BUSINESS DEVELOPMENT

PROPOSAL FOR A

RETAIL MERCHANDISING

SERVICE COMPANY

by

Dragan Ocokoljic

LSC ID NUMBER: 0023gzgz1113

Presented as part of the requirement for the award of MBA at Cardiff

Metropolitan University (CMU)

May 2015

BUSINESS DEVELOPMENT PROPOSAL

Supervisor Declaration Form

Student Name: Dragan Ocokoljic

Supervisors Name: Vlada Botoric

I acknowledge that the above named student has regularly attended the planned

meetings and actively engaged in the supervision process. They have provided

regular timely draft chapters of the BUSINESS DEVELOPMENT PROPOSAL and

followed given guidance.

I confirm that I have approved the BUSINESS DEVELOPMENT PROPOSAL title

specified below.

Title of BUSINESS DEVELOPMENT PROPOSAL:

BUSINESS DEVELOPMENT PROPOSAL FOR RETAIL MERCHANDISING

SERVICE COMPANY

Date: April 26th, 2015

DECLARATION

This work being submitted in partial fulfilment of the requirements for the degree

of MASTER OF BUSINESS ADMINISTRATION

And has not previously been accepted in substance for any degree and is not being

concurrently submitted in candidature for any degree.

Signed: (Candidate)

Date April 26th, 2015

STATEMENT 1

The Business Development Proposal is the result of my own work and

investigations, except where otherwise stated. Where correction services have been

used, the extent and nature of the correction is clearly marked in a footnote (s).

Other sources are acknowledged by footnotes giving explicit references. A

bibliography is appended.

Signed: (Candidate)

Date April 26th, 2015

Either STATEMENT 2 (i)

I hereby give consent for my Business Development Proposal, if accepted, to be

available for photocopying and for inter-library loan, for deposit in UWIC's e-

Repository, and that the title and summary may be available to outside

organisations.

Signed: (Candidate)

Date April 26th, 2015

Or STATEMENT 2 (ii)

I hereby give consent for my Business Development Proposal, if accepted, to be

available for photocopying and for inter-library loan, for deposit in UWIC's e-

Repository, after expiry of a bar on access approved by CMU.

Signed: (Candidate)

Date April 26th, 2015

1

Table of Contents

Executive summary ................................................................................................. 3

1. Introduction ......................................................................................................... 5

1.1 Rationale for the Business Idea ..................................................................... 5

1.2 Business Scenario .......................................................................................... 6

1.3 Aims and Objectives of the Work ................................................................. 6

1.4 Structure of the Work .................................................................................... 7

2. The Business Concept ......................................................................................... 8

2.1 Mission and Vision of the Company ............................................................. 8

2.2 Organisational Setup ..................................................................................... 9

2.3 How the business will function?.................................................................. 10

3. Feasibility .......................................................................................................... 14

3.1 Primary and Secondary Market Research (Overview) ................................ 14

3.2 The Research Question ................................................................................ 14

3.3 Components of the Research Question ....................................................... 15

3.4 SMART Research Objectives...................................................................... 15

3.5 Literature Review ........................................................................................ 16

3.5.1 Importance of Retail Merchandising .................................................... 17

3.6 Research Methods and Sources of Information .......................................... 18

3.7 Feasibility (Service, Industry/Market, Organisational, Financial Feasibility

Issues) ................................................................................................................ 19

3.7.1 Service Feasibility................................................................................. 19

3.7.2 Industry/Market Feasibility................................................................... 22

3.7.3 Organisational Feasibility ..................................................................... 29

3.7.4 Financial Feasibility .............................................................................. 35

3.8 Resource Requirement Evaluation .............................................................. 37

4. Business Model ................................................................................................. 38

4.1 Strategic Analysis of the New Business Idea: Identification of Sources of

Competitive Advantage and Sustainability ....................................................... 38

4.2 Development of Appropriate Business Model ............................................ 39

4.2.1 Business Model Canvas ........................................................................ 39

2

4.2.2 The Core Strategy ................................................................................. 40

4.2.3 The Resource Needs ............................................................................. 42

4.2.4 The Partnership Network ...................................................................... 44

4.2.5 The Value Deliverables to the Customer .............................................. 45

5. Business Plan .................................................................................................... 47

5.1 The Industry, the Company and the Service ............................................... 47

5.2 The Key Success Factors ............................................................................. 48

5.3 The Market, Market Analysis and Market Research ................................... 49

5.3.1 Segmentation ........................................................................................ 49

5.3.2 Targeting ......................................................................................... 50

5.3.3 Positioning ...................................................................................... 51

5.4 The Balanced Scorecard .............................................................................. 51

5.5 Marketing Plan ............................................................................................ 54

5.6 Cost, Volume and Profit Analysis ............................................................... 58

5.7 Human Capital Management ....................................................................... 60

5.8 Critical Success/Failure Factors .................................................................. 62

References ............................................................................................................. 64

Appendices ............................................................................................................ 67

3

Executive summary

Company “ShowUp” will be retail merchandising service provider for Fast Moving

Consumer Goods (FMCG) companies or their distributors on Serbian Market.

Currently few big merchandising service providers are operate on the market. Their

customers are mostly the biggest FMCG companies, with merchandising needs

which covering whole retail. For smaller merchandising coverage requests (in

limited geographical area) they have no adequate price offer, due to organisational

set for big tasks which implies high fixed costs. Small to medium FMCG companies

have no appropriate price offer for their needs. There arises market gap and the

business idea is to fulfil this gap.

The business idea is to provide service for customers which have merchandising

demand only in big cities and urban areas, not for whole retail market. The

company’s investment in merchandising service will have the same focus as the

focus of distribution of the potential customer’s. It will be “investment match”

between service provider and the customers.

Competitive advantage will be obviously in the price, but also in flexibility that

small organisation can provide. Even though the price will be reasonable, the

quality of the business execution will remain at least at the same level as

competitors’, with strong focus on innovation and tight cooperation with the

customer which will ensure better customer experience.

The company will have headquarter in Belgrade and offices in 3 big cities in the

country. The fund requested for the first year is 370,000 EUR, while for the second

it will be 340,000 EUR. The assumption of break-even point reach is after 18

months with 4 contracts (4 customers) that will engaged all 16 merchandisers on

the field.

4

The organisation will have 6 months for preparing the employees for business

operations, implementation of marketing plan including introduction of the

company to potential clients, trainings for merchandisers and their supervisors and

logistic interplay. The plan is to sign first contract for the service after 6 months,

second one after 12 months, and third and fourth contract after 18 months, when

break-even point should be reached and overdrawn with revenue of 384,000 EUR.

Four contracts at the time will ensure positive cash flow. Due to very low level of

variable costs, every contract more will bring almost pure profit (before tax).

The main company’s suppliers will be IT providers, car fleet dealer and legal

consultancy firm.

Core company competence and the base for future success is lying in absolute focus

on customer satisfaction, quality of execution, flexibility and constant innovation.

Fulfilling of these demands will build the company brand - “ShowUp”. This brand

will ensure long-term sustainability, even when competitors adopt the same or

similar strategy - “investment match” between the service provider and potential

client.

5

1. Introduction

1.1 Rationale for the Business Idea

FMCG industry in Serbia is very dynamic. Many companies are present and hardly

trying to find their position on the marketplace. When a product is created and

distributed on the market, the main battle is at the level of marketing through mass

media and trade marketing. The business idea in this work is about trade marketing,

or more specifically, it is merchandising service at the level of point of sale (POS).

The biggest FMCG companies gain their position with strong merchandising which

is deployed by their own field force merchandisers or with big merchandising

service providers. There are 3 big merchandising service providers that operate in

Serbia and each of them cover whole country. Those companies can serve

successfully and profitably to every FMCG company that needs merchandising

across Serbia, in almost every location. For that kind of tasks, these providers can

offer reasonable price and stay profitable. But for small to medium FMCG clients,

which need merchandising in limited market (e.g. just in bigger cities or urban

places) these big merchandising servicers cannot offer adequate price, due to very

big and complex organisation that need big job to stay profitable and not to “run

business in vacuum”. Financially looking, they have high fixed costs. For smaller

tasks, that include merchandising in limited area, they must offer almost the same

price as for tasks with merchandising in every POS in order to cover those big fixed

costs. Only vast merchandising tasks ensure profits for these companies. For

smaller tasks they are forced to offer unreasonable price, in order to stay profitable.

It cause that smaller clients often stay without merchandising service. Of course,

for smaller companies it is too expensive to create their own merchandising force.

6

1.2 Business Scenario

Previous theses shows that there is a gap in merchandising service offers for small

to medium FMCG companies. There are market demands that are not satisfied

among current offers. The idea is to start new merchandising service with

organisational setup that supports needs of smaller clients. Compare with existing

competitors, the main characteristic will be tailor-made company’s resources that

can be fully utilised for merchandising tasks in limited universe. In that way, the

company can offer reasonable price for limited merchandising service and stay

profitable. The most influential resource that must be specifically tailored is the

number of merchandisers and their supportive tools such as cars, IT equipment and

centralised companies assets (e.g. offices).

