Collaboration Between Potential Buyers and Sellers - Research Paper Example

 Executive Summary Save on Surplus, Inc. (SOS) is a 12-year old company in the Philippines which imports surplus products mainly from the United States and Australia. These products are then re-manufactured to ensure that they are of working condition and sold at wholesale to franchised retailers. Since five years, SOS experienced a slackening of business operations due to increased competition, promulgation of stricter regulation on surplus products, economic conditions and the lack of entrepreneurial acumen of business partners during tough times. Against this background, the management intends to redevelop and relaunch the activities of SOS through an effective marketing plan. The paper first of all analyses the external business environment of SOS to identify its strategic position towards the environment. There after, the paper analyses the internal resources and capabilities to identify it core resources and capabilities. Thereafter, the paper formulates a key marketing strategy for the re-engineering of its activities. Thus, through environmental scanning and internal analysis, the paper formulates strategic objectives and a core strategy to achieve the new plan: Increasing distribution outlets to 100 in a 3-year period. Increase retail sales by at least 10% each year for the next three years Improve profit margins at franchisor and retail levels, and Improve employee capabilities through effective recruitment and training The budget allocated for implementation of the marketing plan is 5% of gross revenues from overall SOS network operations with half of this dedicated to advertising, promotions, and public relations. 1.0Introduction Today’s business environment is increasingly becoming more turbulent, chaotic and challenging than ever before and to survive, it is vital that a firm can do something better than its competitors ( Wonglimpiyarat 2004:1). Kanter (1995:71) on his work of “Mastering Change” argues that success in the present day business is not for those companies that re-engineer the way they do things, or for those fixing the past. 1.1Company Overview Save on Surplus, Inc. (SOS) is a 12-year old Philippine company that imports and wholesales surplus products from the United States, Australia and other part of the world. These products include computers and computer-related equipment, audio-video equipment, home and office furniture, home appliances, industrial materials and equipment, and other general merchandise. Surplus products undergo a re-manufacturing process in the SOS refurbishing plant before they are sold at wholesale to franchised retailers. Currently, SOS has a retail store network of more than 35 SOS retail stores in different parts of the Philippines and desires to grow its operations into 100 stores in the next three years. The company’s vision is to be regarded as the best wholesale surplus distributor and franchisor in the Philippines. Its mission is to provide reliable and value for money products to its franchise network. Today, SOS desires to seriously resolve its business concerns and embark on an expansion program, targeting 100 stores in the next three years. 1.2Business Mission and Objectives The objectives of this project are to develop a marketing plan that will: Analyze the current external business environment Analyse the current internal business environment Identify business strengths, weaknesses, opportunities and threats based on the environmental analysis Formulate strategic marketing objectives that will maximize strengths, minimise weaknesses, take advantage of opportunities and counteract threats Formulate marketing strategies in support of the strategic objectives, and Formulate a preliminary marketing budget 1.3 Research Method For purposes of formulating the marketing plan, both exploratory and constructive research shall be utilised (Bryman & Bell 2004, Saunders et al 2007). Exploratory research will be used to identify problems, and clearly define them, using both primary and secondary data and information gathering techniques. Available secondary data related to external and internal environmental factors shall be used, such as Philippine retail industry data, demographics, data on household expenditures, existing government regulation, as well as data from SOS operations. Primary data using questionnaires, interviews and informal discussions with SOS employees, customers, suppliers and business partners will also be used. According to Saunders et al (2000) both quantitative and qualitative data analyses can be used in analysing data to arrive at reasonable conclusions. This study will therefore employ both quantitative and qualitative methods to accomplish its objectives 2.0 Analysis of External Business Environment Johnson et al (2006) states that the PESTEL framework is a framework that can be used to categorise the factors that influence the business environment of an organization into six main types including: Political Influences, Economic influences, Technological influences, Social Influences, Environmental influences, and Legal influences. Like any other business, SOS is greatly affected by political factors in the Philippine. Stricter regulation from the Philippine Optical Media Board covering computer and audio-video equipment. The poor political situation has created illegal trade knock-off with high taxes being levied on franchising operations. SOS is also being affected by economic factors, because container shipment are absent in some part of the country, it becomes relatively difficult