England Cricket success boosts sales of chocolate

England Cricket success is good for England cricket supporters! Is it linked to sales of chocolate?

The answer is unknown to me - however for businesses the key question in the coming year is "what is my formulae for increasing sales?"

If you do what everyone else does you may earn industry standard profits. If you add in your own factors that add value or improve exclusivity then you can attract more customers and possibly increase prices.

Consider the work that a franchisee does in getting their formulae for success right. For McDonalds key factors include location, layout of their stores, the cooking process, the supply chain, promotion activities by franchisees as well as the cleaning of the toilets - all this before you consider the advertising. For Kwikfit it is all about location, speed of service, customer support, and monitoring of their daily operational statistics.

One one hand franchises achieve their formulae during the early part of their formation and continually improve as they develop. If they do not then as the market changes then their formulae ceases to work.

How do they achieve their formulae? Experience shows that it is a mix of:

• Investigating and taking decisions based on ambiguous  information
• Being growth orientated
• Establishing base data to collect on a regular basis
• Reviewing information and tweaking strategies

Key to the success of this is the investigation of ambiguous information. This closes the gap between what is already known and what is not known. In large companies this work is done by market analysists. In small companies it is often not done.

As part of every business or strategic plan you are supposed to do a PESTLE or STEEP analysis. You match this to what you are good at in order to take advantage of opportunities available (SWOT). What is often missed out is developing the information already known ie it is easy to write down information you already have rather than investigate new areas to possibly develop your products or markets.

For reference:

Political
Economic
Social
Technological
Legal
Environmental

"Plugging into your Market" is a process that helps a company establish a base of data from which they can make decisions. It establishes some data that the company can collect on a regular basis.

From this base the company can establish competitive advantage over their rivals without just reducing prices or advertising more. Consider the following case

A struggling grocer has a high street store and sells locally sourced fruit and vegetables. They have tried lots of things to promote and change their product mix but every which way they turn they scrape by. They notice a delivery van in a local village delivering organic vegetables in boxes and they decide to do the same. They do distribute leaflets offering the service and they get some customers. Unfortunately like other strategies it fails over a 6 month period. Standing back from the problem they did not focus enough on quality, they ended up sending out the non display items from the shop as it was "what was left". The ordering system was complicated and difficult to manage. They did not have a website to do ordering on or keep in contact with their customers. They also had no real idea who their customers were.

Much of the problem arises as the customers who want organic fruit and vegetables are a different set to the ones that buy regularly on the high street. They behave differently. They are more likely to shop online and less likely to go into town. Therefore some research would have helped establish their perception of what they want. Rather than offering lots of goods at a cheap price they could try selling a new variety of goods at a more expensive price. Key to making this work is to communicate in the language of their new customer base. This may mean an online presence, online ordering, and having customer support. This may also mean that there needs to be a critical size of business to support this operation and make it successful. Here is the risk and commitment of the business. Have they the resources to really make it work?

This case transfers to many situations that are business to business as well as business to consumer. Some research, some commitment, some resources and a little risk.

It is easy to write statements that are in newspapers and trade journals linking factors together - such as cricket and chocolate. The danger businesses have is adopting these factors without doing their own research and seeing how applicable it is for them.

If your business would like to discuss a research plan and an approach that will reduce risk of failure then simple contact us

Telecomm's pricing - price discrimination

Price discrimination is the strategy where you offer different customer the same product at a different price.

Where the product expires due to time e.g. sell by date on a plane ticket, there is a location factor e.g. London vs Bristol, or bulk quantities are involved the practice is very common and accepted.

With utilities companies such as ISP's or telecomms it is a bit more tricky. The market has a few competitors that probably on the face of things compete on price. However underneath the price there will be a package that you purchase. It is very common that a company will have a current offer that is offered to new customers that seems to be the same as the one offered to existing customers - its just that it costs less. Existing customers can transfer if they ring up and sign a new contract - but otherwise they continue to pay higher prices.

