D-Bamboo - Definition of Success & Critical Issues

D-Bamboo Home and Garden Shop

Jing Liang (Phyllis)

#100288854

July 19, 2017

Definition of Success & Critical Issues        

In order to ensure the long-term survival of the company, D-Bamboo must bring its sales revenue back to the historical level by increasing the sales revenue for at least 40% while remaining profitable in the following year. To achieve the goal, the company must address the following critical issues:

• How to efficiently utilize the limited marketing budget of $750 to carry out an aggressive promotional campaign
• How to efficiently lower expenses to increase the budget for future promotions
• How to regain the competitive advantages and capture the trends of home gardening and planting to increase revenue through relocation, promotions, or advertisements

Situational Analysis

D-Bamboo used to be the only one-stop gardening shop that sells high-quality plants and agricultural supplies at affordable prices in the Chaguanas area, Trinidad. Due to the dramatic economic downturn of Trinidad in 2008, the consumer spending had declined significantly. More and more people then choose to start planting at home to reduce their spending on buying vegetable. The trend of home planting and gardening creates an opportunity for the home and garden industry. Seeing this opportunity, many new home and garden shops open nearby and offer similar prices and product mix to D-Bamboo’s. The market environment becomes intensely competitive, and D-Bamboo starts losing competitive advantages over its competitors, resulting in a 40% decline in October 2009 sales.

D-Bamboo is facing several internal problems. Its current location is not visible from the roadside, causing D-Bamboo to miss business opportunities from motorists who end up going to its competitors. Also, the expansion of the car park prohibits D-Bamboo to place the plants in front of the shop to get sunlight, and this causes a 25% increase in plant losses. Expenses are currently 55%^[1] of the total revenue, which might keep increasing by 5% each year. Another factor that leads to sales decline is the poor promotional campaign. Nonetheless, the ability of procuring exotic plants could be a key factor for the company’s survival in the harsh environment and allows the company to capture the trend of home planting.

In addition, the majority of D-Bamboo’s customers are working women (60%) and retirees (15%)^[2], but a study shows that women in Trinidad earn less than men. Women’s lower purchasing power might potentially affect their buying decisions (Anonymous, 2008). Thus, it may not be wise for the company to rise prices especially during an economic downturn.

If Harry keeps running his business in the old way and fails to carry out solutions for the issues, the company will be forced to leave the market in the near future. ^[a]

Decision Criteria

• The cost of promotional campaign cannot exceed TT$750 annually^[b]
• Maintain the Expense-to-Sales ratio at roughly 50% each year
• Increase the sales revenue by 40% without rising prices in the following year

Option Analysis

Option #1: Stay at the current location, do radio advertising^[3], and drop the product lines of pumps and resin pots^[4]

As shown on Exhibit 6, the sales revenue will only increase by 15% in the best-case scenario and 5% increase in the worse-case scenario even if Harry decides to do radio advertisement to boost sales. The operating income will decrease by 2%^[5] if the business falls into the worse scenario. Although dropping of the product line of pumps and resin pots can lower operating expenses by 15%, the overall Expense-to-Sales still scores high, which is between 53% to 58% (Exhibit 6). Radio advertising is within the budget (Exhibit 4), but other decision criteria are not meet in this option. Therefore, the business is unlikely to see a turnaround if Harry stays at the current location.

Option #2: Move to the nearby shopping centre, do radio advertising, and drop the product lines of pumps and resin pots

As shown on Exhibit 7, in the best^[c]-case scenario, the sales revenue will decrease by 23^[d]% in the first month after moving but increase by 48% subsequently (in the worse-case scenario, 29%). Although the growth of sales revenue in the worse case is slightly lower than the decision criteria, a 29% growth in sales signifies D-Bamboo’s ability to recover from the dropping sales in the future with new location and marketing effects. Because of the popularity of exotic plants and D-Bamboo’s reputation for selling such plants, D-Bamboo would most likely reach the best scenario.^[e] In both scenarios, dropping product lines keeps the Expense-to-Sales ratio between 40% to 50% in both scenarios (Exhibit 7). The risk of this option is the significant investment of TT$80,000 on erecting the greenhouse alone and an additional TT$5,000 on monthly rental. However, Harry can obtain a loan for twice his saving (TT$55,000) from his banker. Thus, Harry can secure a loan of TT$80,000 to build the greenhouse. The annual operating income^[6] of TT$301,737 can sufficiently pay off the loan installments even if the business falls into the worse-case scenario. Furthermore, moving to a nearby shopping centre could reduce the loss of clients while capturing different potential customers. By doing radio advertising, D-Bamboo can attract potential customers from anywhere as well as the attention from motorists easily. The cost of advertisement is within the budget (Exhibit 4). This option meets all the decision criteria.^[f]

Option #3: Move to Port-of-Spain, do radio advertising, and drop the product lines of pumps and resin pots

In this option, sales revenue will increase by 14% in the best-case scenario and only 1% in the pessimistic assumption. Expense-to-Sales ratio is above 60% (Exhibit.8). Thus, it fails to meet the decision criteria and it is too risky for D-Bamboo.

Recommendation & Action Plan

Based on the analysis and the options provided above, I recommend D-Bamboo to pursue Option #2: Move to the nearby shopping centre, do radio advertisement, and drop the product line of pumps and resin pots since this option meets the decision criteria and is likely to help D-Bamboo turnaround.