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ANALYSIS REPORT FOR NEW PRODUCT
The whole case study is based on the decision making analysis based on the new product operations. For this purpose I would prefer to understand about the market in which the product would be compete with the other products. These findings were made by Robert himself and the information in the questions available against these findings. We discuss them one by one and if any assumptions made there under.
- The Exclusive rights given by the Kokoa SA to Robert for selling and using their name. Such type of rights given by the company or manufacturer to their seller for enhancement and increase their sales. This right is provided for the period of 5 years and Robert must be paid some money in advance. The advance amount is not mentioned by Robert in his finding so according to the American royalty rates for food industry we studied that the upfront payment may be $200 per month and should be paid 5 years payment in advance that is $12,000.
- The second assumption we made for the inventory turnover period and Kg(s) of the chocolates. According to the study Robert wants to make orders after every two weeks and maintain the stock level for the four weeks in the first year of operations the stock level and orders sequence would not be made accurate as per the willing of Robert because the demand and supply rule of economics is applied. The market analysis made by the expert is based on the assumptions and estimations but the actual results show the greater variation. Such variation would be reduced at the end of the first year for the first year the assumption is made that is random growth in sales units of chocolates. Which makes the random increase in the Kg (s) which is imported from Switzerland?
- The third assumption is made for the order size which would be imported from the supplier according to the market survey and Robert’s given information, the order should be made after two weeks and must be enough for the next four weeks. In the first year of operations the sales units are vary randomly therefore, I made an assumption regarding the ordering the units that is in the current month order will be made for the following month requirements, and such requirements will be made on the assumptions which are made for the sales units.
- For the next year and thereafter the sales units are sold out of the same quantity as the market survey said. So, the minimum stock would be the same as Robert required. And the sales units will be the same as market survey state. Therefore, in the next year budgeted cash flow is not required any specific type of assumptions.
- The cost of the material is based on the currency of Switzerland that is CHF, and the supplier will give the 40% discount on the price in which the chocolates Kg sold out in Switzerland. Therefore, the actual price at which Robert will receive the material that is CHF 51 and the conversion rate is 1.06 then the price is 54.41 US dollars. The freight charges also be paid in CHF and conversion rate is used for the purpose of monthly and annual cash flows.
- The available capital for the new product is $100,000 and the loan facility is also available if necessary. But as per the monthly cash flows for the first year of operations there is no need any type of loan facility as the available capital is enough for this purpose.
- Robert also said about the available excess capital can be invested at the rate of 5%. The cash flows of the first year at the month level show that the company has excessive capital at the level of $30,000. I have made an assumption in respect of the investment of the amount of $30,000 and the return on such investment will be received in first month of following the investment e.g. February. In the first year the return will be made for 11 month as the assumption is made by me that the investment is made at the last day of the first month and it will made for minimum three years.
AMOUNT WHICH WILL NEED TO GET GOING:
There are many things which would be considered when a business is going to be start. There is a need to made feasibility study, if research is going appropriate and there is no uncertain indications then the development phase is started.
In our case study, the research phase is completed now the operations of the company will be started. The study reveals that the available cash is enough for starting of the company’s food operations. The company has backup cash support from the bank of $50,000 at the rate of 8%. The initial expenses of the company are reasonable and there is no heavy machinery is required for the sake of starting the business and the main advantage which reduces the various ancillary expenditures which are necessary to start a business as he is an online seller.
The available analysis made by Robert and the estimated monthly and yearly cash flows stated that the maximum cash which would be needed in the current situation if all other circumstances which would not lead to the circumstances change then the funds will be enough for the commencement of the food business that is $100,000. And the maximum expenditures will not be more than $50,000. So, for any uncertainty company has more than enough funds to control the circumstances.
For the development or expanding an existing business, the organization either small or large, should develop the following things to reduce the effects of any uncertain happening. The sensitivity is the matter of product development which having the base of past research, present findings and future directions. If the new project is not following the planned directions or instructions then it will reduce the effects of the expected outcomes of the projects.
