PRANAV CASE ANALYSIS
Ma. Elsie M. Dimaano, MD
MBAH 10B
Submitted to Prof Jorge Saguinsin
SITUATION.
The two articles about Pranav NY in Prof Jorge's casebook describes Karlo Nisce and Mark Orbos, both MBA students at the Asian Institute of Management, embarking on a salon-spa business, a one stop shop for grooming and wellness for the male market as part of their Management Research Report (MRR) which they had to complete prior to graduation. Unfortunately, after three months of operation, it posted a PhP 825,568.00 loss instead of profits.
The two articles about Pranav NY in Prof Jorge's casebook describes Karlo Nisce and Mark Orbos, both MBA students at the Asian Institute of Management, embarking on a salon-spa business, a one stop shop for grooming and wellness for the male market as part of their Management Research Report (MRR) which they had to complete prior to graduation. Unfortunately, after three months of operation, it posted a PhP 825,568.00 loss instead of profits.
The status of the company was examined in detail in the articles and a number of problems were revealed.
PROBLEMS.
After conducting research, the following were identified as reasons why Pranav NY was losing:
PROBLEMS.
After conducting research, the following were identified as reasons why Pranav NY was losing:
1. Pranav NY's PTM.
The micro- market analysis showed that focusing solely on the male market and neglecting the female market segment was not a good idea because it was this market segment that spends more (91%) on grooming services. Adding to this, there is predominance of females in Galleria (61 females :39 males) hence there will be real difficulty in acquiring the critical mass of male customers.
2. Location of Pranav NY in Galleria.
It was only Robinson's Galleria who approved Pranav NY's application in July 2004 because Galleria management found the Pranav NY concept unique, promising, and with a potential of becoming one of their main features in the Body Senses section of the mall.
Maybe Karlo and Mark got excited because of what Galleria management said or maybe they did not have any other choice but put up Pranav NY where management offered because they were pressed for time and wanted to graduate.
The micro- market analysis showed that focusing solely on the male market and neglecting the female market segment was not a good idea because it was this market segment that spends more (91%) on grooming services. Adding to this, there is predominance of females in Galleria (61 females :39 males) hence there will be real difficulty in acquiring the critical mass of male customers.
2. Location of Pranav NY in Galleria.
It was only Robinson's Galleria who approved Pranav NY's application in July 2004 because Galleria management found the Pranav NY concept unique, promising, and with a potential of becoming one of their main features in the Body Senses section of the mall.
Maybe Karlo and Mark got excited because of what Galleria management said or maybe they did not have any other choice but put up Pranav NY where management offered because they were pressed for time and wanted to graduate.
They
should have looked at the whole place first, observed, and gathered
data on customer dynamics and demography. In short, they should have
done a meticulous micro-market analysis before they talked to Galleria
management.
I was just wondering why they did not know that their PTM was on the opposite end of where they located Pranav NY.
3. Pricing.
If the two entrepreneurs really did their homework well before they ventured into the business, they should have observed that there is a higher market share of establishments with lower prices and those with high-end positioning lagged behind. This should have given them an idea about the price sensitivity of Galleria's micro-market.
4. Cost Structure.
Pranav NY's cost structure was also flawed. Their fixed cost was a whopping 96% of which 36% was attributed to fixed salaries. As was explicitly said in the articles, this implied that Pranav NY had to shoulder the fixed cost regardless of customer volume levels thereby straining working capital and cash flow.
I was just wondering why they did not know that their PTM was on the opposite end of where they located Pranav NY.
3. Pricing.
If the two entrepreneurs really did their homework well before they ventured into the business, they should have observed that there is a higher market share of establishments with lower prices and those with high-end positioning lagged behind. This should have given them an idea about the price sensitivity of Galleria's micro-market.
4. Cost Structure.
Pranav NY's cost structure was also flawed. Their fixed cost was a whopping 96% of which 36% was attributed to fixed salaries. As was explicitly said in the articles, this implied that Pranav NY had to shoulder the fixed cost regardless of customer volume levels thereby straining working capital and cash flow.
Corollary
to this, Pranav NY's employees will not really be motivated to sell the
high volume services because whether they do or not, they will get the
same compensation anyway. Where is the incentive at that?
ALTERNATIVES.
1. To put a stop to further losses, the two entrepreneurs can close the whole business entirely.
2. Discontinue the spa since it is incurring about PhP 24,270.00 monthly. Maintaining it will mean additional losses because Pranav NY did not have the critical volume they need and has not established itself in the micro-market of Galleria.
