What is the Purpose of Franchising?

What is the Purpose of Franchising? Franchising is a method of marketing goods. It is important that this basic fact is understood; franchising is not an industry indeed the use of franchising as a marketing method crosses industry borders. The application of franchising principles to each separate industry involves the blending of the ingredients to produce the right and product. Having grasped that basic fact, it should be appreciated that as franchising is a marketing method it should be approached in a flexible way. Franchising in its full sense the business format franchise may not be a suitable method for your business. However, you may well find that certain elements can have application and provide benefits. If that is so adopt them, even if the end result is that you have not adopted a franchise for your business. In the final analysis you have to make and live with your decisions if franchising is not right for you, or you are not right for franchising, do not embark on that course for it could well end in disaster. But, you should not lead franchisees into disaster for that they do not need a franchisor: many of them could manage quite well on their own. Other methods of marketing which are well known involve all levels from manufacture to retail sale. Some manufacturers or wholesalers appoint agents those who will act on their behalf with power to undertake binding commitments. Others appoint distributors with whom they have a buyer/seller relationship. The distributor is an independent operator who may sell many competing ranges. Some manufacturers enter into licence agreements with others who manufacture their products or who carry out processes resulting in the production of goods. These arrangements may also involve trade mark licences coupled with know-how agreements under which the licensee manufactures or completes the manufacture of goods for sale. None of these agreements is the sort of marketing method with which this manual is specifically concerned although, at times, business people refer to them as franchises. The expression franchise is also used to describe the right given for the operation of commercial TV and radio networks. The operation of a motor car manufacturers dealership is usually called a franchise and in many cases quite rightly so. The suggestion fell on open minds who really understood that it was possible to expand a network using the financial and manpower resources of others. However, the franchisor had to develop an infrastructure to enable it to cope. That infrastructure, the way in which it is put together and sustained, is what this manual is concerned to explain. FACTS TO SUPPORT ADVANTAGES For franchisors: Expansion Franchising is one of the only means available to access venture investment capital without the need to give up control of the operation of the chain in the process. After the brand is carefully designed and properly executed, franchisors are able to sell franchises and expand rapidly across countries using the resources of their franchisees, earn profits commensurate with their contribution to those societies while greatly minimixing the risk and expense that would be inherent in conventional chain operations. Legal considerations The franchisor is relieved to obtain the necessary licenses and permits to start a new outlets. In some jurisdictions, certain permits are more easily obtained by locally based, owner-operator type applicants while companies based outside the jurisdiction find it difficult if not impossible to get such licences issued to them directly. For this reason, hotel and restaurant chains that sell alcohol often have no viable option but to franchise if they wish to expand to another state. Additionally, the franchisor is relieved of the obligation to carry liability insurance on the independently owned franchise units that produce the gross sales of the franchised system since this is the obligation and responsibility of the franchisees under the franchise agreement. As long as the franchisors operational manuals is followed by the franchisees, the franchisors are generally always protected from any liability for any incident that occurs on the property of the franchisee. Franchisors can sel l franchises without making any representations. Operational considerations Franchisees are said to have a greater incentive than direct employees to operate their businesses because they have a direct stake in the start up of the branded business and the tangible assets that wear the brand name. The need of franchisors to closely scrutinize the day to day operations of franchisees is greatly decreased. Franchisors can increase their profits on the gross sales of the franchisees and avoid the operational expenses for the physical units that wear their brand names. Franchisors can decrease their risk and therefore increase their profits as their franchisees bear the expense of operating the units and the expense of being employers. For franchisees: Employment Opening a franchise is a way of personal business. Quick start As practiced in retailing, franchising offers franchisees the advantage of starting up a new business faster based on a proven trademark and formula of doing business, as opposed to having to build a new business and brand from scratch. A well run franchise would offer from site selection to lease negotiation, training and ongoing support and statutory requirements and troubleshooting. Training Franchisors usually offer franchisees significant training, which is not available for free to individuals starting their own business. Although training is not always free for franchisees, it is sometimes supported through the traditional franchise