Business controlled assessment: What is the most appropriate method for the business you have chosen to increase its profits? (Task three/ 1.

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1 Used bike for sale 1 P a g e Business controlled assessment: What is the most appropriate method for the business you have chosen to increase its profits? (Task three/ 1.3) What is profitability? Profit= Revenue- Total costs Revenue= Price x Quantity sold Total costs= Fixed costs + Variable costs Background to my business For my controlled assessment, I have chosen a local business called Street Bike. Street Bike is situated on Mucklow Hill, Halesowen, West Midlands, B62 8BW, and has been running for over 20 years. Not only does Street Bike provide a range of high quality new and used motorcycles, they also offer motorcycle training, clothing and equipment, and even have an on-site café. Street Bike currently has thirty-five employees, all of which know and understand motorbikes. I have chosen Street Bike to use in my controlled assessment, as they are a local (only roughly a 5 minute journey from my house) and successful business, who were more than happy to answer my questions about their business and profitability. I conducted an interview with the sales manager Jason Brunt on the 22 nd September, and asked him a total of 11 questions to find out more about the workings of his business (a copy of the interview questions is provided on the back of this assessment). From this, I was able to determine what the most appropriate method Street Bike could use to increase their profit even further. Current ways to ensure profitability During my trip to Street Bike, I asked Mr Brunt some questions about his current ways to ensure profitability (questions 2 and 3 of the interview). He told me that Street Bike currently use the appraisal method- they buy used bikes and determine whether they are worth adapting and modifying the bike for re-sale. This method is proven to be successful when attempting to ensure profit because new bikes will usually be priced similarly in every motorcycle shop. Used bikes help the business stand out above their competitors, as Street Bike are able to provide pre-owned bikes of a high quality, but still Used motorbikes for sale Pre-owned bikes for sale Motorbike shop Street bike Black country motorcycles Kestrel Honda Bikers world Pure triumph being sufficiently cheaper than a new motorbike. I researched Street Bike s local competitors in the area, and the range of used motorbikes they provide. As you can see from the chart (left), Street Bike provides the biggest range and variety of used motorbikes (Street Bike offer 81, Pure Triumph 76, Black country motorcycles 57, Kestrel Honda 25, Bikers World 5). In fact, Street Bike provides seventeen times more used motorbikes that Bikers World. This therefore gives Street Bike the upper hand over their competitors.

2 2 P a g e Mr. Brunt also mentioned that Street Bike receives bonuses from their franchises (they are official dealers of Yamaha and Suzuki) for reaching or exceeding their target of the motorbikes they had estimated they would sell in a week, month, year etc. This also allows them to receive more profit, however Mr Brunt told me that Street Bike never relies on the bonus given by the franchise to ensure they are profitable, as this leads to a bad business ethic. He said the key is to find a good balance of profit from the products and services we sell, and the bonus given for selling the correct amount of products. Other appropriate methods Street Bike could use to increase its profits (secondary research): In class, we were taught the three basic ways to increase profit in any business. These were to -Reduce unit costs -Raise selling price -Sell more products I composed secondary research prior to my interview with Mr. Brunt based on these three ways to increase profit in a business: Raise selling price: Through looking on Google maps (picture below), I discovered there are currently nine motorcycle shops in the West Midlands. Six of these are very close to each other. The other three (one of these being Street Bike) are fairly spread apart. Therefore, from what we can infer from this, Street Bike does not have to contend very much with nearby comp etitors, meaning that raising the selling price of the motorcycles may be a sensible way to increase profits Reduce unit costs: Street Bike do not make their own bikes, instead they are official dealers of Yamaha and Suzuki motorcycles, alongside many other branded motorbikes accessories and clothing (this was found via their website). Therefore, reducing unit costs of materials would be hard, as they do not produce their own products, thus they do not have any say on the cost of manufacture for the items they sell. However, the Street Bike café may be an area where unit costs could be reduced if they make the food themselves. However, how much of the unit costs it would reduce may not be so significant.

