Princessa

Princessa

Critical Issues

• Decreasing market share due to

• Lack of marketing
• Untrained Staff
• Increase in competition

• Financial constraints: limited resources.
• Increasing products costs and lack of growth will cause further decrease in profits and eventually losses.

Situation Analysis

For the past 2 years Princessa has had zero growth and sales have declined by 15.8%. This is due to a number of reasons such as the increasing number of competitors, 9 of which are directly targeting the black community, which is 95% of Princessa’s clientele. Princessa main competitors are Beauty Palace, A-Plus and Sara Escompte whom all target the black community. Also, the supplier of Princessa main product (wigs&extension) which counts for 50% of sales is increasing their costs by 15%. At this rate Princessa’s profits will decrease to $9,548.72 in 2008 and if selling-&-administration cost increase by average of 5% profit will be $5092.82. Given the state of the economy, Princessa may end up in a loss come 2009. Given the current income of Princessa there is only $15000 available to spend on marketing, however if marketing is unsuccessful this expenditure will result in a loss for 2008.  

Also, Richards had no experience within the beauty industry or running a business before Princessa, nor did he have any marketing experience thus all marketing to date hasn’t been assessed for effectiveness. Marketing to date has been through word of mouth, mentions in the newspaper here and there and a bit through radio. His main competitors do not do a lot of marketing either, but they are partnered up with salons or have an online presence, but Princessa has neither.

There is also a problem with management and staff, Richards spends over 66 hours running the business with little help from the 3 part-timers, none of which have proper sales training. However, they are bilingual which can be advantageous given the increase in white-French speaking clientele but without proper training or knowledge they will not be able to cross-sell products. This over excretion and lack of knowledge hinders efficiency and may be the reason why there are product lines that have zero sales such as fragrances and men-grooming products.

Currently, Princessa has 1454 clients based on revenue of $509,249 and average spending per client of $350 annually. This will likely decrease if not specifically targeted, or better customer service provided because 30% of current clientele already go to other beauty stores and with the opening of large retailer’s clients will transition away from Princessa. Princessa does have the opportunity to target the White-community due to the recent increase in that client base but there will need to be changes in product mix to appeal to that segment. Current products are all meant for Black skin and hair types.

Decision Criteria

• Increase revenue by at least 20% within one year (This is because Richards would like at least 5% increase each year however to match revenues to variable costs revenues will have to increase to at least 15% before the 5% growth can happen.

• Marketing and strategy costs are less than $15000 in the first year.

Options (See Ex 9)

Option-1:  ADJUST PRODUCT MIX TO SERVES WHITES

Since there is an increase in the number of white women visiting the store, Princessa needs to adjust its product mix to serve these customers, thus expanding their target market (Fragrance and male grooming products have had zero sales in the previous year, but white women have come to buy wigs and extensions). Princessa can drop the fragrance and male grooming products and increase the HCPFWW (HCPFWW stands for hair care products for white women). This will cost Princessa $1,000 to discontinue products (the cost to discontinue is an estimation of the loss we will incur for discounted products from the book value of products) and $500 for initial purchase of HCPFWW. Under 5.2%, 6% and 7% of HCPFWW sold; the ROI is 0.63%, 16.11%, and 35.46% respectively. This does not meet the decision criteria as at 6% HCPFWW sold only increases sales by 1.8%. However, this option is only 10% of marketing budget. This is a low-risk option as Princess already has white women coming to the store and the initial cost is relatively low at $500 and will not increase if sales are not detected. Also discontinuing right now allows Princessa to at least receive discounted profits rather than having to write off products at full cost when obsolete.

Option-2: PROMOTE HIGHEST SALES EMPLOYEE TO MANAGER

A way to increase customer service, operations/inventory management and cross sales is by promoting the employee with the highest sales to a full-time manager position and sending her and the store owner to a training program (Technologia Consulting team provides a two-day training at a cost of $895 within Montreal to help managers improve their selling and management skills to achieve their targeted sales which will overall cost $24,910. This cost is including a bonus plan ($200 per sales person) if the 20% increase in sale is achieved, cost of training of $1790 and the wage increase of $22520 for the employee promoted. The knowledge gained can then be passed on to remaining employees. Statistics show that with excellent customer service, 70% of customers would be willing to spend 13% more on their purchases. This would increase the sales by $46,343 (marketing and strategy cost does not include the salary for the manager $22,520). This is based on 13% increase in spending of 70% of clientele. However, assuming that current employees don’t do a lot of customer service and cross selling we assume that with training this % is a lot higher even in the worst-case scenario). At PWTS (percent willing to spend) of 23%, 35%, 40% the ROI is 3.04%, 50.26% and 71.7% respectively. At 35% PWTS this option meets both decision criteria; however, it does not meet the 20% sales criteria at PWTS of less than 28.6%. This is a medium to high-risk option as at PTWS of 23%, Princessa will experience a loss of -$312.93 but under most likely case of 35% PWTS profits of $15520 are achieved (PWTS assumption is also considering excellent customer experience of new clients that will come through promoting activities and expansion of target market. This calculation of profit is not considering the base selling and administration expenses).