fee that the franchisor collects and tailored to the business that is being started. When training fees and travel expenses, etc.. are required beyond the initial franchise fee, these fees are deductible as part of the startup expenses of the business. FACTS TO OBJECT DISADVANTAGES For franchisors: Limited pool of viable franchisees In any city, there may be only a limited pool of prospects who have both the desire to purchase and start up a franchised business, as compared to the pool of individuals who can be hired and trained to competently manage directly-owned businesses, as paid employees. However, in periods of recession where traditional good jobs are in short supply, this disadvantage disappears because those who cant find good jobs are willing to invest money in a franchise as a means of self-employment. Control Successful franchising necessitates a much more careful vetting process when evaluating the limited number of potential franchisees than would be required in the hiring of direct employees who may have experience in the concept sector. An incompetent manager of a directly-owned outlet can easily be replaced, while, regardless of the local laws and agreements in place, removing an incompetent franchisee who owns the tangible assets of the business is much more difficult. For franchisees: No guarantee There is no guarantee of financial success for the franchisee made by the franchisor in the written disclosure circular and the actual franchise agreement. While the estimated startup costs of the franchise are an implied earnings claim some franchised outlets do fail. Unfortunately, the unit financial performance statistics are not required to be disclosed to new buyers of franchises and this omission makes it impossible for new buyers of franchises to assess the odds of success and failure of their investment in the franchise in terms of profitability and failure as experienced on a unit basis of the franchise system. Control For franchisees, the disadvantage of franchising is a loss of control. While they gain the use of a system, assistance, training, marketing, the franchisee is required to follow the system and get approval for changes from the franchisor. For these reasons, franchisees and entrepreneurs are very different. A franchisee is merely a temporary business investment where he may be one of several investors during the lifetime of the franchise. In other words, he is renting the opportunity, not buying a business for the purpose of true ownership. Additionally, A franchise purchase consists of both intrinsic value and time value. A franchise is a wasting asset due to the finite term: the franchisor is only obliged to renew the franchise if it chooses to contract for that obligation. Price Starting a franchise business carries expenses. In choosing to adopt the standards set by the franchisor, the franchisee often has no further choice as to signage, uniforms etc. The franchisee may not be allowed to source less expensive alternatives. Added to that is the franchise fee and ongoing royalties and advertising contributions. The contract may also bind the franchisee to such alterations as demanded by the franchisor from time to time. Conflicts The franchisor/franchisee relationship can easily cause conflict if either side is acting in bad faith. An incompetent franchisor can damage its franchisees by failing to promote the brand properly or by squeezing them too aggressively for profits. Franchise agreements is unilateral contracts wherein the contract terms generally are advantageous to the franchisor when there is conflict in the relationship. Summary: Yes, franchising is the best business plan. Why? Franchising your business can be a very successful way of expanding. Some of todays largest businesses have used franchising to finance and accelerate their growth into world brands McDonalds, Kentucky Fried Chicken, Pizza Hut, Burger King, Body Glove and the Body Shop. However, franchising must be planned step by step: It must be pilot tested with company owned and operated outlets. Business must be successful, distinctive replicable. Take proper professional advice Solicitor, Banker, Accountant and possibly Franchise Consultant. Take time to write an operations manual. Choose franchisees very carefully and wisely. Avoid overselling and forecasts. Focus on franchisee satisfaction and profitability. Have first class training. Maintain good ongoing relationships. Keep developing the Franchises status and maintain standards. Ensure marketing, advertising and PR are first class. In commercial practice there are some elements which considers fundamental in full business format franchising. These are: The provision to the franchisee by the franchisor of initial training in the operations of the franchised business this is perhaps stating the obvious for the franchisee would not be able to carry on the franchised business without such training. The fact that a franchisee will own their business; the franchisee is the owner of the business although they are obliged to run it in accordance with the franchisors system and under the umbrella of the franchisors name. The franchisee will have to make a capital investment in their business. This is very important. The franchisee must have their own resources at risk. The investment they make must be sufficiently significant in relation to the franchisees total resources for the person to be worried that they might lose it. Conversely they will find motivation in their ability to increase the value of their investment in addition to producing a profit annually. A well-motivated franchisee with their own resources at stake will invariably conduct the business far better than any manager would, to the