Pranav Case Analysis by Deogracias M. Danguilan

Deogracias M. Danguilan

MBAH 10B

Entrepreneurship

Prof. Jorge Saguinsin

 

 

A Micro Market Analysis of Pranav New York

 

To put the case analysis into context, it is necessary to first present an overview of Pranav New York's business concept:

Pranav New York is a one-stop-shop grooming and wellness center for the sophisticated working urban males. Pranav New York is envisioned to be the first male salon/spa in the Philippines and is located within metro manila. It is therefore an integrated full-service barbershop, salon and spa which exudes a masculine atmosphere and that which further differentiates itself through the unique and personalized experience it provides its customers. This business concept was born primarily by the emergence of a trend wherein male individuals are starting to avail of salon and spa services and the lack of an establishment that focuses on serving the male market segment with these particular types of services.

 

Mark and Carlo, before starting their venture, supposedly did due diligence analysis by implementing a relatively extensive research. It was admirable that they did a general scanning of the environment, including using methodologies as exploratory interviews, FGDs and immersion exercises to validate the initial assumptions that they used to formulate their business concept.  As it was presented in the case, however, they still left a lot to be desired in that they should have done more pre-operations analysis and scrutinized better the data that they have gathered. More importantly, the very critical element of micro market analysis which is the location of the business should have been more closely examined and carefully selected before having finally decided.

 

It was not surprising, however, that Pranav New York incurred losses after operating only for three months - obviously, it was still and only at the infancy stage of business. Be that as it may, one cannot help but notice the glaring magnitude of losses incurred and see gaps and loose ends in how they were able to justify pushing through with their business concept in the first place. 

 

 

The business concept of Pranav New York was basically established on a trend of increasing male individuals availing of salon-based services. Looking at trends, especially at trends involving changing patterns of behavior, is helpful at determining emerging markets. A positive trend, however, might not equate to an existence of a viable market. In the case of Pranav New York, it seems that the unique and emerging male market segment is still not ripe for the picking and might not be able to reach a critical mass needed for profitability and sustainability of the business.

 

An important observation to bring up is that the data that was gathered before operations were not reflective of a clear economic potential of Pranav New York and ofcourse did not make much business economic sense. The data that was gathered prior to operations contributed little to make quantifications as to the viability of the concept. The data may have definitely shown the potential of the business concept in terms of trends, however, the analysis that was made was not enough in that it was not able to translate the data into quantifiable terms that are significant to any new business venture such as market size projections, the projected initial market share, the capacity needed in order to be profitable, the projected costs of operations, the profit and cost drivers of the business, and especially the projected future earnings of Pranav New York among others. This just shows the importance of strategic business planning in risk management especially in starting a new enterprise.

 

Of particular interest in the case study worth mentioning was the process in how the location of Pranav New York was selected and decided upon. As shown in the case study, they were influenced much by time requirements, self-imposed or otherwise, and the availability of spaces for lease at their targeted commercial centers. Since the quality of location is very crucial, especially for businesses targeting end consumers, the entrepreneurs should not have made such harried decision.

 

As they continued doing a study on their selected location (and this was after they have already made commitments with the management of Robinson's Galleria), it can be observed initially that it must have been a good pick since the business will have the advantage of having a relatively high exposure to foot traffic. When studied further, however, some subtleties were observed which turned out to be headwinds for their concept such that a female population dominated the demographic mix of the mall (60:40 ratio), and that the male market concentration within the given location of Pranav New York in that part of the mall was relatively low. It is also worth noting that the market leader among its competition targets a low-end mass market. This may largely indicate that the general market within the mall is actually sensitive to price and may mean that only a narrower portion of the general market might qualify for Pranav New York's preferred target market.