3. Re-evaluate the vision and address the loopholes or flaws seen after research and re-evaluation.
DECISION.
I can hear my FINMAN professor telling our class, closing shop is not an option if you come from AGSB. We only need to evaluate and think of solutions. We should not be disheartened by failures for they are learning experiences. Make sure the first thing you do in the morning is look and analyze the balance sheet in the office so you will not be caught off guard and so that you can address problems even before they come up.
This being said, the best option then is number 3, re-evaluate and address the loopholes and flaws seen after research and evaluation.
ACTION.
The following are action plans, recommendations / suggestions to Mark and Karlo:
1. Pranav NY should look back and re-evaluate their vision of catering to only the male market because the female market is too big and profitable to ignore. Corollary to this, they should not be too gender-specific with regards to staffing. The entrepreneurs should provide equal rights to everyone so long as they have the technical expertise, right frame of mind, love of work, honesty, and other qualities employers look for in employees. Who knows maybe getting blind people for the spa business will project a better image for them because they are helping PWDs to earn a living.
2. Relocating Pranav NY in Galleria where there is high foot traffic is ideal but I am not sure if there is a provision regarding this in their contract with Galleria. They have to know the stipulations in the contract before deciding if they can shoulder relocation costs. If the entrepreneurs do not have any other option but to stay where they are, then Mark and Karlo should make sure that people know about them. Market! Market! Market! This maybe done through flyers, website, social networking media to cut on costs or probably redesign their place so people will get curious and would want to take a look.
Maybe Pranav NY can differentiate itself from the rest and make people go to them through innovative promotions or gimmicks or value-added services like home service.
The owners might also gain from asking their staff who have been in the grooming and wellness business for quite some time for suggestions.
3. Pranav NY's prices should be re-evaluated to make prices more competitive in a price sensitive market. Preparing bundle packages, student discounts, barkada or family packages might do wonders.
It is likewise advisable that Mark and Karlo think about ways to maintain and earn customer loyalty. Loyalty cards, Pranav NY rewards card, gift certificates, buy 1 take 1 promos or sending customers e-greeting cards during special occasions are some examples of winning them.
4. The current cost structure of Pranav NY should be restructured. The variable compensation structure will help Pranav NY address two problems, namely: their high fixed costs and unmotivated staff/employees.
The variable compensation structure in which the staff/ employees are given a fixed percentage commission for the service customers avail gives incentive and motivation to the staff/ employees to push for the high value services because the more they are able to sell, the more compensation they will get. This structure will likewise help Pranav NY minimize and lower fixed cost especially in times of low sales.
5. Equipment evaluation and the floor area should likewise be assessed.
Salon chairs that were immovable and quite restricting were used in Pranav NY instead of barbers' chairs because they were cheap. But, it should be taken into consideration that this is where you get customers in the mood to try out the other services Pranav NY has to offer. I think they should just auction the salon chairs and buy barbers' chairs because the barbers' chairs are crucial for the business. Or, they can have a custom-built chair-massage bed made exclusively for Pranav NY. The custom built chair-bed can either be used in the salon or spa section, whatever section will be needing more and depending on what customers want.
In order to minimize costs and maximize profits, Karlo and Mark should start computing revenue per sqm. Efficient use of space maximizes sales hence profits. This does not mean putting more chairs per square inch because we now that that will mean narrow working areas in between chairs and customers will not like that. We want our customers relaxed and the longer they stay in the establishment, the higher the probability that they will avail of other services.
I am not sure why the article said that the spa was too cold because this should not have been a problem in the first place if the owners are hands-on in the business. If they conducted market research before venturing to the business, they would know what kind of scent, ambience, temperature customers want.
6. Partnership with another company for the spa business is another thing to consider if Mark and Karlo can no longer handle everything on their own.
In conclusion, Karlo and Mark can learn from one of the teachings of an ancient Chinese military general, philosopher, and strategist, Sun Tzu. He said, "the general who wins the battle makes many calculations in his temple before the battle is fought. The general who loses makes but few calculations beforehand."
The two entrepreneurs though should not be disheartened and should remember Steve Jobs when he said, "sometimes when you innovate, you make mistakes. It is best to admit them quickly and get on with improving your other innovations."
Sent from my iPad
ALTERNATIVES.
