Factors That Can Contribute to Duma's Increasing Market Share - Assignment Example

ID] [module and module number] Table of Contents I. Introduction 3 II. Body 4 A. Question 1 4 B. Question 2 7 C. Question 3 8 III. Recommendation. 10 IV. Appendices 11 A. Sales budget 11 B. Cash collections 12 C. Purchase budget 12 D. Disbursement for purchases 12 E. Operating expense budget 13 I. Introduction Duma Corporation is a business which sells specialist photocopiers. As a growing business, there are many challenges that the company faces such as how to retain its current market share as well as increase it, the factors that it has to include in deciding for a set of policies as well as assessing its options in order to achieve higher revenues without compromising its financial position. This paper aims to look at the factors that can contribute to Duma's success, especially in terms of increasing its market share, as well as employing strategic financial tools in order to support this objective. One of these tools which is discussed in this paper is the cash budget, and what it can do to help Duma corporation as regards its business operations. II. Body A. Question 1 There are some factors and approaches that Duma may need to focus on/adopt in order to maintain or even increase its market share in terms of attracting more customers. Discuss these factors and approaches and how they may be used by Duma corporation. In order for Duma to expand on its market, Duma Corporation has to adopt strategic management in its operations. With strategic management, the company has to start with setting a mission, vision, and corporate objectives, and then crafting a strategy in order for the company to thrive in its chosen industry. Strategic management entails application of strategic marketing, strategic finance, strategic human resource management and other functions of the company's operations. Strategic marketing will be the front-runner of the company's efforts in order to attract more customers, and increase its market share in the process. How does the company do this' It has to assess the current level of the demand in the market, as well as the supply. Given the gap in the market, it can set a certain level of market share which it aims to capture as its marketing objective. This target market share is transformed into sales objectives. After determining its marketing objectives, the company can craft its marketing strategy. It must set criteria to segment the market, such as profitability as it cannot please all the customers (Duncan 2005). After knowing the segments and targeting a segment where it want to operate, the company must know what the attributes are customers give premium on when choosing specialist photocopiers. Armed with this knowledge, the company can position itself according to the preferences of consumers. This positioning, or what the company stands for as regards its offer should set a level of expectation for the market. Satisfaction of its current customers is key to retaining its market share; satisfaction occurs when the level of expectation of the customers is exceeded (Pickton & Broderick 2001). Thus, Duma corporation must exceed what customers expect of its product in order to satisfy them, make them loyal to the brand or product of the company, or in extreme cases, advocate the brand which can help the company acquire more customers in the process. It is very usual that positive word of mouth can accompany high levels of customer satisfaction (Duncan 2005), and this positive word of mouth is a very powerful marketing communications tool in order for Duma to reach and convert other customers to joining its customer base. Customer satisfaction by providing satisfactory product and services is key for Duma to maintain its market share. This customer-centric approach to marketing is can only be accomplished by investing in consumer research in order to probe for the preferences of the customers (Pickton & Broderick 2001). Without knowing what the customers want, Duma will not be able to know how to satisfy the market; without knowing the market's expectations, it will be hard for the company to determine the marketing mix to please its target market. Thus, Duma must invest in major marketing activities such as consumer research. Because the customer's level of satisfaction is a factor of the level of expectation for the product or brand, it is important for Duma to communicate its brand promise as well. Therefore, its promotion should not only be a simple promotional campaign, but an integrated approach to marketing communications. In order to expand its market share, it has to reach more customers. This can only be done through an effective marketing communications campaign designed in order to make the company's promise reach potential customers. Lastly, a company's credit policy can also be part of what Duma can offer its customers. By providing flexible terms that could attract customers, Duma can increase its sales revenue in the process. But of course, in crafting this policy, the company has to make sure it is not going to compromise its liquidity position, where meeting its maturing obligations can becomes a problem. This is where strategic finance comes in. B. Question 2 Prepare a cash budget for Duma Corporation by month and in total for the second quarter. Be sure that all receipts, disbursements and borrowing investing amounts are shown for each month. Ignore any interest income associated with amounts invested. The cash budget for the second quarter is computed by getting the sources of cash which is collections from customers and the company's initial cash balance for the month, and deducting from it the total cash disbursements which include disbursement for raw materials, operating expenses, purchase of new fixtures and tax payments. After these are deducted, the minimum cash balance desired by the company is further deducted in order to determine the excess or deficiency which is available for the company. After this is determined, the Duma borrows or invests the excess or the deficiency in order to bring the cash balance into 100,000 at the end of every month. C. Question 3 Discuss why cash budgeting is particularly important for a rapidly expanding company such as Duma Corporation. Setting up a cash budget provides a company such as Duma with a lot of benefits. Being a In order to assess these benefits, we have to look at the components of the cash budget. A budget, more specifically a cash budget is most important for smaller and growing businesses in order to survive in the business world as it addresses the issues of resource allocation as well as policies to grow the business. The major thing about setting up a cash budget is for a company to plan its financing in order match its cash needs with the needed financing. The success of a business, especially a starting and a growing business depends on how well it manages its working capital, especially cash in order to support its operations. Over the course of the years, budgeting has evolved from being