The Business Structure, Product Pricing - Assignment Example

Business Scenario Scenario Deciding on business structure is the preceding determinant of the business itself. It determines the form of the business. The business structure is incumbent on the type of business i.e. manufacturing or services. Nature of business influences the decision of business structure. There are usually three popular types of business structures in UK vis – a-vis sole trader, limited liability partnerships and public limited companies. Each of the business forms has different implications in respect to raising capital, liabilities and taxes. A sole trader or a LLP business structure has no separate entity and has unlimited liability, but is restricted to the personal assets of the trader or the partners. It enjoys the benefit of taxation; profit generated from the business is taxed at individual rates. In case of partnership the income is distributed between the partners based on their capital contribution and agreed terms. Such forms of business are easy to dissolve and have no legal complexities. It gives no other person the control of the business, barring its partners or the trader himself. In case of a PLC, it has wider scope of operations and various legal implications. Employees in a company are like agents with the authority to conduct the business on behalf of the company. It has a separate legal entity. It can raise capital through either debt or equity. It has restrictions to how much funds it can procure as stated in the memorandum. The liability is the total of its equity and debt capital, which is predetermined at the time of incorporation of the company. Tax implications are usually high in case of companies, as corporate tax rates are higher than personal tax rates. The initial business leverage depends on the volume of its planned operations. If the scale of operations is big, where it requires more funds, then it should consider the company business structure and sole trader or partnership if the levels of operations are expected to be low. Scenario 2 Capital is the resource that is needed for any business to be operational. There are various ways to raise funds for a business depending on the business type i.e. services or product. Borrowing debt capitals, equity, own funds, venture capital, etc are the popular forms of raising capital. Funds thus borrowed are utilised to buy assets for the business that is intended to earn revenue for the business. Based on ability of the assets to generate revenue over its useful years, there are two types of assets i.e. fixed and current. Short term assets are utilised for daily business operations and is also known as working capital i.e. it is used to meet the short term liabilities of the business. The debt /equity capital has got implications on the cost and control of business operations. Debt capital is procured from financial institutions which have a financial charge i.e. interest but it also reduces the tax level, unlike in case of equity which offers no tax benefit but has no charges. Institutions and people providing the equity funds are called shareholders, who have control over the business decisions. A business with high debt and low equity is known to be highly geared and vice versa. In case of the solar charger business, it should look for venture capital investment or loans from financial institutions. It is likely that it would require good amount of capital, if not large, to commence its business and the partners own funds would be insufficient for such a business model. Though financial institutions may be hesitant to provide funds for new start-ups, but if the business has good growth prospects it pays for its initial investment. Such is also true in case of venture capitalists (Graham, and Smart, 2011). Scenario 3 Product pricing is another foremost factor in planning the marketing operations. It is the only metric in the 4ps of marketing that generates revenue, while the other three i.e. product, place and promotion are related to cost. Pricing is ideal when the market expectations are in congruence with the business expectations. There are two critical factors to be considered for pricing i.e. income expectation of the business and the price its potential customers are willing to pay. In order to price a product, in this case solar chargers, it is important to know the cost of producing each piece. If a business has to make profit it has to sell it for a price that is more than the cost it incurred in producing / purchasing it. Usually producing a product involves two types of cost i.e. fixed and variable. The former includes all those which are of capital nature, i.e. onetime expense and the latter includes all those costs that are indirectly or directly involved in the production of the product (Solar Chargers). Profit is generated after deducting the fixed and the variable cost from the revenue. The total fixed cost is usually apportioned over the effective years of the asset purchased and has to divide by the total production to get the unit fixed cost. The unit fixed cost is added to the unit variable costs and deducted from unit price of the product (solar chargers) to get the unit profit. With the rise in scale of operations i.e. with more production the unit fixed cost comes down, resulting in lower total unit cost, leading to higher profit margin. Scenario 4 Extensive research is required to launch a product at a specific price, at a specific place with the right incentives to the right people, for business profitability and sustainability. If a business fails to set the right price for the product, it will result in lower sales, which will lower the profitability. The business of solar chargers should consider the target market for its product and understand their buying pattern and then should stimulate the segment with proper promotion tools like, sample, initial discounts, advertisements, etc. Though the procurement of market information is difficult, but it is possible by using various methods like survey, focussed group discussions, interviews, etc to understand the target market and their behaviour. Market information is very important to set the price of the product that is aimed at creating value to the customers. Setting wrong price for a product will result in falling demand, which will resultantly reduce the profits. Pricing is different for different products. For certain products customers might relate high price to high value, on