mutual advantage of themselves and the franchisor. The advantages of franchising for a franchisor may be summarised as: The growth of the network is achieved using the financial and manpower resources of the franchisee; The franchisor is not concerned with the day to day operation of each outlet; The franchisors organization is compact and can earn profits without involvement of high capital risk; The network has an ability to grow rapidly; The franchisor has less staff and its problems; The management of each outlet is the owner who will tend to be well motivated to be successful; It provides wider outlets for products and services; It enables the franchisor to service national customers using their network of outlets. Franchising is an exciting marketing method; when it is properly structured and well run it provides benefits and satisfaction for both parties. It is not an easy route to riches for franchisor or franchisee nor is it a panacea for the ills of a sick business. The establishment of a franchise has to be under-take with skill, patience and capital. The time scale for establishing a franchise system and preparing it for marketing can be as long as two years and it can take another three to six years before the franchisor begins to see net profits and cash flow. The capital requirements of the franchisor have to reflect these time spans. For an example of Franchise Opportunity: RIDPEST is a key player in the pest control industry in Malaysia and the first of its kind to embark on the franchise route. The driving force behind the growth and recognition of the RIDPEST brand is a strong set of corporate values that translates into continued growth for the future. Franchising is undoubtedly one of the fastest-growing sectors of the Malaysian economy. Smart new business owners prefer a franchise, because it helps lower the risks of starting out, and offers savings on things like marketing and purchasing product. Over the years RIDPEST had developed and refined its system to the point where we believe it gives its franchisees the very best chance to build a successful business. CONCLUSION: A proper business plan ensure the long run and success of a business whereas a business which lacks of proper plans and motivation cannot survive in the market and the tough competition the business world have to offer. There are many ways a business plan is introduce and implemented in a trade. However, to have a proper business plan it is necessary that the business plan is on proper format and is not made casually or hastil. ATTACHMENTS: Application forms Franchise loan List of franchisor Panel franchisor Perbadanan Nasional Berhad (PNS) application checklist Sample franchisor letter Graph or chart References of sources References of sources: The franchisors Manual Martin Mendelsohn Masters of Franchising Mark Henricks www.myfranchise.com.my Business For Sale Magazine www.mfa.gov.my Obesity: Causes, Effects and Treatments Obesity: Causes, Effects and Treatments Samantha Sensing Abstract Looking at the scope of obesity it is complex and often left with quick judgment. The purpose of this discussion is to look at the qualifications of obesity to be a listed as a disease; the impact of the disease (such as cost, statistics, etc.), the behavioral-cognitive aspect, and resolution to the disease. Findings were from journals or the Center for Disease Control. Prior to the research I viewed obesity as a voluntary disease that could be fixed with getting off the couch. During the research of many web-based articles, journals, videos, and statistics I am now on the other side of the fence. Those individuals with obesity are in this situation for a variety of reasons. It would be of more help to support them and raise awareness of the disease and how it is affected behaviorally, environmentally, and from a change in corporate standards. Introduction A growing epidemic in America and Western civilization is one that is self-inflected. Obesity is defined as having a BMI of 29.5 or higher. Based on your height and weight a BMI is often used to determine a person’s level of physical health. There has been a growing trend of those considered overweight (BMI 24.5-28.5) or obese in the United States. More recently there have been heavy debates over the classification of obesity being considered a disease. Disease can be defined as an illness that affects a person, animal, or plant: condition that prevents the body or mind from working (Webster). A research study as listed by the CDC states that as â€Å"weight increases to levels of overweight or obesity the risks of the following also increase: Coronary Heart Disease, Type 2 Diabetes, Cancer, Hypertension, Dyslipidemia, stroke, live and gallbladder disease, sleep apnea, and respiratory problems, osteoarthritis, and gynecological problems.† As we increase in weight we ten d to develop serious health problems. And by referring to the definition of disease we can see that disease can occur or correlate with obesity. Definition of Disease What exactly does the word disease mean? We hear the word frequently. And think in concrete terms of disease as a terrible shortcoming that grapples at the lives of so many undeserving or seemingly healthy individuals. Most people don’t look at a person with a disease in disgust. Or in angst, or shame them. Disease is defined by the Miriam-Webster dictionary as, â€Å"an illness that affects a person, animal, or plant: a condition that prevents the body or mind from working normally†. So by definition we can consider the controversial classification of obesity as a disease. The controversy surrounding classifying obesity as a disease rests on the thought that those who are obese can help themselves. Those