 

A further analysis of the case would allow us to see other relevant factors that influence and put pressure on Pranav New York's profitability and sustainability:

a. The current volume of demand was not enough to meet the minimum requirements of the business to break even

b. Adequate attention to increasing the volume of the value-driven services (auxiliary services) delivered is needed since high value services are a major part of forming the business' profit model

c. The infrastructure and equipment should be critically considered as it would affect capacity of the business and would therefore impact profitability (barber's chair vs. a fixed chair, total capacity relative to floor area, etc.)

d. Cost analysis showed that the inherent cost structure of Pranav New York is apparently highly leveraged

e. The female market is far more attractive in terms of spending level (90% more than males on grooming services according to the study)

f. A common age group between the male and female market segments was observed which 20-39 years is

g. It was apparent that the average customer per day was higher with competitors that targeted a unisex market

h. The spa segment of the business is dragging down profitability due to volume and cost and is subject to external threats coming from alternatives and the sensitivity to price of the market.

 

As a result of the analysis made, I am inclined to recommend the following on the premise that the primary problem of the business is the volume of demand relative to its micro market environment:

 

1. It is recommended to upgrade the business model of Pranav New York to be able to accommodate the unisex market and target also the female market segment which will allow the business to increase top-line growth and take advantage of increasing revenues coming from high value services. This means also renovating the layout of the salon to accommodate both market segments.

 

2. I recommend that Pranav New York should continue to retain their male market segment which they have done so efficiently relative to earning a significant male market share within Robinson's Galleria.

 

3. Pranav New York should also focus only on the business segments that are driving profits and remove auxiliary services that drive costs. It should, in particular, discontinue offering spa services and focus more on their core business coming from the salon business segment.

 

4. The business should focus on their niche market which is the working urban professionals within the 20-39 age range. This will allow the business to achieve significant economies of scale in terms of marketing expenses and SGA costs.

 

5. Pranav New York should take advantage of their most apparent strength which is the large floor area of the salon. By leveraging on this advantage, they can increase capacity, increase turnover, and offer a more comfortable and inviting ambiance than their competitors. This way they can establish a unique market position and differentiate the business by highlighting their better ambience and also by competing on the terms of technical capacity and unique and personalized services at competitive prices compared with high end salons. This increases the perceived value of their services and will tend to attract a significant portion of the market.

 

6. As a result of the analysis made, Pranav should be able to reengineer their cost structure and lower their fixed costs by adopting the techniques employed by others in the industry such as implementing something similar to a commission-based remuneration model, and reduce their inventory and other costs by focusing on certain profitable services only.

 

7. Pranav New York should take advantage of the data that they have gathered in terms of the services availed by the different segments of their market. They can use this to bundle services which are fit for the particular segment and market it aggressively to capture significant market share and size which are most needed by the business.     

 

All these, should align their new business concept with their unique target market and should secure a durable competitive advantage especially when orchestrated harmoniously.       

Pranav Case Analysis by Juan A. Villamor

CASE ANALYIS: PRANAV NEW YORK

Juan A. Villamor

MBAH 10B

I.    Major Problem Identified

The major problem in the case of Pranav New York is the financial losses they are suffering because of weak sales. If the trend continues, they might be forced to close the shop since they cannot afford to continue paying fixed costs (e.g., rent and utilities) without sufficient revenues coming in. The following justifies the statement of the problem:

A.  The proprietors are finding it difficult to finance the shop’s expenses, including operational costs, because not enough money is being generated from the shop’s services offerings. The financial statements for the business’ first three months of operations bear this out.

B.  Investments for planned marketing efforts were put on hold to meet the business’ more pressing financial obligations.

C. The more expensive, higher-margin services (spa) are not getting as many clients compared to the lower-end, lower-margin services (haircut and salon). A breakdown of the financial report, correlated with the service offerings availment distribution report, explains this development.

                                                                       

II.    Analysis of the Possible Causes of the Problem

First, there have been questions about the location of the shop, since demographic study of pedestrian traffic in the general area where the shop is located points out the fact that clients are not predisposed to intentionally going up the third floor to get their hair cut, much more avail of spa services. On the contrary, all the shops of a competing barbershop (Roberto’s) are in the ground floor of their service areas.