to reduce congestion in some major cities. In addition, China with its inexpensive products is using the Philippines as a dumping ground. The capital market of Philippine provides a wonderful opportunity for investors, with low credit, also rising economic crisis and unemployment due to the global financial crisis is a call of concern High-tech products continue to be in demand in the Philippines, especially with the younger generation and trains thousands of technical-vocational workers each year (Philippine 2008). Technological factors include the rapid advances in technology that have resulted in quick obsolescence of products in developed countries. The Philippines is highly literate in technology with tens of thousands employed domestically and abroad in technology-related jobs. There are more than a thousand technical-vocational schools in the Philippines (Philippine 2008).. Legal factors include: Due to concerns regarding intellectual property, businesses dealing with equipment capable of duplicating optical media have to comply with stricter regulations. Due to the popularity of franchising as a business method, stricter laws are being enforced for franchise operations, especially in the area of taxation (Philippine 2008). Today, the increasing attention on global warming has call on companies to be more responsible in their activities. In the Philippine, there is a growing concern regarding surplus or waste dumping of developed countries in underdeveloped countries. There is growing global concern regarding the disposition of technological waste. These have pushed the Philippine government to be more active towards company’s waste management (Philippine 2008). 2.1 The Market There is definitely a market opportunity for the relaunching of SOS activities. The size of the market right now consists of the general population who can afford to purchase its surplus products. This is because surplus is an “opportunity” business, whatever can still be used for whatever purpose may be sold at a price. Consequently, the current SOS stores offer specific product lines which their local target market appreciates. Stores located in more affluent areas deal with relatively more high-tech or classier products while those in less urban locations sell products appropriate for the market (SOS Report 2008). Depending on the location of a retail store and the demographics of a particular area, the SOS market can be segmented into children, young adults, professionals, homebodies, and senior people. They purchase products for use at work or at school, for entertainment, for convenience at home, or simply for the satisfaction of owning a reputedly good product (SOS Report 2008). 2.2 The Competition SOS will adopt one of Michael Porter’s generic competitive strategies of product differentiation involving creating a product/service that is perceived as unique to the target market (Johnson et al 2007). The unique features or benefits should provide superior value for the customer if this strategy is to be successful. Because customers see the product as unrivaled and unequaled, the price elasticity of demand tends to be reduced and customers tend to be more brands loyal. Competitors in the chain include Other surplus retail stores Retail stores selling the same brands and similar products as SOS Retail stores selling knock-offs and imitations (clones and compatibles) Blocher ,Chen ,Gary & Lin 2005). The major strength of retail competitors or the abundance of products they offer. Their major weakness lies in the reliability of their products since they have no dedicated refurbishment facilities (Bowlby,2001). At the franchisor level, competitors include businesses which have started their own importation, wholesaling and retailing activities of Korean and Japanese surpluses One-off importers of surplus who conduct retailing as long as supplies last Other franchise businesses 3.0 Internal Business Analysis Here using relevant analytical tools the company SOS will be diagnosed. 3.1 Porters Competitive Advantage According to Porter (1985,1990), there are three long-term strategies on which an organisation can build its core-competencies, core capabilities and resources (Stalk et al. 1992:59). These strategies include: Achieve overall low-cost leadership in the industry Market products that are differentiated Focus on market segments for growth in cost and/or differentiation According to Porters (1990), a cost leadership strategy means placing great emphasis on efficiency in all organisational activities in order to reduce the overall costs of products and services delivered to customers or achieved through partnership with suppliers. A low cost leadership strategy will work effectively when the organisation can provide products and/or services at a lower cost than the competitors. According to the company’s financial statement 2008, SOS store averages USD 5 million annually with no significant increase in the last five years. Of these sales revenues, 2.5% goes to the SOS franchisor as royalty. Profit margins at retail are between 13-15%. For the franchisor, profit from operations is around 7-8%. 3.2 Porters Value Chain Primary Activities Secondary Activities Thus, an analysis of SOS value chain will show that at the level of the secondary activities, SOS lean manufacturing technology, internet marketing technology, production technology, the just in time production line, customer relationship management (CRM) represents a big source of SOS competitive advantage. This is because it will cost time and money for a competitor to replicate this. At the level of the primary activities, the relationship existing between SOS and its suppliers is a strategic and competitive advantage. They own most of the suppliers thus given room for just in time production manufacturing method, Total quality management etc. they have cost advantage, exhibited in the form of lower prices. Thus a key advantage is source by the inbound and outbound logistics and the marketing information technology. 