obese individuals inflicted this upon themselves and so therefore the term disease doesn’t apply. However, comparing the term disease and looking at the qualifications of having a disease, obesity does apply. By having obesity you become at risk for a variety of other diseases or overall health problems. Pathological Impact Obesity rates among American’s and the western world have been rising with exponential growth. In the United States about one-third of U.S. adults (35.7%) are obese and about 12.5 million of children and adolescents are considered obese (CDC). There are many factors in these numbers. Some variables are but not limited to socio-economic status, racial differences, job or career, level of education, and location. Those with a low socio-economic status appear to have greater obesity rates. This is impacted by the affordability of fast-food that offers a meal for a couple of dollars. In comparison a healthy, more nutritious meal could cost an additional $5.00. Obesity related diseases can cause heart disease, stroke, type II diabetes, high blood pressure, etc. (CDC). Aging also impacts higher rates of obesity due to the hormonal and biological changes that take place over time. Mortality rates also seem to be higher for those who are obese and have obesity related diseases. Disabling Obesity An on-going debate in obesity is can these individuals be considered handicapped, and what does it mean to be handicapped. In a study, 2008 Behavioral Risk Factor Surveillance System, obesity rates are 58% higher for than adults without disability. And obesity rates for children with disabilities are 38% higher than for children without disabilities. Annual health care costs of obesity that are related to disability are estimated at approximately $44 billion (CDC). By these numbers it is noticeable that there is a correlation between disability and obesity. The term disability can be described as, a physical or mental condition that limits a persons movements, senses, or activities (Merriam-Webster). By definition obese individuals would or could be considered disabled by their own inflictions. However, not all are eligible for the right to receive Social-Security Disability. Those with a BMI over 40 are considered morbidly obese. This category of people tends to have the biggest imp act on their organs and organ systems. Moreover, there seems to be more that meets the eye with obesity trends. While in most cases it is self-inflicted there are a number of people that have a genetic predisposition or thyroid problems. Or they are on medications for another disorder that impacted their weight gain. In the famous case of Cook v. Rhode Island, the courts ruled in favor of a 300lb female, Bonnie Cook, who took to the courts to protect her against discrimination of not being hired due to being obese. The court initially ruled in favor of her potential employer but the jury sided with Cook. So the state took the case to appeals court where they lost their battle protecting the possibility of discriminating against obese applicants. The court stated, â€Å"†¦ voluntariness is not a criterion for determining whether a person is disabled or perceived to be disabled.† (Cordes1994). New ground was broken by the proclamation of disability and obesity being joined together and protected together. The statements went further, â€Å"Voluntariness only comes into play if the condition can be easily controlled by the person†¦Ã¢â‚¬  (Cordes 1994). The impact of disease obesity can cause is not a light subject or to be sought as laziness through and through. There is good reas on for obese individuals to be given protection. Responsibility of Employers Another large debate in the issues and impacts of obesity is the responsibility of employer’s. Especially for those whose obesity comes from a sedentary lifestyle. Or perhaps need the preventative measures of keeping obesity at bay. A hot topic on the rise is whether or not employers should be mandated to give employees a work-out period in their schedule. The employers could offer employee’s incentives for utilizing resources (a company gym, discounted memberships, and dietician, walking a company track) and by using the resources keep costs low. Though initially it could be costly to take on the responsibility to offer extra incentives to employee’s it could offer long term potential savings. (Villareal, Apovian, Kushner, and Klein 2005) Those whose companies offer various programs and actively engage in them express more happiness, productivity, a greater quality of life, and overall better health. Better health allows for employee’s to serve their empl oyers better. They use less sick pay, keep insurance premiums low, and are more likely to be in tune with their daily job. So while the initial cost may be high, the long term financial gain of a happy, healthy, productive team is hard not to invest in! Responsibility of Citizens Those who are overweight and obese not only impact themselves but they also impact their peers and fellow citizens. The responsibility of American’s to help those who are suffering from obesity is absent. This is understandable, considering we are not responsible for the actions of others. However, change arrives when other’s no longer stand idly by watching suffering. Those who suffer from addictions or psychiatric abnormalities experience greater success in getting back on track when they have a support group. The more awareness that is raised on the disease of obesity the better society can understand it. Understanding can be in noting that obese individuals are not just self-indulgent lazy people. Most experience other health problems. For some this may include a behavioral or cognitive issue that