UNIT N0.33: SMALL BUSINESS ENTREPRISES

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UNIT N0.33: SMALL BUSINESS ENTREPRISES

PROFILE OF A SMALL BUSINESS IDENTIFYING ITS STRENGH AND WEEKNESS

a)     Company Profile

Industry Information

According to industry statistics, 25,125 establishments primarily engaged in the retail distribution of sale of toys, games, and hobby and craft kits and supplies in 2014. These firms employed 143,077 and generated an estimated £21.78 billion in revenues. Over 81 percent of establishments employed fewer than five workers and 98 percent employed less than 50. However, the few firms large establishment, such as Toys RUs, dominated sales. Specifically, 3 percent of the establishments generated nearly 91 percent of the industry`s revenues. Large discount stores, such as Ferndale Toys and Target were also top outlets for UK toy sales. The toys store Association exist to represent this vital sector of and inform new business owners wishing to enter the market (MBA, 2010).

b)    SWOT analysis

SWOT analysis is a tool for auditing an organization and its environment. SWOT analysis is the first stage of planning and helps marketers to focus on key issues. SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal SWOT factors. Opportunities and threats are external SWOT factors. A strength is a positive internal factor. A weakness is a negative internal factor. An opportunity is a positive external factor. A threat is a negative external factor (MBA, 2010).  Ferndale Toys uses SWOT analysis to help reach its objectives.

Strengths

Well establish in the UK: Ferndale Toys is well established in the UK, The Company has in excess of 2 small businesses stores in the UK and Worldwide. It also owns the baby brand, Babies Ferndale Toys which adds another 1 store. Ferndale Toys UK also markets successfully on the Web (in collaboration with Amazon.com). It has a huge distribution network that benefits from advanced logistical systems. Having so much shelf space means that the company has a strong bargaining position when it comes to buying prices from manufacturers. It turned over more than £ 2, 2 billion in 2014. The companies has learned to survive and adapt in a competitive world with rapidly changing business conditions. Small businesses face additional pressures because they have to compete against other small businesses, as well as large and well-established players in the industry. According to Mayo (1927), suggest that companies that cannot satisfy consumer demand may suffer such consequences as lower sales, higher inventory and lower profitability.

Continuous and fast growth: One of the strength of Ferndale Toys is its continuous and fast growth as the years pass. The company is reaching out only to new markets but to different kinds of venues to market their product like the internet, this gives them a distinct advantage towards their competitors. The continuous and fast growth of the company shows how well they are operating and how effective their strategy (MBA, 2010).  

Employees are well trained: Another strength of Ferndale Toys is the employees of the company being trained well. Training is crucial for Ferndale organizational development and success. It is fruitful to both employers and employees of the organization. An employee will become more efficient and productive if he is trained well. Ferndale Toys employees were well chosen and well trained to do their respective job. These employees are well managed to keep them in line with the objectives and standards of the company. This is a strength for the company because it leads to quality performance of employees and quality services to the client. This has helped to retain existing customers and attract new clients. Kotler (2010) suggest that retaining customers in long term would help to improve profit and sustain the business.   

Convenient location: Ferndale Toys premises is located in an area where rent cost less, with all facilities around. There is an efficient transport network including; bus garage, and train system. Which enables staff to get to work easily. It also allows supplies to be brought in from far afield cheaply and quickly. And it is convenient for customer as it is located on the street near the market place. Kotler (2010) suggest that the location of a business could determine the foot traffic that the business may attract from face to face customers. Choosing the right location may have a big impact on cost and revenues. It may benefit the company in term of profits.

Affordable prices: Ferndale Toys understood that, customers will choose a lower priced item over a higher priced item that they perceive to be of comparable value. Charging a low price encourages many customers to buy your products and services by making them affordable and offering them a reason to choose your products over those of your competitors. Charging a fair price does not necessarily mean charging the lowest possible price (Fayol. H, 1985). If your product is of high quality, you may develop a marketing strategy based on charging more than inferior product but relatively little for such a high quality item.

