Welshwheels might consider focusing their build-up efforts on direct mail and internet sales. Getting into business is relatively easier in an e-commerce environment. Unfortunately, staying in business may be more difficult. Easy access means increased competition causing business to operate with very thin profit margins. Thus, for Welshwheels to be profitable, it must maintain high sales volumes, which in turn means developing and maintaining a big and loyal customer base. Attracting customers and transforming them into repeat buyers is the key profitability.
Electronic commerce involves purchasing and selling of commodities via the internet or computer networks. It embraces the following strong points: projects a professional image for the company, reaches the ever-growing number of customers who look for business online, communicates more information about the company therefore marketing the business without paying print costs and the conspicuous one being a central platform where all your activities – both online and offline – can be referenced and linked. Moreover, it will enhance the company’s product and market analysis as the company will get faster feedback from the customer. These feedbacks may be processed online (Goel, 2007).
Although the list of e-commerce advantages is long, yet the e-commerce environment is far from perfection. In fact, some of the e-commerce disadvantages cause both consumers and business to suffer considerable misfortune. Although cost savings are usually mentioned, there are hidden costs that can quickly turn a credit into a debit. In addition, the technology is not perfect for example; the network unreliability is a continuing concern. Moreover, some other concerns involve security, the loss of privacy, low and remote service levels, and complex legal issues (Goel, 2007).
Thus, on evaluating the various pros and cons of e-commerce, it is clear that the advantages have the potential to outweigh the disadvantages. A proper strategy to address the technical issues and to build up customers trust in the system, can change the present scenario at Welshwheels and help e-commerce adapt to the changing needs of the market.
According to Merthyr Research, investigation into the current market for the Welshwheels cycle suggests that the demand curve for the product is reasonably straight between £300 and £900.
Depending on the assumptions below, ceteris paribus, maximum pricing of £900 would produce higher sales as compared to minimum pricing. Thus, opting for minimum pricing will increase the unit sales but reduce total sales whereas maximum pricing will decrease the unit sales but increase the total sales.
Unit sales = 3130 – (price x 2.9)
Total sales = unit sales x price
3130 – (300 x 2.9) = 2260
2260 x 300 = 678000
3130 – (900 x 2.9) = 970
970 x 900= 873000
A movement along the demand curve occurs when a change in the amount purchased results from a change in the commodity’s own price. In the case of Welshwheels commodities, an increase in the commodity’s price leads to a contraction along the demand curve or a decrease in the quantity demanded. As a result maximum pricing will be significant for Welshwheels to maximize its profits.
To effectively approach the profit maximizing strategy, the firm needs to have knowledge of all future cost and revenue streams with certainty. With this, the firm needs to choose the levels of output and price that would maximize its profits (George, Joll and Lynk, 2000: 161-163).
Similarly, inclining to the recent market analysis Merthyr Research, advertising is seen as an important determinant of demand. Since, in highly competitive markets, a successful advertising campaign will increase the demand of a particular product while at the same time decreasing, the demand for competing products. Merthyr, thus suggest that an annual advertising of some £30,000 might be expected to result in extra annual sales of approximately 100 cycles at the present price of £700. Bearing the risk, Welshwheels would be in a better position to increase their sales through a successful advertising campaign.
The management needs to lay out what there objectives are in examining the risks associated with advertising venture. This process involves five steps that need to be careful considered; 1) Plan for risk, 2) identify risk, 3) examine risk impacts, both qualitative and quantitative, 4) develop risk-handling strategies and 5) monitor and control risk. If the advertising campaign does not work, the company will lose the initiative in reinforcing their brand to the market (Frame, 2003: 83).
Llewellyn investigation on the price of ready-built wheels rather than in-house wheels shows the former being quite considerate to look at in terms of cost. However, it seems there is a deficit of off-the-shelf wheels around the area. Luckily, Llewellyn has identified a specialist firm in Cardiff that would undertake to make the wheels for a total of £110, provided they order for at least 2000 pairs each year. If the company fails to order for 2000 pairs each year, either because of fall in demand or shortage of capital, the contract would be breached and therefore accruing expenses. Outsourcing the services of the firm at Cardiff has will reduce their costs and bloated payrolls only if the risks associated are mitigated strategically (Halvey and Melby, 2007: 34).
Welshwheels management will need to analyze the benefits and risks of outsourcing and assess whether the benefits outweigh the risks. Hereafter are some of the benefit/risks;
The benefits include, cost savings, greater ability to concentrate on core business, implementation of wide initiatives, sale of assets, greater resources to move to new environment/system in a faster time frame, more/ varied skills and resources, better access to new methodologies/ technology, training expense reduction, and lastly greater flexibility.
The risks are loss of control, difficulty in managing costs, additional liability, difficulty bringing business process back in-house, and reduced flexibility (Duening and Click, 2007: 385).
Duening, T. and Click R. (2007) Essentials of business process outsourcing, New Jersey: John Wiley and Sons
Frame J. (2003). Managing risk in organizations: a guide for managers. San Francisco: Jossey-Bass.
George, K, Joll, C and Lynk, E. (2000). Industrial organization: competition, growth and structural change. New York: Routledge.
Goel R. (2007). E-Commerce. New Delhi: New Age Publishers
Halvey J. and Melby, B. (2007) Business process outsourcing: process, strategies, and contracts, New Jersey: John Wiley and Sons