1.3 Aims and Objectives of the Work

The objectives of the work is to create plan for start-up company that will meet

merchandising necessities of small to medium FMCG companies on Serbian retail

market. Plan will be based on market research that will identify market gap,

rationale for appropriate entrepreneurial reaction and deployment of start-up plan.

The company will have different approach on the market compares to competitors,

and will be dimensioned for the clients that have specific merchandising needs. In

that way, the young company will have unique offer with reasonable price that will

satisfied customers with lower budget and specific geographical needs. The

company will become only one possible partner for big group of FMCG clients.

In the same time, the company should not be leveraged on their uniqueness and

forget on customer satisfaction. Without this, the frustration between customers can

raised and generate bad partnership that can irretrievably affect future business and

sustainability. The customer satisfaction must stay the highest priority of the

business. In order to ensure sustainable and long-term competitiveness on the

7

marketplace, the company must develop strong brand name that will be recognised

as the one with high quality service as well as flexible and reliable partner. From

clients’ perspective the purpose of the company is to offer right-sized

merchandising service in limited geographical area with reasonable price.

1.4 Structure of the Work

The structure of the work is as follow:

- Primary and secondary market research in order to find out what is specific

need on the market that have no adequate respond among current

merchandising service companies (define market gap).

- Feasibility study that covers all necessary business elements.

- Need for resources that must be employed for success in start-up business

and their availability.

- Identification of differentiation point and competitive advantage, and based

on that, development of business model that will supports 3-5 years business

sustainability, with aim to retain competitive advantage.

- Business plan schedule from starting capital employed, throughout all

stages of business development including creating relationship with

suppliers, customers, organisational chart and setup, defining core

competencies per job position, staff selection and recruitment.

- Defining critical success factors, risk assessment (What if the business fail?)

and assumption of potential obstacles and challenges.

- Assumption of competitors’ reaction and plan for overcoming in order to

stay competitive.

8

2. The Business Concept

2.1 Mission and Vision of the Company

The name of start-up company: ShowUp

Vision statement: We exist to ensure communication between our customers and

their consumers at the level of point of sale, in the most effective way. We tend to

improve business continually with innovative approach to business execution. We

want to become the most efficient retail merchandising service for FMCG

companies on Serbian market.

Mission statement: We are committed to overcome customers’ expectations

through maximised utilisation of resources employed with aim to achieve strong

and innovative merchandising with reasonable price.

To put mission into action, it is absolutely critical to set structure of the company

and its resources in accordance with postulate: Provide efficient service in limited

geographical area, with adequate price and stay profitable. It is not unknown how

to run this kind of service. There are many good examples from where the best

practice can be “borrowed”. The newness on the market is competitiveness of the

service in smaller and focused area, which implies organisational setup that will

cover relatively big fixed cost easily. Of course, variable cost and profit margin

should be covered, but with lower price than competitors’. To build such company,

which can be profitable for smaller size of task, resource planning is crucial. The

“rule maker” for this planning is steady profitability for any customer’s request.

Understanding and defining of this rule is the key for success.

Resources are the consequence of the size of the area that should be covered with

merchandising activities. This area is dictated by clients’ merchandising needs.

Who are potential clients?

9

As it is mentioned before, it will be small to medium FMCG companies.

What is their distribution coverage?

This could be in the range between 4 biggest cities to 25 biggest cities with suburbs.

Smaller coverage is characteristic of the companies without merchandising, while

bigger coverage will be a subject of vast merchandising service companies (current

competitors). Main resource of the company will be merchandisers which will be

business executor on the field. This resource further require cars, IT equipment,

offices, etc. Therefore, merchandisers will be fundamental human capital of the

company, but also the biggest source of fixed costs. The number of merchandisers

must be in accordance with clients’ demand which will be defined by the gap in the

market.

2.2 Organisational Setup

The plan is to employ 16 merchandisers, 4 per each big city of Serbia: Belgrade,

Novi Sad, Nis and Kragujevac (see Figure 2.1).

Figure 2.1 Four biggest cities in Serbia selected for Field Force offices

(Source: web of Phespirit - http://www.phespirit.info/places/)

10

These 4 cities is selected to cover whole country uniformly, with almost equal

distance between. In each of these big cities will be an office. Each team of

merchandisers will have one supervisor in these cities. Supervisors will report to

National Merchandising Manager. That part of the staff will be “Filed Force”.

2.3 How the business will function?

One of the owner’s main responsibility will be to find customers among FMCG

companies and to make contract agreements for the business as well as to maintain

excellent partnership. Those contracts can be single merchandising task or for

limited period of time, but it is expected to agree firstly probation task, after which

the company can take-over permanent merchandising service for the client without

defined time frame (“rolling” tasks). To find customers and to develop customer

base the company needs marketing function. To operate with existing customers

the company need Field Force, Finance, Logistic function and administrative

support while Information Technology (IT) specialist and legal counsel can be

outsourced. IT specialist will support business operations as well as communication

between Field Force, management team and the company’s client. Excellence in

functionality of IT solution plays big role in the business efficiency and in the

customer satisfaction.

Starting capital will be ensured by my side, as the owner, so all risks from failure

in start-up will be managed by me. The amount of money for the start will be around

370,000 EUR for the first 18 months, after which the business have to be self-

sustainable and break even point reached. Further section in this work will analyse

finance in detail.

11

Full schema of organisation is as follow:

Figure 2.2 Organisational chart

(Every field on the chart is represented with one employee)

Porter’s Five Forces Analyse

Porter’s Five Forces (Porter, 1979) represents simple view of key forces that shape

strategy. Porter defines (see Figure 2.3):

1. Threats of Substitute Product (in this case it is service)

2. Threat of New Entrance

3. Bargaining Power of Suppliers

4. Bargaining Power of Buyers (Customers) and

5. Intensity of rivarly within the industry

12

Figure 2.3 Porter’s Five Forces Model (Source: web of Manual of Marketing -

http://manualofmarketing.blogspot.com/)

Test of start-up business with this model will reveal first signs of business potential

on the market:

1. Threath of Substitute Product (service) – There is no real threath from this force.

The only one known option for substitution is that merchandising can be done

by retailer’s staff (shop assistants). This model have been already tried on the

market, but without success (Philip Morris in Serbia tried to deploy this model

in 2013 but without success).

2. Threath of New Entrance is potentially the biggest issue of the start-up plan. If

some other company recognise the key success factor of “ShowUp” and starts

to copy the organisational advantage of the firm, with appropriate level of

expertise for this kind of business, it can be real threath. Due to clear gap in the

market there is almost no entry barrier for the business. It is just the amount of

investment for the start.

3. Bargaining Power of Suppliers – Suppliers in this business are the companies

that are not the part of the same industry, e.g. car dealers, IT providers, offices

rentals, etc. Their bargaining power does not depend on the size of FMCG or

retail industry. It is not determined specifically toward industry which is in the

13

focus here. Also, it is noticable that there is no specific suppliers in core business

of “ShowUp”, because it is a service (not a product) for another industry.

4. Bargaining Power of Buyers (Customers) – This power is low due to absence

of adequate competitor that can offer such low price for limited area

merchandising.

5. Intensity of rivalry within the industry – The rivarly in the industry is pretty

high, but the idea of fulfilling the market gap excludes rivals.

14

3. Feasibility

3.1 Primary and Secondary Market Research (Overview)

Research is defined as “the systematic investigation into and study of materials,

sources, etc., in order to establish facts and reach new conclusions” (Thompson,

1996). This is the starting point to check feasibility of new venture. In the process

of research we are collecting data and information in order to make business

decisions based on evidence, excluding assumptions, prejudice or emotions.

The research provides answers on predefined question which should be set at the

beginning of the process. In this particular work, the answer must provide certainty

that new venture is feasible and profitable for the next 3-5 years.

The research can be primary and secondary. Primary research is new research that

is done in the purpose of specific work and answering specific questions and issues

associated with research topic. It can be tailor-made survey, interview,

questionnaire, focus groups research or other. Secondary research represents

investigation of already known information and conclusions made earlier for some

other purpose and it can be publicly accessible or already available in some

organisation (company). It involves information from the internet, published reports

in library, articles published in professional journals which are associated with

observed industry, etc.

3.2 The Research Question

Is there a market gap in retail merchandising service in Serbia, which implies

that there is no adequate price offer for small to medium FMCG companies?

15

The answer to this question has to find out whether the company has a perspective

and whether it will be a potential customer interested in cooperation. In other words,

the purpose of the research is to reveal the perspective of sales potential. The

research will be a starting point for creating customer base. That base will be target

group for service, provided by “ShowUp”.

3.3 Components of the Research Question

Is there a clear needs for merchandising in general among FMCG companies?