Weaknesses

 Depending on seasonal sales: As with all retailers in Western society, Ferndale Toys UK is heavily dependent upon successful sales during the final quarter of the year. They need to make profit from Christmas. Retail is notoriously seasonal and Ferndale Toys UK is no different to other retailers. In fact it could be argued that toys are a key Christmas present product, so are even more likely to be dependent upon seasonal sales.

Competition: Small businesses have competition that may have better branding and better reputation than they have established (Wood.S, 1982). This type of weakness is prevalent when customers are already familiar with a specific store or brand, and then a small business creates or offers a competing product or service. Companies with better brand recognition, and established reputations, see a higher percentage of the market share, which is a potential weakness for a small operation like Ferndale Toys.

Lack of technology: Today`s business world relies on technology for everything from inventory management to communicating with customers. According to Taylor (1947), suggested that when a business uses outdated technology it can slow down productivity and contribute to the business losing money. For example, Consumers are increasing use of the Internet to research companies, find their contact information and browse their inventories. Some traditional brick-and-mortar operations don`t have an online presence, such as is found on websites or in social networking profiles, so it is hard for potential customers to find them. Small businesses like Ferndale Toys might lose customers if their competitors are online.

Lack of marketing: Marketing is a key factor in promoting products and services to customers, whether through pay-per-click campaigns or by offering product samples to potential customers (Friedman. A, 1977).  Ferndale Toys lacks of budget for marketing, this is a major weakness that can affect how much of the market share the business acquires, and how high its sales are from quarter to quarter.

Small staff: Limited human resources is a weakness many small business owners discover they have when they do their SWOT analysis. According to F W Taylor (1947), suggested that Limited human resources can include having a small staff, which makes it difficult to tackle every item on the company`s to-do list. On the other hand, a company with a full staff that lacks the skills and training necessary to perform tasks can be a hindrance to an organization. Ferndale Toys Company wants to launch its social media presence, but none of the staff has experience in social media, it can be a major weakness for the company. Either they`ll have to hire a consultant, or risk an unsuccessful social media launch.

1.1 ANALYSIS OF THE BUSINESS USING COMPARATIVE MEASURES OF PREFORMANCE

Application of Porter’s Five Forces Model to Ferndale Toys LTD

The Porter’s Five Forces Model illustrates how the competitive landscape in Ferndale Toys industry is impacted by five prominent forces.  These forces are: Supplier power, Threat of new entrants, Buying power, Threat of substitutes, and Rivalry.  The degree of rivalry is the center of this model as the other 4 forces branch off of this.  Each of the forces influences the nature of competition into the industry. Additionally, the organizational strategies are often impacted as the company formulate his strategies in order to respond to the dominant competitive forces in the Toys industry (Buchanan. D, 1982). 

The competitive rivalry within the industry

 Competition is the foundation of the free enterprise system, yet with Ferndale Toys businesses even a little competition goes a long way. Because companies in an industry are mutually dependent, actions by one company usually invite competitive retaliation (Beynon.H, 1975). An analysis of rivalry looks at the extent to which the value created in an industry will be dissipated through head-to-head competition. Rivalry among competitors is often the strongest of the five competitive forces, but can vary widely among industries. If the competitive force is weak, companies like Ferndale Toys may be able to raise prices, provide less product for the price, and earn more profits. If competition is intense, it may be necessary to enhance product offerings to keep customers, and prices may fall below break-even levels.

Rivalries can occur on            various            “playing fields.” In some industries, rivalries            are centered on price competition especially  companies that sell commodities such as Toys, In     other industries, competition may be about offering customers the most attractive combination of performance      features, introducing  new products,         offering more after sale services or warranties, or  creating a stronger brand image than competitors. In some cases the presence of more rivals can actually be a positive for instance in a shopping            area, where attracting customers may hinge            on having enough stores and attractions to make it a worthwhile stop

Factors Influencing Rivalry, Among Ferndale Toys Competitors the most intense rivalries occur when One firm or a small number of firms have incentive to try and become the market leader. In some cases,         an industry with two or three dominant firms may experience intense rivalry when these firms are battling to achieve market leader status (Beynon. H, 1975). In other situations, when competitors with diverse strategies and relationships have different goals and the “rules of the game” are not well established, rivalry will be more intense.