the contrary they might feel that the product is overpriced compared to the value of the product. Thus, it becomes highly imperative for business sustainability to understand the customers’ tastes and preferences so that it can target the right people at the right place with the right product with right the promotional activities and at the right price. Scenario 5 The market research results aid the business, in this case producing solar chargers, in shaping the product. It is a cognitive process, which involves in determining the product attributes features, etc. If the market research for solar chargers was done efficiently, it would come up with solutions for the customers’ needs and wants. In case of solar chargers, it should have a good built, sleek, portable, multiple charging points, attractive and other features that would cater to the feeds from the market research. Product design specification outlines the various external features along with its internal components that will impact the market segment for which it is targeted. Product design specification aims to draw the key factors in developing the product. It usually addresses the core and augmented functions of the product that will be considered in the production of it (Solar chargers). The augmented functions of a product usually satisfy the unspecified needs of the target segment. In the case of solar chargers, it should look into the aspects of charging time, device compatibility, run time and others. These are the underlying factors that would influence a customer’s decision in buying the solar charger. Product design specification should include the stated functions and attributes which would help build a product that aims at satisfying the customer needs and add value to their purchase (Hutt and Speh, 2012). Scenario 6 Manufacturing devices like solar chargers has environmental implications, which have adverse consequences on the business by way of hefty fines. Various international regulatory bodies have developed standardised process for manufacturing products, to limit the effects of radiation on the environment. Various legislations have been passed to enforce and adopt the safety practices of manufacturing products like, ISO 14001, WEEE (Waste electrical and electronic equipment directive) and ROHS (Restriction of hazardous substances directive). WEEE is a European Union legislation that enforces better waste collection, disposal and recycling of electrical devices, whereas ROHS restricts the use of harmful substances like cadmium, mercury, lead, hexavalent chromium and others in the production process. Though such legislations have brought about change in the manufacturing practices, still it has impacted the cost of business operations. Such practices force businesses to use environment friendly inputs in the process that are usually high priced. The use of better manufacturing facility meeting the global standards of safety has also pulled the capital expenditure bill, leading to rise in product price. The solar charger business should build small facility that will meet the safety standards of ISO. It should ensure use of environmental friendly inputs in its manufacturing process, ensuring work and product safety. It should encourage its customers in the process of educating about the harmful effects of open disposal and build facilities that will recycle the old chargers or use it as a source of energy for its production process. Scenario 7 It is highly imperative for manufacturing processes to ensure high yield for its products. The solar charger business should have implemented a process to measure and control its production yield. Yield in production refers to the output with respect to the input. In every manufacturing process there is some residual waste, the objective of such measures is to reduce the waste so as to increase the yield. Lean manufacturing practices should have been followed in the process of producing solar chargers. Lean manufacturing measures include various analyses like tolerance, Monte Carlo etc. It should have implemented a tolerance analysis program to reduce the tolerance stacks. Tolerance stacks refer to the accumulation of variances in the production process that is below or beyond the specified limits. It is a failsafe mechanism that prevents excess use of inputs in the process to give the same level of output. A lower tolerance stack happens when the yield drops below the lower specified limits because of increased wastage and an upper tolerance stack is when the yield exceeds the upper tolerance limit. The upper tolerance stack is usually because of excess consumption of inputs. A component tolerance design will help the solar charger business in reducing the effect of tolerance limit variance. The tolerance limit variance leads to stacks, which if not monitored and controlled will lead to significant impact on cost, price, revenue and profitability of the business (Murthy, 2005). Scenario 8 Manufacturing of complex electronic devices like solar chargers should have proper testing facilities. Every business wants to sustain and add value to its proposition. Inherent defects in the product component will lead to manufacturing defect and finally will affect the overall product functionality. It depends on the scale of business operations, whether to buy small equipments to conduct product and component tests or build a state of art facility that meets the safety standards of the regulatory bodies. There are various equipments available like ICT (In circuit testers), Manufacturing Defects Analysers (MDA) and Functional Testers (FT). These equipments test the product at various levels of manufacturing. ICT tests the product at the component level. It finds out if there are any defects in the product components that might lead to manufacturing defect. MDA detects any defects in the manufacturing process of the electrical device (solar chargers). FT checks the overall test of the product, before it is packed for shipping. It checks the desired level of performance with the actual performance of the product. If the results are below or beyond the permissible limit, products are called off and further inspections are made to meet the performance standards (Murthy, 2005). Scenario 9 While designing a PCB testing is a very important component that should be kept in mind. Testing is used to ensure reliability of the product. Without proper testing mechanism the company cannot be sure of the warranty period