1. What is geographical needs for merchandising among these companies?

2. Is there a client’s needs that cannot be satisfied with present merchandising

offers?

3. What are the main characteristics of present offer on the market?

4. What is most wanted offer from the point of view of small to medium

FMCG clients?

3.4 SMART Research Objectives

1. To know do FMCG companies understand the importance of merchandising

and do they want to invest in it.

2. To find out what geographical area they want to cover with merchandising.

3. To reveal which client’s needs cannot be reached with present offers.

4. To determine main characteristics of present offer.

5. To determine what is the ideal offer from the client’s point of view and

where is the gap between ideal and usual offer.

16

3.5 Literature Review

Review of the literature will show what is already known theoretically about the

business we are entering. In the centre of this research is merchandising of FMCG

products at the level of point of sale. For the beginning, we will provide a wider

background of the industry including deeper understanding of core business of

“ShowUp”.

Core business of “ShowUp” is marketing, or more precisely, ti is execution of trade

marketing. Looking deeper through concept of Marketing Mix 7 P’s introduced by

McCarthy (McCarthy 1960) and further developed by P. Kotler (P. Kotler, 2000)

the position of the business is in the area of Promotion, but it also becomes a part

of client’s People and Process, because the part of client’s business process is in

the hand of merchandising service company, which includes its people - staff (see

Figure 3.1).

Figure 3.1 Impact on Marketing Mix 7 P’s from the perspective of the client’s

business (Source: web of Marketing Mix - http://marketingmix.co.uk/)

17

3.5.1 Importance of Retail Merchandising

According to American Marketing Association, merchandising encompasses

"planning involved in marketing the right merchandise or service at the right place,

at the right time, in the right quantities, and at the right price." Retail merchandising

represents activities conduct at retail in order to support sales. It is a part of

comprehensive marketing which support brand building and sales volumes. The

main objective of merchandising is to communicate with buyers (mostly with

consumers) at the level of POS in order to transfer and highlight information about

characteristics of a product. More visible and impactful merchandising implies

bigger attention and brand awareness of consumers. Good merchandising tend not

only to transmit the information but also evokes emotions in consumers. Targeting

the right consumers at the right place and time is also critical, so it is not just about

how strong the communication is, it is also about to whom it is intended.

One of the greater roles of merchandising is influence on “impulse buying”. From

the middle of 20th century many scholars were interested in impulse buying (Clover,

1950; Stern, 1962; Rook, 1987; Peck and Childers, 2006; Chang et.al, 2011).

According to Rook (1987) buying impulse is “unintended, non-reflective reaction,

which occurs soon after being exposed to stimuli inside the store”. In this scenario,

merchandising role is to create stimulants for buying. We can conclude that for

impulse buying merchandising plays a crucial role.

We can say that when we enter the store, everything that draws attention is

merchandising. Good description of merchandising is written by G. Surrendar (G.

Surrendar (2001): “Marketing brings horse to the water but visual merchandising

makes the horse drink”. Visual merchandising is merchandising that it is visible.

The literature findings will be used in the next chapters dedicated to research.

18

3.6 Research Methods and Sources of Information

Research Methods and Sources of Information:

- Different formats of retail stores in urban and rural area of Serbia and

careful observation of merchandising that is already done, as well as

observation of brands (and brand’s owner or distributors) without

merchandising support.

- Internet pages regarding merchandising service, especially websites of

competitors.

- Observation of merchandisers which already operate in stores with special

attention on job specifics (what is the result of merchandiser’s store visits

and before-after comparisons), time spending and equipment.

- In-depth interview with potential clients among small to medium FMCG

companies (questionnaire, appendix 1).

These sources will reveal relevant information for future business planning such as:

- Characteristics of retail merchandising service that is already in place. How

merchandising looks currently and how merchandisers do their jobs?

- Who are potential clients (customers)?

- Who are competitors?

- How the competitors operate and how their organisations look like?

- What are obvious elements of merchandising contract between service

providers and customers? Ethics in research involves observation of public

traces and visible elements that lead to indisputable conclusions.

- Facts about customers’ need that have not been fully satisfied?

Main output of research will be conclusion about the gap between current offers on

the market and clients’ needs.

19

3.7 Feasibility (Service, Industry/Market, Organisational, Financial

Feasibility Issues)

Feasibility can be assess through researches in four areas:

A. Service feasibility

B. Industry/Market feasibility

C. Organisational feasibility

D. Financial feasibility

These researches will show whether the start-up business have profitable future.

Positive outcomes will be “green light” for the business.

3.7.1 Service Feasibility

The key question of this part of the research is: “Is there a gap in the market?” To

find out the answer we will use in depth interview with potential clients. This

interview will provide us with confidence that there will be interested customers for

our service or that something in concept is potentially misleading for the business.

Concept Statement

1. The service

This is merchandising service in retail that positions FMCG products, visual

displays, visuals as temporary POS material which follows promotional

cycle of the client, positions exhibit samples, price communication visuals,

creates “secondary positions” of products in shops and similar. Secondary

20

position is position of product in shop dislocated from the same product

category.

2. To whom it is intended for?

The service is intended for small to medium FMCG companies or their

distributors, which operate in Serbian retail market.

3. Why it is of value?

The value of the service is the value of merchandising itself (as explained

in the review of literature). It is support for sales volume growth, through

brand representation to buyers and consumers. It is communication with

buyers in the most critical moment, when buying decision can be made or

changed, at the end of the “battle for customer”. Merchandising strongly

influences on impulse buying. Merchandising also ensures product

availability through fulfilling shelves in markets, whereby prevents out of

stock situation. Therefore, merchandising has impact on stock management

also.

4. Special attributes

Special attributes: flexible, fast and focused service with high level of

expertise and affordable price. In the same time, these attributes represent

competitive advantages of the new venture.

5. Who will be involved in making it happen?

To make it happen we need customer, service provider and retail as

operational area for the business execution. We create service provider

which includes: merchandisers, their management team including sales role

which has to ensure customer base.

21

In-depth Interview Findings

In-depth interview provides mostly qualitative results and it will be presented per

each chapter of questionnaire. Interview has been conducted with 12 managers from

FMCG companies, small-to-medium size. For the purpose of the research small-to-

medium is defined with test whether the company is among top 5 in its sub-industry

sector. Negative answer in this test means that company is small-to-medium.

a) Client’s awareness about merchandising: All respondents answered that

merchandising is relevant factor for their success, while 10 out of 12 says

that it is the “missing link” for their business.

b) Review of distribution coverage and merchandising of the client:

Distribution vary from top 3 biggest cities in Serbia, to over 90% of retail,

but merchandising needs (from respondents point of view) is between “only

in big supermarkets or hypermarkets” to “only in urban area of each city”

to“. The conclusion is that 10 out of 12 respondents will be satisfied with

merchandising coverage in top 25 cities, while 2 of them will ask for more.

c) Previous experience with merchandising providers:

o 9 respondents tried to find provider, 3 of them signed contract.

o Main reason for declining the offer from provider is “inadequate

price” and “it will be less expensive to organise our own

merchandising field force”.

o Those who signed the contract put “question mark” on Return on

Investment (ROI) and profitability.

o Quality of execution was mostly in line with expectation, but not

over that point.

d) Investigation of ideal merchandising service offer: Ideal offer is cheaper

for 30-50%, more flexible in terms of time frame of execution and requested

response-time, and more innovative (there was an absence of creativity).

All findings can be sublimated in one statement: the respondents do not have

adequate offer in terms of price, flexibility (especially in terms of sense of

urgency), quality (focus on details) and creativity.

22

3.7.2 Industry/Market Feasibility

The main questions in this stage of the research are:

Is the Industry attractive?

Is the Market attractive?

Industry Attractiveness

Merchandising service is in direct conjunction with retail industry. If retail industry

is growing, the associated services will also grow. In the era of globalised world,

industry trends are spreading fast, so Serbian retail industry is following these

trends. Confirmation that the industry is highly attractive lies also in the fact that

global leader in turnover across all industries is retailer Wal-Mart and still growing

(web of Fortune 500).

All these facts are in favour of increasing importance of merchandising, so we can

conclude that importance of merchandising service providers will grow.

Market Attractiveness

Industry where the new venture will operate is a mix of FMCG and retail industry.

Basically, it is their “meeting point”. The size of the retail industry represents

around 21,000 shops, with hundreds of their suppliers. These suppliers are

distributors of FMCG products, while some of them are also brand owners or even

manufacturers. Due to these interweaving, there is no exact data about number of

distributors.

The main parameter that describes industry attractiveness on Serbian market is the

amount of money in turnover. In direct correlation with this figure is country

population and its economic performance, which is best presented through Nominal

Gross Domestic Product (Nominal GDP) and Gross Domestic Product per Capita

23

(GDP per Capita). These parameters directly influence consumer spend and retail

market turnover. Serbian population is around 7.2 million people (source: Web of

Serbia Census 2011) exclude Kosovo, which has special status from the

international organisations viewpoint. This number puts Serbia in the middle of

population top list in Europe (web of “Nations Online”).