Reducing the Threat of Rivals, Threats of rivals to Ferndale Toys can be reduced by employing a variety of tactics. The company can minimize price competition, distinguish their product from the competitors’ by innovating or improving features (Atkinson.J, 1988). Other tactics include focusing on a unique segment of      the market, distributing the product in a novel channel, or trying to form stronger relationships and build customer loyalty.

The threat of new entrants

Ferndale Toys may have the market cornered with the product, but they success may inspire others to enter the business and challenge the position. The threat of new entrants is the possibility that new firms will enter the Toys industry. New entrants bring a desire to gain market share and often have significant resources. Their presence may force prices down and put pressure on profits. Analyzing the threat of new entrants involves examining the barriers to entry and the expected reactions of existing firms to a new competitor. Barriers to entry are the costs and/or legal requirements needed to enter a market (Clayton. T, 1994). These barriers protect the companies already in business by being a hurdle to those trying to enter the market. In addition to up-front barriers,          a new competitor may inspire established companies to react with tactics to deter entry, such as lowering prices or forming partnerships. The chance of reaction is high in markets where firms have a history of retaliation, excess cash, are committed to the industry, or the industry has slow growth.  Entry barriers are unique for each industry            and situation,  and can change over time. Most barriers stem from irreversible resource commitments you must make in order to enter a market. For example, if Ferndale businesses have well established brand names and fully differentiated products, as a potential market entrant the business will need to undertake an expensive marketing campaign to introduce the products. Barriers to entry are usually higher for companies involved in manufacturing than for companies that provide a service because there is often a significant expense in setting up a production facility. The threat of new entrants is greatest when Processes are not protected by regulations or patents (Geary. J, 1992). In contrast, when licenses and permits are required to do business, in that case Ferndale Toys, firms will not have any protection from new entrants. Because there is no alcohol involve here. Another threat of new entry is customers have little brand loyalty. Without strong brand loyalty, a potential competitor has to spend little to overcome the advertising and service programs of existing firms and is more likely to enter the industry because Ferndale Toys has no brand loyalty. Another threat of new entry is, Start-up costs are low for new businesses entering the industry. The less commitment needed in advertising, research and development, and capital assets, the greater the chance of new entrants to the industry. Another threat of new entry is the products provided are not unique. When the products are commodities and the assets used to produce them are common,            firms are more willing            to enter an industry because they know they can easily liquidate their inventory and assets if the venture fail (Piore. M, 1984). Ferndale Toys are made of plastics. The products are commodities and the assets used to produce them are common so firms are more willing to enter the industry.

Reducing the threat of new entrants, Ferndale Toys must enhance the marketing/brand image, utilizing patents, and creating alliances with associated products can minimize the threat of new entrants. Important tactics the company can follow include demonstrating the ability and desire to retaliate to potential entrants and setting a product price that deters entry. Because competitors may enter the industry if there are excess profits, setting a price that earns positive but not excessive    profits could lessen the threat of new entry in the industry.  

The threat of substitute products

Products from one business can be replaced by products from another. If you produce a commodity product that is undifferentiated, customers can easily          switch  away from the product to a competitor’s product with few            consequences. In contrast, there may be a distinct penalty for switching if your product is unique or essential for your customer’s business. Substitute products are those that can fulfill a similar need to the one your product fills. As           an example, a family  Toy store may prefer to buy   the packaged Toys      produced at Ferndale Toys plant, but if given a better deal, they may go to another Toys supplier. If Ferndale Toys make handmade Toys form pure plastic materials, though, and the company are selling to upscale Toys Company, they may have few substitutes for the product that they are providing. Substitute products can come in many shapes and sizes, and do not always come    from traditional competitors (Hunter. L, 1991).  Plastic Toys can be substitute for wood toys in customer’s preferences. This is why when developing a business plan, it is critical to assess the other options the customers have to satisfy their needs. To do this, company like Ferndale Toys must look for products that serve the same function as theirs. A threat exists if there are alternative products with lower prices or better performance or both. Substitutes can become a greater threat when Ferndale Toys product doesn’t offer any real benefit compared to the competitor products. What will hold your customers if they can get an identical product from your competitor? It is easy for customers to switch. Customers have little loyalty. When price is the customer’s primary motivator, the threat of substitutes is greater (Millward. N, 1992).

