Business Models: A Strategic Management Approach - Assignment Example

? Marketing Plan Executive summary In the recent past, organizations have adopted a way of increasing productivity when faced with economical, social, technological or environmental changes and that is through change management. However, these organizations have resulted to marketing strategies as an addition to that. To achieve these marketing strategies an organization must identify and understand environment dynamic forces which include; PEST, competitors, customers and itself. In this article, I will use an example of a company called Bodywise Health spa. Bodywise Health spa is an organization offering a complete day spa and body workout experiences to small medium sized businesses that offer health services to their employees. The spa will offer massage in different variety of styles including traditional massage, deep tissue work, hot stone massage, pregnancy, reflexology, sports and others. (Bplans, 2010). Treatments on body and face using the best products such as Pevonia’s Anti Free Radical Treatment and Vitamin C Antioxidant Facial are offered by the health spa. The latter also uses special latest techniques and anti aging products. The challenge The product to be marketed by Bodywise Health spa will include body creams and jellies, which have different purposes on the body. The spa’s mission is to ensure that the client get their value work through quality services. The ultimate goal is to ensure that the customer does not only comes back once but more and more often, not forgetting other referrals. The spas main strategy is to use any opportunity available in the market their products and services to customers. Best products on creams and lotions will be used. A classy environment that is relaxing, comfortable and enhanced by smooth music, lighting, decor will be available. Feedback mechanism will also be used to get client’s needs (Afuah, 2004). Projected sales of the product will be approximately 2 million dollars after every month excluding services which will also be projected to generate an income equivalent to the same amount. These are the major challenges of the organization which have to be faced by the entirety and a major conclusion met. Situation analysis Customer number is of major concern to any organization. Turnover will be a major consideration in formulating which marketing strategies to be used. Their type and their numbers are also equally important so as to bring a variety of the products to fit in the various types of customers. It will target potential clients both male and female within ten mile radius within our location at a busy plaza in the city. Both individual employees/self employed and non employed employees are also placed in the plan. In order to acquire clients, the spas will implement a very aggressive marketing and networking in the business community through advertising in the media and going to the business premises to carry out presentations, followed by offering the best services in the health spa business. Skilled therapists and trainers include the personnel. Their prices are also competitive in the area so will give a better financial advantage. Pricing approach includes; penetration pricing, promotional pricing and premium pricing. Penetration pricing is normally put first and includes setting the prices very low to gain market share. Promotional pricing comes in order to enable the business to buy for long term. Premium pricing will be used lastly which involves setting a very high price of the unique product to gain competitive advantage from the other competitors in the market. Social sites like face book, twitter, you\tube will be of great marketing help, and also in the company’s website. Sales promotion using short term incentives to encourage business to respond and undertake some activity and personal contact between Bodywise Health spa and prospective business clients through face to face meetings and tele-marketing will help maintain they spas competitive edge. The success of the business is mostly determined by the location. The spa is located at strategic places within the outskirts of the town with focus on management, sales and marketing and ensuring massage and aesthetician therapies to the employees are done up to standard. With these tactics the potential of the profit to the organisation is maximised potentially by a direct-care giver over a one or two person operation without any sales, marketing or management background. The managers have conducted a major feasibility study on all spas in the country and taken ideas from the best spas. Mistakes have also been noted down and worked on them to make them their best opportunity. Collaborators Bodywise Health spa should take into consideration the option of forming a subsidiary of its own to enhance a wider marketing area. However, the subsidiary is answerable to the main office but the accounts are prepared separately, later consolidated. Through this marketing collaboration, more sales are done; more customers come into the picture hence more profits which will be indeed a major boost. Joint venturing with a different partner who may not necessarily be doing the same business as spas but who will help maybe in the manufacture of their products like the jelly bottles, stickers and application tools. Though profits generated will be shared because of the nature of the business, it will be better than nothing. Hence more income is generated. Reliable, strict, well maintained distributors will be of major help. Lateness by any distributor is a major setback to the organisation which is profit oriented. Such distributors should be discarded with an immediate effect. Honesty is of major concern to any organisation regarding its distributing agent it is working with to avoid unexplained disappearances of