The following charts and sheets shows these data and trends.

Figure 3.2 Nominal GDP and GDP per capita, 2011-2017, future projection

(Source: IGD Retail Analysis 2014)

24

Figure 3.3 Consumer Spend and Total Retail Market in Serbia, 2011-2017, future

projection, (Source: IGD Retail Analysis 2014)

Trends of consumer spend, retail turnover, and GDP are growing. These growth

will generate more money in the business and it will develop Serbian retail industry

in general. The signals are positive and the data encourage this new venture

investment.

The trend of acquisitions of smaller retailers lead to more coherent stores with more

attention on merchandising. There were few big acquisitions in the last 3 years in

Serbia: Delhaize bought the biggest local retailer Delta Maxi, regional retailer

Mercator bought local chain of supermarkets Roda, the biggest regional retailer

Agrokor (Konzum) bought Mercator, etc (see Figure 3.4). Research observation

shows visibly better merchandising in these big chains than in the rest of the market.

Currently, big retail chains of groceries represent 33.9% numerically.

25

Figure 3.4 Grocery Retail Market Shares 2014 (Source: IGD Retail Analysis 2014)

Who are Doing Merchandising in the Market?

Further observation of the market show that retail merchandising in Serbia is

usually done by:

- Retailer or

- Distributor or

- Merchandising service provider.

Retailers are doing basic merchandising with aim to fulfil the shelves in stores and

to communicate price. In smaller stores this job is done by regular personnel,

including cashiers, while in bigger stores (hypermarkets or similar) it is low

qualified staff or temporary employed students.

Distributors are doing merchandising mostly through their salesmen (field sales

teams). The main issue in those kind of organisations are weak focus on

merchandising, due to strong focus on sales as primary activity, which implies poor

merchandising. These distributors can be the main base for future customers.

Second group of distributors (small number of them) have their own merchandising

force. These companies are mostly from tobacco business, because merchandising

26

has the biggest importance in this industry, due to advertising ban in media. They

are not in the focus of “ShowUp”.

Who are Competitors?

Merchandising service providers are direct competitors. Present merchandising

service companies on Serbian market are:

- Nelt

- Omega Consulting Team

- MVM Company

- BTL Advertising

Observation of their work on the field shows that they operate through

merchandisers, which are doing business in targeted stores, in accordance with

predefined route plans. Target list of outlets is given from client’s side. Service

provider have groups of merchandisers dedicated to one client and his group of

brands, so they are not mixing merchandising for different clients (one client - one

merchandising team).

The opportunity is to build teams which will be capable to handle multiply

merchandising.

Review of Competitors’ Offers

Nelt is the biggest company among competitors in terms of number of employees,

turnover and diversity of activities on the market. They are operating in South East

Europe and Africa (source: web of Nelt Company). Nelt’s core business is sales and

distribution for international principals such as Proctor & Gamble, Philip Morris,

Mondelez, Wrigley, etc. Further research shows that they are doing merchandising

just for the companies which brands they distribute on the market, so for the

customers that already have distributor, Nelt is not potential partner for

merchandising.

27

Omega Consulting Team - Review of offer from website indicates that

merchandising is understood just as positioning products on shelves including

small, so called tactical, temporary POS materials, created from retailers’ side (e.g.

price communication). The company is oriented to provide service just for retailers,

not for distributors or brand producers/owners. Website and its generic offer shows

that there is no comprehensive approach to merchandising. For Omega Consulting

Team it is just fulfilling the shelves in predefined order, including elements of

category management (Brian Harris model of Category Management, originated in

‘90’s) like forming secondary positions.

MVM Company is another one competitor. They are offering wider merchandising

activities for big clients such as tobacco companies, telecommunication companies

or breweries (source: web of MVM Company). Most of those companies are the

biggest in their industry, with highly demanding merchandising service, not only in

terms of quality, but also in terms of geographical coverage. MVM Company

inform website visitor that they are operating at 21,000 shops, with 250

merchandisers on Serbian market. Also they show the example of company’s cost

for one merchandiser, employed by the client. According to them, it is over 1,200

EUR per month, while they offer are lower, but without exact amount. Is sound

reasonable that their offer could be around 70% of this amount (840 EUR).

BTL Advertising is another one big competitor, which operates on whole Balkan

Peninsula. The company has 100 merchandisers in Serbia and covers entire

domestic market. In their list of customers, there are almost no company that is not

in top 5 in their industry (e.g. IBM, L’Oreal, Japan Tobacco International, Henkel,

Bosch, Carlsberg, Danone, etc.).

Customers’ Loyalty toward Competitors

Awareness among FMCG companies about existence of merchandising service

providers is moderate (in-depth interview in section A – “Client’s awareness about

merchandising”, shows 75%). The highest awareness is about Nelt, due to strong

distribution role that they have on the market. Also, the interviews shows absence

28

of stronger partnerships and loyalty, which is favourable for start-up company

because there will be lower barrier in customer acquisition process.

Size of the Potential Customer Base

Competitors’ reach of retail market is almost 100%. It means they can cover each

POS. But, competitors’ reach of potential customers is very low. Total number of

clients that can be counted on their websites is around 50, while on the market,

many hundreds of them operate. It means that potential customer base is many

hundreds companies, and most of them need merchandising service.

Barrier to Entry

All competitors are operate more than 5 years. Even though there is no specific

entry barrier for the business, in previous 5 years was no new entry. The only one

entry barrier is the amount of money needed for starting capital. To compete with

current merchandising companies, by using the same strategy as they are using,

starting investment will be more than million euros. It is easy to calculate, because

just for 100 cars, for 100 merchandisers, required money for leasing is around

600,000 EUR in the first year. Start-up company from this work is rather going to

get clients that have no merchandising service, than to compete with present

companies by switching their clients. Therefore, the loyalty or already established

partnership with current players in the industry cannot be our weakness.

Substitute Service

There is no threat of service substitution in the future. Only threat can be future

growth of internet shopping, that will implies decrease of traditional retailing. This

trend is too slow in food industry, so it cannot be real threat in the next 5 years.

29

Bargaining Power of Suppliers and Buyers

There is no special suppliers for core business, because the company is selling

service.

Key buyers are FMCG distributors. Many of those potential customers are thinking

about merchandising, but have no possibility to pay for that. Present merchandising

providers looking for big clients that will utilised their big organisation, with huge

fixed costs. Small merchandising task does not match to their organisation and cost

structure. In order to explain better, it can be compared with transports of few

needles with a big truck: While client needs small pick-up vehicle for transportation

of needles, the service provider offers big and expensive truck.

3.7.3 Organisational Feasibility

The main question in this part of feasibility check is “Does the organisation has the

ability for defined business”. In the following work the main criteria will be

considered.

Business and Managerial Experience

The author of this work will be the creator and owner of new venture with all

belonging responsibilities for success. Business and managerial experience:

- 17 years in international companies, which operate in FMCG and retail

industry. Out of these 17 years, 11 years were in the biggest tobacco

company worldwide, with the highest business standards – Philip Morris

International.

- Responsibilities in department of distribution, sales, merchandising, logistic

and national commercial strategy planning.

- Roles:

30

o Front-end business operations in distribution, sales and

merchandising, business to business role (B2B)

o Supervision of sales, distribution and merchandising

o Participation in process of selection and recruitment

o Coordination of sales and merchandising teams at national level

o Planning, development and monitoring national strategy for trade

channels in terms of distribution, sales and marketing (including

merchandising). Setting out Key Performance Indicators (KPIs) and

achievement monitoring

o Coordination and management of outsourced distributor, including

capability building of sales and merchandising teams

These experiences provides solid ground for leading start-up company which

operate in the same sub-industry.

Sources of Advice and Support

Main source for this kind of help will be:

- Partnerships among management in FMCG companies from tobacco

industry, breweries and fizzy drinks. They can provide useful advice

regarding the specific needs of their companies which could be applied on

sales offer of “ShowUp”.

- Partnerships acquired in previous years among big retailers, such as

Delhaize (second biggest grocery chain in Serbia that operates worldwide)

and Stampa System (the biggest kiosk chain in the country). They could be

of help in terms of merchandising execution modus and their view on

merchandising.

- Colleagues from Philip Morris with the similar experience – advice

regarding people and process management, organisational capability

building and especially in finance management.

31

All these connections will be of help in order to create efficient and competent

organisation with attractive market position.

Organisational Competency

The importance of organisational competencies is well described from C.K.

Prahalad and Gary Hamel: “Competencies is the root of competitiveness. The

corporation, like a tree, grows from its roots. Core products are nourished by

competencies and engender business units, whose fruit are end products.” (Harvard

Business Review, May 1990). Organisational competence is company’s ability to

achieve mission. It is not the same as individual competence of an employee. Group

of people in some organisation can be successful or not, depending on

organisational competence for the business. Sometime, we just have to rotate them

or change structure, in order to set “right people”, in the “right place”, which

required adequate competence.

