AQA Business Studies Unit 1
(a). What is meant by the term random sample?
A sample is an item chosen from the total population, which is being studied. Therefore, a random sample is the number chosen, and it involves components that are unpredictable. This is selection of a few items to represent the entire population. The sample chosen does not represent the population from which it was drawn. This was an estimate done through survey and information from franchisors, which Tom estimated that it would be about 77000 customers in the first year according to his analysis (Dayananda, et. al. 56).
Random sample can be subsided into four types. These are simple random, cluster sampling, a self-weighted sampling, and stratified sampling. Simple random sample is where the samples chosen have the same size and equal chances of being selected from the total population. Cluster sampling is a situation where samples in a group are selected. Stratified sampling involves selection of independent samples from the group, strata, or subpopulation within the population (Dayananda, et. al. 57).
(b). State the formulae for calculating market share percentage
A market share is the proportion of the total available market segment that is being served by the company. It is calculated by expressing the total sales from the market then divide by the total sales returns (revenue) in that market the firm controls, then multiple by hundred percent (100%). This can also be calculated as the total volume of units sold in the entire market, divide by the total units sold in that market the firm dominates or controls, then multiple by hundred (100%). This will be based on the number of years the company has operated (Dayananda, et. al. 58)
(c). Tom believes that the level of spending per visit by his customers will stay the same in 2011 and 2012. Based on the information in the case study, how many customers is he anticipating in 2012?
The customers he anticipates in 2012 will be 50% more than the ones of 2011. The 7700 customers he had will increase by 50%. If the customers were 7700 or more, then we expected them to increase by 50%. Therefore, the new customers will be 7700 * 1.5 = 11550. He anticipates these customers if he will use the number of customers he had in the estate he lived. However, based on the cost per customer of $ 15.60, he expects more customers (Dayananda, et. al. 59). The revenues for 2012 he anticipates are $ 130260. Therefore, the number of customers he anticipates will be $ 130260/ $15.60 = 8350. The number of customers expected in 2012 will be 8350.
(d). Tom expects a variable cost per customer visit to fall by 10% between 2011 and 2012. Calculate the change in his break-even number of customers between 2011 and 2012 because of this fall in variable costs.
Break-even point (BEP) is the point at which revenues and expenses or costs are equal. It will at the break even when there is no net gain or loss (Dayananda, et. al. 59). This means there are no losses or profits made even though the opportunity costs will have been paid. Break even point can be compute by using the Total Revenue (TR) and the Total Costs (TC).
Total Revenue (TR) = Total Costs (TC).
130260 = 101327X
X = 130260/101327
X = 1.29.
Break even = Fixed Costs/ C/p
The fixed cost is $ 63000, cost per customer is $ 15.60, and customers expected are 8350.
= 63000/ (130260/15.6)
(e). Explain two problems that Tom might face because of moving away from this original niche market
Tom would face numerous problems because he will be new in the city centre. In the new location in the city, it will cost him a lot. The rent is high compared to location he was in the estate he was living. Tom will face stiff competition from other rivals such as Toni and Guy. Toni and Guy controls or dominates the market; hence, it will take long for him to be recognized in the market. The initial cost of establishing the salon in the city centre is extremely high. Tom does not have adequate funds to establish the salon; hence will be forced to borrow loans and overdrafts. The loans and overdraft may be charging high-interest rates, and this may make Tom strain when repaying (Dayananda, et. al. 60).
Tom will lose the customers he had in the estate he was living. It will take a longer time for customers and potential customers to know the existence and services offered by Tom’s salon in the city centre. It will take time for customers to gain trust from Tom because they are used to Toni and Guy products; hence, he may be forced to use some money to advertised and promote his new salon under Joshua franchise. The decline of the market in last two years may become a problem. A decline in the market means reduced customers and returns leading to poor performance (Dayananda, et. al. 62).
(a). Analyze the benefits of Joshua protecting its business ideas and products.
