Examination of the Facts
Bethany Ng owns Change Purse Inc., a small business that plans to sell handbags made from “green” materials. She believes there is a market for handbags in a small Nova Scotia town and surrounding area. After assessing the competitive market and interviewing random passers-by on the street, Bethany developed a step-by-step plan to create a product line. The production is based on bags of different sizes and styles for a broad segment of consumers. The outlet building is located in the city center, and the store has an area of about 60 square meters.
Issue
How can Bethany calculate the approximate profit of a store for a month, taking into account all the risks, costs, and marketing programs? The issue is important because a small business owner must have a realistic understanding of their financial resources and income to make informed decisions about business operations, growth, and sustainability. There seem to be no underlying ethical issues.
Key Success Factors and Constraints
For Change Purse Inc. to succeed in the competitive handbag market, several key success factors must be considered. Firstly, a significant advantage of the company is the uniqueness of the goods due to their compliance with environmental standards. The declared properties of bags must meet customers’ expectations and have high quality. Secondly, providing excellent customer service is critical to maintaining customer satisfaction and loyalty and increasing sales.
In addition to these key success factors, Change Purse Inc. also to take into consideration several constraints. Change Purse Inc. has limited financial resources, and Bethany has secured a $10,000 line of credit from her financial institution. Hence, Change Purse Inc. must manage its financial resources effectively to ensure business sustainability.
Alternatives
In this case, both of the following options can and should be done:
- Creating a budget based on anticipated monthly sales volumes and expected expenses.
- Projecting potential monthly income based on sales volumes and selling prices for each type of handbag, considering the sales patterns throughout the year and the payment methods for different kinds of sales.
Analysis
Qualitative Information
It is necessary to consider the peculiarities of consumer behavior in the handbag market in a particular locality. Depending on the average age of the population and the most critical functioning organizations, it can be concluded what type of products will be in most tremendous demand and, therefore, what segment of customers will. For example, in a city with a low level of development tourism, producing ecological bags intended for travel and travel in large quantities may not be rational. In this case, if the settlement dissonant significant number of educational institutions, it is necessary to adjust to the increased demand for school bags and briefcases.
When developing a marketing strategy, it is also necessary to consider that in a small town, word of mouth is essential in attracting customers. Therefore, you can consider options for discount programs provided to those who come to the store to make a purchase acquaintance or friend. Business cards and flyers are also usually more popular in small towns and can be placed in nearby institutions.
Quantitative Information
Bethany’s monthly expenses amount to $1,800, which includes rent (including heat and electricity), office supplies, phone and internet, postage and courier, marketing and public relations, and banking fees. Marketing expenses are expected to double in 20X3 compared with 20X4. Hence, in 20X3, Bethany will have to pay $2100 per month in costs.
Conclusion and Recommendation
To forecast the possible income for the month as accurately as possible, taking into account the current expenses, Bethany should make a detailed analysis of qualitative and quantitative information. The calculations should conclude that the subsequent years of the business should reduce the current costs and, therefore, free up space for introducing new programs. The following substantial question that should be answered to determine the company’s further development is customer behavior patterns. It is necessary to follow up logically based on social networks among the district’s residents.
The key criterion will be people’s way of life and their mentality. It is necessary to understand how much potential buyers share ecological views. Moreover, it is important to analyze which segment of the bags will be particularly popular to focus on when creating advertising. In general, it can be noted that for the first small business, the most crucial task is to make a detailed portrait of the average customer, including the treatment of green production and the need for different types of bags. Regarding the costs of making the products themselves, it is essential to consider spending on high-quality materials that should leave customers satisfied.
Reference
Chapter 14: Budgeting. (2013). John Wiley & Sons. [PowerPoint slides].