Core competencies of “ShowUp” are:

- Customer service – Core business of the company is service for the

customer, so it must be core competence. The key postulate for business is

satisfied customer.

- Flexibility – The main competitive advantage is flexibility for small to

medium companies, in terms of “value for money” offer.

- Quality – High level of quality execution is mandatory, in order to maintain

sustainable, long-term service for the clients.

- Innovation – Custom-made approach to specific needs of clients is

differentiation point toward competitors.

To meet these core competencies the young company need right people, on the right

place, in appropriate organisational structure, and flexible processes that regulate

their interactions and connect the units. Responsibilities for building of

organisational competencies, in such small company, is laying on founder and

general manager.

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Required Skills

Employees’ skills is “derivative” of company’s competencies. They also depend on

the position of the employee in the organization. Required skills will be assigned

for each position according to Lominger Competency Library (Lombardo, Michael

M., and Robert W. Eichinger, 2004). This is approved, highly effective talent

management tool, with the highest references in business.

Required skills per job position:

- Merchandisers:

o Action oriented

o Customer Focus

o Planning

o Drive for Results

- Merchandising supervisors:

o Motivating Others

o Organising

o Priority Setting

o Problem Solving

- Field Force (Merchandising) Manager

o Decision Quality

o Developing Direct Reports and Others

o Managing and Measuring Work

o Building Effective Teams

o Written Communication

- Marketing manager

o Creativity

o Customer Focus

o Innovation Management

o Perspective

o Presentation Skills

- Finance Manager

o Ethics and Values

33

o Functional/Technical Skills

o Integrity and Trust

- Logistic Manager

o Action Oriented

o Customer Focus

o Functional/Technical Skills

o Planning

o Process Management

- General Manager

o Business Acumen

o Customer Focus

o Creativity

o Decision Quality

o Hiring and Staffing

o Innovation Management

o Motivating Others

o Negotiation

o Perspective

o Presentation Skills

o Self-Development

o Strategic Agility

o Managing Vision and Purpose

Beside internal human capital, the company should have appropriate outsourced

partners for Information Technology (IT) service and Legal advisor for specific

occasions, which has to be with good experience and recommendations from

similar small entrepreneur companies. Partners’ skills and business attitude must fit

to flexible and innovative young organisation.

34

Resource to Launch the Business

Main resource for the business is people, which fit to entrepreneurial mind-set.

They will be real capital of the company. Other assets will be:

1. Four equipped offices rented in big cities: Belgrade, Novi Sad, Kragujevac

and Nis

2. Company cars for merchandisers with bigger cargo area and regular cars for

their supervisors, national merchandising manager and for general manager

(22 in total).

3. IT equipment: laptops and mobile phones for each employee and tablets for

merchandisers. One printer with scanner in each office.

4. Uniforms for Field Force staff.

Risk Assessment and Motivation to Succeed

This new venture will be the “life project”. Realistic and comprehensive assessment

of all potential risks is crucial for success. Feasibility analysis have to indicate

potential threats and to decrease the chance for failure. The better feasibility study,

the lower risk for the business. The appetite for the risk must be managing by the

size of the stake (or investment). In this particular situation, the investment is big

for small entrepreneur, so risk must be decreased to minimum with realistic

approach. The cost of failure must be done too. Strategic vision and optimistic

approach must be shared across the company from the very beginning. This will

boost positive attitude and motivation among employees.

Sufficiency for Funding Before Reaching Break-Even Point

The start-up fund is amount of 370,000 EUR. This capital need to cover all cost in

the first 18 months, when it is expected to reach break-even point, which represent

the moment when income is equal to business fixed and variable costs. In that

period of time, the main cost of business are salaries, cars leasing with associated

35

costs (fuel and service), offices rental, leasing for IT equipment and contract with

telecommunication provider. Detailed financial analysis will show the financial

feasibility of the business, by counting every cost, including investigation of hidden

costs.

3.7.4 Financial Feasibility

Start-up Capital and Working Capital

According to the first calculation, total cost of all business operations for the first

year is 370,000 EUR, while for the second year it is 340,000 EUR.

Table 3.1 Cost calculation

The difference between the first and the second year is mostly due to starting

participation for cars leasing, which will be present only in the first year. Also, some

costs will appear after the first contract with customer (PC tablets, car fuel, etc.).

This calculation is based on estimation that first sales contract will be signed after

6 months of “dry run”. During that period, variable costs will be zero, such as costs

assembled with cars or IT equipment. Working capital required for that period will

Cost (EUR) First year Second year

Company registration 100 -

Salaries 170,400 170,400

Contribution for salaries (47.5% of salary 80,940 80,940

Cars 79,200 26,400

Telecommunication provider contract 6,000 6,000

Laptops 2,917 2,917

PC Tablets 2,880 5,760

Car fuel 7,920 15,840

Car service - 13,200

Printers/Scanners 300

Office rental 18,000 18,000

Uniforms 600

Office supplies 400 400

Legal counsel for labour contracts 300

Legal counsel for contracts with customers

Income TAX -

Total 369,957 339,857

36

be mostly for the salaries including contribution for the government and offices

rental. Variable costs start together with signing contract with the first customer

after 6 months). The price for the contract will be around 96,000 EUR annually for

merchandising service in 25 biggest cities in Serbia.

Pricing Strategy

Price offer (calculation):

One merchandiser monthly: 500 EUR

One merchandiser annually: 6,000 EUR

16 merchandisers annually (coverage 25 cities): 96,000 EUR

How to “sell” this price?

One merchandiser that works in customer’s company will costs 1,200 EUR monthly

or 14,400 EUR annually, while 16 merchandisers will cost 16 x 14,400 = 230,400

EUR. This cost is absolute minimum according to comprehensive calculation that

will be shown in the next chapter. Finally, the cost of outsourced service (96,000

EUR) is almost 2.5 less. This is the advantage only from price perspective, while

for the sales presentation much more benefits will be included.

Sales Volumes and Break-Even Point

Break-even point will be reached with 4 customers that will engaged all

merchandisers:

4 customers x 96,000 EUR = 384,000 EUR

Cost of the first year is 370,000 EUR.

According to observation of competitors’ merchandisers work and predefined

territory that will be covered by one merchandiser, full capacity of one employee is

37

between 6 and 8 different tasks (group of brands) per outlet, depending on

complexity. This is the number of contract that the company can handle at once.

Financial Risk and Cost of Failure

Financial risk is loss of 360,000 EUR annually. It is slightly lower than total

investment in the first year, due to no charge for car fuel and PC tablets, if there

will be no customers’ contract.

3.8 Resource Requirement Evaluation

As it is analysed in previous chapters, necessary resources are:

- Human resources and their skills and knowledge (from managing business

in general, to excellent execution of merchandising) and

- Financial resources as fund for business tools and equipment.

Regarding financial resource the plan will be elaborated to details, including the

smallest amount of hidden costs. Unforeseen or unexpected costs must be

minimised. Financials must be well known area of new business.

What is unknown yet and what is the matter of entrepreneurial management skills

are human capital quality. This will be the consequence of selection and recruitment

process, and afterwards implemented trainings for the Field Force staff. Finally,

after financial calculation, the difference between success and failure is in the hand

of entrepreneur and his comprehensive managerial skills.

38

4. Business Model

A business model is a description of the activities that a company performs to

generate revenue or other benefits, and the relationships, information, and product

flows a company has with its customers, suppliers, and complementors (Malone et

al., 2006). According to Osterwalder and Pingeur (2010) “A business model

describes the rationale of how an organization creates, delivers, and captures

value”.

4.1 Strategic Analysis of the New Business Idea: Identification of

Sources of Competitive Advantage and Sustainability

Identified sustainable competitive advantage of retail merchandising service

provider is its dedication to meets merchandising needs of small to medium FMCG

companies. Unlike other merchandising providers, the proposed firm will focus on

most urban area, which is also in the focus of targeted customers. This “area match”

is the key for adequate offer for future customers. Focus on top 25 biggest cities in

Serbia will ensure full utilisation of the company’s resources, without idling.

Looking at long-term perspective, this match will be constant because there will

always be companies with request for “limited area” merchandising. The main

threat for new venture is potential emergence of new companies with the similar

strategy, but till then, the company will gain advantage in already established image

and partnerships on the market. That kind of strategic approach guarantee

sustainable business and long-term competitive advantage.

39

4.2 Development of Appropriate Business Model

4.2.1 Business Model Canvas

Business Model Canvas, invented by Alexander Osterwalder, is tool for modelling

the business. “It is a way to experiment and test hypothesis for creating and

capturing value” (Osterwald, 2011). It focuses on how the value will be generated

and how it will be turned into revenue (see Figure 4.1).

Business Model Canvas is a visual template pre-formatted with the nine blocks of

a business model. According to its inventor, the blocks represent:

1. “The Customer Segments defines the different groups of people or

organizations an enterprise aims to reach and serve.”