Joshua will benefit from protecting his ideas and products in many ways. This will improve the company’s competitiveness; hence gaining competitive advantage in the market. Joshua’s products are of high quality; therefore, other competitors should not know its strategies, on how to manufacture quality products and the ideas used. This means that, companies that do not have their own original ideas are deterred from taking advantage of what it has been already researched by the company’s research team. This will help the company to get a head of its competitors who may misuse the products and ideas. Competition in the hairdressing industry is exceptionally high especially from Tony and Guy Salon Corporation, which offers quality services too. This is the reason as to why the Joshua franchise should protect its ideas and products (Dayananda, et. al. 64).
As a business, Joshua franchise wants to maximize its returns. To increase its returns, it must protect the products and ideas in order to maintain the quality. Customers value quality products and prefer to pay the price so long as it meets its needs. Protecting it products and ideas will help to prevent them from being copied by other firms offering the same services and products. Most customers of the company associate the ideas and products of the company as being prestigious; therefore, the company must maintain it for it to attract more customers (Dayananda, et. al. 64).
Possessing a patent will benefit the firm when taking legal steps against those who will copy and use its ideas and products. Having a product that is recognized will be easier for the firm to acquire funds in the financial institutions. The firm will get loans at a lower rate because the lending institution is assured of no default. Products, which are unique, will attract more investors who want to open new branches in other countries. The firm will be able to access new market because customers want products because they can negotiate with its patent or product, which is different from other firm’s. It will earn respect to the company for adhering its business policies and policies (Dayananda, et. al. 66).
(b). Was Joshua right to insist that, Tom locate his salon in the city centre? Justify your views
Though it might be right for Joshua to insist that Tom to locate the salon in the city centre, it may result in both negative and positive results. Joshua would want to maintain the company’s policy of locating all firms within the city centre. Joshua did not consider Tom’s customers who are found outside the city centre. Tom may not get the returns he used to receive when he was operating in the outskirts of the city. However, Joshua was right to insist because the charges from the client was high than in outside the city centre. Being in the city centre will ensure its products and services are provided. City centre is a potential market and most people have been asking the services of Joshua franchise (Dayananda, et. al. 66).
Joshua was right to insist for the location of the salon in the cit centre because he had conducted a market and he knew that the salon would get customers. He had figures on the returns and he wanted to compete with others in the market. The salon is reputed and customers and potential customers would buy the products. From Joshua’s market analysis, the city centre has more than 50% customer compared to the previous market Tom had his salon. Joshua was right to insist that Tom should locate the salon in the city because of the availability of services such as electricity and supermarkets to buy the products needed. The other benefit is that, Tom will not incur the advertisement cost and he will get returns from the sale of the magazines of the Joshua franchise (Dayananda, et. al. 68).
(c). To what extent do you think that Tom’s cash flow forecast will help to guarantee the success of his Joshua franchise?
The cash flow forecast was determined after research and analysis of the market. Tom will not spend some money for advertising and promotion. This means that the returns are guaranteed because it will have save some money. The cash flows are guaranteed because the customers expected are more and they will sustain the salon. The brand of Joshua’s franchise salon has a unique brand that will attract more customers from the wider market. The patent is popular and, the firm will get constant returns making the Joshua franchise guaranteed of returns (Dayananda, et. al. 69).
Tom forecast on cash flow returns seen to guarantee because sales have been increasing from 2011 to 2013. The cash outflows too reduced in 2012 from 102270 to 101327; hence, returns forecast can be guarantee. The popular products of the firm will expire in the next three years. This means that, the products will still be sold in the market. These products are still popular with customers and by the end of three years; new products will have been introduced in the market. For the 15 years, the salon has been in the market, it has expanded its services, and many people know of their products (Dayananda, et. al. 70).
Dayananda, D. R., Irons, S., Harrison, J., Herbohn, P., & Rowland. (2002). Capital Budgeting: Financial appraisal of investment projects. Cambridge: Cambridge University Press.