1. To put a stop to further losses, the two entrepreneurs can close the whole business entirely.
2. Discontinue the spa since it is incurring about PhP 24,270.00 monthly. Maintaining it will mean additional losses because Pranav NY did not have the critical volume they need and has not established itself in the micro-market of Galleria.
3. Re-evaluate the vision and address the loopholes or flaws seen after research and re-evaluation.
DECISION.
I can hear my FINMAN professor telling our class, closing shop is not an option if you come from AGSB. We only need to evaluate and think of solutions. We should not be disheartened by failures for they are learning experiences. Make sure the first thing you do in the morning is look and analyze the balance sheet in the office so you will not be caught off guard and so that you can address problems even before they come up.
This being said, the best option then is number 3, re-evaluate and address the loopholes and flaws seen after research and evaluation.
ACTION.
The following are action plans, recommendations / suggestions to Mark and Karlo:
1. Pranav NY should look back and re-evaluate their vision of catering to only the male market because the female market is too big and profitable to ignore. Corollary to this, they should not be too gender-specific with regards to staffing. The entrepreneurs should provide equal rights to everyone so long as they have the technical expertise, right frame of mind, love of work, honesty, and other qualities employers look for in employees. Who knows maybe getting blind people for the spa business will project a better image for them because they are helping PWDs to earn a living.
2. Relocating Pranav NY in Galleria where there is high foot traffic is ideal but I am not sure if there is a provision regarding this in their contract with Galleria. They have to know the stipulations in the contract before deciding if they can shoulder relocation costs. If the entrepreneurs do not have any other option but to stay where they are, then Mark and Karlo should make sure that people know about them. Market! Market! Market! This maybe done through flyers, website, social networking media to cut on costs or probably redesign their place so people will get curious and would want to take a look.
Maybe Pranav NY can differentiate itself from the rest and make people go to them through innovative promotions or gimmicks or value-added services like home service.
The owners might also gain from asking their staff who have been in the grooming and wellness business for quite some time for suggestions.
3. Pranav NY's prices should be re-evaluated to make prices more competitive in a price sensitive market. Preparing bundle packages, student discounts, barkada or family packages might do wonders.
It is likewise advisable that Mark and Karlo think about ways to maintain and earn customer loyalty. Loyalty cards, Pranav NY rewards card, gift certificates, buy 1 take 1 promos or sending customers e-greeting cards during special occasions are some examples of winning them.
4. The current cost structure of Pranav NY should be restructured. The variable compensation structure will help Pranav NY address two problems, namely: their high fixed costs and unmotivated staff/employees.
The variable compensation structure in which the staff/ employees are given a fixed percentage commission for the service customers avail gives incentive and motivation to the staff/ employees to push for the high value services because the more they are able to sell, the more compensation they will get. This structure will likewise help Pranav NY minimize and lower fixed cost especially in times of low sales.
5. Equipment evaluation and the floor area should likewise be assessed.
Salon chairs that were immovable and quite restricting were used in Pranav NY instead of barbers' chairs because they were cheap. But, it should be taken into consideration that this is where you get customers in the mood to try out the other services Pranav NY has to offer. I think they should just auction the salon chairs and buy barbers' chairs because the barbers' chairs are crucial for the business. Or, they can have a custom-built chair-massage bed made exclusively for Pranav NY. The custom built chair-bed can either be used in the salon or spa section, whatever section will be needing more and depending on what customers want.
In order to minimize costs and maximize profits, Karlo and Mark should start computing revenue per sqm. Efficient use of space maximizes sales hence profits. This does not mean putting more chairs per square inch because we now that that will mean narrow working areas in between chairs and customers will not like that. We want our customers relaxed and the longer they stay in the establishment, the higher the probability that they will avail of other services.
I am not sure why the article said that the spa was too cold because this should not have been a problem in the first place if the owners are hands-on in the business. If they conducted market research before venturing to the business, they would know what kind of scent, ambience, temperature customers want.
6. Partnership with another company for the spa business is another thing to consider if Mark and Karlo can no longer handle everything on their own.
In conclusion, Karlo and Mark can learn from one of the teachings of an ancient Chinese military general, philosopher, and strategist, Sun Tzu. He said, "the general who wins the battle makes many calculations in his temple before the battle is fought. The general who loses makes but few calculations beforehand."
The two entrepreneurs though should not be disheartened and should remember Steve Jobs when he said, "sometimes when you innovate, you make mistakes. It is best to admit them quickly and get on with improving your other innovations."
Sent from my iPad
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