2. “The Value Propositions describes the bundle of products and services that

create value for a specific Customer Segment.”

3. “The Channels describes how a company communicates with and reaches

its Customer Segments to deliver a Value Proposition.”

4. “The Customer Relationships describes the types of relationships a

company establishes with specific Customer Segments.”

5. “The Revenue Streams represents the cash a company generates from each

Customer Segment.”

6. “The Key Resources describes the most important assets required to make

a business model work.”

7. “The Key Activities describes the most important things a company must

do to make its business model work.”

8. “The Key Partnerships describes the network of suppliers and partners that

make the business model work.”

9. “The Cost Structure describes all costs incurred to operate a business

model.”

40

Figure 4.1 Business Model Canvas for Retail Merchandising Service Provider

(Source: adjusted Osterwald’s Canvas Model for “ShowUp” company)

In order to elaborate Business Plan deeply, following essentials will be examined:

A. The Core Strategy

B. The Resource Needs

C. The Partnership Network

D. The Value Deliverables to the Customer

4.2.2 The Core Strategy

The mission of the firm is to cover selected area with merchandising that is executed

in high quality manner with acceptable price. The strategy follows the mission, so

the core strategy will be leveraged on 4 pillars: Price, Quality, Flexibility and

Creativity (see Figure 4.2). Every deliverables for the customer must be in

accordance with them.

Key Activities:

Quality, flexible

and creative retail

merchandising

Customer

Relationships:

Close cooperation

with aim to

constantly

improve the

service

Key Resources:

Dedicated and

creative people

Channels: Direct

marketing

presentation to

potential

customers and

industry cluster

fairs

Key Partnerships:

FMCG companies

and retail chains.

Customer

Segments: Small

to medium FMCG

companies or its

distributors

Cost Structure: Fixed costs (cars, salaries, office rents,

IT equipment), variable costs (car fleet expenses - fuel,

service, maintenance)

Revenue Streams: Payment per engaged merchandiser,

monthly, after the job is done, using proof of

performance (pictures of execution in shops)

Value Proposition: Geographically

focused merchandising service that

provides high quality merchandising

for reasonable price

41

o Price

The advantage of the company will be in focusing investments (fixed costs) in the

same geographical area and retail channels (i.e. supermarkets, groceries, kiosks) as

potential clients. That is starting point for creating the lowest price that will ensure

profit. Tangible advantage for the customers will be the lowest price on the market.

o Quality

Low price does not imply compromise with quality of execution. The quality of

merchandising at the level of POS will be at least equal to the best competitor’s

execution. Quality will be ensured with skilled people, high level of expertise in

merchandising and focus on customer satisfaction. The quality will be an element

of relevant superior value proposition.

o Flexibility

Flexibility must be one of the main customer’s impression. Small organisation will

be easier to manage compares to big competitors, so the size of the firm is an

advantage from the start. Simplicity and plainness in processes within such small

organisation will ensure speed to market and easy adaptability to customer’s needs.

Managing people and managing processes (logistic) will play significant role, so

these managers (merchandising manager, supervisors and logistic manager) must

be focused on flexibility.

o Creativity

Creativity will be another one relevant element of superior value proposition which

has to be in constant development. Creativity is the reason why the main resource

of the company is its people. Creativity must be encouraged and rewarded. Constant

challenging of status quo is the way how the employees should understand their

jobs. That should be default mind-set in the organisation.

42

Figure 4.2 Core Strategy Pillars made for “ShowUp” company

4.2.3 The Resource Needs

From perspective of business owner, the main advantage of the company is fixed

costs aligned with business needs of potential customers. That implies no “idling”

in utilisation of resources and maximised Return On Capital Employed (ROCE =

Earnings Before Interest and Tax (EBIT) / Capital Employed).

In order to determine the resources and to comply with the functioning of business,

conventional Porter’s Value Chain will be presented (Porter, 1987), see Figure 4.3.

This model helps to make diversification between useful and wasteful activities by

following each step of the merchandising service deployment. It is shows how the

company is gaining value step by step.

43

Figure 4.3 Porter’s Value Chain adjusted for “ShowUp” company

Porter’s value chain shows competitive advantage of the company. The base for

competitive advantage is in the area of:

- Marketing and Sales: market research shows market gap (non-adequate

offer for small to medium FMCG companies)

- Service: Strong focus on innovation management, creativity and joint

planning for improvement, together with client on weekly meetings.

- Human Capital Management: selection of skilled people with competences

that ensure innovation on strategic level, tactical and operational level,

constant people development and training, and competitive compensation

package and benefits (to ensure employees’ satisfaction and excellence in

daily job).

Resources to deliver sustainable competitive advantage

From previous 3 points it is clear that key resources for competitive advantage is

initially done analysis regarding market gap and people. It implies strong focus on

44

selection and recruitment process, including recommendations and refferals from

close business partners.

Core competencies for the business and how are these assured for the future

According to needed resources for competitive advantage, the main competencies

are:

o Customer Focus

o Innovation Management, Creativity, Agility

o Hiring and Staffing

o Building Effective Teams (including constant focus on skills

improvement)

Strategic assets for the new venture

Main company’s asset is customer oriented strategy and creative and agile people.

These are the real distinctive assets of the company. General Manager must be

focused on it constantly and invests time, money and energy in improvement and

development.

4.2.4 The Partnership Network

Partnership network in the area of FMCG distributors will be of great importance

for this new venture. Owner’s experience in this industry for period of 17 years

guarantee many friendships and business networks. The role of those friendships

will be in:

- Spreading information about new company in the area of merchandising

45

- Making new contacts and meetings arrangements with potential customers

- Building potential customer base

- Recommendations and endorsements for integrity, competencies and

expertise for the business.

From the side of business execution on the field, huge number of partnerships

among retailers, including top management and category managers, will help in

merchandising execution. They can provide many important information that will

assist in organising field force.

Overall, those friendships will be transferred into partnerships for the business.

4.2.5 The Value Deliverables to the Customer

Superior value proposition delivered to the customer will be recognised in the

aspect of:

- Price proposition - It will be “value for money” offer. The price has all

preconditions to be the lowest on the market. The payment will be

periodically, after the partial job is done (monthly for instance) and after

joint check of quality. The customer should be satisfied not only with price,

but also with delivered value which will be proven using comprehensive

reports with photos. Merchandisers will be equipped with PC tablets, so

every execution will be captured and reported.

- Competitive proposition – Low price does not mean bad quality. The work

must be with the highest standard of merchandising. Creativity at point of

sale must be one of the main characteristic of the service. To ensure such

approach, people selected for merchandising position must fit to that

competence.

- Functional proposition – Operational flexibility must be recognised from

the client’s side. It will be shown in the process of implementation of

46

improvements and innovations that are agreed on joint meetings with the

client. This is the moment when organisation has to show flexibility which

will overcome any competitor in terms of time frame and ease of handling

“changes on the fly”. Feedback from merchandisers will initiate meetings,

where improvement plan can be set. Managers in the company must be

closed to merchandisers and field execution. Field visits must be conducted

frequently. Close cooperation between managers, supervisors and

merchandisers will support innovation management.

- Emotional proposition – Emotions connected with job that has to be done

could be very useful. If everyone in the company are doing business with

love and passion, it will be reflected on achievement. That positive attitude

will be recognised from the client’s side. In order to build such emotions,

the company has to cherish “healthy” working environment, full of respects.

Team events, dinners, parties, even with clients or within client’s brand

promotion will be highly recommended.

- Ethical and Legal proposition – This proposition will builds client’s trust

and confidence. There are two aspects of ethical and legal propositions:

within cooperation with client and toward merchandising execution on the

field. The way how we doing business must be ethical and legal without

compromise. Every business activity must pass 3 tests:

o Is it ethical?

o Is it legal?

o Is it in line with the company’s policies and practices?

All answers should be positive. Legal and ethics are the highest imperatives, so

“creativity” in business must be out of this area.

All these value propositions have to be consistent during the time, with quarterly

review of rooms for improvement and action plans for implementation. These

values are competitive advantages and it should be clear from client’s point of view.

47

5. Business Plan

The aim of this chapter is to develop detailed Business Plan which will setting out

key resource requirements for successful operation of the Business Model. The

questions that will be answered are:

1. What is the starting point and where have we come from?

2. Where would we like to be and by when?

3. How we propose to get there and take the best route?

4. How do we ensure arrival?

5. What are the expected outcomes?

5.1 The Industry, the Company and the Service

The industry that we tend to enter is Fast Moving Consumer Goods industry in

Serbia. The size of the market is represented by total turnover in retail market of

Serbia, and it was 8.5 bn. EUR in 2014 (source IGD Retail Analysis, Serbia 2014).

The growth comperes to 2013 was 6.3%. Projection for 2015 is 9.3 bn. EUR. Again,

growth year on year (YoY) will be almost double-digit, 9.4%. Similar positive

projection is for 2016 and 2017. It means that the industry is accelerating. Second

indicator that the industry will work well in mid to long term is GDP per Capita.