Second, marketing efforts to promote the business, considering that it’s a novel concept, have not been enough to drive sufficient traffic to the shop. Considering the competition from highly segmented businesses, i.e., barbershops and salons, that specialize on specific services that Pranav New York hopes to both address, then one would assume that it would be very aggressive in creating a new market or attracting a significant chunk of the existing male market for these services to begin patronizing Pranav New York.

Third, the service offerings and service packages failed to take into account the demographics, preferences and behavior of their target potential market. Thus, the shop was losing customers, or business, from clients who just want a quick, no-frills haircut, or from the male customer interested in having his first, all-around spa and salon service because of an ill-designed and ill-equipped shop. In short, a more comprehensive market study, including that of their competitors and other players in the market, but more importantly of the clearly defined segment of the market that they wanted to hook into becoming regular customers, would have provided the answers to some of the puzzling results of their operations three months after their opening.

Fourth, and related to the preceding analysis, is that the business did not look at operational efficiencies in terms of layout and equipment to maximize profit from revenue generating service offerings relative to higher-end, more costly ones that have no guaranteed clientele. For example, this means that the floor area was not appropriately allocated to ensure maximum revenue from guaranteed moneymakers while demand for the higher-end and more costly services are still being built up. Even the chairs for the barbershop services were not designed to encourage additional services (like a foot spa) while the customer is having his hair cut, because of capital expenditure considerations (i.e., the barber’s chair is more expensive).

III.   Alternatives and Possible Solutions

Given the data that the proprietors now have about the business and its first three months of operations, immediate and necessary steps can be taken to ensure not just the survival of the enterprise, but of its long-term viability. The following can be considered:

A.  Infusion of fresh capital to fund promotional and marketing activities, specifically in-mall initiatives to drive male traffic to the shop. If more money can be poured in, then mainstream marketing events can be staged (contests, media campaigns, celebrity endorsements, etc.). The overall objective of the campaign would be to increase awareness of the concept shop and its services.

B.   Re-design of the shop and refurbishment of the furniture to consider greater operational efficiencies and profit maximization from guaranteed bestsellers and quick moneymakers. These would take into consideration the preferences and needs of the defined target market and create the “experience” unique to the shop, which would help generate loyalty and spur word-of-mouth advertising.

C.  Establish other services and come up with more packages to improve availment of higher margin services without changing location. Aside from potentially expanding the market, this will also enhance brand experience and create bigger value for the business. While these will require additional skills training for the staff, the expansion of talent and skills should represent a long-term investment for the business.

D.  Of course, a final alternative must be considered, and that is transferring the shop to a more attractive and potentially profitable location. This alternative can also be considered together with any or all the preceding suggestions, which would make for a major overhaul of the business. Offhand, however, location as a major factor can be expected to immediately impact on the financial performance of the business.

IV.Recommendation

If funds were not a problem, I would immediately recommend that they transfer the shop and look for a more attractive and potentially profitable location. In my mind, this is the major problem of the business, since the business concept is sound and there is indeed a market for the services being offered by the shop. Suggested improvements in the service offerings and packages, together with new services and packages, can likewise be done, either in the new shop or in its present location. Improved operational efficiencies would increase margins and make for improvements in the shop’s “servicescape”, the overall brand experience. On the whole, enhancements should be driven by better information about the potential target market as well as the clearly defined value proposition that the shop offers to the identified client segment. 

Pranav Case Analysis by Dr. Abel M. Villamayor

ENTREPRENEURSHIP                                                                        Submitted by:

PROF. JORGE SAGUINSIN                                                                 Abel M. Villamayor BUSINESSMAN / ENTREPRENEUR                                                 AGSB – MBAH 10B    

CASE ANALYSIS ON PRANAV NEW YORK

Pranav New York was the first male salon and spa in the Philippines that offered fusion of the modern ambiance, amenities and style of a full service salon and spa with the masculine atmosphere of a barbershop. The establishment was the project of Mark Obson and Karlo Nisce, both students of Asian Institute of Management (AIM) taking up Masters in Business Management (MBA). Together with their two partners, the salon and spa was formally opened to the public on November 2004 and was located at the 3^rd floor of Robinson’s Galleria mall fronting the west wing along EDSA.

