JVS

JVS is a successful manufacturer of designer clothing. A marketing expert described JVS’s brand name, Izzys, as one of the business’s major strengths. Because of its market orientation approach, JVS spends significantly more on market research than its competitors.

JVS’s products are:
• Izzys, a range of high-quality fashion jeans, which contributes 70 % towards JVS’s revenue and profit. The market for this range is not growing.
• IzzDen, a range of denim jackets, which is near the end of the product life cycle. Manufacturing of this product will cease later this year.

Izzys and IzzDen are sold through high-end independent retailers throughout countries in Europe. JVS uses a price leadership strategy for these two products. Consumers perceive JVS as fashionable. They also believe that JVS’s products are worth the premium price.

JVS is considering launching a new product, a range of fashionable shorts – Izzless – aimed at the 15–19 age group. With this product, JVS would reach a different, but highly competitive, market. Focus groups revealed that many low-income young consumers want to purchase fashion shorts. JVS would sell the new shorts to mass market discount retail stores. Consumers would also be able to order online for next-day delivery.

Bandit & Max

Bandit & Max (BM) is a partnership between Dr. Jones and Dr. Morris that produces specialist food for dogs with health problems. BM’s unique selling point/proposition (USP) is food for dogs with diabetes and digestive or kidney problems. BM’s mission statement is, “To help strengthen the bond between people and their dogs.”

BM uses a cost-plus (mark-up) pricing strategy; however, the costs of raw materials are rising. BM has an excellent brand image and sells its products only through veterinarians and large pet shops that provide advice to customers. Veterinarians recommend BM’s dog food because of its high quality and nutritional value. However, potential customers in some areas lack access to BM’s food. BM’s sales are not growing.

Dr. Morris wants to diversify into specialist cat food, as more people are buying or adopting cats. BM has experience in developing new products. In the past, BM outsourced its research and development. Now, Dr. Morris wants BM to build its own research facilities, but building costs are high. BM’s warehouse will need refurbishing to stock more food. BM could become a private limited company to raise the necessary finance.

Dr. Jones disagrees. He believes BM should not diversify. BM’s current distribution costs are high. He has suggested introducing a new distribution channel for the dog food that includes a large supermarket chain, a wholesaler, and many small pet shops.

Flussbiegung CityRoller (FC)

Flussbiegung CityRoller (FC) is a private limited company that sells scooters in a large German city. Its shop is situated in an excellent location near the city centre. In 2014, FC sold 1200 scooters at a sales price of €2200 per scooter. The business has few variable costs.

FC only sells one brand of scooter, called Rasen, which consumers regard as high quality. Rasen’s competitors are:

Brand	Price (in $€$ s)	Consumer opinion
Electrico	2800	medium quality
Elegante	2300	low quality
Zoom	1900	low quality

Elegante and Zoom have both become popular in the last five years. Despite some problems with quality, both are seen as fashionable scooters. Elegante has successfully built a brand identity as a stylish scooter. Electrico scooters are electric-powered and are popular with people concerned about pollution. Rasen, Elegante and Zoom scooters all use petrol (gas).

Despite Rasen’s reputation for quality, in the last five years FC’s market share has decreased. Rasen’s manufacturer has also been losing market share across Germany. The problem, according to FC, is that the manufacturer does not invest enough to update the brand’s image. Rasen scooters appeal to an older generation in Germany, but younger people prefer products that are fashionable. FC uses below the line promotions. These promotions do not have the same influence on market perception as the manufacturer’s above the line promotions, which emphasize Rasen’s quality. Another possibility for Rasen is, rather than update its brand image, to maintain
its current brand identity but try to sell its product in different geographic markets where its current brand identity may have more appeal, such as in eastern Europe or Africa.

Jacob Strutz (JS)

Jacob Strutz (JS) is an American multinational company that produces jeans. Founded in 1860, for 100 years JS enjoyed steady growth in sales, mostly in the United States and then in Canada and Mexico. In the 1960s and 1970s, when teenagers worldwide began wearing jeans, JS’s sales increased significantly. JS’s premier product is Strutz’s No.5 jeans, one of the best-known brands in the world.

In the late 1970s, JS operated 71 factories in the United States. In 1994, its sales peaked at $7.6 billion worldwide, but then began to decline. In 2002, JS made the decision to close its last remaining factories and outsource manufacturing to foreign manufacturers, whose quality was more difficult to control. By 2017, annual sales were only $4.5 billion. Even sales of Strutz’s No.5 jeans declined, and JS faced intense competition, including foreign competition.

