Business of United Textiles - Case Study Example

Company United Textiles Product: Men’s Shirts Product Features 100% cotton fabric 2) reasonable prices 3) brand 4) quality designing and stitching 5) after sales services Market Segmentation: The United Textiles has divided its market into four different customer segments such as kids (5-10 years), teens (11-20 years), adults (21-55 years) and elderly (55 above). The purpose of dividing potential consumers into segments is that each particular group has different tastes, preferences and requirements and therefore makes their purchases accordingly. For example kids will require more colorful designs and prints followed by teens compared to adults who prefer dress and casual shirts for offices and other purposes. Target Market: Out of four, however, United Textiles will target first three market segments that include kids, teens and adults because of the better growth prospects and business scope in upcoming future. Differentiation and Positioning: United has planned to differentiate its manufactured textile product by highlighting the main product characteristics against its major competitors that include domestic producers, multinationals and importers. The product will be positioned by identifying the value and benefits it provides to our major clients such as comfort, quality and branding. Actually, the main objective is to sell an experience rather a product to ensure customer satisfaction and loyalty. Factory and Warehousing: A 200 sq. yard space will be rented for 4000$ a month to build a production unit of 10 stitching machines. The straight-line method will be used for calculation. The factory will also include a small warehouse where inventory of around 5,000 units could be stored at a time. We will also hire a storekeeper for 10 hours a day to ensure security. Distribution: The company will distribute its textile shirts through its own vehicles. Two mini- vans worth 3,000£ each will be purchased. It is estimated that they could be used for 10 years excluding all maintenance and repair costs. Company will use a straight-line method to calculate its depreciation expense. Advertising: The company has planned to commence an aggressive advertising campaign which includes informative, persuasive and reminder advertising so that a clear, unique and distinctive image could be obtained in the mind of potential consumers. The company will use television, newspapers, magazines, journals, radio, internet websites, sign boards, bill boards and new media that include online digital communities such as Facebook, My Space, Twitter and blogs to attract maximum customers towards its textile shirts. Advertising costs might take a higher proportion of total costs incurred during production and selling stages. We are hopeful to attain better results through our Pull strategy as mentioned above. Promotion: United Textiles will make partnership agreements with both wholesalers and large-scale retailers to successfully promote its products. Dealerships or agencies will be assigned to a selected group of vendors. In addition, the dealers will be given immediate cash discounts, coupons, yearly sales bonuses for accomplishment of sales target and other benefits. Fixed Costs and Purchase of Assets: Five major fixed costs will be incurred. The first as I mentioned above is rental expense (4000£) for factory and warehouse. Second is the purchase of 10 stitching machines each at a cost of 960£ thereby result in a total of 9,600£. They would be fully depreciated in 10 years. The equipment (fully depreciated in 5-years) will be purchased for 1000£ which will include spare parts, needles, scissors etc. Two Vans worth 3,000£ (fully depreciated in 10 years) each will also be purchased. A long-term bank loan of 6,000£ will be acquired by Z-bank at a simple interest rate of 10%, principal will be payable after 5-years. An insurance policy worth 12,000£ a year will be purchased. Remainder will be invested by the owner of the firm. Next is the repair and maintenance expense for which 345£ are devoted. Advertising budget is fixed at 5,000£, Trademarks and Insurance to be 1000£ a month respectively. 10 stitching workers, 2 designers, 1 quality administrator, 2 drivers, 1 store keeper, 1 accountant, 1 cloth cutting expert and 2 helpers will be hired. Every stitching staff is paid 4$ per shirt, each designer, quality administrator, driver, accountant, cutting master and helper will receive a salary of 2000£, 2,500, 1500, 3000, 3000 and 1250 per month respectively. Storekeeper will get 1,500£ a month. Assumption: It is assumed that all fixed assets have no resale value. Monthly Fixed Costs: Rental expense: 4,000£ Depreciation Expense: 105 (9600/(10*12)) + (3000/(10*12) Salaries and Wages: 19,500 Interest Expense: 50 (600/12) Repair and Maintenance 345 Advertising: 5,000 Insurance: 1,000 Miscellaneous: 1,000 Total Fixed Costs: 31,000£ Variable Costs: The major variable costs include the raw-material costs such as purchase of cotton cloth of which prices vary because of quality, designs and prints. Our second variable cost is the thread that is used for stitching. Thirdly, a stitching worker will be paid 4£ a shirt and it is expected that each worker would be able to produce 300 shirts per month keeping all other factors constant. Fourth is about utilities expense which varies with the production level. However, in our case when monthly production is planned to be up to 3,000 shirts, utilities expense could be around 6,000£ which means 2£ a shirt. Buttons used in a shirt would be of 1£. A cotton cloth shirt piece is assumed to be 32£. Thread expense per shirt would be 1£. Monthly Variable Costs: Variable cost per shirt = 32 + 4 + 2 + 1 + 1 = 40£ Selling Price and Contribution Margin: Since our focus is on selling experience rather than a product, we offer brands to our clients by adding value to our products. The selling price for one cotton shirt is 60£ and therefore the profit contribution is 20£. The break even point in this case would be, Break-even = 31000 / 20 = 1550 shirts Assumption: Here we have assumed that all shirts are targeted to adults, are of same size, same designs and prints, have made from similar cloth pieces and therefore have same selling price. However, if we ignore this assumption, it is worthwhile to mention that there will be seasonal effects on our product which means sales revenue and units will vary in different months or quarters. Projected, Optimistic and Pessimist Future Outlook: In Projected future outlook, I will assume that we will produce 3,000 shirts a month or 36,000 a year. All fixed costs will remain same. In Optimistic, we will assume that we will produce 5,000 units a month or 60, 000 a year. There will not be any change in fixed costs. In Pessimist, we will assume that we will produce and sell 1,000 units a month or 12,000 units a year owing to recession and diminishing consumption of textiles or decrease in demand of our products due to changing preferences of our consumers. There will not be any change in fixed costs. For financial statements, please check the excel document. SOURCES 2008. “Dragons Den millionaire: Levi Roots”. Telegraph.co.uk Available at http://www.telegraph.co.uk/finance/personalfinance/2789609/Dragons-Den-millionaire-Levi-Roots.html Scott, Philips. (2007). “Our story, by the Dragons Den millionaires”. Available at http://www.thisismoney.co.uk/work/small-business/article.html?in_article_id=425944&in_page_id=10 Newling, Dan. (2007). “Dragons Den reject celebrates soaring sales of worthless invention”. 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