3.3 The SWOT Matrix According to Johnson et al, SWOT Analysis, or sometimes known as the TOWS Matrix, is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities, and threats involved in a project or in a business venture or in other situation of an organisation or individual requiring a decision (Johnson et al 2007). Experience in sourcing of surplus products Experience in refurbishing 35 retail stores Experienced retail store operators SOS weaknesses are: Lack of entrepreneurial training for retail outlets regarding the surplus business Limited product procurement to US and Australian surplus Inability to ship container loads of products to some areas in the country due to lack of transportation facilities Opportunities presented by the current environment are: Availability of credit for small business investments favorable to establishment of retail stores Increased opportunity for setting up retail stores in commercial centers newly established in different areas of the country Increase in prospective franchisees from out-of-job overseas Filipino workers who would have the capital to fund a small retail business Threats presented by the environment are: Increased government regulation related to surplus products Increase in taxation for franchised businesses Proliferation of inexpensive products from other countries Diminished consumer buying power due to economic crisis Increased environmental concern regarding surplus products The development of nuclear weapon by some rogue states War on terror 4.0 Marketing Objectives 4.1 Marketing Trusts Market penetration – A closer review of SOS existing markets where its current 35 retail outlets operate should be conducted with the end view of better determining what particular existing product lines should be offered to the particular market. Market expansion – For existing locations, customer base should be widened to market saturation point with awareness of SOS becoming top-of-mind. Aggressively conducting feasibility studies in new locations and implementation of marketing programs to seek out new franchisees for new locations are recommended. Attention should be geared towards developing a long term relationship with all the stakeholders were, a responsible supplier chain is put in place (Porter 1990) 4.2Target Market The market should be segmented according to the population and purchasing power of the customer or the Philippine population.At retail, the SOS target market remains the same as currently defined. At the franchisor level, target franchisees or business partners shall be expanded to include more homogeneous groups such as returning overseas Filipino workers, retirees and retiring employees of progressive corporations and those who attend trade fairs promoting franchising and other business opportunities. Customer’s loyalty card should be introduced. SOS’ competitive advantage remains to be its long years of well-hone experience in sourcing out quality products at reduced costs. Aside from surplus products, SOS will diversify with “brand” new products as long as they comply with SOS mission to provide customers with value for money. Another competitive advantage is SOS’ long years of experience in the quality testing, re-manufacturing, re-furbishing and repair of products. 5.0 The Marketing Mix Decision Their integration marketing strategy should be redesign to ensure that both trust and commitment can be developed and maintained and that there is a level of interdependence between the channel members, which means that an action by SOS will impact all the channel members. Integration of a company’s marketing communication activities can avoid confusion and disaffection in the minds of consumers and buyers, offering a comfortable identity to customers and staff and give the brand a positive image. (Kotler. 2005). Schultz et al. (1993, 1998) postulated that any model of marketing communication should analyse what happens with the customer rather than starting with the marketer. By doing so, the communication mix is developed on the basis of (actual, ‘natural’) customer activity in relation to the brand and not (necessary) marketer activity in relation to the brand. This is the secret behind Nike, McDonalds marketing mix and other leading brands. 5.1 Product 5.2Promotion 5.3Price 5.4Place 5.5Physical Evidence 5.6Process 5.7People 6.0 The Budget 6.1 Conclusion and Recommendation 5.1Product SOS will continue to source products for home and business use for its broad target market of children, young adults, professionals, homebodies and senior people. Consideration for product sourcing is value for money such that both surplus and “brand” new items will be sourced. All products will undergo quality testing and re-manufacturing and will carry warranties. Attention should be paid to developing products specific features. 5.2Promotion In order to promote increased sales at the SOS distribution outlets, national mass media advertising, local and seasonal promotions, public relations campaigns and pro-environment awareness projects related to the disposition of surplus products will be conducted. 