Broken Hill Rural Sacco - Marketing Strategy - Example

Description of products and services Broken Hill Rural Sacco (BHRS) is considering offering its members a range of products through the back office and Front office savings activities. The front office offers members a chance to maintain current accounts. This enables them to make money deposits that are withdraw able at the member’s pleasure. Money deposited with the back office is not withdraw able unless in the form of a loan or at the time that the member wishes to withdraw from the society (Macgrath et al, 2011). The loans that will be issued will either be in the form of short- term and long-term loan facilities. The short –term loans that are obtainable within 12 hours include the emergency loan that is repayable within 1 month at a rate of 10%, instant loan that is repayable within 3 months at the rate of 3.5% per month and the super instant loan that is payable within 1 year at the rate of 4% per month. The loans have a maximum amount that can be granted, being $ 100,000, $ 200,000 and $ 300,000 respectively. The long-term loans that are payable at the rate of 1.8 % per month, which the Sacco plans to grant include; the normal/development loan that is payable in 3 years. The amount to be qualified being three times a members savings or deposits. The second long-term loan is the refinancing loan that is also referred to as the top up facility. It will be issued to the members that have existing loans and have already paid up to 67% of their loans. The school fees loan is payable within one year The services that the members will obtain include expertise training. This is because; the Society intends to conduct member’s education meetings on annual basis. Through these meetings, the members are advised on the most viable projects that they can invest in. They are also trained by experts on how to produce to the maximum in their various businesses and fields of training and as result to save more with the society. By offering these products and services, the members are in a position to start or expand their businesses, pay school fees and meet any other financial obligations. Technological Considerations It is important to note that, an appropriate and an up to date management information system is essential to banking operations. This is because; the rate at which technology is changing in both nationally and globally is drastic. It is therefore taking a central role in how businesses are being operated and managed. The technological developments that have led to the revolution of the financial industry include the introduction of e-banking, automated teller machines among others. BHRS therefore plans on installing an information system that will enhance its operations and ensure its smooth running. This is after the realization that in order to provide financial services now and in the future, the society must be willing to invest in open systems and technology adaptive facilities (Gary, 1996). This will be achieved by establishing an information and technology department. The personnel in the department work towards ensuring that the system is operating and giving results as expected. The department will also be responsible for the designing and implementation of the Sacco’s website. Through the website, the society is able to market its products to its potential customers by listing the products and the services that it offers with their descriptions. In the long run, online sales will be possible through the website. This will give the society a competitive edge against its competitors as well as keeping it abreast with the emerging trends in the financial market. Automation will enable the society to serve its members better as well as grow membership in the new segments and the targeted markets. However, in order to achieve this, the society requires a lot of funds and high expertise. Since the Sacco is a new entity, this is a costly process to develop and implement. The Sacco will therefore operate manually for the first six months since the operations will not be as numerous, as plans on how the system will be put in place will be ongoing. Product/service market place Australia is known to have a banking sector that is profitable, strong and regulated, which participates in both the regional and global financial markets. In the 2010s World Economic Forum Financial Development Report, it was ranked 5th among the world’s leading capital markets and financial systems. However, the small and medium sized enterprises and the individuals in the rural areas have been marginalized. BHRS aims at providing financial assistance to such groups and individuals. Marketing strategy In order for BHRS to be successful, it must capitalize on its strengths, minimize its weaknesses, make maximum use of its opportunities and avoid threats. The feasibility study committee has realized that, the Sacco’s strengths include; open membership, where there are no restrictions as to should join the society. This will create a large pool of members. The high demand for loans at lower rates than the banks are offering will give the society a competitive edge against its competitors. Since the leadership of the Sacco will be spearheaded by professionals, the governing structure will thereby be strong (Cuevas et al, 2006). The identifiable weaknesses include an inadequate ICT system that is unable to meet the society’s operational needs, inadequate staffing since the Sacco is a new enterprise, inadequate money to finance the outstanding loans, inadequate capital base that is required for the deposit taking license and a debt recovery system that is slow and full of delays. The opportunities that the society is facing include; the possibility of expanding its member base through advertisement and marketing, diversifying its services to include electronic banking, enhancing products awareness by conducting marketing campaigns and the possibility of obtaining external funds so as to finance its operations. One of the greatest threats that BHRS is facing is competition from other financial institutions, the other being inconsistency in the members saving. The society faces competition from other Sacco, retail banks, brokerage firms, mutual fund companies among other financial institutions (Matthews, 2003). There is therefore need