products. Climate Macro environmental P.E.S.T. analysis, i.e. political and legal environment, economic environment, socio-cultural environment and technological environment. Political and legal environment should be friendly. If the political scenario puts a major risk to the going concern of the business, then the best option would be to relocate. In the context of legal framework, the simplicity to get a working permit should be a great consideration. Since no organisation is allowed to operate without a valid licence. Bodywise Health spas organisation is in the best location since the local government authority is a well managed piece of institution hence no difficulty in acquiring a licence, unlike other spas, hence no termination of services whatsoever. This is a direct flight to greater sales. Economic factors like higher interest rates may be a major problem because if this organisation was to be started using borrowed money, it would be much harder to take a loan to start the business thus a major discouragement to invest in it. Gradual taxation changes will have an effect on the financial statements of Bodywise Health spas. Fluctuating profits , in most cases will be to a downfall will be of keen interest to the investor, so Bodywise Health spas was placed in a location with a steady taxation rate. If the national income increases, it will mean that there will be a demand for the creams and jellies from the organisation, hence more profits. In the near future, this organisation will be in the advancement stage where it will be exporting its final product. In the happenings that the currency is strong, it will make exporting more difficult since prices will rise in the foreign currency. Social/cultural factors such as changes in trends will have an impact on the jellies and creams. They must be in the most fashionable state as at that time. Demand for obsolete product would go down and also will sales hence low profits. In this organisations environment, the population is ageing so more anti ageing products are being produced hence Bodywise should be on the first lane to achieving this specific products. Technological factors affect the organisation in many ways. First technological advancement in products will in most cases lead to more demand from consumers and therefore more sales. Therefore it should be of consideration. Online shopping is a better way to do business to people who cannot be able to reach the premises hence more sales resulting to more profits. Design and development plans The following table illustrates the operational plans that were made for the spa business. The spa was opened on May 2006. Before that, some things had to be completed and implemented. The location was selected on January 2006, on February, the company website was established together with implementation of the laid down promotion and advertising plans. On March and April, the company would implement aggressive marketing and promotion while hiring staff who include two front office persons and other staff. On May the business was to commence and, at the same time, continue to advertise the services through the media and other methods illustrated above. Task Jan 2006 Feb 2006 March 2006 April 2006 May 2006 Choosing location x Company website x Hiring staff x X Advertising x x X x Commencement of business x Costs The start-up costs for the business were amounting to $153,000, which includes the cost of start-up assets, inventory, cash and other current assets. The cost also includes other expenses such as rent, cost of advertising, insurance, legal expenses, cost of design and construction, Accountant fees and other miscellaneous expenses. The following table illustrates the cost projections for start-up expenses. Requirements In $ Start-up Expenses Legal 2,500 Printing, stationery, bags, grand opening coupons 3,500 Brochures 500 Construction/Design 45,000 Insurance 2,000 Rent 17,000 Research and Development 0 Advertising 5,000 Accountant 950 Linens 5,000 Other 50 Total Start-up Expenses 81,500 Start-up Assets Cash Required 35,000 Start-up Inventory 6,000 Other Current Assets 32,100 Long-term Assets 0 Total Assets 73,095 Total Requirements 153,550 Critical Risks, Problems, and Assumptions Bodywise spa really got its financing to start its operation. From there the sales were the only source of income. To ensure that the spa maintains the cash flow, the therapists and aestheticians are always paid on commission basis depending on how much sales they bring. The spa hopes to get potential customers who have already been contacted and expressed their interest. Most business clients propose to enter in a one year contract after which they will renew their contract if they are satisfied with our services. The spa would then use the half-yearly and yearly subscriptions from business and employed employees who will be given membership cards after paying. The visiting clients can pay daily but at a higher rate than the member. The yearly subscription would ensure that the spa projects the profit it would make and avoids making loses. Customers paying yearly but missing a number of visits will be compensated if they ever come back, but if they do not; their money will not be refunded. The spa does not see any foreseeable failure if all the laid down marketing strategies, and financial plans are implemented. The projected financial plan will work based on some assumptions that include that all business and individual clients will make cash payments upfront in daily or monthly basis. The payments are with 1% of sales projected as insurance reimbursements exception because the insurance billings collection days are at 90. The financial plans project that the tax rates, and interest rates, and personnel commissions remain constant. The only problems that are likely to affect the business venture are changes in