Reducing the threat of Substitutes, Ferndale Toys can reduce the threat of substitutes by using tactics such as staying closely in tune with customer preferences and differentiating the product by branding. In some cases, the advertising required to differentiate is more than one firm can bear. In that case, collective       advertising for            the industry may be more effective.

The bargaining power of suppliers

Any business requires inputs labor, parts, raw materials, and services. The cost of a company inputs can have a significant effect on the company’s profitability. Whether the strength of suppliers represents a weak or a strong force hinges on the amount of bargaining power they can exert and,         ultimately, on how they can influence the terms and conditions of transactions in their favor. Suppliers would prefer to sell to company at the highest price possible or provide them with no more services than necessary. If the force is weak, then company may be able to negotiate a favorable business deal for themselves (Meyr. S, 1981). Conversely, if the force is strong, then they are in a weak position and may have to pay a higher price or accept a lower level of quality or service. Factors affecting the bargaining power is as follow;

Suppliers have the most power when the input(s) company require are available only from a small number of suppliers. For instance, when Ferndale Toys is making Toys and need petrochemicals to process into plastic, they            will have little or no bargaining power with crude oil Company, the world’s dominant supplier. The inputs they require are unique, making it costly to switch suppliers. If Ferndale use a certain enzyme in a Toy manufacturing process, changing to another supplier may require them to change they entire manufacturing process. This may be very costly to the company, thus Ferndale Toys will have less bargaining power with the supplier. And also the suppliers can sell directly to Ferndale Toys customers, bypassing the          need for Ferndale toys business. For example, a manufacturer could open its own retail outlet and compete against them.

Reducing the bargaining power of suppliers. Most businesses like Ferndale don’t have the resources to produce their own inputs.  In this position, the company might consider forming a partnership with your supplier. This can result in a more          even distribution of power. For instance, Ferndale uses partnering with its components suppliers as a key strategy to be the low-cost/high-quality leader in the market. This can be mutually beneficial for both supplier and buyer.

The bargaining power of customers

The power of buyers describes the effect that the customers have on the profitability of the business. The transaction between the seller and the buyer creates value for both parties. But if buyers (who   may be distributors, consumers, or other manufacturers) have more economic power,     the ability to capture a high proportion of the value created will decrease, and the company will earn lower profits. Buyers have the most power when they are large and purchase much of the output (Smith. A, 1910). If Ferndale Toys business sells to a few large buyers, they will have significant leverage to negotiate lower prices and other favorable terms because the threat of losing an important buyer puts the company in a weak position. Buyers also have power if they can play suppliers against each other. In the Toys supply industry, the large Toys manufacturers have significant power. There are only a few large buyers, and they buy in large quantities. But, when there are many smaller buyers, the company will have greater control because each buyer is a small portion of the sales.

Factors influencing the bargaining power of buyers, Buyers have more power when the industry has many small companies supplying the product and buyers are few and large. For example, Ferndale Toys may have little negotiating power if the company and several competing companies are trying to sell similar products to one large buyer. The products represent a relatively large expense for their customers (Taylor. F, 1947).

Reducing bargaining power of buyers, Ferndale Toys can reduce the bargaining power of the customers by increasing their loyalty to their business through partnerships or loyalty programs, selling directly to consumers, or increasing the inherent or perceived value of a product by adding features or branding. In addition, if Ferndale Toys can select the customers who have little knowledge of the market and have less power, the company can enhance profitability.