a planning tool to becoming a major tool especially for strategy execution (Cokins 2008, 45). The emergence of many different reasons and motivations behind constructing a budget, according to Horngren, Harrison and Bamber includes: "to implement the organization's strategy, and then use these budgets to plan, act, and control business (2002, 925)." With a cash being the life blood of Duma's operations, the cash budget serves as a concrete plan as regards its utilization of cash in line with its activities for a given planning horizon. A budget is a form of resource-allocation plan which aims to implement the company's strategy. Another reason why budgeting is crucial is that it serves as a tool for managers to plan, act and control the business. The creation of budget includes the activities that are included in the manager's plan for a given time period. With a cash budget more specifically, a new and growing business such as Duma Corporation with more limited cash reserves, as well as fewer choices as regards to access to capital, allocating the resources most effectively in order to set the foundation of the business is important. On the selling side, a cash budget enables a company to set policies for growth, such as credit policies in order to attract more customers. This may come in longer collection period or giving discounts for early payment, which depends on the strategy of the company. Thus, the cash budget enables a company like Duma to assess the alternatives and the impact of these alternatives on its liquidity position-i.e. With the given set of policies, will it be able to raise cash in order to meet its maturing obligations, at the same time attract more customers in order to increase its sales' How far can it go and extend credit' These questions are looked upon by the company with the use of a cash budget. Another important aspect of cash budget is its ability to determine the target purchases in order to support a given level of sales of the company. With this knowledge, coupled with the terms that creditors can provide, a growing business like Duma Corporation will be able to see and assess the alternatives in order for it to utilize leverage and the terms provided by its creditors to its advantage without sacrificing its liquidity position. In line with the uncertainty factor of the business environment, a budget provides a company some degree of preparation for contingency. By trying to anticipate future events that may impact the company's operations, managers can provide some contingency plan in the form of budgets. This way, unforeseen circumstances will not be able to shake the company's financial position in just a short period of time. Thus, a cash budget will enable businesses such as Duma Corporation in order to prepare for contingency, in terms of access to cash. III. Recommendation In order for Duma Corporation to remain competitive and thriving in its chosen industry, the company has to employ strategic management. By utilizing this approach with strategic marketing being the front-runner of the company's activities, the company can adopt a customer-centric philosophy in its operations. This will make Duma focus its activities in two goals: acquisition and retention of its customers. This can be done through marketing activities such as customer research as well as integrated marketing communications. In line with strategic marketing, the company has to employ strategic finance, or strategic approach in utilizing other corporate functions. With strategic finance, the financial resources of the company will be channeled to activities where it gives its ultimate focus, i.e. retaining and acquiring consumers, and fulfilling the corporate objective which is to maximize the shareholder value. This can be done by employing financial planning tools such as the cash budget. The cash budget will enable a company like Duma to utilize its resources to its best use in order to satisfy customers, and creating value in return. In line with its customer policies, the company can craft corporate policies in order to support its corporate strategy. Strategic financial planning tools such as cash budgets will enable a company like Duma to create policies such as better credit terms to attract more customers and increase sales revenue, without compromising its financial position. As the company can assess its uses of cash and match it with sources of cash, its plans for growth and expansion will have better structure. Also, it will be able to prepare more for contingencies that uncertainties in the business environment can bring. IV. Appendices A. Sales budget This sales budget takes note of the sales forecast that is given in the case. It is the basis for the company's cash collections budget. B. Cash collections The company has a collection policy of collecting 60% of its previous month's sale on the current month, and collecting 40% of its sales two months ago. This is the basis for this collections. C. Purchase budget According to the case, Duma spends 50% on the raw materials required to support its sales. This amount is comprised of 60% which is delivered during the previous month, and the other 40% is delivered on the current month. Therefore, in order to compute for total purchases for the month, 60% of next month's planned cost of raw materials plus 40% of this month's current cost of raw materials are added. D. Disbursement for purchases The disbursement for purchases is computed by getting the 80% of the amount of the raw material delivered the previous month (60%), and the 20% of the amount delivered two months ago, still for the 60% of the cost of the raw material. The same scheme is applied to compute for the 40% which is delivered on the current month, of which the 80% is to be paid the next month, and the other 20% is to be paid two months later. The amounts are added in order to compute for the total disbursements. E. Operating expense budget The operating expense budget is comprised of the items that are included in the case; i.e. salaries, promotion, insurance, utilities, depreciation. Property taxes are computed according to the instructions, every last month of the quarter. Wages are computed as 20% of the current sales figure. As all these are paid as they are incurred, they are included in the cash budget as cash disbursement for operating expense budget. References Cokins, G. (2008 December). "Repairing the Budgeting Process ." Financial Executive. Date accessed: April 5, 2009 from http://web.ebscohost.com/ehost/viewarticle'data=dGJyMPPp44rp2%2fdV0%2bnjisfk5Ie46bVPtq%2buTLSk63nn5Kx95uXxjL6prUq3pbBIrq%2beTrimtFKvp55Zy5zyit%2fk8Xnh6ueH7N%2fiVbOmrky1qrJRsZzqeezdu33snOJ6u9jzgKTq33%2b7t8w%2b3%2bS7S7OrtkyvrbA%2b5OXwhd%2fqu4ji3MSN6uLSffbq&hid=109 Duncan, T. (2005). Principles of Advertising & IMC. 2nd ed. New York: McGraw-Hill. Horngren, C. T, Harrison, W. T., & Bamber, L. S. (2002) Accounting. New Jersey: Prentice Hall, Inc. Pickton D., & Broderick A. (2001). Integrated marketing communications. 2nd ed. United Kingdom: Pearson Education Limited. Read More