JS briefly experimented with fast fashion, an industry practice developed in the United States in response to cheap, foreign imports. In fast fashion, new design concepts are quickly manufactured once they have been tested at fashion shows. Unfortunately, fast fashion worked against JS’s brand identity. Surveys indicated that JS’s brand has value and inspires loyalty, though focus groups of young consumers did not perceive JS as cool.

JS has been a leader in corporate social responsibility (CSR). Since the 1890s, it has pursued profits through values. More recently, JS introduced Strutz’s chemical-free jeans. Because many of JS’s suppliers operate in areas with few pollution regulations, to remain consistent with its image of CSR, JS is insisting that suppliers follow innovative but expensive chemical-free processes.

JP

JP produces electric guitars. It is a cooperative owned by a committed workforce who share in the management and success (or failure) of the company and its profits. Workers enjoy having control over the workplace and are productive. However, JP’s continued success is threatened by insufficient finance, which prevents them from spending more on traditional promotional methods.

JP’s guitars are expensive relative to the competition but are known for their quality. Its customers are very brand loyal. The use of social media marketing by many famous musicians influences JP’s brand loyalty and awareness. Unfortunately for JP, one especially famous musician using a _JP_guitar on social media recently received negative publicity about his private life.

JP follows strict quality procedures that include quality circles. JP’s management believe that teams of workers employed on the production line know the production process best and are in the best position to make any necessary improvements. Staff turnover at JP is very low.

XYZ, a large company known for its kitchen appliances, is considering moving into the musical instrument market as part of a growth strategy – they want the high gross profit margins on guitars (compared to the low profit margins on kitchen appliances). XYZ wants to take over JP. XYZ has a strong balance sheet and large cash reserves and is an expert at marketing.

The cooperative has refused to consider the takeover bid from XYZ. The cooperative has argued that the culture of XYZ is too different to JP’s. XYZ’s management are viewed as too controlling. However, increased price competition has led to falling sales, forcing JP to make redundancies. Some cooperative members argue that unless JP accepts XYZ’s bid, additional jobs will be lost.

Red Squirrel Apple Juice (RS)

Red Squirrel Apple Juice (RS) is a cooperative of apple farmers. _RS_was named after the red squirrel, whose population is declining because of growing numbers of grey squirrels. Originally from North America, grey squirrels are aggressive and take over red squirrels’ habitats. RS’s founders thought that the red squirrel would be a good symbol to reverse the declining popularity of traditional apple juice due to consumer preference for high-sugar American-style beverages. With the symbol, RS aimed to appeal to environmentally aware and health-conscious consumers.

Originally, RS only sold apple juice in bulk to beverage companies. These companies bottle the juice and sell it under their own labels. RS requires these companies to place RS’s logo of a red squirrel on their labels. Although RS only sells to a small number of beverage companies, its logo is on juice bottles in stores across the country.

Awareness of the RS brand grew. The cooperative’s managers recently opened another channel of distribution: direct sales of bottled juice to consumers at the cooperative’s processing plant. RS charges lower prices than stores. The new channel of distribution required capital expenditure for bottling equipment and additional revenue expenditure. _RS_experienced increased labour and promotion costs, which some farmers complained about.

In recent decades, RS’s home country has experienced rising anti-immigrant sentiment. Some politically motivated organizations have begun to use images of red squirrels to symbolize this sentiment, so some beverage companies no longer want to use RS’s logo on their labels.

Some of RS’s stakeholders are concerned.

Pelican Pies (PP)

Pelican Pies (PP) produces high-quality pies that have limited brand loyalty outside of their local market. The prices of the pies are higher than those of PP’s competitors.

Table 1: Selected financial information for PP for the year ending 30 April 2017.

$$\begin{array}{|l|c|} \hline \text { Number of pies sold } & 8000 \\ \hline \text { Price of each pie sold } & \$ 4.00 \\ \hline \text { Cost of goods sold per pie } & \$ 1.75 \\ \hline \text { Expenses } & \\ \hline \text { - Electricity per month } & \$ 200 \\ \hline \text { - Rent of premises per quarter } & \$ 1000 \\ \hline \text { - Promotional expenses per year } & \$ 1000 \\ \hline 8 \% \text { interest per year paid on a loan of } & \$ 40 \text { p00 } \\ \hline \text { Tax } & 25 \% \text { of profits } \\ \hline \end{array}$$

For 2018, PP’s owner, Austin, is looking to increase sales beyond the local market by lowering prices and spending a greater proportion of PP’s promotional budget on above-the-line methods such as regional newspaper advertisements. To finance this type of promotion, Austin will have to increase his loan amount by $10 000.

