Furthermore, she wants to close ¾ of Sound and Vision plc.’s book stores. As a consequence the business might not generate the expected high profits. However, this is difficult to say because we do not have any financial figures of the past.
Question 3
Amina definitely needs to have a significant marketing budget in order to achieve of her marketing objectives. It is a fact that Sound and Vision plc. wants to enter the market of technological products and to reduce its floor space for CDs and DVDs because there is a high market growth for technology products and a decreasing demand for CDs and DVDs. Due to this strategic change of their product mix, combined with a change of the targeted age group they need to do a lot of advertisement in order to get customers’ attraction. In this case it would be the 15 to 24 year olds who are supposed to become the main customers of Sound and Vision plc.
This is essential for Sound and Vision plc. because currently only 30% of the 15-24 year olds are currently shopping at Sound and Vision.
In addition, Amina needs to to do market research as she is entering a new market. A market research is vital in order to find out customers’ needs and behaviour. If the customer needs are fulfilled and the business knows how to attract customers it can result in higher sales and hopefully profits. In general, doing a good market research results in a competitive advantage.
However, it can be argued that they don’t need to invest a lot in advertising. The reason for this is that Sound and Vision plc. is already a big established business. Therefore customers will visit the stores on a regular basis and will quickly become aware of the change of the product range.
This argument however ignores that they want to focus on a new age group. Furthermore they need to do a lot of advertisement for their new sales channel, the internet, in order to raise people’s awareness and to compete with established online retailers and supermarkets.
Question 4
There are arguments for and against Amina’s proposed strategy.
First of all, something needs to be done as in recent years, Sound and Vision plc’s profitability has fallen.
Therefore Amina wants to enter the market of technology products which has a high market growth and could lead to high sales. Furthermore the idea of „gaming zones“ which gives customers the opportunity to play computer games, watch DVD’s and listen to music on MP3 players sounds very good as it might attract the new age group of 15 to 24 year olds. Therefore Sound and Vision might gain more potential customers which can lead to high sales and increase in market share.
Another positive aspect is of Amina’s proposed strategy is that the business wants to form a partnership with a leading mobile phone network provider in order to establish the online stores. They will benefit from the usage of the network provider’s knowledge and expertise as well as the opportunity for joint promotion. This is especially a promising partnership for Sound and Vision plc. as their partner is a leading mobile phone network provider who knows a lot about their market. As a result their online store might be more successful and many customers might be attracted by the store which can lead to increased revenues. However, as it is a partnership Sound and Vision has to give up some of their profits.
Another benefit of the strategy is that Amina intends to implement operational changes such as streamlining the distribution network by establishing a centralised warehouse and distribution centre. This includes a just-in-time concept with daily deliveries from suppliers and the firm will benefit from economies of scale. Therefore the business will minimise its operational cost which will have an effect on the break-even output. As a consequence Sound and Vision will be efficient on the cost side.
Nevertheless, there are also some negative points about the proposed plan.
First of all the ROCE figure and the assets turnover figure decreased from 2009 and are very low. (ROCE: 3%, Assets turnover: 2.0) This indicates that Sound and Vision is not making a lot of profit. Therefore Amina may be over-optimistic with her Investment appraisal which suggests that the business gets the £100 million after three years back and generate a discounted net cash flow during the first three years of £29,6 million. Furthermore, the acid test ratio has been decreasing as well. Right now it is at 0.8:1 which means that they have a liquidity problem/poor cash position. Therefore it will be hard for them to raise money, as Amina needs to raise another £50 mio to cover the initial expenditures.
In addition, Amina wants to change the organisational structure by cutting the span of control into half which is a relatively narrow. The managers can tightly control their subordinates which improves the effectiveness. However, this comes at the expense of two additional levels of hierarchy. This makes it a very hierarchical organisation which generally is very inefficient as the communication flows up and down the hierarchy will suffer.
Another argument could be that it is problematic to recruit younger staff. The idea of it is to emphasise the focus on the 15 to 24 year old target group. However, the employees need to be highly trained as they need to know as much as possible about the technological products the stores now offer. Right now Sound and Vision has a reputation of having knowledgeable staff. However, this can change through new inexperienced staff in a negative way.
The success of the whole project will depend upon the advertisement strategy in order to attract customers. Another important factor will be whether Sound and Vision plc. picked the right partner with an attractive product and the right advise. In addition, it depends upon the market research. It needs to be good as they need to understand customer needs and behaviour in order to have a competitive advantage.
