Proposal of a marketing strategy



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7.4 Balanced Scorecard


We have inserted this chapter so that it provides us with detailed information on four important areas inside company. In fact the specification concerns customers, finance, growth and learning and business processes. Customers are in this chapter not understood as threatening forces because of their bargaining power and therefore something to accept provisions against, but as the source of income and therefore somebody we need to understand and know how to satisfy and to comply with ideas and wishes.
Finance is a necessary and inevitable component of internal conditions analysis. Here in this chapter we will present only goals set and measurments plus targets and iniciatives, but in the next chapter a whole financial analysis (even in shortened form) will be presented.

TAB. 31 Company´s Balance Scorecard

Finance

Objectives:

  • Profit increase

Measures:

  • Net profit before taxes

Targets:

  • Revise discount tactics

Iniciatives:

  • Introduce information on customer´s previous discount and payment history

Customers

Objectives:

  • Retain customers

  • Increase satisfaction

  • Increase loyalty

Measures:

  • No.of orders and sum in money from old customers

Targets:

  • Approach customers with new ideas

  • Be flexible

Iniciatives:

  • Perform customers and market research

  • Create a marketing strategy to better address their needs

Internal business processes

Objectives:

  • Increase effectivity

Measures:

  • Decrease of cost (financially expressed)

Targets:

Iniciatives:

  • Acquire CRM software and implement it

Learning and Growth

Objectives:

  • Employ new skills and knowledge in the company

Measures:

  • No.of courses or training hours

  • Lower no.of mistakes and problems caused by employees

Targets:

  • Increase knowledge of employees (business representants mainly, but also others)

Iniciatives:

  • Prepare internal and external courses (IT and soft skills)

  • Provide time for training

  • Reset motivation and benefits system

Resource: internal documentation, own research
The aim of company´s strategy is to reach these expectations and even go beyond them to higher levels. On the basis of interviews undertaken by business representants with customers (architects, direct investors and constraction companies) customer expectations like reliability, helpfullness, accomodativeness and correct behaviour, experience, understanding inconventional proposals and also favourable price relations have been identified. Perceived added value should be high so that company does not get caught in the part of Bownman´s strategic clock where any strategy is destined to ultimate failure. There are company´s characteristics which are to be kept on only or maybe broadened, while others must be employed. Always questions as: „Is this quality or width of product range good enough? Are our price relations understood favourable?“ must be posed and answers monitored. It is up to yearly revisions to change strategy, or better decide which way it should go from the revision on to be well balanced with financial situaiton of the company.

7.5 Financial Situation


In order to gain complexity of information on the company financial analysis is usually done in three parts auditing Balance Sheet, Profit and Loss Report and ratio indicators. Comprehensive tables can be found in the Appendices to this work.62
In the Balance Sheet there can be observed a rising trend in the total balance amount, this increase is caused by current assets. For 2006 the most significant was an increase in Unfinished and Semifinished Goods (almost 50%). In an ideal case the rate of income growth should be larger than the rate of assets growth – however this company is not the case, in contrary all incomes are falling. Worth mentioning is decrease in Shortterm Outstandings and Long-term Outstandings which fell by almost one half. This is generally assumed as good sign for healthy financing of the company. It is however necessary to point out the unbalanced economical outcomes in 2004 and 2006 when the company experienced negative operational profit of such amount that even neither financial profit nor extra profit could cover it and the overall profit appeared in red numbers. Both latest mentioned economical outcomes make namely tinies amounts in the total sum.
Structure of Liabitilities has in the past three years been influenced mainly by economic profit (both of past years and current year). The company seems not to feel any necessity in increasing basic capital amount or profit funds. As for Loan Capital a significant rise in shortterm debts could signalize higher company indebtedness, but also a more effective use of loan capital. In case of this company it is the firstly mentioned. Profit before Tax has after an increase of more than 22% between (2004 a 2005) fallen down again in 2006 (even though this decrease hasn´t reached even 1%, it still makes around 274 000 absolutely). Extraordinary Profit and Financial Profit have influenced this fall by far the most. Nevertheless added value of the company was on stable rise.

TAB. 32 Profitability, Liquidity and Efficiency Ratios



No.

Indicator

2004

2005

2006

1.

Profitability

 

 

 

1.1.

Return on assets (ROA)

-0,33%

1,51%

0,86%

1.2.

Return on equity (ROE)

-6,13%

20,22%

20,06%

1.3.