that it should provide with the product. So while designing the product there should be proper provisions that allow the product to be tested before it is actually released in the market. If the product is not properly tested and released then it may cause the product to fail within the warranty period then it will result in extra cost for the company and also will cause reputation damage for the company in front of customers. However in case of a large circuit it is very difficult to test the individual component in order to determine the fault if they are all integrated together. The best way to circumvent the problem is to design a modular circuits and keeping a provision to each of the components of the modular circuit individually. While designing a circuit care should also be exercised to ensure that that circuit is controllable and its characteristics individually observable. Scenario 10 Electronic design is very important stage for the manufacturability of a product. The art is to design a product in such a way that they are easy to manufacture. The idea is known as Design for manufacturability. The concept focuses not only how easy the product is designed but is instead designed in such a way that it is easy to produce or manufacture and also there is an overall reduction of cost of manufacture. In order to achieve greater automation in the manufacturing process what is required is actually modularity. Modularity is the concept of designing the system components in parts and then combining them to form an integrated circuit or PCB board. The concept of modularity refers to the designing of individual parts or components that are designed according to standard tooling and are part compliant. Each part is individually compliant with the regulations and is design according to standard tooling which are then fitted into a backbone panel. The concept is known as ‘modular- board- plugged-onto-a backplane-concept. There are two ways to design a PCB. One is automated type and other is component type. In the component type individual components are fed into slots in order to build a PCB where as in automated type automatic circuits that are designed and printed on a printed circuit board. The benefits of component based circuit board are that it offers flexibility that is not offered by the automated circuits. An automated circuit on the other hand offers little resistance and can be used to design circuits with much more ease. Interconnection method is used to connect different parts of the circuit to form a large circuit. The interconnection methods generally use an adhesive medium that is conductive to connect two substrates. The method chosen should have conductive particles deposited on a surface of one of the substrate and depositing paste on connecting face of another substrate and then connecting the two substrates together. This method is beneficial as it facilitates even distribution of charges and better conductivity between substrates. The appropriate assembly method is SMD where components are directly paced on the circuit board and soldered rather than the in-hole technology that was used earlier. Scenario 11 Reliability is defined as the probability that a component or part will be performing satisfactorily over its intended life period given that its environmental condition remains constant. When a product is designed one of the necessary conditions is that it should be reliable. This is necessary as because when a company sells any product it attaches a warranty or guarantee with the item and the product is designed so as to perform satisfactorily over its life period. If the product fails during the warranty period then it is not only a face loss for the company but also results in loss of money as the company would have to again provide the same product free of cost. One of the ways in which product reliability is tested is through random testing off a large sample through which a curve called the bathtub curve is generated. To make a product reliable a company may have to perform additional tests and ensure that the component parts are good. These tests will obviously increase the cost of the product but the customers may agree extra costs for the sake of having a product that is reliable. The statistical tool that is designed to test product reliability is the bathtub curve. A bathtub curve has 3 sections the 1st is the stage of early mortality, then comes the stage of useful life and the last is the wear out or the failure period. Scenario 12 Solar charger is an innovative concept that shall attract desirable market share. It is essential that features of solar charger are appropriately highlighted in marketing plan. There are different components encompassed within marketing strategies. These components are product, price, place and promotion. Solar charger is an important product in current scenario as rate of energy consumption has drastically increased. Marketing plan of this product must comprise of added benefits which would be offered to target group. Firstly an advertisement campaign needs to be structured which includes various aspects of product features. Solar charger is an alternative product in context of those chargers which are based on electricity. It can be stated that energy saving devices are in high demand in current scenario. Product features to be highlighted in marketing plan will be its intricacies, design, product advantage, etc. Pricing strategy is another critical factor in marketing strategies. There are different pricing techniques incorporated by organizations but in this case competitive prices would be included. Solar charger is a completely new concept within market place but there are players coming forward to manufacture such product. Competitive prices of the product shall increase its sales volume since it would be within competitive range. A wide base of distributors will be maintained in order to enhance accessibility of customers. Promotional tools to be utilized for this product would be digital media, print media, social media and events. On basis of this promotional mechanism, a strong connectivity can be developed between product and customer. References Graham, J. and Smart, S., (2011). Introduction to corporate finance: what companies do. Mason: Cengage Learning. Hutt, M., Speh, T., (2012). Business Marketing Management. Ohio: Cengage Learning. Murthy, R., P., (2005). Production and Operations Management. New Delhi: New Age International. Read More