Intergrative memorize

Question 1

Advantages

Answer 1

• Public LTD Company - can issue shares as a source of finance to fund expansion rather than bank loans and debentures which decrease the liquidity of the company and carry interest charges. Majority of shareholders family members meaning that the management may be able to retain control over many of the decisions made.
• “Barr’s has a policy of developing it’s own brand identities.” - because with strong brand identity the company can develop brand loyalty with customers and increase repeat purchases. This will contribute to an increase in the total revenue of the company.
• Barr’s has a deep product range because they offer a wide variety of soft drinks. This means that the company has expert experience in the soft drink markets allowing the company to understand how to compete with other large soft drinks manufacturers, for example in Scotland Irn Bru is the market leader ahead of Coke.
• Has a programme of continually updating production facilities - can keep cost of production down as efficiency increases the cost per unit decreases
• Has a motivated and satisfied workforce. A motivated and satisfied workforce will likely produce higher levels and quality of output for the company. As the quality of the output increases, the customer satisfaction increases and the company will see an increase in total revenue. In 2001, 81.5% of employees said that they were proud to work for the company.
• Aquired Findlays Limited in 2001 and added mineral water to product mix. “Water is a high growth market.” This acquisition can be part of extension strategy for the company because the carbonated drinks market is in saturation phase of PLC.
• Continually updating packaging - grab attention, stimulate interest

Question 2

Disadvantages

Answer 2

• Franchise operations do not always run smoothly. For example the rumours of Pernord Ricard takeover cause “considerable uncertainty for Barr’s”. This uncertainty makes planning for the future difficult for the management, may decrease the value of shares and also may deter potential investors.
• The majority of exports are to Russia. For example in first half of 2002, £30000 of the £38000 earnings from exporting came from sales to Russia. This means that the company is exposed to risk of economic difficulty in Russia. An example of this can be seen by the fact that in 2001 essence sales to Russia fell because of the collapse of the Russian economy.
• The market for soft drinks is strongly affected by the weather. This means that summer with poor weather, the sales of soft drinks decreases as happened in 2002 when there was a very poor summer. The Operating profit decreased from.. in 2001 to .. in 2002.
• Only focused on soft drinks.
• Complaints.
• Increased public health conscience decreasing demand for carbonated drink forcing company to invest in extension strategies such as updating brand and entering new market segments.

Question 3

Advantages of Franchise agreements

Answer 3

• Access to use of another company’s trademarks/brands as part of Barr plc business plan. Allows Barr’s to access market segments that it may not have had sufficient funds to enter into such as the Iced Tea market for Lipton Iced Tea. This provides Barr’s with additional sources of revenue and can therefore increase the profitability of the company.
• Franchise company may provide contacts of suppliers meaning that the management to not have to spend time and resources establishing effective supply chain activities allowing them to focus on other business activities.
• Franchise company will usually bear costs of product development and promotion of brand. This means that Barr’s will only need to pay for the cost of manufacturing keeping the cost of production down and therefore increasing the total profitability of the company. Also because company does not have to pay for advertising costs with these products, the company can better take advantage of economies of scale.
• Can provide access to foriegn markets that are otherwise difficult to enter. For example Barr’s plc entered into a Franchise agreement with KLP in Russia which likely helped Barr’s to gain access to the Russian market. By exporting the company can receive help from government agencies such as STI in the form of advice, contacts and in some cases access to government subsidies. All of these factors will decrease the cost of production when exporting and therefore increase the profitability of the company.

Question 4

Disadvantages of Franchise agreements

Answer 4

• Loss of control, the franchise company may make changes to the ingredients etc of the product and the Barr’s plc may need to make update or adapt factors of production therefore incurring increased expenses for Barr’s plc and therefore decreasing the profitability of the company.
• Franchise operations do not always run smoothly. This can provide uncertainty for the company as happened with the rumours of a potential take over of Perod Ricard. This uncertainty can make long term planning difficult for management and may decrease the value of the shares of the company.

Question 5

How can Barr’s plc continue success?

Answer 5

• Management should review budget control procedures to assess ways the company can decrease expenses. Although Turnover increased from £ in 2002 to £ in 2003, the operating profit only increased from £ to £. This suggests that there was an increase in the cost of sales. By reducing the company’s expenses Barr’s plc can increase the profitability of the company. Because many of the employees of the company are shareholders as part of a long term reward scheme, increasing profitability will increase the dividend that they receive. This may lead to increased job satisfaction and therefore make the workforce more productive. If the workforce is more productive then the quantity and quality of the output will increase and will therefore cause an increase the total sales revenue generated by the company.
• Invest in conducting primary research to gather qualitative data on the potential impact of advertising campaigns before the release. This could be done in the form of focus groups or questionnaires. This can help the company to avoid campaings that may offend consumers and reduce the amount of complaints received for advertisments. Complaints can be a distraction for the management of the company therefore reducing the efficiency of the company.
• Invest in product development of healthy soft drinks. Extension strategy.
• Identify and enter other international markets. Spread risk of economic difficulties abroad affecting Barr’s plc.