If one will look back to the groups’ venture in putting up this business, we can say that they were able to do the proper procedures. First was the development of idea, then its conceptualization and preparation with viability verification processes like general scanning, interview with industry experts, exploratory focused group discussion and general immersion exercises wherein Mark and Karlo personally observed and experienced the service delivery of their would be competitors. After they gather the data and address the issues raised, they were able to formulate the groups’ vision and mission. Finding the business location was not smooth sailing because their Management Research Report (MRR) mentors at AIM did not give them the approval because they did not have the proper location study. They also admitted that no sufficient market data was gathered on the customer dynamics even though they were able to do selected location analysis on the following: 1) foot traffic, 2) demographic mix, 3) micro-market competitors, 4) exploratory micro-market survey and 5) male market concentration. However, the partners push through with the plan so they could open Pranav New York to the public by December which they believe is a good month for opening new businesses. Just before the opening, one of the professors, Dr. Morato Jr. made several comments, 1) can an all female crew would appeal to the “macho” psychographic target customer of Pranav, if they are trained in shaving men? 2) The chairs are not barber chairs. 3) The spaces between the chairs are too narrow. 4) The spa was too cold. 5) The office space blocked some of the frontal window and 6) the location in the third floor did not seem conducive to an all male patronage.

The initial euphoria on the business results soon faded three months from its opening with Pranav New York losses amounting to Php825, 568.Analysis of the data on existing operations was mainly due to weak sales and not enough generation of the volume it needed to finance its operations. After realization that they were losing, Mark and Karlo did an analysis based on the data they have from the existing operations. These data includes their offered services to the customers as to what were mostly availed of as well as differentiation if the service was salon related or spa related. They also studied the demographics (age bracket and status level classification) of clientele and found out that they were gaining ground from the male customers’ age 20-49years belonging in the working professional segment. It was also noted that from these data that the same age group of clients avail of both salon and spa services. Salon services were from males within 20-29 years old (53.63%) and spa services were from 30-39 years old (40.45%). Combined salon and spa segments services were most frequently rendered to the 20 – 29 year old bracket which made up 65.5% of the total number of customers. They also did aCustomer loyalty assessment with a combined 13.49% (visit of two or more times) and could be the only factor that made an impact on the number of customers they had, that is through “word of mouth” campaign because no marketing nor advertisement was done after the initial survey or after the viability verification research as disclosed to them by the Leasing Officer of Robinsons Galleria. The profitability assessment also was not very good for it yielded a negative profit/cost ratio for the first three months which depleted the enterprises’ resources. Initially, the given location of the enterprise was not frequently visited by their target market as noticed by their mentor. Personally speaking I would not go out of my way if I’ll go to a mall for a haircut or a spa treatment. I’d rather go to a barbershop near where I live to be able to take a shower right away after the haircut because remnants of cut hair are itchy and very annoying. If a spa treatment is needed, I’ll have it at home where I can relax very much longer in the comfort of my own room instead of having it in a shopping center and be stressed out again battling the traffic.

SUGGESTIONS:

1.      First and foremost, they should have listened to their mentors, but the damage has been done so….

2.      Relocating the shop to a more frequently visited area in the mall by the male population (if they will hold on to this concept) will help the business even if there is not enough marketing and advertisement done.

3.      Consider a mixed demographic clientele instead of targeting only the male population. After all, females spend more than males on grooming services by more than 90% on the average.

4.      The partners should consider on adjusting their prices to a sensitive level and not concentrate on the high end customers for them to be competitive in the micro- market at Robinsons’ Galleria.

5.      If they would still hold on to the all male clientele, barber’s chair should be placed instead of the narrow, immovable lounge chair. Together with this concept, they should drop the spa services mainly because it occupies much of the rented space and the profit/cost ratio on this segment of the business is not favorable.