SCS - Feb 16 Flashcards
1
Q
What are some of the advantages of using a celebrity for endorsement?
A
- Increase customer base through fan base
- Increase exposure through free media press
- Social media will have free advertising and consideration about how many followers
- Global awareness even in some parts of world we have not enetered
- Increase margins through price inelasisty. We can charge higher prices for items with same cost base
- Set trends and therefore being ahead of the market allowing us to cash in on new designs before competitors
- Build Brand value through using celebrity to increase awareness of brand to the public and add value
- Traget specific market section
- High sales volume to align with strategy
- If this superstar stays an icon for years to come we can open ourselves up to new demographic (such as kylie)
2
Q
What can be some of the disadvantages of using a celebrity to endore our product
A
- Cost - the higher the superstar the more they can demand so a ROI needs to be considered and how long the contract will last
- Complicated Contract - As these stars are sought after it will require intense legal work to draw up contracts to both parties can agree on
- Brand Reputation - If this individual were to be caught up in a scandal in the news then this woudl have an immiedate impact on the business. Of course there are some people say that all publicity is good publicity but i dont think our Shareholders would have the same view
- Ability to stick to contract - it has shown in the past that certain celebrities will do whatever they please regardless of consequences. We must consider the fact that even though we have a contract in place with this person we cannot guarentee they will not wear something that is not Rio’s or against the contract. Although we would be rewarded financially the time and effort of such legal cases are significant and in the interim our fan base and reputation woudl be damaged
- Loss of status as a celebrity for whatever reason and we are tied into a long contract that adds no value
- Will the input be pure name or will it be design and can our designers work with said person
3
Q
Criteria to be considered if we go with a celebrity
A
- This will be our first celebrity so there will be a lot of attention from media about it. Needs to managed correctly both internally and extrernally so change in procedures will be needed
- Availability vs Creditability: Rio must not jumo at the first person who become available or shows and interest. As this is our first endorsement we need to make sure we get the person who suits our business and will be accepted by our customers. They we will need to be seen as trendy by our customer base and any design will have creditbility in our stores
- Cost vs Benefit: With any celebrity comes cost outlay and we need to have a clear pay structre in mind. These shoudl have some room for negotiations but that will depends on the celebrity and how well they suit our business. Rio needs to be able to measure the success of the collabration so would need to find ways of putting financial measures in place. Thsi may not be so easy if it is simply and product endoresment> if it is a line design then we could be able to measure the sales on that and the margins gained. This designer woudl need to understand we need to make margins and not demand too high price materials
- Collaboration vs control: Consideration of how this is going to work will need to be evaluated. WIll we use the celebrtiry for input into designs and our in house designers adapt for the products. Will they have control over total process and if so how will they work with out existing designers. What will be the staff morale should they have total control with limited expereince. What products will they bring out and what is the risk of them flopping
- Experience: Depenign on the outcome of the collaboration point above we must look at the history and experience of the celebrity that is chosen and their ideas of what they wan to design. The fashion must be consistant with our fast fahion model and the must have experience in either designing this or modelling it so it appeals to that customer base
4
Q
What are considerations when it comes to informaing the market on information
A
- Price sensitive information: As a business we must inform the market of any price sensitive information that comes to light as soon as possible. This information is defined as anything that may affect investors decision on value of the shares they hold. This may be up for debate but departure of key members of the team, regardless if on the board shoudl be considerened in this category
- Also, if they are moving to a competitor and takign staff with her this is defiinelty deemd to be price sensitive and should inform the market as soon as possible
- Even if we do not deem it price sensitive we still have a decision to make on whether we inform the market anyway.
- Any news is likely to spead fast in a industry so we would be wise to consider informing the market as soon as possible to ensure that we can keep control of the issues and put a spin on it that makes u slook good.
- It would be easier if we had a replacement so we could use the press conference to sell in our new designer as oppose to beign about Veronque leaving.
- Depening on the departure we could do a press conference in collaboration with veronque where she says what a delight it has been to work with Rio and she has trained a team of highly qualified staff to keep the deigns rolling out of Rio’s production line.