led them to the weight gain. Or the obesity can be from side effects of medication. (Latzer, Y., Stein, D. 2013) The better we educate ourselves and others on the obesity epidemic the faster we can assist them to a healthier lifestyle. Cost of Obesity The less healthy American’s are, we all pay the price. According to a study in 2008 the annual medical cost of obesity was $147 billion dollars (CDC). This amount spent on health care costs of a disease is breath-taking. And this is just in health care costs. The $147 billion spent annually related to medical costs of obesity does not include time spent out of work, time spent going to the appointments, the extra costs to the families affected by obesity, or worse it doesn’t include the mental cost. Adolescents who are obese experience a greater amount of psychological and social problems. Often (obesity) is linked to the numerous absences from school and is thought to be one of the main reasons for poor performance (Latzer, Y., Stein, D. (2013)). It is also reported that lower IQ scores from children translate into obesity in adulthood (Latzer, Y., Stein, D. (2013)). The data proves that the cost of obesity is not merely short-term. But the disease continues to impac t those afflicted during obesity and post obesity. Behavioral-Cognitive Aspect The reasons for procuring obesity or an unhealthy lifestyle is often looked at through the behavioral-cognitive perspectives. Behaviorists feel that the bad habits of obese individuals can be unlearned with the right treatment. On the basis that (increased engagement in sedentary activities and overeating) are learned (A.Tamlyn Shields 2009). Moreover they intend for alternate behaviors and encourage a healthier lifestyle (A.Tamlyn Shields 2009). Increasingly, adults and children are more tuned into technology and less in tuned with the outside world. The undying interest in technology leads to a more sedentary lifestyle coupled with high caloric foods. Where individuals should compensate for their inactivity by decreasing their caloric intake, quite the opposite seems to occur. Fattier foods that can be purchased on the go or take little effort to make are easier to consume. In addition to the fact that these foods are overloaded with sugar that act on our brains like a drug. Sugary foods activate the reward system in our brain allowing for a small flood of dopamine to be released. This in turn excites our body and we are left wanting more of the euphoria these foods bring (N.Volkow R.Wise, 2005). Resolving the Problem Trying to undo what has been done to so many American’s by the way of obesity is not an easy task. It at least will require self-determination. While determination of those afflicted may sound easy, it certainly is not. Some ways we can assist are through offering consistent support and intervention for them to seek a combination of behavioral, medical, and physical assistance. With the three, obesity can be reduced by pinpointing the origin of weight gain (medication, health problems, depression, anxiety, and addiction). In addition to mediating with a behaviorist, and ending by increasing physical activity. However, it would be of great assistance to hold businesses more accountable for what they put in the foods they produce. To offer consumers a better, wholesome product would increase profits and company morale. For example the average soda contains about ten of sugar. The American Heart Association states that men should allow up to nine teaspoons of sugar and woman shou ld allow for six teaspoons of sugar a day. Considering the breakfast cereal Honey-Nut Cheerio’s contains about 8.25 teaspoons of sugar before adding the milk. Our daily limit is almost reached before we finish eating breakfast. While sugar is not the only culprit to substantial weight gain it does inspire other health problems. Though it is the consumer’s responsibility to monitor what they put in their own body, it would be of great assistance to hold companies accountable for better products. For many families grabbing a $5.00 hot-n-ready large pizza in less than ten minutes beats spending $20.00 in groceries and forty-five minutes in cooking time. The fast-food industry spent in 2012 $4.6 billion dollars in advertising (Yale News). If companies spent the same amount on promoting healthier options and producing healthier products it would make a large impact on obesity in the U.S. The initial cost may be higher but perhaps we can apply the behavioral perspective and ‘unlearn’ these business practices. Eventually supply and demand would bring the healthier options to a lower cost to produce and consume. While saving many lives and reenergizing American enterprise and American citizens. Conclusion Obesity rates have sky-rocketed in the past twenty years in the United States. Approximately 34.9% of all adults and about 12.5 million children and adolescents are afflicted by obesity (CDC). The prevalence of obesity related disabilities cost the health care system approximately $44 billion dollars annually (CDC). Obesity is defined as having a BMI of 29.5 or higher and is associated with inducing secondary diseases and illnesses that are not always irreversible. The impacts of the disease (or diseases) can afflict suffers with mental illnesses (anxiety, low confidence, depression,) or poorer IQ as children. Combining these together can produce a lower socio-economic status and inspire other problems related to that. Such as housing, careers, quality of life, financial troubles, that is hard to bring oneself out of alone. By offering support or putting together organizations coupled with self-determination we can assist those with obesity. Combined with employer incentives, mediati on, and