This parameter is in direct correlation with consumption rate. By compering

projection for 2017 and real figures from 2014 the forecast is 19.8% of growth

(source: web of Serbian Ministry of Finance and independent analysis of IGD Retail

Analysis). The prosperity of retail service is indicated not only in prosperity of

retail, but also in growing awareness about importance of retail merchandising, due

to increased rivalry in this industry. Competitiveness is increased with recent entry

of big international retail chain Delhaize, than few acquisitions of regional chain

48

Agrokor and the latest Lidl’s announcement of market entry (Lidl is one of the

biggest retailer worldwide). These big retailers guarantee international standards in

FMCG industry which implies much more attention on merchandising.

Start-up company “ShowUp”, will be a company for providing a retail

merchandising service, located in capitol of Serbia, Belgrade (headquarter), with

operational offices in 3 big cities: Novi Sad, Nis and Kragujevac.

Service concept of the company is already known on the market, but the approach

to customers will be significantly different. The main differentiation of the firm’s

operations compares to competitors’ is in focused investments. We invest in the

same area where our client’s invest in its distribution. Where is distribution, there

is merchandising needs, and where is merchandising needs, there will be “ShowUp”

service. Geographic match of these two investments will secure win-win

cooperation. The same focus of investments of service provider and served

customer will guarantee the best price offer.

5.2 The Key Success Factors

The Key Success Factors (KSF) are:

1. Geographic investment match between our service and client’s distribution

2. Loud marketing toward targeted group

3. Excellent business execution

If the company fulfil these three assumptions, the success will be almost certain.

After first steps in the new business, long-term success must be ensured by image

building (building of the company name as the brand in the area of merchandising

service). It is important in order to set strong position on the market, before the

appearance of the new company with the same strategy. Therefore, one of the key

49

goal in the first 2-3 years is to become recognisable within the industry. It will be

the objective of the general manager and corporate marketing manager.

5.3 The Market, Market Analysis and Market Research

The market that we observe consists of retailers, FMCG companies and their

merchandising service providers.

The number of FMCG companies and their distributors is several thousands. There

is no precise source for this data, but from the research, it is obvious that the source

of customers is huge.

The number of retailers in Serbia is around 15,000, with 21,000 shops.

Till now, market research reveals only 4 retail merchandising service companies

which are committed to such kind of service. All of them are doing other businesses,

e.g. competitor Nelt is primarily distributor, while merchandising is done only for

distributed companies. “ShowUp” will be the first company on the market that are

absolutely focused on merchandising service.

According to these numbers of market participants, we can conclude that the

“playground” is huge and “unused” due to small number of competitors.

5.3.1 Segmentation

Segmentation of the customers (FMCG companies) can be done by their

distribution coverage:

- Segment 1: Wide-range distributors. This group consist of companies

which are leaders in their sub-industry and their products are for the widest

consumer population, such as milk products, chewing gums, chocolates and

sweets, breweries, soft drinks and similar.

50

- Segment 2: Moderate power distributors. Companies for general

consumer population also, but without such widespread distribution. It can

be in the same sub-industries like previous segment, but not from the top of

the list. It is also distributors of niche segment product, with high image

(e.g. luxury wines or whiskies or pet food).

- Segment 3: Local distributors. This is FMCG companies with totally

narrow distribution (all others).

5.3.2 Targeting

Targeted segment and the core customer group is Moderate power

distributors. In the same time, this is the majority of distributors on the market (see

Figure 5.1).

Figure 5.1 Customer Segmentation (Proximate representation according to market

research)

51

5.3.3 Positioning

Short-term position of the company will be “in the market gap”, just where no

competitors are. This is the position where the company can easily offer the best

price. The biggest challenge for positioning process will be reaching of target group

and scheduling the first meeting, in order to make sales presentation and to convince

them in high quality of service and capability to conduct it. Even more, sometimes

the objective of the presentation can be to generate the need for outsourced

merchandising in the mind of customer.

Long-term plan for positioning must be leveraged on constant overcoming of

clients’ expectations in order to get good recommendation for the future image

building and creating “ShowUp” brand.

The Marketing Plan chapter will elaborate positioning process in more details.

5.4 The Balanced Scorecard

For comprehensive business planning the Balanced Scorecard will be used. It is “a

strategic planning and management system that is used extensively in business and

industry, worldwide to align business activities to the vision and strategy of the

organization, improve internal and external communications, and monitor

organization performance against strategic goals” (source: web of Balance

Scorecard Institute). It was originated by Dr Robert Kaplan (Harvard Business

School) and David Norton.

This strategic tool perceives the organization through four key perspectives and

helps in developing the metrics and analysing it. The main elements of these 4

perspectives, for “ShowUp” company, is shown on the Figure 5.2.

52

Figure 5.2 The Balanced Scorecard - Adapted from Robert S. Kaplan and David

P. Norton, The Balanced Scorecard. Hardvard Business School Press: 9. Original

from “Using the Balanced Scorecard as a Strategic Management System,”

Harvard Business Review (January-February 1996), p. 76.

The outcomes of the Balanced Scorecard are:

- Strategic Objectives

- Strategy Map

- Performance Measures & Targets

- Strategic Initiatives

The strategic objective is to build winning and agile time which will be able to

reach break-even point in 18 months and proceed with customers’ acquisition by

53

providing focused resource investment and excellent merchandising for customer

satisfaction.

The strategy map is helpful diagram that allows us to quickly visualise the

outcome of balanced scorecards (see Figure 5.3).

Figure 5.3 Strategy Map adjusted for start-up company “ShowUp”

The performance measures will be set as quantitative and qualitative. Each of

them will be measured at the level of management and at the level of Field Force

execution (merchandising execution).

- Quantitative measures of Management Team: the number of customers

(number of signed contract)

54

- Qualitative measures of Management Team: utilisation of resources per

contract, customer management through meetings and daily service,

innovation and improvements

- Quantitative measures of the Field Force: the percentage of achieved POS

visits versus planned and the number of achieved executions

- Qualitative measures of the Field Force: excellence of execution measured

by the customer (each execution will be pictured and reported)

Strategic Initiatives in the beginning will be finding potential clients and clearly

presenting the company’s value for them. Long-term strategic objective will be

consistency in quality and overcoming the expectation of the client, together with

retention of low operational costs.

5.5 Marketing Plan

Marketing strategy must be based on successful positioning of the company in the

mind of clients. According to Ries and Trout (1981) “A Positioning Strategy results

in the image you want to draw in the mind of your customers, the picture you want

him/her to visualize of you what you offer, in relation to the market situation, and

any competition you may have”. From this definition the main issue for our start-

up company raised: How to create awareness and favourable image of the

company in the mind of targeted clients? How our service is perceived by

them?

How we will present the company?

The presentation of the company will be done through 3 channels:

- FMCG fairs

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- Direct marketing contact with customers (business meetings)

- Internet (business internet networks and specialised portals for advertising)

These channels will be a platform for positioning of the company. According to

Jobber (1998) key elements for successful positioning are (see Figure 5.4):

- Clarity

- Consistency

- Credibility

- Competitiveness

Figure 5.4 4C Positioning Framework (Source: Stephanie J. Morgan (2009),

Segmentation, targeting and positioning)

Clarity will be ensured with highlighted statements in sales presentation of what is

our mission, what our core business is and what we offer to the customer. These are

already described in this study.

Consistency cannot be proven to potential customer in the very beginning, because

the company is new on the market and has no record with physical proof. It is an

issue for every new company, but it can be mitigated with consistency in sales

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presentation, regarding what can we do for the customer, how and by when.

Consistency in presentation and in feasibility plan, which is presented to customer,

is not the best replacement for consistency proven with physical evidence, but there

is no other option until the company gains record of the work and recommendations

from the customers. After 1-2 year of work on the market, the company must have

proven consistency in innovation and improvements, which will be of big value for

company’s presentation.

Competitiveness lying in competitive advantage, which is reasonable price for

valuable and quality merchandising. This has been explained in details in this study.

Credibility is also a problem for the newcomers in the business, due to no evidence

recorded, but in long-term perspective it must be gained through influential

references from finalised jobs.

How we will achieve targeted position on the market?

To define marketing approach and the way how we will achieve targeted position,

we can use a modified version of Ansoff’s classic Product – Market Growth Matrix,

transformed into Services – Clients Matrix (Doehring 2011), see Figure 5.5. This

matrix plots clients instead of markets on one axis, and Services instead of products

on the other.

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Figure 5.5 Modified Ansoff’s Matrix Services – Clients (Source: web of J.

Doehring & Co. - http://www.jdoehring.com/Blog-John-Doehring-JoltWire-

Blog/bid/65886/AEC-Business-Development-A-Role-Not-a-Title)

For start-up company every client will be the new one, so we will analyse the

approach to the right fields of the chart.