For instance Eclipse Internet offer £29.95 for their "Home Pro" product. This is very similar to their "Home Pro" product that existing customers have and are paying £31 for. In addition they are offering 100 gb download per month rather than 50 gb that existing customers have. Each extra gb costs £1.25. If you ring up you can transfer as long as you sign up to another 12 months.

When an airline company offer cheap seats to fill the plane at the last minute - we think it is OK. When you offer new customers a better deal and do not inform you existing customers of that deal - we may feel that it is sharp practice. However as long as it is "different" e.g. Eclipse call their new product "Home Pro X", then it is fine.

Whilst monopolies have a position of "dominance" smaller companies do not. If you can manage your customer loyalty effectively you can use price discrimination to increase your profits.

Small firms are often seen as the victims of price discrimination rather than users of it. Perhaps they see an ethical consideration or they are too close to their customers. Alternatively their systems are not well enough developed to be able to manage campaigns.

As we are in turbulent times most companies need to consider pricing very carefully. Fixed transparent pricing is easy to sell. Equally not issuing your pricing at all and quoting has its weakness.

Why does the price of energy go up?

Energy prices increase on a daily basis. We have peak prices and off peak prices.

Energy prices increase on a seasonal basis. When its cold, prices go up.

Energy prices are also subject to long term shocks. E.g. Oil Crisis

Why is this?

Each day our demand changes, but the amount of energy available to us does not. So if we ask for lots more the price has to go up (p to p1 in above diagram). During seasons such as winter the energy companies have to forecast what to produce and again if winters are much worse, then price is the only tool that they have to compensate.

Energy companies are large and regulated in the UK. That said they are a classic Oligopoly structure. This means that as companies if they raise prices it is unlikely that everyone else in the industry will follow and raise theirs. If they cut prices then everyone will follow. We do not buy on energy quality. We have only one grid connection for electricity or for gas.

 In other words it is not in the interest of energy companies to compete on price. They tend to use complex tariffs and lots of advertising that are hard to understand.

In the UK we have been "lucky" as we have had cheap energy from the North Sea. This has given the UK cheap energy compared to Europe.

In the recent "end of term report" the coalition government outline that there are various new shocks that we as consumers are open to in the future:

• Coal fired power stations are to be taken offline as they emit lots of carbon (2016)
• Older Nuclear power stations are being decommissioned
• We have little or do not want large storage facilities for gas in the UK
• Our energy needs continue to grow (When we have a growing economy)
• Alternatives for purchasing Oil and gas supplies will be more limited in the future
• We have some tough carbon reduction targets to meet

In other words our demand may be quite predictable in the future, but supply is less certain. There is a danger that our supply will shift (supply to new supply as below) unless there is replacement investment in the present power stations with a considerable green tinge.

For consumers this will mean fluctuations between P2 and P3 rather than P and P1 on the graph above.

Estimates on the replacement capital needed are about £200bn. Investments in energy are very long term and very expensive. The case for (Energy companies) continuing as normal is quite strong. Indeed the now listed companies have to respond to the short term demands of the stock market and investors rather than the distant future.

Clearly this leaves consumers with some issues:

Fuel poverty. For the less well off fuel will become more expensive. The less well off may also have less well insulated or energy efficient houses.

Energy security. Everyone may become concerned that we do not have enough energy. Rather than prices going up "a bit" we may be subject to "a lot" due to market conditions.

Carbon targets. Love them or hate them, we have them. As individuals or organisations there will probably be penalties to ensure that we collectively meet the targets.