- Any leak of information could be sensationlised by the press and woudl look very bad to our shareholders and the way we manage out business. As we have some large key investors i would say this is a high risk off leading to a demise in confidence in the board
- Compromise agreement so we can disclose information about her why she is leaving. This is typical when such a high memeber leaves and will be benfical for both
5
Q
What are the considerations when looking at any event that will impact a share price
A
- If the event that has occured has lead to us informing the market that we would consoder this price senetive and by nautre and bad event classified as such woudl have a ngeative impact on the share price
- But great consideration would need to made regarding the circumstances of this event and what mitagating factors have been put in place to reduce the impact
- If the even resulted in sharehlder selling shares then this would reduce our shareprice but if the event was deemed as low impact and frequency then the likelihood is that not many will sell shares and therefore have little effect if any ont he share price
- We have a few large investors so if one decided that this is a bad and sell shares this will have a major impact on the business and may even lead to the other investors selling.
- These large investors will have a well diverse portfolio of holdings and in theory are more influenced by systematic risk factors and no by non-systematic risk factors
- Investors tend to loog at long term issues so anything that is short term such a personell will not be much of a concern
- Our investors are looking for long term returns on investment which we can provide so short term issues will not impact this.
- The people likely to sell are those who are after quick gains and given the fact we have had large share price gains in two years if this were to happen we could attract new investors (but this will be small impact)
- A share price is always expected on any price sensitive information and will be only short term if steps are taken to minimise
- In addition to addressing the market it may be advisable to inform our shareholders direct of the exact issue and what we are doing in detail to remedy this. This will boost their confidence as they will have great understanding and knowledge
6
Q
What are some considerations when an key member of the team decides to leave
A
- What can we do to pursuade them stay? Maybe more perfomance measures to get where she wants in a timescale
- But this cannot be at all costs and consideration for other key mebers need to be look at and the impact
- Who should have the meeting with them? Line Manager, HR director and CEO ?
- Identify exactly why they are leaving and if it is more than they have stated in resigination letter
- If the person is on the board there is little room for progression so this must be factored and accepted
- If this person is to leave then we need to consider the following:
- Do we make them work their notice?
- Ask them to leave immiedately?
- Confidentiality issue
- If she works her notice then at what level of involvement does she have in the design process
- Do we ask her to help with hiring the replacement
- She will have insight into strategy so best to ask to leave
- Asking her to leave immiedately may reduce the chance of her poaching staff
- Will the continue to work for the better of Rio or work towards keeping ideas for new role
7
Q
Key man risk management
A
- Sucsseion planning. this can be at senior management level and above. Normally in place as soon as soneone is appointed. This will be part of the nominations committe for the board and may be extended to key snr managment
- Trusted recruitment agents. These can keep you appraised of any new talents in the industry and can fit nicely into the sucession planning
- Risk mamangement team. Part of their jobs will be to assess ket risks to the business. Key man risk will be high on theor agenda given the nature of our business and reliance on talent. One consideration is to set up talent management team as key man risk is one of the top 5 risks
- Contracts of employement
- Notice periods
- Non compete clauses
- Comfidentiality clauses
- Employee benefits
- Ee share scheme will be lost
- vesting periods
- deferred bonuses
- Feedback and appraisals which shoudl identify issues that will stop and reduce people leaving for reasons that we can control
- Outsourcing - we may consider if their role can be outsourced. Either for interim or for future and how this would impact the business
- Affiliation with top schools to recruit new talent. This could be part of the new talent teams
8
Q
What can we consider as some of the strengths of the business?