medical and insurance industry or change in economy due to change in government or major economic recession (Paley, 2000). The Financial Plan The projected financial plan using the cash flow statement for the first year and projected profit and loss statement for two years shows that the spa will be able to break-even within the tenth month of the first year. The plan was to increase the total sales, manage costs, and quickly repay the loan in order to breakeven at the first year and make substantial and increasing profit in the foreseeable future. The following tables show projected cash flow statement and profit and loss statement for Bodywise health spa for the first year and first and second year projections respectively. Projected Cash flow statement May June July August September October November December January February March April Cash Sales 14,098 22,961 31,535 42,874 56,881 62,381 73,284 82,164 82,605 101,797 108,010 120,906 Cash from Receivables 0 0 5 153 485 987 1,340 1,765 1,941 2,276 2,542 2,575 Subtotal Cash from Operations 14,098 22,961 31,539 43,027 57,366 63,368 74,624 83,929 84,546 104,072 110,551 123,480 Subtotal Cash Received 14,098 22,961 31,539 43,027 57,366 63,368 74,624 83,929 84,546 104,072 110,551 123,480 Expenditures May June July August September October November December January February March April Expenditures from Operations Cash Spending 3,750 6,500 7,820 9,320 11,640 12,140 12,640 13,140 13,640 14,640 16,140 16,140 Bill Payments 450 13,633 17,604 24,369 33,257 42,481 46,087 53,355 58,990 59,973 74,670 75,973 Subtotal Spent on Operations 4,200 20,133 25,424 33,689 44,897 54,621 58,727 66,495 72,630 74,613 90,810 92,113 Principal Repayment of Current Borrowing 700 700 700 700 700 700 700 700 700 700 700 700 Subtotal Cash Spent 4,900 20,833 26,124 34,389 45,597 55,321 59,427 67,195 73,330 75,313 91,510 92,813 Net Cash Flow 9,197 2,129 5,416 8,638 11,769 8,046 15,197 16,733 11,215 28,759 19,041 30,667 Cash Balance 55,652 57,781 63,197 71,835 83,604 91,651 106,847 123,581 134,796 163,555 182,596 $213,263 Profit and loss projection Year 1 Year 2 Sales 823,684 857,000 Direct Cost of Sales 65,643 59,925 Massage Therapists' commission 290,308 302,500 Aestheticians' commission 70,963 2,000 Out-call Services commission 15,341 17,550 Total Cost of Sales 442,256 451,975 Gross Margin 381,430 475,025 Gross Margin % 46.46% 47.64% Expenses Payroll 37,510 144,999 Marketing/Promotion 7,500 4,999 Depreciation 0 48 Rent 66,000 66,002 Utilities 3,000 3,097 Advertising 3,000 3,002 Insurance 1,500 701 Payroll Taxes 0 0 Phone 1,500 1,602 Software Support 0 495 Other 6,700 6,701 Total Operating Expenses 126,710 231,646 Profit Before Interest and Taxes 254,721 173,382 EBITDA 254,721 173,432 Interest Expense 2,133 1,569 Taxes Incurred 42,611 48,106 Net Profit 109,980 123,706 Net Profit/Sales 13.37% 14.44% S.W.O.T. Analysis. Its best described as the first stage in planning and is of major help to marketers in establishing key issues regarding the business. It’s an abbreviation for Strength, Weaknesses, Opportunity and Threats in which strength and weaknesses are internal since they both will depend on the internal affairs of the organization. If there appears to be bad internal affairs, strength and weaknesses come in place and opportunities and threats usually arise due to external forces. Conclusion It’s indeed a great company to work with. Following this marketing strategy, there is no way under circumstance that this will be a non performing organization. Perfect marketing skills were put into place by the Bodywise Health spas management in bringing up the organization. Therefore it acts as a good example to the other upcoming organizations in its environment in best ways of making money. Woe unto those who don’t follow into Bodywise footsteps. GE MATRIX It’s a form of a mode to perform business analysis on some of the business units in an organization. Optimal portfolios of a business are the ones that make it attract more strength and deviate from most of its weaknesses hence the most attractive markets are exploited. A division of a large corporation that comes up with its strategies and levels of operation without gaining help from the parent company is known as a strategic business unit. Limitations rise in the GE matrix as a business entity. Interactions between the various business units are not put into consideration, valuation of the realization of different factors and key competencies are not usually represented. This matrix can best be applied in the Bodywise organization which has some of its subsidiaries making more money than others. Therefore it ill is of great help by the matrix to establish which subsidiary should receive more or less of investment. Also if a product has become obsolete in the premises, GE matrix helps to make decisions whether it would be retained for further upgrade or discarded. Strategies on coming up with new products then come up. Best selling creams are jellies are quickly established and brought for use, thus growth. The overall aim of this essay is to show the wonderful marketing world, how the GE matrix is of importance to starting a business and why managers should be forced to know it. Application of these strategies at the start of any enterprise will make a distinctive feature admirable to every entrepreneur. Great achievement in business leads to greater economy to a nation involved hence better lives of its citizens. References Afuah, A. (2004). Business models: A strategic management approach? New York, NY: McGraw-Hill NA. Gentian spa-financial strategic analysis review. Market research. Com. http://www.marketresearch.com/product/display.asp?productid=2817772 Berry, T., and Wilson, D. (2000). On target, the book on marketing plans: how to develop and Implement a successful marketing plan. Eugene, OR: Palo Alto Software, Inc. Read More