Question

The Small Shop which earlier recorded an annual increase of approximately 12% in revenues has been stagnating at 4% for the last three years, during which e-commerce sidelined brick and mortar outlets. The shop is struggling to increase profitability. In general, The Small Shop has been offering a discount on MRP to compete with e-commerce prices.
Which of the following is the BEST reason for The Small Shop NOT to reduce the current discount offered to the customers?

• A. A large fading sign prominently placed behind the shop’s cash counter reads “in business and in life,always be fair”.
• B. Recently customers from a nearby village have started shopping at The Small Shop for low-end peripherals, accounting for around 3% of the shop’s total revenues.
• C. To cover insurance costs, e-commerce has begun charging a delivery fee from last year.
• D. A new resident who earlier worked in the computer hardware industry is contemplating starting a business in Turturunk.
• E. Even though e-commerce offers a greater range of choices, villagers prefer buying readily available products from The Small Shop.
• A. The Small Shop should make an arrangement with a retailer of the nearest city. The shop can spare one of its employees once a week to procure the weekly requirements.
• B. The Small Shop should focus only on low-end peripherals that currently contribute to 60% of its revenues.
• C. The Small Shop should get suppliers to courier its requirements to the shop whenever needed. The suppliers require that The Small Shop orders a minimum quantity every month.
• D. The Small Shop should acquire extra space at lower rentals available at a distance of three kilometres from its current location.
• J. The Small Shop should focus exclusively on high-end peripherals which contribute to 10% of its revenues but 25% of its profits.
• A. The Small Shop will have to send two of its employees for a three-month training if it wishes to be a franchisee.The emerging brand will bear the training cost.
• B. The upcoming brand is very new and needs franchisees desperately.
• C. Revenues from repairs are expected to increase by about 3-5 percent annually.
• D. No big and reputed brand has shown any interest in franchising The Small Shop.
• O. For the first three years, the emerging brand has offered to pay a fixed amount equal to the revenues earned from repairs the previous year.

Answer 1

The Correct Option is A

The Small Shop is facing a challenge in increasing profitability despite having an annual revenue increase of approximately 4% over the last three years. This stagnation coincided with the rise of e-commerce, creating competitive pressure. The shop has been counteracting this by offering discounts on MRP to align with e-commerce pricing. Let's consider the reason for maintaining current discounts:

1. Available product range: E-commerce platforms offer a vast selection, but customers in the village show a preference for purchasing readily available items from The Small Shop. The immediacy and convenience of shopping locally outweigh the range of options available online because online purchases take longer to arrive. This immediate availability serves as a competitive advantage.
2. Impact of maintaining discounts: Reducing the discounts might result in losing this local customer base, as the villagers might perceive a loss of value. The advantage of immediate accessibility might not compensate for increased prices.
3. Long-term strategy: By maintaining discounts and leveraging the convenience factor, The Small Shop can cultivate customer loyalty, a critical component as more villagers rely on quick stops for essential peripherals.

Among the options presented, the right choice is:

Even though e-commerce offers a greater range of choices, villagers prefer buying readily available products from The Small Shop.

This option highlights the immediate convenience factor that outweighs the varied choices provided by e-commerce, supporting the decision not to reduce the discounts.

Answer 2

To solve this decision-making problem for The Small Shop, we need to consider its goals: increase product variety without accumulating unsold expensive products. The shop is located in a remote village and relies on quick availability for its sales.
Analyzing the options:

• Arrangement with a retailer: This allows flexibility in procuring products on a weekly basis based on actual demand, minimizing the risk of unsold inventory. It aligns with the goal to increase variety while controlling stock levels.
• Focus on low-end peripherals: Limits variety expansion and focuses only on current products, which do not address the need to include expensive products.
• Suppliers with minimum monthly orders: The requirement for a minimum order quantity increases the risk of accumulating unsold, especially expensive, products, which is against the shop's interest.
• Acquiring extra space: While this provides storage for more products, it doesn’t address the shop's need to avoid unsold expensive inventory.
• Focus on high-end peripherals: While profitable, focusing exclusively on them doesn't address the shop's diversity goal and may increase the risk of unsold products.

The best option is the first one: The Small Shop should make an arrangement with a retailer of the nearest city. The shop can spare one of its employees once a week to procure the weekly requirements. This strategy supports variety expansion while managing inventory risks effectively.

Answer 3

The decision for The Small Shop to take the franchise involves evaluating the impact on their existing repair revenue streams, which account for 15% of their total revenue. The best information to consider would highlight potential changes to this revenue due to the franchise agreement.

Option analysis:

• The first option discusses a three-month training, but as the cost is covered by the emerging brand, it doesn't affect the financial consideration.
• The second option notes the new brand's need for franchisees but doesn't provide direct financial metrics to guide the decision.
• The third option indicates that repair revenues are expected to grow by 3-5% annually. This suggests a steady increase in revenue from repairs, which will impact the overall revenue if repairs are restricted by taking the franchise.
• The fourth option indicates a lack of interest from big brands but doesn't provide enough information about financial implications.
• The fifth option offers a fixed payment equal to the previous year's repair revenue for three years, but it does not capture potential growth in repair revenue.

Considering these aspects, the most critical factor is understanding the growth potential of the repair revenue, which is highlighted in the third option. If repair revenues are expected to increase by about 3-5 percent annually, this represents a growth opportunity that might be compromised by taking the franchise deal, thereby impacting long-term revenue positively. Hence, this option would best help The Small Shop to decide on the franchise.