A
- Brand
- Customer focus
- Logistics
- Time to output
- Designers
- Employee service
- Supply Chain
- 90% sales at full price
- Listed company so access to capital markets
- High liquidity
- 3 distribution centres so spread risk
- Diverse board
- Low gearing
9
Q
Opening Rio Home and evaluate
A
Suitable -
- Does it fit with out strategic aim
- We are planning to grow rapidily so yes fits with our aim
- New markets and new channels
- To be more sustainable so we can reduce enviornmental issue
- Increase EOS which will improve our value chain
- Does it reinforce our strengths
- Logistics will be enhanced and may be able to improve efficency
- Makes use of our well established strengths, brand, designers, SCM, cash surplus, distribution
- Rectify weakness
- Online is slow for us. This can help improve sales as a lot of home items are bought online
Feasible:
- Do we have the capacity
- Do we have the resources
- Do we have the expertise
- Do we have the funds
- Do we have the techincal knowedlege
Acceptable
- Will it be accepted by our shareholders
- Will increase margins so yes
- WIll grow the brand
- Diversify risk
- Make use of surplus of cash
- EOS so increase S/h wealth
- Will it be accepted by our customers
- Trusted brand
- Good customer experience
- well established designers
- the ability to get more from the store
10
Q
In terms of a PESTEL appraisal what are the considerations
A
Political
- Ability to own business so should we do a JV, Licence, Franchise
- Any import and export quotas around:
- Products
- Cash/profits remitted out of business
- Do we have to use local banaking/workers
- Introuduce minimum wage which will impact margins
Economic
- How much does the consumer have as disposable income
- If inflation is high this will affect the price of suppliers and of minimum wage
- Property values may increase/decrease so may affect the lease charge
- Commodity prices when transporting
- FX considerations
Social
- Is the market big enough and have the demograhic we are appealing to
- Of that demographic could we tailor our approach to market such as obese market, parnets/kids/older generation
- Are people leabing towards changing trends such as more sustainable fashion
Technology
- Automation of processes
- All levels of IT need to be mainaited for CA
Enviornmental
- Air pollution
- JV with another distributor to share shipping space
- Increasing awareness around green credentials
- Maintain sustainable practices
Legal
- H&S
- Copycat designs
- Regulations re working environment
11
Q
What do we look at for reasons for resistance to change
A
- Uncertianinty brings fear
- Learning anxiety - Can we learn
- Survival anxiety - if we cant learn what will happen
- Who is resisting
- People who keep job or people who lose jobs
- People who lose jobs:
- How skilled are they
- What is the market like for their skills - lost of jobs with low money or little jobs with high skilled people
- Income loss and family life
- loss of benefits
- loss of future success of business
- will they have to move their life
- Jealousy
- May be demoralising of the job they did
- People who keep job
- They will lose friends
- new skills needed
- Machines do not make friends so loss of community
- H&S issues
- Fear may be further job losses later
- Will they have new reporting structure
- Will the job losses create more work
- Outside stakeholders
- Community and economic impact
- Unions involved?
- Profitable already so why make changes
- Press
- Negative impact on share price
- Shareholders may not like negative impact
- Environmental issues withwhat is the consultation period
- how generous will redundancy package be
- Will it impact other distribution centres
- Further reasons
- Loss of confidence by not telling managers
- factors around how it was annoucned
- what will the redundancy package be
- what is the consultation period be
- Will we have support from managers once new systrem is in place
- Does more skilled mean more money
- Seen as all abotu profit and not about employees
12
Q
How to reduce resistance/manage change
A
- Communication & education: resistance stems from ignorance
- Sell in the change
- Give reasons and outcome will undermine resistance
- Communicate vision for change and benefits
- Participation and involvment: get them involved in change process
- will reduce concerns about impact
- less likely to resist
- Faciliation and support
- Counselling services
- Line manager availability
- HR availability
- Training
- With technical
- H&S
- New management
- Redundancy packages
- CV help
- Move to other part of business
- Negotiation and agreements
- Offer voluntary redudnacy
- Extra pay
- extended benefits for a certain point
- Gardening leave
- Hours of work
- Change to contract
- Offering incentives
- Manipulation and support
- Risk if caught out
- must consiuder ethical issues
- Coercion
- Forced to accept change
- usually if change is needed quickly
- brings about resentment
13
Q
How woudl we manage Goverment relationships
A
- Develop relationships
- Get press on board as politicans less likely to oppose
- reaseach who you need to be close to and what the value
- Local finance
- For funding and advise
- Action against will hurt all parties
- JV with local business
- Hire local staff
- Ensure taxes are adequate
- Environmental issues are not a concern
- Legal and other regulations around H&S and employment practices
14
Q
What are some of the benefits and challenges by stopping dividend to be used for investment
A
Benefits:
- Cost of admin and bank charges
- Cost of issuing a share options
- Cheaper that debt
- Shows biz as belief in investment
- Capital growth is sucssefull with less interest to pay
- Tax issues re income tax and capital gain
Challenges
- Signal of confidence from the board. By not paying out dividends may show that we are not making sufficent profit and manageing cash well
- S/H will have been expecting dividends. Not delivering may place mistrust in them and be damaging to the reputation of the board. What’s to say they wont do it in the future
- S/H wanting constand dividend may look elsewhere and sell shares
- Promise of future dividends may not be accpeted by the markets and S/h and then share price will fall
- Share price will fall in the ST due to the suspension of dividend and will only rise once profits are generated
- May not be well accepted that funds cannot be raised in more tradtional manner
15
Q
Some notes to consider
A
If we put one member on the board we must put an NED
WACC reflects the risk involved. The higher risk teh higher the WACC
Political risk involve how much they allow as imports. As we manufature our our designs this is important.