Table 2: Selected financial information for the year ending 30 April 2018.

$$\begin{array}{|l|c|} \hline \text { Number of pies sold } & 20 \% \text { increase on } 2017 \text { figure } \\ \hline \text { Price of each pie sold } & 30 \% \text { decrease on } 2017 \text { figure } \\ \hline \text { Cost of goods sold per pie } & \$ 1.75 \\ \hline \text { Expenses } & \\ \hline \text { - Electricity per month } & \$ 200 \\ \hline \text { - Rent of premises per quarter } & \$ 1000 \\ \hline \text { - Promotional expenses per year } & 200 \% \text { increase on } 2017 \text { figure } \\ \hline 8 \% \text { interest per year paid on a loan of } & \$ 50000 \\ \hline \text { Tax } & 25 \% \text { of profits } \\ \hline \end{array}$$

High Plains PLC (HP)

High Plains PLC (HP) owns 600 budget hotels. It operates in a rapidly growing market and has a 60 % market share of the budget hotel market.

Recent secondary market research on the hotel industry revealed:

• guests of luxury hotels are brand loyal
• 80 % of guests of budget hotels respond positively to a price reduction
• the budget hotel market is growing rapidly
• detailed statistics and information on all hotel chains.

HP’s directors aim to increase occupancy rates in HP’s hotels from the current 65 % to 80 % by the end of 2024. Each of HP’s hotels has 400 rooms. People on business trips account for only 15 % of the hotels’ bookings.

HP is considering two options.

Option 1: Price discounts on 100 of the rooms in each of HP’s hotels

The discounts would undercut prices charged by its major competitor, Kampfort Inns (KI), by 10 %. HP would also offer a price match guarantee, which means that it would match any lower price charged by KI for any room.

Option 2: Upgrade 100 of the standard rooms in each of HP’s hotels

Upgraded rooms, called HP+, would have improved IT facilities, new décor, a coffee machine and a better shower. HP+ rooms would be $20 per night more expensive than standard rooms. Estimated upgrade costs are $1500 per room, and the upgrades would take two years to complete. The HP+ rooms are targeted both at the business traveller market segment and at customers willing to pay slightly more for an enhanced hotel experience.

Cool Meals (CM)

Cool Meals (CM) produces frozen organic ready-made meals that are sold to food retailers throughout the country.

CM buys large quantities of organic ingredients from local farmers for its just-in-case (JIC) stock control management. It uses a cost-plus (mark-up) pricing strategy.

CM is known for its:

• good-quality organic frozen meals, which are perceived as good value for money
• flexibility with retailers in terms of quantity of meals supplied, credit given and efficient delivery at pre-arranged dates
• corporate social responsibility (CSR) based on a long-term commitment made to farmers to purchase large quantities of organic ingredients every four months and pay a fair price promptly
• CM has an excellent working relationship with farmers, who always prioritize CM’s requests in terms of quantity and delivery.

Recently, an economic downturn and increased competition, especially from non-organic frozen meal suppliers, has decreased demand for frozen organic meals.

The finance manager of CM, Kayleigh, provided the following financial information.

Table 1: Selected financial information for CM

	$\mathbf{2 0 1 7}$	$\mathbf{2 0 1 8}$
Total revenue	$6000000	$3500000
Gross profit margin	$16 \%$	$14 \%$
Net profit margin	$6 \%$	$3 \%$
Creditor days	10	5
Debtor days	50	70
Stock turnover days	20	40
Current ratio	2.1	2.4
Acid test (quick) ratio	0.8	0.6

Kayleigh is worried about the cash flow of CM and suggested the company changes the stock control method from just-in-case (JIC) to just-in-time (JIT). She is also looking at other strategies to improve CM’s financial position.

La Bonita (LB)

La Bonita (LB) is a beach hotel owned by Felix and Rose Sanchez. Its current target market is families seeking beach holidays. LB offers high-quality service. Customers do not pay in advance and pay in full on departure. LB is located near a capital city.

As there are no hotel training schools locally, Felix provides on the job training to all new recruits. A recent survey by LB to assess brand loyalty found that existing customers remain loyal because:

• they appreciate not having to pay in advance, as required at other local hotels
• employees are polite and helpful and particularly good with children
• the services provided are perceived as very good value for money.

However, many customers have commented that the hotel needs to upgrade its facilities.

In winter, LB has a very low capacity utilization and monthly cash flows are negative. LB gets through these months using bank overdrafts while continuing to pay its suppliers in cash to get generous discounts. Felix is concerned that the cash-flow situation is unsustainable and could get worse because the hotel facilities need upgrading. He proposes that LB raises additional finance and finds ways of reducing cash outflows in the winter (proposal 1).

Rose believes that the cash-flow problem is mainly due to low capacity utilization in the winter months. She wants to diversify and attract a new segment for the winter: business customers. However, this would involve significant expenditure, including upgrading and adding new facilities to the hotel (proposal 2).