Unit 1.1 Introduction to Business Management

Unit 1.1 Case Study: Samantha launches 'ExPress'

Samantha is a young entrepreneur who has just started her own boutique juice shop business. She has always loved the idea of running her own business, and her passion for juicing inspired her to turn a healthy hobby (which she used to blog about) into a source of income. However, Samantha soon realised that starting a business is not as easy. She faced several problems that threaten the success of her business.

Initially, Samantha started her business with very little money. She noticed that her outflows initially were higher than anticipated…almost never ending! Marketing, website, materials, certification and food safety licensing, free samples, shop refurbishment and so on!!! She used all her savings to rent a small shop, have it refurbished, advertise, hire a web designer and some supplies to get started. Her income initially trickled in, but it wasn’t enough to cover all the (outflows) of starting ‘ExPress’. She struggled to purchase enough ingredients to cover the demand as her savings vanished into business costs!

Samantha decided that to minimise rent, she would go for a less busy location, which worked well. However, she soon noticed that foot traffic was low! Customers were hard to find unless she paid more for local advertising! The trade off was clear. Low rent meant low customer numbers! Samantha did think about switching locations, but had already spent a considerable sum of money on refurbishment and ‘fit out’ of the shop! These costs were sunk and could not be retrieved!

Samantha did notice that competitors were charging significantly lower prices for lower quality juice and using lower quality materials (inputs)! It seemed as though the customers didn’t seem to notice! It was at this point where Samantha realised her market research had been weak. Established shops seemed to be spending more on marketing and promotions to grab attention whereas she was limited to social media advertising as this was cheaper and in some cases, free!

Some money was lost initially through poor quality control and complaints about consistency. In a bid to win customer loyalty, Samantha ran an offer in which she would replace drinks if customers were not 100% satisfied. Whilst she received some loyalty from this, she felt some customers took advantage of her desire to please.

When she applied for a loan from the local bank, she had not prepared a business plan with enough detail to persuade the bank. Following this, she was refused the loan, which she planned to invest in to promotions to drive more interest. This was an early lesson in business plans and how banks rate people in terms of their eligibility for a loan.

On the flip side, her quality ingredients (inputs) and catchy name, ‘ExPress’ earned her a small following that started to promote her on social media sites. This brand recognition could be the start of something she felt! Samantha also learned quickly that being in business requires a massive amount of work, including total ownership of the success and failure. She also noted that she had to be an expert on all business functions and worked much longer hours than in her previous office job! She learned the need for better financial planning and tight budget control and also the need to spend on marketing. Most of all, she recognised the importance of detailed market research to make sure she chose the right location and audience for her service.

Sadly, as her savings dwindled, the economy started to show signs of deterioration. Interest rates rose and customers started to become even fewer. The news constantly talked about recession and set a bad mood amongst consumers. This led to a further fall in income. This was completely unpredicted!

After one year in operation, Samantha faced the ultimate decision to either a) try to continue or b) close ‘ExPress’ forever.

KEY TERMS FROM THE CASE

QUESTIONS FROM THE CASE STUDY

List 4 problems in order of importance that Samantha faced whilst setting up ExPress [4]
List 4 costs (outflows) that Samantha had to pay whilst setting up ExPress [4]
Explain two reasons why Samantha moved to a cheaper location? [4]
With reference to the case study, describe what a shop ‘fit out’ is [2]
Distinguish between income (inflows) and costs (outflows)
Define the term customer loyalty and explain how Samantha tried to achieve it [4]?
Explain the quote, “These costs were sunk and could not be retrieved” [4]
State one problem Samantha faced that could be described as ‘unforeseeable’? [1]
Why do you think Samantha was rejected for her proposal for a loan? [2]
State which sector of the economy Express operates within [1]
Discuss what lessons can be learned from Samantha’s experience in launching ExPress? [10]

Unit 1.1 Case Study: Samantha launches ‘ExPress’

QUESTION 1: List 4 problems in order of importance that Samantha faced whilst setting up ExPress [4]

Insufficient Initial Capital: Samantha started with very little money, leading to financial struggles and challenges in covering initial business costs.
Weak Market Research: Samantha’s limited understanding of the market and competitors resulted in pricing challenges and difficulty attracting customers.
Low Foot Traffic: Choosing a less busy location to minimize rent led to lower customer numbers, impacting revenue.
Economic Downturn: Unforeseen economic challenges, including rising interest rates and a recession, further strained Samantha’s business.

