Analyzing business plans pt.5
Continuing on, see the parts you missed with the list of entries at close as needed.
Interestingly, this company has decided to target two segments of the market. I’m not much of a marketing guru but I don’t think this is a bad approach because it’s not uncommon that your stuff ends up selling to a related consumer group rather than the one you profiled anyway. There is so much cross over and if you can get it with the same marketing dollar, go for it.
Target Market: We will be focusing our marketing efforts on two segments: Urban trend setters and young professionals.
Urban Trend Setters
- Women between the ages of 16-21
- Completing senior high school or a post secondary education
- Their principle sources of income are parental contributions, loans, credit cards, and part-time work.
- Adventurous, take pride in their appearance, and strive to stay on top of the latest fashion trends.
- Avid partygoers
- High brand loyalty
- Women between the ages of 22-30
- Entering the workforce
- Appearance reflects who they are at work
- Prefer intimate social gatherings, as opposed to being amongst large crowds
- Shopping is a method to relieve the everyday stresses of life
Our goal is to target second-generation citizens of lower socio economic regions, who are increasing their level of education, preparing themselves to enter the workforce. They seek boutique style clothing at lower prices, reflecting the environment they grew up in. The clothing they purchase must have a professional look, with a touch of urban chic. These women demand respect, and would like the clothing to reflect this attitude. As they establish better positions in the workforce their disposable income will rise, increasing the funds available to spend on their wardrobe.
Another thing the plan’s author has done, is itemize the reasons he feels these consumers will choose to buy his products.
Buying Decisions: We have grouped five factors that currently affect our markets buying decisions. Listed in order of importance they are:
- Price: We found that our market obtains clothing that ranges from $40 – $150.
- Quality: Buyers will then evaluate the quality of the garment to ensure that it is worth the price. Factors such as durability and maintenance will determine whether the consumer will consider purchasing the garment.
- Brand name: Portrays status within our society. Fortunately, our market is spontaneous and is willing to purchase garments from up and coming designer labels. This market places great importance on being the first to wear the next big designer label.
- Comfort: Has become increasingly important for this market. Women are constantly on the move and the clothing they wear must provide the necessary comfort and mobility to withstand their everyday actions of life.
- Confidence: The final deciding factor when purchasing the garment. As the consumer walks out the dressing room, and looks into the mirror, they should begin to feel their confidence rise. “All eyes on me” should be the words that float through their head.
This has nothing to do with this but when I read things like “all eyes on me”, I feel like I’m a world away from most people. I’d never want everyone looking at me and I find it odd that some people enjoy such attention much less actively seek it out. There was that recent article in the NYT about some people’s desire for fame. I just find it all so very odd.
Now we’re moving into the sales and marketing portion of the plan. It has been itemized as follows:
Products and Price: In general, our pricing strategy will be to provide the end consumers with products which fall within the price range of $30-$100. Our strategy is to provide the end customer with affordable clothing, while maintaining high product quality and a reputable brand name. We would also like to increase the marginal profits sustained by our retailers. The following table summarizes our intended retail and wholesale prices.
|| Unit cost
|| Wholesale price
|| Retail price
| Evening wear
Throughout year three, we will expand our product offering to clothing accessories, perfumes, shoes, dresses, handbags, and make up.
Other than what I brought up in part two with respect to the impossibility of developing four entirely different product lines, there are some problems with this. Last things first; the inclusion of “accessories, perfumes, shoes, dresses, handbags, and make up” almost seems like an afterthought. Again as I mentioned in part two, launching this many products in only three years is impossible.
Now what’s good about the chart. What’s good about this chart are the retail margins. Retailers are going to love this. Typically retailers expect to double the wholesale price to get retail and if they can do better than that -as they do here- they are more than happy. Provided they can sell it of course.
