budget announce this year and lots of change has made. Like plastic bag, rise in tax. Susan and Peter need all up to date information to success their business.
Requirement 2 (30%)
Suggest market research methods and source of information that Peter and Susan will need to consider to obtain specific market knowledge (include your own source of information & give examples of what you have learnt about the water market). Explain why where may be a decrease in orders per month, despite initial orders of 2000 bottles per month.
Why Susan and peter need to carry out market research?
- Whether the product is needed?
- Who and what percentage of people might want to buy this product?
- How well this product will sell it could be better or worse than what they predicted?
- The demand of this product and how many orders will they get?
- Do they need to increase or decrease their order?
Market research method: Susan and Peter need to research the market in two ways Primary research and secondary research.
Primary research: There are number of ways Susan and Peter can carry out primary research. These are direct interviewing, telephone survey, postal survey, online/computer survey.
Direct interview: Susan and Peter can direct interview to people live in poormouth area by asking whether the bottled of water people want to launch as a new product? What percentage of people wants to launch this product and are they really keen on this product? The disadvantage of this survey they have to employ a professional interviewer. Will Susan and Peter afford this cost as we know they have very limited capital?
Telephone survey: Susan and Peter can contact people in Portsmouth area by telephone by asking related questions about their product. Susan and Peter opening very small company and this survey will cost more to carry out.
Postal / mail survey: Susan and Peter can contact people by sending questionnaire by post. The disadvantage of this survey people does not take part of this survey because it is long and people feel bored to fill all these questions. Very small amount of proportion take part and Susan & Peter won’t be satisfied.
Online / computer survey: It is same as postal survey. The advantage of this survey it cost less than other survey and easy to carry out. But result will be same as postal or may be more according to reply.
Secondary research: Secondary research is also known as desk research. This research carries out on the data already collect by another or third party or distributer of primary research. Susan and Peter can collect these data from internet, books, journals and trade newspaper.
According to B.B.C news/ Europe on the 03/05/01 bottled water is waste of money wrote by Claire doole in Geneva. It’s not healthier or safer drink than tap water.
Panorama website on the B.B.C 15/02/08 consumers spend £2billion. A litre of one of the UK’s most popular French mineral water generates up to 600 times more co2 equivalent than a litre of Thames tap water.
In my opinion there is an advantage and disadvantages of primary and secondary research.
The advantage of primary research
- Easy to carry out
- The results are confidential
- Quick and up to date
- Specific to the purposes only ask the questions business wants answer to
The disadvantages of primary research
- Take long time for collect data
- Expensive
- May provide misleading results
- Only small number of people can be contacted
The advantage of secondary research
- Low cost because use data has already collected by third party
- Easy to access because internet access may get relevant information quickly
The disadvantage of secondary research
- Information not up to date
- May be not accurate information
- Incomplete information
What I have learnt from this
- It is very useful before start business
- I can get all up to date information from market
- I can find the weakness of my business
- I can find out the demand of my product
Why Susan and Peter may be decreasing their order per month?
Susan and Peter need to decrease their order because they cannot carry all the recommend primary survey because of their capital. Although they can do secondary research by collecting data from internet, books, journal, trade newspaper but again it’s not worth to carry because they are not getting all up to date information from Cosham, Fratton, North End. According to that they need to decrease their order.
Requirement 3 (20%)
Using excel, construct a break-even chart based on figures provided in the case study. Assume that the highest number of orders they could cope with is 2500 per month. Plot fixed costs, total costs and total revenue. Comment on the advantages and disadvantages of break-even analysis as a business/management tool.
The advantage of break-even chart is:
- Susan and Peter want loan from bank break-even chart will help them to get a loan
- Susan and Peter can find the problems through break-even chart
- Susan and peter can get help because it shows profit and loss at different level
- Susan and peter have very small capital and break-even chart is cheap to carry out
The disadvantages of break-even chart:
- Susan and peter cannot rely on break-even chart because it’s only a forecast
- It shows all products are made and sold but in real business which may change
- Fixed costs remain same which may change and decrease the profit margin
Requirement 4 (10%)
Explain the implication of Susan and Peter allowing customers to receive credit and why they should try to negotiate credit terms with their suppliers.
The implication of Susan and Peter allowing customer to receive credit is:
- They will not receive the money upfront for selling product. customer will pay later by credit terms
- The company account will go overdrawn and they have to pay overdraft charge and profit will decrease
- Susan and Peter have small capital as a result they will struggle to pay their suppliers
- If customer do not pay at all how they will survive
Susan and Peter should try to negotiate with their suppliers because:
- They will give credit to customers and will not receive from them instantly as a result they cannot pay to the supplier
- If customers do not pay on time
- If customer fail to pay credit
Requirement 5 (0%)
As an appendix
Conclusion: To the end I want to say Susan and Peter have small capital which will create problem to start their business. Also they are ambitious that they will get order of 2000 bottles every month without any professional research and previous sales experience of selling bottled water. But if they get this order how their fixed cost will remain same as we know cost will increase if sales increase like employee and other costs? If they do not give credit to customer may be they will not get more order as they are expecting. Also if they give credit to customer will they get credit from suppliers? In my opinion they need more capital to start their business and make it potential.
Source:
Appendix
Advantages and disadvantage of small business
Advantages
- Allows a business to focus on core activities
- Streamlines a business' operations
- Gives you access to professional capabilities
- Shares the risk
- Piece of mind that the process is in good hands
- Do not have to worry about continually introducing new technologies
- Improves service quality
- Frees up human resources
- Frees up cash flow
- Increases the control of your business
- Makes the business more flexible to change (i.e. demand)
- No sales force maintenance expenses
- Sales expenses rise and fall with your sales
- Less management time
Disadvantages
- The fear of the service provider ceasing to trade (bankruptcy, etc)
- You may lose control of the process
- Creates potential redundancies
- Other companies may also be using the service provider. Therefore in some cases, the best interests of the service provider may be diluted with other users
- You may lose focus of the customer and concentrate on the product (the outsourced process)
- The loss of talent generated internally
- Employees may react badly to outsourcing and consequently their quality of work may suffer
- You can't control an independent representative
Implication for an individual starting a new business is:
- Need start-up capital
- No support
- Need very hard work
- Responsible for all debts
- Will not get time to go to holiday
- Stressful life
If I starting a business of selling bottle water in Portsmouth area what would I need to consider
- There is an opportunity for this business
- People living in Portsmouth area drink more bottled water
- Profit margin is very high
What market research or information would I need?
- Population of Portsmouth
- Information from superstore how many bottled water they sell per month
- Primary research by asking people in Portsmouth area do they buy bottled water
- Secondary research but need information from internet, books, trade newspaper as well as primary research
What factors would need to be assessed to decide whether or not to invest in this business?
- How many orders will I get
- How many people want this product
- What proportion of people will buy this product
- What is the profit margin
- How much money do I need to invest or capital