for the society to differentiate itself from its competitors. This will be achieved by ensuring that it disburses the loans on a timely basis that are similar to those that other credit unions are offering. By hiring competent staff and customer care, the society’s smooth running is enhanced as the needs of members are adequately attended to. In order to develop a competitive edge against other financial institutions, BHRS should widen the collateral base for the loans it is offering to its members. By conducting services marketing, the society will bring to knowledge the products and the services that they offer to its current and potential members. In its marketing, BHRS will target the small scale businesses, groups and individuals especially those that are located in the rural areas. Organization and staffing The society’s structure is dependent on the participation of the board of directors. The members therefore will appoint the board members, who will be in charge of the Sacco’s management and major decision making. The directors will also be responsible for the development of policies and by-laws that will govern the running of the Sacco. A supervisory committee will be established by the members, whose role is to ensure that the management committee takes appropriate measures during decision making. It is important to note that, the main objective of a credit union is to establish an organization structure that is not biased. This will ensure that the members funds are invested in viable projects and the society’s funds are not misappropriated. To attain this rotation of the board members will be conducted annually during the annual general meeting. In order for BHRS to operate efficiently and effectively, there is need for it to identify the staffing levels required as well as their qualifications. This is because human resource is the most vital component for an organization to run (Birchall, 2004). The credit union will therefore create job opportunities to the local community. The recruiting of staff will be conducted in accordance to the organizations structure and its future needs. However, not all positions will require strategic planning, but those that are crucial in the Sacco’s operations. For instance, the position of the general manager is vital since he/she will be in control of the society’s operations. However, such an individual will be responsible to the board of directors while the other staff will be reporting to him/her. The organization will be divided into departments for instance the accounting department, the credit and debt collection departments, the tellers and customer care departments among others. Staff recruitment will be conducted according to the departmental needs in order for the society to implement its strategic plan successfully. Therefore, the vacant positions will require an urgent filling. For instance, the credit officers will be responsible for qualifying and approving of the loans applied by the members, as well as preparing schedules on how the loans will be disbursed. The personnel required in this department ought to have cooperative management qualifications among other skills. In order to maintain the staff level required, the management will ensure that the work force is motivated by means of both financial and non-financial incentives. This will also ensure that staff rotation is minimal. Schedule BHRS intends to kick off by mobilizing the rural communities to register with the Sacco. This is the most important task for the Sacco since members are the backbone of the business. It is not going to be easy to win the confidence and trust of members especially because the Sacco has not been in operation and since there are other Saccos and financial institutions that extend the same services to the rural people. Therefore, most of the time will be allocated to this task. Members will be recruited and at the same time requested to immediately start saving with the Sacco in order to qualify for some of the Sacco products especially those products that depend on a member’s savings or deposits. The new members need to be made aware of the operations of the Sacco and also be educated on financial management and the benefits of the various Sacco products. The already recruited members will take part in the election of board members. In brief the table below summarizes the schedule for the Sacco. Date Activity Duration April Establish the Sacco 1 month May 2013 Mobilizing members to register with the Sacco 2 months July 2013 Education and expert training of members 2 weeks July 2013 Election of board Members 2 weeks August 2013 Establishment of an information and technology department 2 weeks August 2013 designing and implementation of the Sacco’s website 2 weeks September 2013 Start automated systems Financial projections The financial projection of the Sacco is illustrated by breakeven analysis and sales forecasting. A number of assumptions have been made in the financial projections. They include; The Sacco will have as much members and members are given loans independent of the loan status of the other members. This means that at any particular time the Sacco will have very many members remitting interest income to the Sacco for the various loan products. The sales revenue will be 6,000,000 in the first year but is projected to grow at a rate of 10% on a yearly basis. It is estimated that the variable costs will be 80% of the revenue generated. It is projected that the fixed costs will be 1,500,000 in the first year but in the second year it will be 1,000,000 and then increase by 100,000 every year throughout the projected period. It is also assumed that the members will make the periodic interest payment and the principal loan repayment as per the loan schedule and that no loanee will default on payment. An assumption is made that an ideal member will have stayed in the Sacco for at least three months before qualifying for the desired loan from the Sacco. The breakeven analysis of the Sacco is illustrated in the table below year 1st year 2nd year 3rd year 4th year 5th year Sales revenue 6,000,000 6,600,000 7,260,000 7,986,000 8,784,600 Variable cost 4,800,000 5,280,000 5,808,000 6,388,800 7,027,680 Contribution margin 1,200,000 1,320,000 1,452,000 1,597,200 1,756,920 Fixed cost 1,500,000 1,000,000 1,100,000 1,200,000 