increased physical activity along with reduction in high caloric foods the rates of obesity and obesity related illnesses could drop. References Center for Disease Control and Prevention. (2014) â€Å"Adult Obesity Facts†. Centers for Disease Control and Prevention. Retrieved from: http://www.cdc.gov/obesity/data/adult.html Centers for Disease Control and Prevention. (2012) â€Å"Causes and Consequences. Centers for Disease Control and Prevention. Retrieved from: http://www.cdc.gov/obesity/adult/causes/index.html Center for Disease Control and Prevention. (2014) â€Å"Childhood Obesity Facts†. Centers for Disease Control and Prevention. Retrieved from: http://www.cdc.gov/obesity/data/childhood.html Center for Disease Control and Prevention. (2014) â€Å"Disability and Obesity†. Centers for Disease Control and Prevention. Retrieved from: http://www.cdc.gov/ncbddd/disabilityandhealth/obesity.html Cordes, R. (1994, January). Obese gain protection under disabilities law. Trial, 30(1), 85. Retrieved from http://go.galegroup.com.stacks.tridenttech.edu/ps/i.do?id=GALE|A14790304v=2.1u=trident_ttcit=rp=AONEsw=wdigest=a511d0c25452f5c5befcf70bb01be8e0asid=e0ef951c3bba192b24df7ad82e0b9d06 Shields, A. T. (2009). Examination of the obesity epidemic from a behavioral perspective. The International Journal of Behavioral Consultation and Therapy, 5(1), 142+. Retrieved from http://go.galegroup.com.stacks.tridenttech.edu/ps/i.do?id=GALE|A214102591v=2.1u=trident_ttcit=rp=AONEsw=wdigest=a511d0c25452f5c5befcf70bb01be8e0asid=5afeed98da8853ac80c820c028538061 Orciari, Megan. (2013). Fast food companies still target kids with marketing for unhealthy products. Yale News. Retrieved from: http://news.yale.edu/2013/11/04/fast-food-companies-still-target-kids-marketing-unhealthy-products Latzer, Y., Stein, D. (2013). A review of the psychological and familial perspectives of childhood obesity. Journal of Eating Disorders, 1, 7. Retrieved from http://go.galegroup.com.stacks.tridenttech.edu/ps/i.do?id=GALE|A323050895v=2.1u=trident_ttcit=rp=AONEsw=wdigest=a511d0c25452f5c5befcf70bb01be8e0asid=7dbe38997361b44ce7cd1a98ad17bfd1 Villareal, Dennis T, Caroline M Apovian, Robert F Kushner, and Samuel Klein. (2005). Obesity in older adults: technical review and position statement of the American Society for Nutrition and NAASO, The Obesity Society. The American Journal of Clinical Nutrition, 82(5), 923-934. Retrieved from: http://ajcn.nutrition.org/content/82/5/923.full Nescafe Brand: An Analysis Nescafe Brand: An Analysis Nestle promise we commit to everyday, everywhere- to enhance lives, throughout life, with good food and beverages. Nestle was founded in 1866 by Henri Nestle and is worlds leading confectionary, nutrition and food company today. This company is based on Vevey, Switzerland and employing around 280000 people in over 150 countries and running 461 factories or operation in 83 countries. The strategy of the Nestle is guided by several fundamental principles: Innovation and renovation are the basis for the growth of the product balancing the geographic activities and product lines Never sacrificed long term potential, for the short term performance Regardless of the geographical barriers, Nestlà ©s priority is to bring the best and most relevant products to people Nescafe UK Nescafe is one of the renowned brands among various brand produced by the Nestle. The rich taste of your favourite coffee is reflected in its rich history. Generally, coffee is a beverage that has some properties which can energize and revitalized the consumers. In the UK, Nescafà © is targeting basically young adult customers range between 20-35, middle and high class people and also the professional or working executive (who are working very hard). In present context, the biggest challenge for every company is to recover and to survive in the recession, and, Nescafà © is not apart from the current situation. Even though it is still in the profit, companies profit is getting lower due to downfall on the sales the volume of goods sold rose 2.8% in 2008, but down from 4.4% in 2007. Figure 1: Sales trend of Nescafà © The bar chart above shows the continued growth of the sales of the Nescafà © till the second half of the year 2008; but, the profit of the company is gradually decreasing as the sales started to fall by the first half of the year 2009. The main reason behind this problem is the macroeconomic factors like the global recession thats leads to the increase in the inflation rate in UK by 3%-5% (generally, 2-3% of the inflation is acceptable). However, to revive from the current situation, Nescafe has applied various innovative and renovate ideas. Nescafà © even have various brand within the coffee, for example Nescafà © gold, premium, decaff etc. targeting the various range of the customer according to the taste and the preferences. Besides coffee, the company has launched other product such as coffee maker machine, and also following sustainability strategy, refill pack, etc. under Nescafe plan for profit maximization. It is also merging with various other companies like burger king or other businesses using their Nescafe Milano Plan. Following these alternative, Nescafà © is expecting to increase its sales in the second half of the year 2011 by reducing the cost of production, improving the market and price strategy to capture the target markets. A. Alternative Scenarios with regards to the cost of production: The company is having down fall in the sales as the variable cost associated with the cost of production increases due to economic factors like increase in labour cost, raw material, energy bills, cost of packaging, transportation and various other factors. The following table shows the variable cost, represents