The solutions are a little less clear. Simply replacing existing power stations leaves the UK prone to the same shocks from energy supplies such as gas. It also does not solve the carbon problem. At the moment the proposals look something like:

1 Carbon Capture and Storage

This is a big hole where you "bury" your carbon. This will happen on new power stations. (My personal reaction is not good as I do not like burying problems - there are examples of explosions and it could mean a raft of disaster movies - seriously, it only builds up a problem for the future). This does not seem to be an immediate solution, but once the model has been proven the government will want retrofitting within 5 years. For more information see http://www.co2storage.org.uk/ . As this method will increase the cost of production the industry will need to be induced into doing this. This in turn will increase prices to consumers.

2 Nuclear Power

Nuclear power is carbon friendly. In the past the full cost of the power has not been past onto energy companies. Each year the tax payer spends an estimated £1.8bn cleaning up nuclear waste. If the full cost of nuclear power is taken into consideration it is "hard" to make the figures work (apparently!). The coalition government are split on this issue with the present minister being against nuclear unless it can be made to work on cost grounds. Bearing in mind nuclear power takes some time to build and not all the energy companies have made up their minds this may help reduce carbon emissions and add to electrical energy in the longer term future.

3 Use less energy

A simple policy in essence but harder in practice. There have been energy savings policies around for some time and they have limited effectiveness. EPC's to rate homes will be rolled out and loans to help upgrade homes with insulation are nothing new but are being given more marketing space by this government. Clearly as energy becomes more expensive it makes more sense to use more insulation. Government buildings are also being rated in a more stringent way. "the greenest government yet" is not hard. In the last 100 years we have only had Labour and Conservative governments (since 1916 and excluding the war), it is not a long list. However many of the buildings programmes of yesteryear did not have their eye on energy efficiency. It was more on cost of build.

Whilst new buildings will be more energy efficient. Today many government buildings programmes (e.g. schools) have been cut. Budgets have also been cut. Some energy efficiency measures do cost money - so councils up and down the land have issues. They cannot borrow, they have cuts and fines.

This policy may well cost more money than it first seems. There is a lot of campaigning needed, surveys, monitoring etc across millions of buildings. For the general public we have seen it all before. There have been insulation packages around for some years now. There has not been the uptake. Even from those households that could have got it for free. Will we listen this time?

4 Smart Meters

Smart meters have been talked about a lot. A cost to the energy companies, and they will have to be installed by 2020. More user friendly and accurate they will enable the consumer to see how much energy they are using. More information may mean better choices and a reduction in energy costs.

5 A green investment bank

Potentially confusing. An investment bank is normally found in the city and deals in finance for large companies. As such it supports (generally) low risk infrastructure or asset based investments rather than the research and development of new technology that venture capitalists support. Therefore it is logical that it will support wind power (if the figures add up). This bank is not a high street bank. Whilst it has been remitted to support loans to individuals to insulate their homes the bankers concerned have not really warmed to the idea. It is a "challenge". It also will not support renewable energy at the micro level  it is not what an investment bank does - however green it may become. The costs are estimated at £2bn to set up. They are hoping to divert funds from other places to do this. The initial spend is hoped to induce further capital spending (to meet the £200bn needed). I have no idea whether this will work. It is focussed on big infrastructure improvements for reducing carbon. Rumours of this plan being cut have surfaced. There will be a debate amongst the coalition in October. Should the money stay in its present use, fund debt, or be used in this way. Perhaps there is not a united front on this one.

6 Renewables Obligation

This is an obligation placed on electricity companies to use renewable sources to produce power. This targets carbon reduction. It also expands the supply chain to include fuels other than oil, coal and gas. It helps the business case for wind power, biomass power stations, or simply burning biomass in older power stations.

As with other policies this has been debated heavily. Debates are around efficiency rather than intent. In particular RO will help the wind farm development and biomass power plants.

Comment

Much of the strategy concerning energy is around grids and electricity. This is partly because electricity generation is not currently carbon friendly and partly as there have always been economies of scale in production.