“New Services – New Clients” – These are the clients which has no contact with

competitors. For them, this is new kind of outsourcing service. Sales presentation

for them must be oriented on benefits of outsourced merchandising (e.g. lower

costs, less organizational issues, etc.).

“Existing Services – New Clients” – These are the clients which had contact with

competitors. For them, this is already known service. The focus of the sales

presentation should be on competitive advantages and differentiation point (e.g.

value for money offer, flexibility, speed to market, etc.).

The position of the company in the mind of customers must be unique, with easily

recognisable differentiation points. Nevertheless, the route to this positioning will

be different, depending on customer’s position in modified Ansoff’s matrix.

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5.6 Cost, Volume and Profit Analysis

Imperative for the company is to have simple and understandable offer for the

customer. In order to fulfil this requirement, finance calculation will be plain,

simplified and transparent. The price calculation will be set as:

- Quantity – Engagement of one merchandiser on assigned territory will cost

the customer 500 EUR monthly. For calculation purpose, the projection of

merchandisers working capacity is based on fixed number of outlets that

will be covered once per month, not on time spent during the visit (territory

is fixed, while time spent per outlet is variable and depends on number of

served/contracted clients). The number of POS that can be visited depends

on the number and complexity of merchandising activity. It will be variable,

and it will be a matter of negotiation process and further alignment. For

different call mission of merchandiser, time spent will be different, and

consequently the payment can be different. Fully utilised merchandiser has

7.5 working hours, covers assigned territory, visiting each POS once per

month.

- Qualitative – Deduction of the payment will be defined by the contract: If

execution in some POS is not in line with demands, payment calculated for

one POS will be deducted. It will be presented as benefit for the client, but

with full dedication to avoid such wastage.

Calculation for fully utilised merchandiser’s time in average, monthly based:

1 merchandiser daily: 15 visits (minimum for maintaining 6 clients/contracts)

21 days X 15 visits = 315 visited POS

Full utilisation for the Field Force (16 merchandisers):

16 merchandisers X 315 POS = 5,040 POS (this is the estimated number of all

outlets in focused area of 25 cities with suburbs)

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The price for the customer: 16 merchandisers X 12 months X 500 EUR = 96,000

annually for merchandising coverage of 5,040 POS.

Previous calculation will be the base for all other financial planning. The plan for

reaching of break-even point is after 18 months, when the number of contracted

customers should be at least 4.

Annual operational cost of the company is: 370,000 EUR.

The number of customers for reaching of break-even point:

4 customers/contracts (which engaged all 16 merchandisers for each contract)

multiply with cost of contract (96,000 EUR) is 4 x 96,000 EUR = 384,000 EUR

Fourth contract that will engaged all 16 merchandisers will ensure overleap of

break-even point (see Figure 5.6).

Figure 5.6 Break-even point chart made for “ShowUp” company

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Sales Projection

The most pessimistic projection of the contract signing is:

- After 6 months: 1 contract signed (revenue 96,000 EUR)

- After 12 months: 2 contracts signed (revenue 192,000 EUR)

- After 18 months: 4 contracts signed (revenue 384,000 EUR) BREAK-

EVEN POINT REACHED.

Earning Before Interests and Tax (EBIT):

With 4 contract in the second year EBIT will be 384,000 – 340,000 = 44,000EUR.

Every next contract will be almost pure profit, due to already included variable costs

in starting expense.

5.7 Human Capital Management

Human Capital is the biggest capital of the company. For service oriented company

it is even more important, because daily motivation of the people is in direct

correlation with customer experience and consequently with the image of the

company.

Human Capital Management will have 3 stages:

1. Attract and recruit people with highly developed competences, which is

required for each position. In selection process relevant partners from

business network will be included, in order to enhance quality.

2. Train people in order to develop required skills. Training will be organised

in the very beginning and will be delivered by General Manager, who has

big experience in people development area.

61

3. Enhance and encourage constant self-development and promote culture of

innovation by permanent challenging of status quo. Innovation will be at the

top of the list of appreciated achievement and will be highly reworded.

Potential long-term issue among employees could be satiation with the job and

monotony, due to lack of promotions, which is real problem in small companies. In

order to overcome that, there must be long-term, significant investment in team

building events. Working environment will be dynamic and relaxing in the same

time, without tight and strict rules and policies. However, the basic discipline in job

must be promoted.

Motivation

The role of all people managers in the company (General Manager, Field Force

Manager and Supervisors) is to motivate their teams. Motivational drivers are

different for different employees and it should be revealed and analysed from the

manager’s side in order to reinforce motivation.

According to Herzberg's research, key motivators are:

- achievement

- recognition

- work itself

- responsibility

- advancement

People managers must measure transparently people’s achievement and recognise

the best and the worst.

Task should be “sold” to the people, not just given. This is important in order to

ensure that employee “feel” the meaning of the work itself and understand the

importance.

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Regarding responsibility, employees must be empowered for the job in order to

become responsible for them.

Advancement is one of the issue, due to small number of job positions and flat

organisational hierarchy. In order to prevent this problem, promotions should not

be set as reward for achievement.

Compensation Policy

Considering Herzberg's research and theories, money is not a motivator in the way

that the primary motivators are. However, lack of money can generate

dissatisfaction. Compensation policy have to be recognised as fair and will be

leveraged on employee’s success and its achievement appraisal. Appraisal will be

result of joint analysis of performance between employee and direct manager. The

appraisal will be split into 3 marks: improvable, optimal and exceptional. Each

mark will be followed with incremental percentage on salary. The percentage will

depends mostly on annual employee appraisal, but also, it depends on inflation rate,

business success and salary trends within the industry.

5.8 Critical Success/Failure Factors

Critical Success Factors (CSF)

The company sells service which has to boost customer’s profit through bigger sales

volume. From the customer’s point of view, return on investment (ROI ratio) has

to show clear connection between investment in merchandising service and sales

volume. This will generate customer satisfaction which is the most important

success factor of our business.

Critical Success Factors of the business are:

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- Recognised customer needs and focus on customer satisfaction

- Clear differentiation of provided service compared to competitors

- Innovation management and creative approach

- Execution efficiency

Potential Failure Factors

Potential failures often have the root from emotionally driven decisions of

entrepreneur or from the lack of expertise. Sound analysis have to prevent these

issues.

Main failures could be in the area of:

- Misreading customer demand

- Poor marketing and lack of awareness among targeted customer segment

- Competitors’ strategy shift to our position

Focus on the first two points is the matter of managerial skills, while third one is

something on which entrepreneur cannot influence, but he can build the company’s

image and extensive awareness among targeted group in order to mitigate potential

threat in the future.

64

References

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3. Stephanie J. Morgan (2009), Segmentation, targeting and positioning

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http://balancedscorecard.org/Resources/About-the-Balanced-Scorecard

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http://www.businessdictionary.com/definition/merchandising.html#ixzz3S1E5

natA

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Appendices

Appendix 1

In depth interview with potential clients among small-to-medium FMCG

companies

Top line instructions for interviewing:

Respondent’s job position in the company should be relevant for research

purpose (e.g. Sales or Marketing director)

Questions are the same for each respondent

Question to be asked in the same order, considering wording

Use open questions, without specifying the answer, suggesting or giving the

options

The questionnaire for the in-depth interview

A. Client’s awareness about merchandising

1. What retail merchandising represent to you and what is the importance of

merchandising for your business?

____________________________________________________________

____________________________________________________________

2. Do you have organised merchandising on the market and how it works?

____________________________________________________________

____________________________________________________________

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3. List of retail merchandising service providers in Serbia that is known for

respondent.

___________________________________________

___________________________________________

___________________________________________

___________________________________________

B. Review of distribution coverage and merchandising of the client

4. Which area you cover with distribution in Serbia and what is your plans

for the future?

____________________________________________________________

____________________________________________________________

5. What area you want to cover with merchandising and why?

____________________________________________________________

____________________________________________________________

C. Previous experience with merchandising providers

6. Did you have any contact with merchandising providers? On whose

initiative?

____________________________________________________________

____________________________________________________________

7. What was the outcome of the contact?

____________________________________________________________

____________________________________________________________

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8. Have there been any offers for cooperation or contract signing and what

were their main characteristics?

____________________________________________________________

____________________________________________________________

D. Investigation of ideal merchandising service offer

9. Which elements of the offer were favourable for you and which were not?

____________________________________________________________

____________________________________________________________

10. Does the contract is signed? If yes, are you satisfied with implementation?

If no, what was the main barrier?

____________________________________________________________

____________________________________________________________

11. If you can change the contract or offer, what part you will change? What

will be ideal offer for you?

____________________________________________________________

____________________________________________________________

12. Does the offer matched to your needs, geographically looking?

____________________________________________________________

____________________________________________________________

13. Have you been satisfied with the offered price?

____________________________________________________________

____________________________________________________________

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14. Did the provider responded appropriately on all merchandising needs of

your business?

____________________________________________________________

____________________________________________________________