3 3 P a g e Sell more: Another way Street Bike could increase their profits would be to sell more products in order to gain more revenue. Seeing as we are currently in a recession, and street bike provide a luxury item, it may be difficult to increase sales without reducing prices (which could therefore cancel out the effect of the sales). From what I have researched, I have seen no attempt to advertise from the business, although they do have a website. Therefore, advertising may be the step forward the business to gain more customers and increase their sales. However, advertising is very expensive, and this could also cancel out or even worsen the money made by the increased sales from their advert. Other appropriate methods Street Bike could use to increase its profits (primary research): However, after my interview, I found out more about the business and therefore had a better understanding of how the business could increase their profits: Raise selling price: I asked Mr Brunt if Street Bike ever had to compete with other local motorcycle businesses in order to gain the most customers. His answer was: Yes, regularly. We often compete with each other, especially with the pricing of new motorcycles that come out. However, our reputation and good value allow us to have an advantage over our competitors. If there is always a constant competitiveness between the other local motorcycle businesses, raising the selling price for their bikes would leave them at a disadvantage, and their customers would most likely shop elsewhere. I also asked Mr Brunt if he was usually set a price at which he has to sell his products by those who manufacture and supply him with such products. He told me: No, instead we are given an RRP (recommended retail price) at which we can base what to sell our bikes at. It s hard to gain the most sales when your competitors choose to sell at a very low price, aiming to receive lots of small sales rather than a few bigger sales. However, this way isn t very strategic, and usually lessens the profit rather than increasing it. Therefore, it s very important to balance competitive pricing. An RRP is only recommended, so increasing the price of their products is possible, however it isn t set in stone whether customers will still return if the price is much higher. Question ten of the interview told me that: our USP is that we offer everything you need for your motorbikes- from spare parts to helmets to a cuppa for the road. Unlike our competitors, we know and understand motorbikes- all of out staff ride a motorcycle and this adds to the quality and reputation of the shop. Since Street Bike seem to have a strong USP, they may be able to raise their prices if the customer has a guarantee that Street Bike has a higher quality than its competitors.

4 4 P a g e Reduce unit costs: Question11 of the interview allowed Mr Brunt to tell me that: Our location (near the bypass) is a great location- it s a very busy road which allows us to create passing by sales. I believe we are known because of our locationeveryone knows there is that motorbike shop on the roundabout. It s a prime area and is very easy to find, and I believe our location is what has made our business what it is today. I asked this question, as it allowed me to decide whether moving the business site would be a beneficial for the business to reduce their costs (for rent, electricity etc). Clearly, the location is already very successful, and therefore tampering with it may cause a disruption of the sales Street Bike receive. The answer to Question 4 told me that: No, in fact this year is the first year the café has broken even. However having extras like a café can help generate sales- if someone pops in for a cuppa they may end up buying some equipment or clothing that they need. It s something we can use to our advantage to increase sales. The motorbike training also acts similarly. Say a customer isn t sure about the price of the bike, we can add in a motorbike training session for no cost and help us make a sale. From this information, we can still not truly know how much the café and training adds to the profit of the business, as they help generate sales, which turns to profit, rather than making profit themselves. Therefore, cutting the café and training from Street Bike may not be a wise decision. Sell more: Question 5 of the interview told me that: I don t believe we could currently reduce our costs any further. Raising the selling price means that we would be at a disadvantage to our competitors- we d probably lose sales. Increasing sales would probably be the most appropriate way. From this, we can infer that Mr. Brunt feel increasing sales would be the most beneficial way to increase profit. As he knows and understands the workings of his business, it would be sensible to agree with his decision. Question six of the interview told me: A good reputation is always needed for a popular business- we want to ensure we only provide the best motorbikes we can to our customers. This is also related to the correct product. A product needs to be of the highest quality, and has to have the certain elements that a customer wants from a motorbike. To sell more also relies on the best value- if you re overpricing, customers will just go elsewhere. Selling more is all about good quality, good reputation and good products. Thus, if Street Bike needed to sell more, they could look over and see how they could put this point across to potential customers. Question nine of the interview told me: we do rely on good reviews on the Internet and word of mouth is important as well. We also rely on repeat business- we don t have many customers that would prefer to go elsewhere once they ve bought something from us. We have advertised on Kerrang radio and in some motorbike magazines. Once, in the past, we sponsored a charity called Bloodrunners for 12months, which helped spread the name of our business. But, currently, we do not advertise anywhere. Is there a reason Street Bike do not currently advertise? Maybe so. However, advertising may be an element the business could have to help increase sales. Mr Brunt also confirmed that the attempts to advertise in the past did help spread the name of his business, so advertising has worked successfully in the past for improving the recognition of the business.