Forward thinking economists acknowledge that power is both electricity and heat. As we move away from fossil fuels (including gas) - how do we heat our homes in the future? Projections indicate that oil will be phased out. Gas will be restricted to existing buildings. The National Grid believe that the gap will be largely met with a reduction in energy consumption. They believe there will be an increase in the use of electricity for heat. This was at the heart of the thinking in the Green Investment Bank proposals. Since then the government have committed to 12% of domestic heat being produced by micro renewables by 2020 clearly in conflict with their own "think tank". Another debate to be had?

7 Microgeneration

The cited difficulties with all micro generation are the following:

A high outlay followed by much cheaper low carbon heat and electricity
Attractive to middle classes if subsidised - so a tax on the poor
Complicated - how do we understand what we need?
Open to abuse by salesmen
Unregulated industry

MCS accreditation was introduced last year to improve the quality of service, products and installers. There is now a database of accredited products and installers of a variety of different renewable energies e.g. solar or biomass. This deals with much of the regulation and sales issues. The quality of the products, the procedures that all companies have to go through guarantee service to the customer but at a possibly higher price. The companies identify themselves with a logo and commit to a consumer based scheme which ensures that items are not miss-sold.

Adverts of Bristish Gas selling.... gas abound at the moment. There is very little advertising renewable items other than on the web and at "green" shows. Most companies selling biomass,for instance, are small. Companies selling air source heat pumps are larger e.g. Worcester Bosch leaving an imbalance between potential performance and advertising power.

The present government are consulting on the consulting on the consulting about how best to do this. The MCS accreditation is much of the answer. Providing advice in the same central place where there is already information on all the products and installers is logical. There has already been research completed on the support needed for the market called the Renewable Heat Incentive . The present position on this is

"This Government is fully committed to taking action on renewable heat; this is a crucial part of ensuring we meet our renewables targets, cutting carbon and ensuring energy security. The Government is considering responses to the Renewable Heat Incentive consultation and will set out detailed proposals on how to take forward action on renewable heat through the Spending Review."


Conclusion


There is not much clarity on energy when you read between the lines. There is very little actual progress with respect to energy security or carbon reduction. Some aspects can be achieved short term e.g. renewable energy is ready to go. Each heating season lost means targets will be more difficult to reach. Companies have geared up several times for false horizons and are now questioning the green credentials of this government. 


To quote Johnathon Porrit 


"Substantial reductions (of more than £30 million) in some of the grant schemes for renewable energy; the deferment until 2013 of the much-hyped ‘Pay-as-you-Save Green Deal’ for retrofitting existing housing; and Treasury gearing up to make it impossible for Mr Huhne to bring in the critically important Renewable Heat Initiative in April next year." means that much of the above will not happen quickly. Either large scale infrastructure improvements take a long time. Alternatively the small scale improvements at a home level are not popular with the city (or the treasury (or are they the same?)) in the same way that they were not a real winner with the unions (or Mr Darling). 


To answer the earlier question of "why do energy prices go up?". As it is our energy supply will shift to the left and our prices will go up. The government is not committed to developing the supply either through infrastructure improvements or renewables. Simple inactivity will push prices up. 

Economic analysis

When businesses construct a business plan part of the analysis required is undertaking an overview of the most important factors that relate to their business. To make this easier some people use PEST or PESTLE or STEEP.

This stands for:

Social
Technological
Environmental
Economic
Political

Looking at the economic and political for a local area:

There is a new government in the UK and their clear mission is to adjust the GDP balance between public and private sectors. Locally this will affect some areas more than others.

Since 2000 public spending has risen from 34% to 46%.  During the same time about 0.5m jobs have been created in the public sector. In the South West there are about 2 million people in employment of which over 50% of women in employment work in the public sector.

Within Devizes - as a small market town - where 46 thousand people live (Constituency). Employment in public service e.g. Police, Health, Education, Local government is higher than the national average due to the location of PCT, Police Headquarters, Kennet Local Authority (now part of Wiltshire) and Fire Brigade all being locally located. Over 40% of jobs are in the public sector (35.5% in Wiltshire) compared to a national figure of 29.7%.