Another problem is the difference between unit costs and wholesale prices. Minimally, you’re going to have to double your costs to arrive at wholesale. If this company is charging $30 for a pair of jeans that cost $20 to produce, you’re not making your margin; wholesale should be at least $40. A lot of designers triple the unit cost to arrive at a wholesale price. One third is direct cost, another third is indirect cost (admin, overhead etc) and the last third is profit. Personally, I don’t think that’s a bad formula if you can get it and a lot of DEs can.
Another problem are the unit costs themselves. I don’t think these are very accurate. For example -again with the jeans- you can have jeans made in El Paso TX for less than $10 apiece but that doesn’t include the fabric or the processing (I’m guessing these will be stonewashed and treated in much the same way premium denim is these days) much less shipping and incidentals (getting the goods there and back, labels, tags etc). I think the $20 allocated for unit costs will cover it but just barely. The admin costs of product development overhead like patterns, grading and marking will be proportionately higher as I’m assuming this company will be running smaller lots.
Another issue are the definitions of “outerwear” and “eveningwear” as was previously mentioned. I am unaware of any eveningwear that only cost $60 even at retail. Could they mean club clothes? Likewise, I’m thinking this company is using the term outerwear to refer to “hoodies”. Outerwear most commonly refers to traditional type coats rather than zippered sweat shirts.
Next the plan gets into methods they plan to use to promote the products. These promotions consist of discount pricing strategies, credit terms and advertisements. First listed are the sales discounts.
Promotions: We will employ two promotional strategies volume discounts, and credit term discounts. Volume discounts will be calculated as followed:
|| 5-10 units
|| 10-15 units
|| 15+ units
| Evening wear
First off, be sure to double check the figures in your charts. The tees listed in the above chart are $2 less than the prices listed in the first one. Other than that, I don’t know what to think of this other than that the listed quantities needed for discounts are really low considering the discounts are so generous. If they follow this discount schedule, I don’t see how they can make any money. I mean, in order to generate any appreciable sales, they’re going to have to have a whole lot of stores meaning, they’re going to have to service a lot of accounts! That costs money. Personally, I think the discounts are too generous considering they’re not getting their margin over cost anyway. If you use the example of tees, they’ll only be making $3 a shirt on an order of 15 or more. That’s less than $45 once you consider the cost of what it costs to generate the paper work and that’s assuming they’ve been paid up front and don’t have associated costs of servicing the account. As it is, their customers are likely to be smaller stores ordering smaller quantities anyway and I don’t see this kind of customer ordering appreciably more to make it worth the cost of the discount to the manufacturer. I don’t know. That’s just my take on it. It seems like an overly generous giveback that doesn’t need to be made. What’s you take on it?
The paragraph under the promotions chart reads:
We will begin our sales as a cashed based business. However, we will evaluate offering credit terms to retailers with high traffic volumes, who have been in business for over five years. We will require 60% down and offer terms of 30 days for the balance. If the balance is paid within the first two weeks we will provide the retailer with a 3% discount. If paid during the third week we will offer a 2% discount.
I don’t know how the 60% down policy is going to go over. Not well I’d imagine. I can see why they’d want it; they’re thinking that’ll cover direct costs (which I doubt). The occasions in which an established manufacturer can get some portion of the payment in advance of shipping are virtually unheard of. The only ones I can think of are custom deals, or akin to private labeling. Regarding the payment discounts themselves, I think it’d be more appropriate to use discounts that are more typical in the trade such as 2/10 net 30 (2% discount for payment within 10 days of invoice) rather than novel invoice discounting policies I’ve never heard of before. The last thing to keep in mind, is based on what I’ve heard, if you print that 2/10 net 30 on the invoice, stores will take the discount regardless of when they pay. I think the best a DE can do payment-wise is to get paid by credit card at shipping.
In part six, we’ll discuss the proposed advertising.
Entries in this series:
Analyzing business plans pt.1
Analyzing business plans pt.2
Analyzing business plans pt.3
Analyzing business plans pt.4
Analyzing business plans pt.5
Analyzing business plans pt.6