Return on investment (ROI)

-0,14%

0,57%

0,80%

1.6.

Net profit margin

-5,95%

6,46%

-4,87%

2.

Liquidity

 

 

 

2.1.

Current

1,56

1,18

2,26

2.2.

Quick

0,01

0,10

0,09

3.

Efficiency

 

 

 

3.2.

Current assets turnover

2,61

2,79

1,11

3.3.

Inventory turnover

14,29

19,5

2,7

3.5.

Period of inventory turnover (in days)

26

19

135

3.6.

Period of accounts receivable turnover (in days)

113

101

182

3.7.

Period of debts turnover (in days)

98

94

85

4.

Capital Structure

 

 

 

4.1.

Debt-to-equity ratio

17,3

12,4

10,7

4.2.

Equity ratio

5%

7%

54%

4.3.

Debt-to-asset-ratio

95%

93%

46%

4.4.

Equity-to-asset-ratio

5,5%

7,5%

4,3%

Resource: internal materials
Profitability ratios show financial viability of a company and allow to compare a company to others in the industry area. Net profit margin of Styl 2000 is very unstable and very often appears in red numbers. Return on assets (ROA) ratio is very low, however this is significant for the industry as a whole. On the other hand, a significant part of company´s business is represented by services, therefore we would expect at least 5 percent.
Another ratio is return on equity (ROE) which is important for shareholders. Styl 2000 seems to be doing fine with its almost stable 20 percent. Return on investment is the last to be observed as for profitability. Experts suggest that companies usually need at least 10-14 percent ROI in order to fund future growth, unfortunately company´s ROI is too low which could indicate poor management performance or a highly conservative business approach.
Liquidity ratios measure the amount of liquidity and show therefore company´s financial health. Current ratio of Styl 2000 is the highest for the past 3 years which can be understood as a very good sign, but in the view of accounts receivable turnover rising (almost twice as long in 2006 as in the previous year) and in taking into account deeply decreased inventory turnover annualy from 2005 to 2006 it means that company has problems with collecting accounts receivable and is carrying too much inventory. Quick ratio which measures the ability to access cash quickly to support immediate demands and is also known as the acid test is very low since a ratio of 1.0 or greater is generally acceptable, but Styl 2000 shows only approx. 0,1 percent. A general piece of advice is in this case is to review credit policies with customers and adjust them possibly to improve the time it takes to collect receivables.

Some of efficiency ratios have already been discussed. Company´s operation is distinguished by high cost caused by long-term keeping of inventory and buying and inventory policy would probably need reviewing.63 Capital structure shows good results supporting this way the general knowledge on company being financed from own resources, therefore more or less independent.


In this chapter we analysed financial situation of the company and can summarize that profit, one of the most important indicators, needs stabilize and be supported in order to start rising. We have also found out that there are problems with inventory turnover as well as current assets turnover which a marketing strategy could improve or at least help improve. Last but not least, important assumption taken form analysis says that the period of account receivable turnover is very high because of bad payment policy set towards customers. Here also a good marketing strategy can be the remedy.
In conclusion we would like to summarize the impacts on further work progress, evaluation and marketing strategy proposal.

TAB. 33 Summary of Financial Analysis - Impact on Choice of a Strategy



Financial factor

Result/s

Impact on the choice of a strategy

Negative operational profit (in 2 out of 4 last years)

Poses higher risk to the existence of the company

Increase profit and make it balanced through a convenient strategy

Unbalanced economic outcomes

Poses higher risk to the existence of the company

Needs to be stabilised, focus on rather conservative strategies with lower cost demands

Low ROA

Higher indebtness, threat to flexible fulfilling of customer´s needs

Increase ratio of services, decrease cost connected to assets

Low ROI

Poor base for further development

Does not allow extensive rise, i.e. increase in market share, should concentrate on other strategies

Problems with covering accounts receivable + quick ratio (acid test)

Increase in cost (administrative, financial and operational)

Needs to clearly show customers the rules, orientation on win-win strategy, better choice of customers

High period of inventory turnover

Increased cost, liability of financial assests

Reduce items in product portfolio, increase ratio of services

Resource: own consideration based on financial analysis (internal documentation)
The TAB. 33 summarizes the most important financial factors whose results will impact the choice of a strategy. Most of them show the necessity of concentration on increase of profit and decrease in cost together with revision of product portfolio and pricing policy of the company. In contrary we should not try to employ strategy aiming at increase in market share or at extensive growth, be it through market price skimming.


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