The government has not concluded its review of government spending but figures of 20-25% have been banded about a lot. Whilst local authority spending represents only 25% of the national budget, funds for local services are raised through a mixture of direct government provision and administered from central government. It may be quite likely that this 20-25% figure hits the regions. Whilst it may not be for direct provision ie doctors, nurses, teachers etc, there is no doubt that non core services will be hit.

How this affects Devizes is not known - but a 20% figure represents 9 thousand jobs of which the vast majority may well be women e.g. 6-7 thousand.

All things have checks and balances. Devizes is a Conservative constituency and a recently elected "new" MP will fight hard for jobs. Wiltshire Council has not prioritised Devizes as a "Vision" town, so perhaps their cuts may be less severe than other prioritised towns. Devizes does not have space for a corporate business to move in and employ thousands of people. Devizes does have a good base for small businesses. There are notable entrepreneurs who have managed to grow good "Middle England" businesses e.g. Mark Wilkinson, Smallbone, Wadworth, and  Omitec.

The expectation of central government is to let markets decide rather than government interference. In this situation it will be up to some of the people displaced by the cuts to set up businesses. Whilst many of these may be micro or self employed businesses, some of them may well grow and fill the void left by the cuts.

Alternatively there may be other affects:

Higher unemployment
More out-commuting
Migration out of the area
House price falls
Local recession
Secondary business closure e.g. retail

Other noticeable cuts may be regional development support for Salisbury Plain as the Military prepare to move out. Stonehenge has had its visitor centre cut (again). Yet within this in the UK people may choose to holiday more in the UK as foreign holidays become more expensive and overtly less environmentally friendly. It may be that the Devizes area has lots to offer the leisure and tourism market if it can keep its major assets such as the Kennet and Avon Canal, the Caen Hill Locks and its visitor centre in tact. Smaller employers may find the location attractive in terms of affordable housing, landscape, affordable labour, lifestyle and still in easy reach of London.

Support services such as Business Link may be phased out during the next 5 years. Generally during "turmoil" in the public sector the result is confusion. Support and direction locally may well be lacking and it may have to be up to individuals to take responsibility for what they want to achieve. (There wont be any help)

Does all of this matter?

It does depend on your business (or your future business). Some businesses are more tied into local economies than others. Most businesses have to employ people, and many sell locally. A secondary analysis of an area and looking ahead helps identify possible issues going forward. This then helps identify areas for further investigation - where some primary research is needed. For instance you may like to know "how certain" something is. e.g. Will the Police Headquarters in Devizes close? It may help you to listen to relevant conversations.

Every business needs to know what is going on. Particularly at the moment. There are a lot of changes and tomorrow will probably not be the same as last year. Those businesses that plan and take action have always been better placed for survival and growth.

Most statistical information can be mined online. When you look for it it can often be "hiding"! A clear focus and intent is often the key to success.

Psychometrics and market research

We are all different. We think differently and we find different tasks more or less easy to do.

For instance someone who is very confident may rely on their intuition. In an area where they have lots of good experience this may be fine. If they want to do something new they are exposing themselves to risk.

Someone who loves people and motivating or enthusing others may well talk to people they know to get information. The risk is that the information may not be objective, ie influenced by the person asking questions.

Someone who loves figures may analyse what has gone on before - but may find it difficult to be confident on predicting the future.

Other people prefer to become very knowledgeable about their product - and other products or services in the market.

All approaches are valid, but incomplete. You may find that you do one or two of the above, but not all.

In order to make good decisions, especially where investing time and money it is important to develop an approach that encompasses a variety of approaches. You may find this hard - perhaps working with a colleague that enjoys the bits you do not is a good way forward.

If you are a small business owner you may not want to spend more time and effort on research - however it does not have to take a long time - and does reduce your risk of failure.