5.3Price For surplus products, SOS’ pricing policy has always been that prices are set at a level at which the customer will buy. Thus we will maintain one of Porter’s strategy of product differentiation with attention on cost leadership (Porter 1990, Porter 1985). SOS will set up the mark up price for the Franchises to follow. 5.4Place SOS will continue to offer franchises for retail stores but will also seek out other distribution outlets such as existing retailers of business and home equipment. All distribution outlets will be in highly accessible commercial and business centers around the country. Integration of marketing communication activities can avoid confusion and disaffection in the minds of consumers and buyers, offering a comfortable identity to customers and staff. By following this approach, agencies who support the marketing communication process can take a more holistic and thus strategic stance to their client's business, concentrating on strategic development rather than separate agendas to get a strategic fit (Kitchen, 1993).This is the primary function of e-marketing communication in integrated marketing communication. Marketing communication alone cannot create positive feelings about a product or service within the entire product cycle (Kortler.2002). 5.5Physical Evidence The layout and décor of the SOS distribution outlets will be improved. Distinctive SOS logos and signs will be used and the ambience of the selling area will depict a well-lit, clean space where items are displayed which all look “new” but are not priced as new. All SOS staff will wear distinctive SOS uniforms that will make them easily identifiable to customers. 5.6Process As more and more distribution outlets are set-up, ease of purchase for customers will be enhanced. The establishment of regional merchandise distribution facilities will also increase convenience and solve supply problems for the SOS retail business partners. 5.7People Two groups of personnel will be aggressively recruited – technicians and sales personnel. All new recruits, whether for franchisor or business partner engagement will undergo rigorous training in the SOS company culture, the surplus business, and the SOS re-manufacturing process. Sales recruits will trained on the new SOS way of personalized customer service. 6.0Budget The marketing budget allocated for the marketing plan is set at 5% of gross revenues for the entire SOS operation. 2.5% shall be allocated to advertising, promotions, and public relations. The remaining 2.5% will be used for all other marketing-related expenses such as the operations of the marketing department at the franchisor level, training costs for new recruits and refresher courses for existing sales personnel. Conclusion Strategic advantages are not always achieved by competition alone. Collaboration between potential buyers and sellers and some other dealers turn to be very beneficial and advantageous when negotiation and contracting costs reduces (JSW: 2005:261). I believe by developing and capitalising on its service minded employees and reliable service, the company stands a better chance to sail through the five forces framework. SOS will be owned and operated by its founders, initially working with a small employee base that will cover sales and delivery. Strategic advantages are not always achieved by competition alone. Collaboration between potential buyers and sellers and some other dealers turn to be very beneficial and advantageous when negotiation and contracting costs reduces (JSW: 2005:261). I believe by developing and capitalising on its service minded employees and reliable service, the company stands a better chance to sail through the five forces framework. SOS will be owned and operated by its founders, initially working with a small employee base that will cover sales and delivery. References Blocher E., Chen K. Gary C., Lin T. (2005). Cost Management A Strategic Emphasis. Third Edition. McGraw-Hill. Bowlby, R. (2001). 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McNamara, C., 2008, ‘Basic Business Research Methods’, Free Management Library, viewed 15 February 2009 . Net MBA, 2007, ‘The Marketing Mix’, viewed 15 February 2009 . OMB, 2008, ‘Optical Media Board’, viewed 15 February 2009 . Oxford University Press, 2007, ‘PESTEL analysis of the macro-environment’, viewed 15 February 2009 . Pernia, E.M. & Quising, P.F., 2003, ‘Economic Openness and Regional Development in the Philippines’, Asian Development Bank, viewed 15 February 2009 . Philippine Franchise Directory of Business Opportunities, 2008, ‘Save on Surplus’, viewed 15 February 2009 . Pinoy Business, 2008, ‘Important Things About Franchise in the Philippines’, viewed 15 February 2009 . Quick MBA, 2007, ‘SWOT Analysis’, viewed 15 February 2009 . Reuters, 2008, ‘Expert says fake DVDs fund militants in Philippines’, viewed 15 February 2009 . Save on Surplus, 2006, ‘Company Profile’, SOS Franchising Kit, Save on Surplus, Inc.: Philippines. Save on Surplus, 2007, ‘2007 Annual Business Plan’, Save on Surplus, Inc.: Philippines. Save On Surplus, 2008, ‘Save on Surplus: A Venture for Value’, viewed 15 February 2009 . The Manila Times, 2007, ‘Uranza wins case for businessman accused of selling fake HP products’, viewed 15 February 2009 . The World Bank Group, 2006, ‘Terms of References’, viewed 15 February 2009 . Trochim, W.M.K., 2006, ‘Structure of Research’, Research Methods Knowledge Base. What Makes a Good Leader, n.d., ‘The Macro Environment Analysis, what every strategic manager should know’, viewed 15 February 2009 . World Health Organization, 2005, ‘Philippines Environmental Health Country Profile’, viewed 15 February 2009 . Read More