the minimum cost required to produce 3000 quantity of Nescafà © for the first half of the 2011, which is in increasing order as the quantity produced increases. Material for Production Cost associated 000 Total Cost Variable cost: Raw material (coffee, glass jar, packing paper) Transportation Part time worker Energy Marketing 300 100 50 175 125 750 Fixed Cost Plant and Machinery Building and Renting Full time worker Others 200 100 150 50 500 Total 1250 Figure 2: variable cost associated with production for the 1st half of 2011 Figure 3: Various cost and output (000) As the quantity produced by the Nescafe increases, the cost associated with the variable cost increases, however, the fixed cost remaining the same, results in the reduction of the revenue so it has to either increase the price of the product which leads to decrease in the demand, due to high inflation, the customers has less purchasing power (even though the income has increases, the proportion of the increase in income and inflation is equal) or Nescafe should try to reduce the variable cost associated with the production. Figure 4: Trend of total fixed cost and total variable cost The main challenge of the Nescafà © is to sustain in the competitive market and redeem the profit. The Nescafe plans are followed in order to reduce the variable cost within the micro level: Transportation cost: The global initiatives plan which support the commitment of the Nestle responsible farming, production and consumption. Under this commitment, responsible production is the most foremost steps related to sustainability with environment by producing the refill pack for the various coffee including 150g Nescafà © gold blend and decaff and original which also lures to the reduction in road journey and transportation cost by 50% for the same amount of coffee as one can fit twice refill pack in one pallet. Energy Consumption: Another alternative is to reduce the consumption of the energy using energy saving measure. In this method use the coffee ground as a fuel which supply 20% of the energy. While other method is the use of new innovative technology new refrigeration plant to reduce and improve the processes. Packaging cost: Nescafe is cutting cost of the production by reducing the weight of the glass jar used for the coffee. The approach is use of refill pack made of paper which is cheaper than the glass jar. Thus, by following the above approach the new variable cost associated with the production for the second half of 2011 is shown below: Variable cost Cost Raw material Transportation Energy Part time worker Marketing 241 50 140 50 125 Total 606 Figure 5: New variable cost Figure 6: New cost and output (000) Figure 7: Revised trend of fixed cost and variable cost for 2nd half As comparing the two charts, we can conclude that the Nescafà © is able to reduce the variable cost by applying the various alternatives. At the same level of output e.g. 3000, the variable cost was 750,000 before (fig 4) whereas reduced to 606000 for the second half of the 2011 (fig7). The other various alternatives available for the Nescafe, in macroeconomic concept, can be as follows in terms of: Recession, shift to a plant to the emerging country or the country with the minimal effect of recession such as china or India i.e. slowdown-hit. The company can shift the plant to these country as raw material i.e. coffee can be produced here as well. Employment, in India, the unemployment rates are higher, whereas, china is providing the cheap labour to attract the new investors so the company can really be benefited from the low labour cost.. Political stability: Both of these countries are politically stable. Nescafe cant shift plant to the insecure country as there will always risk of the close down due to civil wars. B. Elasticity of a Nescafe Price Elasticity of supply (PES): is calculated as: PES: % change in quantity supplied % change in price According to table below, the supply elasticity of Nescafà © is less than one which imply that the supply is not responsive towards the price change so its supply inelastic. The change in the quantity demanded is 0.5%, less than the change in price, 0.9%. The Nescafe cannot have extra supplies of the raw material i.e. coffee due to limited suppliers and also depend on the climatic condition, the decision made before about the plantation of coffee that affects the production yield. As the coffee is main ingredient, it cannot switch to other raw material and in other hand; it cannot hold the product for a really long time as product is a consumable and not a lifelong. It can still produce more goods for the same quantity with same cost of production but will be less than as of the supply elastic due to some constraints. Fig 8: Price elasticity of supply Income elasticity of Demand (IED): is calculated as: IED= % change in Quantity demanded % change in Income As per the following table, the income elasticity is between 0 and one which shows that Nescafà © is the normal good and less income inelastic. As the income of the consumer increases, other things remaining constant, the demand of the Nescafà © increases. For instance, the income elasticity of Nescafe is 0.1 as income rises to 10500 from 10000, which implies demand is not very sensitive towards changes in incomes which is the nature of the normal goods. Figure 9: income elasticity Cross elasticity of demand (CED): represent the responsiveness of the demand of the Nescafà © to the change in the price of either complimentary goods e.g. sugar or substitute product e.g. Kenco and calculated as: CED= %change in demand for Nescafà © %change in price of Kenco When the price of the sugar increases, demand of the Nescafà © decreases and vice versa