5 5 P a g e I feel that my primary research is more valuable than my secondary research, as it is from a first hand source, who knows and understands the business. Therefore, I will concentrate my recommendations for the ways to increase profit to be based on my primary research and analysis, rather than my initial secondary research. make supported recommendations for how this business might increase it s profit I believe selling more would be the most appropriate way to increase profits at Street Bike. Through my analysis, I have learnt that raising the selling price means Street Bike will be at a disadvantage to their competitors, and reducing Street Bike s costs even further would be extremely difficult. Thus, selling more is the way forward for Street Bike, as more sales means more revenue, increasing the likelihood of a greater profit. There are several methods Street Bike could use to sell more products: Introduce a loyalty card for the customers to gain bonus points and rewards for continually shopping at Street Bike -A loyalty card encourages repeat purchases, which is very important for business -Would customers return to the shop regardless of the loyalty card? Therefore, would having discounts and rewards lessen the profit Street Bike could receive? Create a motorcycle experience day- a day where customers are taken to a motorcycle track, given a high quality motorbike and instructor and are able to enjoy the ride for a few hours -Street Bike could charge high prices, and would allow for purchases in the winter (i.e. for Christmas), which is their least busy time for sales, as many tend to buy a bike for summer and never want to use it again. -No other motorbike shops offer this, and this could be a new USP for the business -Street Bike would need to access and pay for a track to use (which would most likely be of a high costs) -Street Bike would also need to provide clothing, accessories, gear and a motorbike for the experience- would they make as much profit on these if they were just selling them in the shop?

6 6 P a g e Improve the café by introducing a wider range of food and drink (i.e. special types of coffee) to choose from -Having a wider range of produce may encourage those who do not ride motorbikes to use the café (thus creating more sales). -Having a wider range of produce could help the café not just break even this year, but actually make it profit -Will having a wider range of produce or using better equipment lessen the profit, as more costs will most likely be produced? - Even improving the café may not encourage more customers to visit the shop. There is not guarantee that it will increase sales. Advertise on local buses, Street Bike maintenance vans or on nearby billboards. Advertising could also be used to encourage the use of bikes for commuting rather than for pleasure (as most people ride motorbikes as a hobby) -Improves the awareness and understanding of what the business can offer to customers -Encouraging the use of commuter bikes (by explaining that using a motorbike is cheaper, has less tax and requires less petrol than cars) can help broaden the range of customers that shop at Street Bike -For any type of advertising, there will be extremely high costs involved. Thus, will advertising cancel out the effect of the extra sales received as a consequence of the advertising? Create a motorbike maintenance service that allows a member of Street Bike to come to your home/workplace and fix your motorbike -Street Bike can charge a premium price for the service of fixing your motorbike at home, as it is convenient for the customers (and therefore customers will be willing to pay more). -There is no need to go to Street Bike to fix your motorbike; Street Bike can come to you (which may interest more customers) - Many potential customers may not have time to visit the Street Bike shop. Therefore, it is providing to those with a busy schedule, increasing the target market and the amount of customers Street Bike may receive.

7 7 P a g e -The shop will need to buy a van and fixing equipment to use for the maintenance service. Street Bike may also need to hire an employee who is qualified to fix motorbikes (if they already do not have one). This will add to the costs of the business. Using your analysis, arrive at a supported judgement that states the most appropriate method by which this business can increase its profits Through my analysis, I realised selling more products would be the best way to increase profits of Street Bike. I then went to show how this could be done in this particular business, and showing the advantages and disadvantages of each idea. Finally, I have reached the conclusion that introducing a motorbike maintenance service, which allows your motorbike to be fixed at your convenience (e.g. at work, home) is the most appropriate way to increase sales, and therefore increase the likelihood of a greater profit for Street Bike. I feel this was my best, and possibly most profitable recommendation, as I believe it could allow for a sufficient gain of customers and sales without too much of an extra cost to the business (unlike the idea of advertising the business and creating a motorbike experience for customers, which I felt would both have a vast impact on the costs of the business). I feel as though home motorbike maintenance would appeal to those who do not have time to go and visit the shop- instead Street Bike can bring the shop to them. The maintenance service can also create another USP for Street Bike, as (from what I can infer from the competitors of Street Bike s websites) none of their competitors already offer this service. A premium price will also be paid, which means Street Bike would receive more revenue for servicing a maintenance at a home or workplace than servicing a maintenance at the shop. Therefore, I believe the motorbike maintenance service is a suitable and appropriate idea, which could increase the profits of Street Bike and help improve the reputation and value of the business through the customer s perspective. (2937 words in total).