Each analysis has some type of steps and components which must be followed during the working on them. Robert should follow, in start of the new product, demand and supply rule. In this rule, production will be start at that time when the order will be taken by the company. For reducing the risk of loss in production, the system of production on the basis of orders is best in that environment.
Another thing, which should be consider by Robert, that is, the online competitors of the company with the similar type of food products. He must evaluate the;
- Quality of product
- Quantity in each unit pack
- Quality of services
- Systems and technology used by the other competitor
- Influencing areas of operations
- Customer response
- Promotions and Schemes to attract the general public
- Advertisement plans
In the regulatory prospective, Robert should get his product register, and must be taken a prior permit to start the selling of the new product. In order to achieve the expected results Robert must follow the following points in his market survey.
UPFRONT PAYMENT FOR EXCLUSIVE RIHTS:
Kokoa SA gives a right to use the name and its products under his own name in North America. Robert is allowed to use freely the right by paying an amount for a period of five years. It is the nature of royalty or purchasing an intangible asset. The amount of right must be paid in full for the period of five years. There is no clear information in the statements given by Robert about the terms and conditions of the contract made between both the parties.
It is a small business operating in a limited area as the shipping is available only for North America. The company cannot exercise the right until the upfront payment clearance made by the Kokoa SA. In addition, the right gives Robert an opportunity to purchase as much as the demand of the chocolates is increased in the future. There is no restriction regarding the purchase and time limits in respect of re-ordering.
There is no specific law made by the regulation authority in respect of any royalty payment or license to use the products of the company of other jurisdiction except the prior approval and settlement. In our case, the Kokoa SA is a manufacturer of chocolates; Robert will purchase the chocolates and pack it under his own brand name then sell it.
In US law, the right to use the other brand name is restricted but the use of products of other companies in making of company’s own product is not prohibited. It the company arise the liability by using the name of Kokoa SA, then the Law exists. So, there is only a contract can be made by the company in respect of the exclusive rights and its payment.
In the market survey we find that the current rates in US of the similar contracts and rights made by the other companies and competitors are from $150 to $400 in medium scale businesses. Our contract made by the Kokoa SA is on the basis of each order. The exclusive right settlement for five years is for $200 per month and for the whole period is $12,000 which is not refundable. If unexpectedly, the operations of selling and buying of chocolates need to stop then the payment of exclusive rights cannot be able to reverse by the Kokoa SA.
CONCLUSIONS AND RECOMMENDATIONS:
There are the following recommendations to Robert for the start up the new product.
- Market surveys based on the advertising the product and customer responses must be critically evaluate.
- Start small investment in respect of the new product
- Make up a portfolio of the products
- Acquire the business license for the new products
- Make a business plan for the new setup and running business too. And upload it on the website and advertise it accordingly in the manner which are most effective and enhance the productivity and customer response.
- I would like to suggest as a professional, to create a department for recording the whole operations of the business and report on them, which exactly represents the profitability of the company and new product.
- Always find the new ways to cover up the high cost and how to low the cost or alternative ways.
- During the planning, always overestimate the costs and expenses and underestimate the incomes and receiving.
Always finds the ways to make the profit exponentially increase. For this, there are five drivers which are directly impact on the profits of the company. These are as following;
- Leads: how can the total number of customer increases day by day.
- Conversion rate: the average number of people who buy the product as the percentage of number of people who visits the website
- Average dollar sale: estimate the average dollar sale on the basis of conversion rate for the year.
- Average number of transaction
- Profit Margin: the profit percentage which the company earns by the selling of a single unit of its product.
These are the evaluating factors which are having the influence on the profitability of the company.
The ultimate conclusion of the research made by Robert for his new product in the portfolio of his company is good for his business only in the case, if he spends more money in the advertising campaign of the products and website at which the buying and selling take place. If the other things remain same i.e. economical conditions, exchange rate, inflation, stability in the foreign exchange market, political conditions, external factors which are directly affect the business in the North America and South America, then the expected and estimated cash flows monthly and annually are present the appropriate cash in and out of the company for the new products.
For any uncertain happening the company has enough cash in backup to take care of the company’s future viability.