QUESTION 2: List 4 costs (outflows) that Samantha had to pay whilst setting up ExPress [4]

Shop Rent: Samantha used her savings to rent a small shop for her juice business.
Shop Refurbishment: Significant costs were incurred in refurbishing and fitting out the shop.
Advertising and Marketing: Expenses related to advertising, both local and on social media platforms.
Certification and Licensing: Costs associated with ensuring compliance with food safety standards and obtaining necessary certifications.

QUESTION 3: Explain two reasons why Samantha moved to a cheaper location? [4]

Cost Minimization: Samantha aimed to reduce the fixed cost of rent to preserve capital and allocate it to other business needs.
Budget Constraints: The limited initial funds prompted Samantha to seek a less expensive location to manage costs more effectively.

QUESTION 4: With reference to the case study, describe what a shop ‘fit out’ is [2] [2]

A shop ‘fit out’ refers to the process of designing and furnishing the interior of a retail space to make it suitable for the intended business (Express). This includes fixtures, decorations, and equipment necessary for the functioning and aesthetic appeal of the shop. The fit out can be a significant source of outflows (costs).

QUESTION 5: Distinguish between income (inflows) and costs (outflows)

Income (inflows) for Samantha includes the money coming into her business, which encompasses revenue from sales, loans, and any other sources of funds. Revenue, specifically, refers to the total amount of money earned from sales of products or services.

QUESTION 6: Define the term customer loyalty and explain how Samantha tried to achieve it [4]?

Customer loyalty is the tendency of customers to consistently choose a particular brand or business over competitors. Samantha attempted to achieve customer loyalty by running an offer to replace drinks if customers were not 100% satisfied. This aimed to build trust and encourage repeat business.

QUESTION 7: Explain the quote, “These costs were sunk and could not be retrieved” [4]

The quote implies that the costs incurred in refurbishing and fitting out the shop were irreversible and could not be recovered. In business terminology, these costs are referred to as sunk costs, representing expenditures that cannot be recovered once they are spent.

QUESTION 8: State one problem Samantha faced that could be described as ‘unforeseeable’? [1]

The economic downturn, including rising interest rates and the onset of a recession, is described as unforeseeable. This external factor was beyond Samantha’s control and could not have been predicted during the initial business planning.

QUESTION 9: Why do you think Samantha was rejected for her proposal for a loan? [2]

Samantha’s rejection for a business loan could be attributed to her lack of detailed preparation in her business plan. The bank may have deemed the proposal insufficient in providing the necessary information, financial projections, and assurances needed for loan approval.

QUESTION 10: State which sector of the economy Express operates within [1]

Samantha’s juice shop operation falls within the tertiary sector, which involves providing services to consumers.

QUESTION 10: Discuss what lessons can be learned from Samantha’s experience in launching ExPress? [10]

Whilst this question does not necessarily simulate a real exam question, the exercise of thinking about success and failure is still valid.

The possible answers to this question could include; what obvious problems exist that fed into future problems, such as a lack of capital, a lack of initial knowledge or choosing a location with low foot traffic.

Moreover, Samantha failed to produce a good business plan which made her chances of getting a loan much lower!

This of course impacted her potential survival and growth! Many more issues could also be incorporated into a discussion about the success of Samantha and ExPress.

As a general rule, it would be worth listing the problems and explaining how or what effects they had!