1,300,000 Income -300,000 320,000 352,000 397,200 456,920 It is clear from the break even analysis that the Sacco will realize a loss in the first year of its operations. This will be due to the high fixed costs in the first year of operations coupled with the low sales. Sales revenue forecasting During the first month, the Sacco will be established, staffs recruited and hired and mobilization of other Sacco resources. Remittance of interest will start in the fourth month since it will take three months for a member to accumulate enough deposits as a requirement for the loan in addition to the first month for establishing the Sacco. Therefore, there will be no sales revenue during the first four months. Sales activities will begin to pick up from the fourth month since, as noted in Oberuc (2004), rigorous marketing will be made which will create awareness of the presence of BHRS Sacco in the rural areas. However, the overall sales revenue will still be low in the first year of operation. The first year sales revenue will be 6,000,029 while in the second it is forecasted that sales revenue will increase by 10% henceforth. Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Loan amount in force Emergency loan 400,000 404,000 408,040 412,120 416,242 420,404 424,608 428,854 433,143 Instant Loan 14,000,000 14,280,000 14,994,000 15,743,700 16,530,885 17,357,429 18,225,301 19,136,566 20,093,394 Super instant loan 1,800,000 1,854,000 2,039,400 2,243,340 2,467,674 2,714,441 2,985,886 3,284,474 3,612,922 Development Loan 1,000,000 1,010,000 1,020,100 1,030,301 1,040,604 1,051,010 1,061,520 1,072,135 1,082,857 Refinancing Loan 400,000 402,000 404,010 406,030 408,060 410,101 412,151 414,212 School Fees Loan 900,000 927,000 927,927 928,855 929,784 930,714 931,644 932,576 933,508 Total Loaned Amount 0 0 0 18,100,000 18,875,000 19,791,467 20,762,326 21,791,218 22,882,058 24,039,059 25,266,756 26,570,035 Interest revenue Emergency loan 0 0 0 40,000 40,400 40,804 41,212 41,624 42,040 42,461 42,885 Instant Loan 0 0 0 490,000 499,800 524,790 551,030 578,581 607,510 637,886 669,780 Super instant loan 0 0 0 72,000 74,160 81,576 89,734 98,707 108,578 119,435 131,379 Development Loan 0 0 0 18,000 18,180 18,362 18,545 18,731 18,918 19,107 19,298 Refinancing Loan 0 0 0 0 7,200 7,236 7,272 7,309 7,345 7,382 7,419 School Fees Loan 0 0 0 16,200 16,686 16,703 16,719 16,736 16,753 16,770 16,786 Total interest revenue 0 0 0 636,200 656,426 689,470 724,512 761,688 801,144 843,041 887,548 Total Sales revenue For the first year = 6,000,029 Findings and recommendations The findings from this study show that the Sacco will be highly beneficial to the rural people and the initiative will be equally profitable in the long run. The findings of the feasibility study also show that the only revenue for the Sacco is the proceeds from the loan extended to the Sacco members. As explained in Walter (2001), the Sacco will achieve break-even point in its second year of operation and the revenue income will be increasing every year. This will be made possible by the rigorous campaign and marketing activities fronted by the sales personnel in the Sacco. The main variable costs for the Sacco are marketing related costs which include the sales force at the sales department. These personnel are purely paid on commission basis. Fixed costs will be experiencing stepwise behaviour because of the additional staffs’ requirement as the Sacco grows in size. The use of automation systems will facilitate the functions of the Sacco and most staffs will concentrate on other areas that generate revenue for the Sacco (Nickerson & Silverman, 2003). The marketing principle of basing the sales force personnel’s salary on commission basis will see the staffs go an extra mile to register members and buy the loan products from the Sacco. Investment in fixed assets is very minimal in this business. Its most assets will be current assets with cash being the major. It is recommended that the Sacco give out loans to members depending on some other factors beside the size of member’s savings or deposits. This is because a member may show the willingness and has the ability to meet the periodic interest payments on the loan and the terminal value. Such a member introduces a viable opportunity for the Sacco to maximize its revenue hence profitability (Fess and Warren, 2004). This member may be required to support his loan with a collateral or the goodwill that the member has with the Sacco. A grace period is recommended for loans whose maturity periods exceed one year. This will provide an opportunity for members to invest the funds they source from the Sacco and continue meeting their loan obligations using proceeds from their business. As argued in Brown and Matysiak (2007), this is a guarantee for the Sacco that its members are empowered hence minimal chances of defaulting on loan repayment. References Birchall, J., 2004. Cooperatives and the Millennium Development Goals. Geneva: International Labour Office. Cuevas, C & Fischer, 2006. Cooperative Financial Institutions: Issues in Governance, Regulation and Supervision. World Bank Working Paper No. 82. World Bank, Washington, DC. Matthew, R., 2003. A future or no future; Credit unions in a globalizing economy: proceedings of the 41st annual conference of the New Zealand Association of Credit Unions, Hamilton. McGrath, M., Twining, B. & Dickinson, A., 2011. Building societies and credit unions; financial institutions performance survey, Kiynreld, Peat, Main and Goerdeler (K.P.M.G) L.T.D. Gary, L., 1996. Credit movement of Australia. The Credit Union Services Corporation (A Australia) L.T.D Brown, G.R. and Matysiak, G.A., 2007. Real Estate Investment: A Capital Market Approach. London: Financial Times. Fess, E. and Warren, C., 2004. Accounting principles. Canada: Southwestern Company. Nickerson, J., & Silverman, B., 2003. Why firms want to organize efficiently and what keeps them from doing so: Inappropriate governance, performance, and adaptation in a deregulated industry. Administrative Science Quarterly, 48(3), 433–465. Oberuc, R. E., 2004. Dynamic portfolio theory and management: using active asset allocation to improve profits and reduce risk. New York: McGraw-Hill Professional. Walter, N., 2001. Microeconomic Theory: Basic Principles and Extensions. New Delhi: Dryden Press. Read More