and cross elasticity of demand will be negative, whereas, if the price of the substitute product decreases, the demand for the Nescafà © will increases, and vice-versa, and is positive as shown in table below. Figure 10: cross price elasticity C. Market structure and Strategies: Nescafe shares the attributes of the perfect market structure as it is inelastic to the supply and income of customers with horizontal integration product. The assumptions are: Existence of many firms e.g. Nescafà ©, Kenco, bru, percol, carte noire, super market brand, etc. perfect knowledge about the market and target customers homogenous product but customers distinguish the product with brand name and taste preferences Free entry and exit Nescafà ©s strategy based on the think globally, act locally. According to Keegan and Green Nescafe coffee is marketed as a global brand even though advertisement message and product formulation vary to suit cultural difference. Considering the rival company, Kenco is biggest competitor of the Nescafà ©. The strategy of the Kenco is to produce sustainability product and refill pack instead of coffee jar. Nowadays, customers are more concern about the ethical business and the environment friendly product, so to maintain the current market shares; it has to follow the concept of refill pack and the environment sustainability. Besides these, following are the possible alternatives: Introduced the new product lines and product differentiation. Recently, Nescafe has launched 3 in 1 pack which can be followed with 2 in 1 product. Fair Trade Nescafe can vertically merge with the different company offering different but co-related product. For example, Nescafà © has merged with Burger king, a food chain company that offer Nescafà © coffee to its customers with its food. The other strategy, Nescafe can merge with supermarkets and offer free samples to the customer as a complimentary product and with other businesses using its Nescafe Milano Professionals plan. Provide the customers a taste of coffee at a busy street as a reminder strategy and distribute the free samples. On the other hand, Nescafà © should enhance the vending machine network and should set up in train station, airport and on busy places. Advertisement includes sales promotion, publicity which attracts different target customers. The different advertising is strategies applied according to customers and countries values and beliefs but with same logo and red mug cups. Research and development Enter into emerging market D. Market Segment and price strategy: Nescafe is the UKs prominent coffee brand followed by the other various substitute products like Kenco, percol, super market brand etc. Now, the main customers of coffee are university student, working people or professional but should also try to attract should target people of above the age of the 35 and teenagers to maintain its market share. Figure 11:  ©Ã‚  1995: the new internationalist The possible pricing strategies for the Nescafe are: Competitors and market oriented price: Nescafe should be able to maintain or reduce the price according to the market or competitors. If its price is higher than the competitors, it will affect the demand and profit as well so it should be competitive price. Promotional allowances like offering during the occasions like buy one get one free offers in the super market, offer Nescafà © red mug with 400g of pack, discounts on second purchase. Quality assurance with reasonable price E. Development of Global and Local Market: Nescafà © objectives should be entering in new emerging market as the demand will be high in such country which results in the growth of business. So, the main idea is to expand the business not only locally but globally as well and be the first one to reach new market. Nescafe can take advantage of its product differentiation and brand name, so it can be the leading coffee in few years as availability only of few local competitors. Nescafe is opening its new plant in U.K creating new jobs. While in other hands, Nescafe is opening plant in countries like china, India and Vietnam to strengthen its global plan as these countries have potential to produce raw material, coffee and the really cheap labour cost which results in the low cost of production and high revenue. The taxation rate and government policies should be considered before entering new market, even though china is closed economy, China is flexible towards the taxation policy for the new investors and reduced the tax to 15% for the first three year. However, in context of India, government policies are quite flexible towards the foreign investors. Vietnam is emerging country, its open toward the investors. F. Scenario of Currency Market: During first half of the year 2011, due to soaring in the Swiss franc and down fall in the American dollar, the Nescafes sales pushed first half sales down, As the Nescafe is Swiss company, final transaction is converted to Swiss franc. Even though the U.K has strongest value in the market, the cost associated with the production is also high. Nescafe has to spend more money for the same amount of raw material and operation plant in Britain and relatively less in in India, china or Vietnam. According to exchange rate 1.497 Swiss franc = 1 British pound whereas 1 Swiss franc =58.3121 Indian rupee. So it will cheaper to operate the business in the country with less inflation, where the consumption power will be higher. Thus, Nescafà © should produce the product at the country with low currency value and import it to other countries and the exchange rate difference will raise the profit of the company, Thus shift of the company to India, China or Vietnam will be beneficial for the company.