When I started reading this chapter I found that a lot of the information appeared quite familiar to me. For example, the fact that decisions required the managers to predict the future to a certain extent. This is what I wrote about in the previous step, as myself being a manager, I have to somewhat predict my customers behaviour with what product they will want to buy. I use their old buying patterns and I look into what they have bought previously throughout the year, as well as what they bought at the same time last year. I also compare this to other stores results and see if I can see a pattern in customer trends or in the locality of the customers trends. By the locality I mean that I look through the reports or stores close to me to see whether customers are buying the same products as what my customers are, or if my store is an anomaly.
A short term decision for myself as a manager would be to work out the buying trends of my customers during a particular season. So I would have researched all other stores, and I also looked at what fashions were coming into this season, as I found that my customers loved a cheap price, as well as loving neutral colours. So then I would look at the new arrivals and I would contact my buyers and inventory control and organise what stock to get sent to my store. I would still get the new colours of the season, but only the cheap products, as that’s what my customer loves. They love a good bargain! Whereas a long term decision for me would be whether to sign another lease at the location that we’re in now, or whether we have enough staff or not enough staff. With staff it can be very tricky and can really affect the profit of a store. Which is why it is so important to have the correct contracted hours that are needed, and the right type of people working. For example, the customers that enter my store can seem to be stand offish and want to just be left to their own thing and will call if they need assistance. This is completely different to every other store, as customer’s are approached by sales assistants when they walk in the door and are helped right away. So when looking for staff for my store I had to make sure I didn’t get the classic ‘pushy’ sales person, I needed people who would not take offense at being told no, but who are still great sales people.
I have never heard of the concept of a ‘sunk cost’ before reading this chapter. But as I read on, I find it very relevant to my workplace. Advertising for example is a sunk cost within a business. As this cost has already been paid, and you can’t go back and say you want your money back. An example I can think of for this is my store had just opened up but I wasn’t seeing the profit margin that we wanted at that time, so I looked into the advertising. I found out that we had paid for advertising for another company to provide, but it wasn’t working. I was still having customers walking through the doors a year later saying that they didn’t even know the store was open. I felt that advertising was definitely a sunk cost at that time and I didn’t see the benefit of it. So I made a decision along with my area manager and we contacted the advertising department, and told them we needed so much more advertising as well as more deals for our customers. Because again, my customer loves a bargain! And it worked! Our profit has started to increase due to this advertising cost and promotions. I guess this leads onto the part where Martin stated to focus on what is relevant.
I chose to focus my attention on advertising at that point in time as I had already done all of the research and found out my customer buying patterns and what my customers liked. Now I needed to focus my attention on drawing people in and turning them into a regular customer, which is why I focused solely on advertising and working out ways we can increase this at minimal costs to the business. Because overall, this advertising comes out of my gross profit, and I want the gross profit as high as I can possible get it. This again leads onto what Martin said about how everything is limited. I knew this when going into this store, as our lease is limited unless we can turn a profit. Meaning that we have signed a lease for a certain time period, so in this case time is limited.
Now reading on I come to the section about contribution. I completely agree with what Martin wrote, and I actually think about this daily at my workplace, and it is ‘Where can I make a difference?’. Where can I actually make an impact within my store? I have brainstormed over many months this particular question, and to be honest it is a work in progress. I focus on a few products in one week, and I can see an increase in sales of these products. So then I would focus on different products the next week, and again I would either see an increase or decrease in sales in these products. It is all about what I am actually contributing, and is it actually making a difference in the short-term or long-term on the store? If the answer is no, then I move on to something else and try to contribute towards sales in this way instead. You could say I did what Robinhood did in the 1990’s. I reduced my stores product range and I saw an increase in profit.
Moving onto the payback period. I found this an extremely interesting read. It is safe to say I will be using this within my work life now, as I find it very useful in finding out when my store will be in the payback period. I really liked the formula and example that was used and it helped clarify to me that the payback period is equal to the initial investment divided by the cash flow. This will show many months or years it would take for a firm to be in the payback period.
Overall, this chapter has shown me that there are a lot of factors that have to be considered by managers when making either short-term or long-term decisions. Factors can vary from economic factors such as constraints in the market or the value of money at today’s rate. For managers to make good and profitable decisions for their firms, they need to really research and consider these economic factors and remember that opportunity costs can’t be forgotten.
Izzy's world of Accounting 