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6- Optima (Sep Dec 2021) - Answer by Sir Hasan Dossani (full drafting)
Strategic Business Leadership (SBL)
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OPTIMA
SBL SEP/ DEC 2021 PAPER
SKELETON ANSWER BY SIR HASAN DOSSANI
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####### (1A) Prepare briefing notes for the finance director which:
####### (i) Assess the value to Optima of undertaking customer segmentation analysis; and
####### (ii) Advise on the most appropriate ways that Optima could segment its customers in
####### order to target them more effectively.
BRIEFING NOTES
TO: Finance Director
FROM: Senior corporate business analyst
SUBJECT: Customer segmentation analysis
DATE: 6 Sep 2022
This briefing note assess the value to Optima of undertaking customer segmentation analysis and advise on the most appropriate ways that Optima could segment its customers in order to target them more effectively.
(A) Value of Customer segmentation analysis
Understanding customer needs
Industry research results suggested that over half of fitness and leisure club members say that they stop using the club because the facilities or classes offered do not meet their specific needs or goals.
Doing customer segmentation will help us understand customer needs across all age groups, health and fitness goals, and personal motivations keeps people interested.
Product Offerings
Optima is offering more than 5,000 exercise classes every week. Our facilities are unrivalled, with over 500 top class tennis courts and 100 swimming pools.
Based on a better understanding of customer needs, we will be able to offer products and services which addresses the customer needs and hence will improve customer satisfaction.
Better / Personalized Marketing
We rely on word of mouth, TV, radio and poster advertisements throughout Ceeland to market its services. We currently have limited social media presence and do not have a mobile app.
Customer segmentation will help us designing focused and personalized marketing strategies for each segment. This will help us target new customers and retain existing ones.
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####### (1B) Prepare TWO presentation slides, with accompanying notes, which explain why it
####### is of strategic importance to Optima to demonstrate a strong focus on CSR for:
####### (i) Its customers and staff; and
####### (ii) Its wider external stakeholders (investors, government and wider community)
Strategic Importance of CSR
####### Customers
Customer prefers organizations with CSR initiatives
Increase in number of customers and revenue
Improved retention %
####### Staff
Higher motivation and retention of existing staff
Able to attract / recruit high quality talent
Speaker Notes
Customers
More and more consumers are prioritizing supporting socially responsible organizations. 87% of Ceeland’s consumers say they would purchase a product because a company supported issues they cared about.
Leenz Fitness has witnessed a huge growth in its member numbers and has also achieved a higher rate of member retention
CSR initiatives will boost customer numbers, retention % and hence the revenue and market share of our company.
Staff
We employ over 2,500 people. CSR can help boost trust and raise business profile. This will lead to better retention and motivation of existing staff leading to better performance.
We will be able to attract / recruit better resources as compared to other gyms in the market, giving us competitive edge
Strategic Importance of CSR
####### Investors
Easy to raise capital / finances
Reduce our cost of capital
####### Government
Improved relationship with government
Participation in B Fit program
####### Wider Community
- Healthier population
Speaker Notes
Investors
CSR can help boost trust and raise business profile. Due to this, investors will prefer investing in our organization. This may lead to reduction in our cost of capital and make it easy for us to raise finances in future.
Government
The government is supporting CSR activities. If we focus on CSR, it will improve our relationship with the government.
Also we will be able to participate in the B-Fit program being offered by Department of Health if we are seen as a CSR supporting organization
Wider community
The fitness and leisure industry promote and support a healthier population. This will lead to improvement in health of the general population. Also it could lead for improvement of our brand and image.
Additional Revenue
Ceeland government will pay $10 million to the chosen partner for its participation in this trial program. This will be an additional revenue for us. And if the program continues after the trial period, then this can be a permanent source of additional revenue in future.
Threats
Resources
It is expected that our expert and qualified staff will develop exercise programmes for pupils and will deliver these twice a week at each school taking part in the trial programme (approximately 100 schools).
We will need to analyze whether we have the expertise and as well as availability of resources to manage this program. We may need to hire more staff because if we use existing resources, it may affect our customers.
Short Program Period
The programme will be for a trial period of six months. We don’t know what is the plan after that. In case we hire people and then the program is discontinued after six months, then we will have to let go of the extra resources.
Logistics Issue
The trial will target children in schools located in areas where household incomes are the lowest across the country. It may be possible that some of the schools are located in cities or villages where we done have any branch. Then we will have to figure out how our staff will reach these schools twice a week.
Financial Feasibility
Although the revenue is $ 10m, we will need to analyze the costs we will have to incur on the program and then see whether there is a net surplus or deficit from a financial contribution point of view.
Payment in Arrears
Regarding payment of $ 10m, 60% will be paid up-front and 40% on successful delivery of the programme. This may cause some cash flow issues and we may have to manage the cash flows through our own working capital.
Uncertainty of 40% payment
The remaining 40% is to be paid on “successful” delivery of the programme. However, the determining whether the program was successful can be subjective. It includes satisfaction ratings from participants (pupils and teachers) which is not in our control. Also the measurement KPIs by Department of Health is not yet confirmed. Hence there is a risk that we lose some portion of the $ 4m.
Reputational Risk
In case we are not able to deliver the program successfully, this will lead to reputation risk and we may lose existing customers and market share.
Value for Money (VFM)
VFM
As a publicly funded department, the Department of Heath have an obligation to deliver value for money in all initiatives and partnerships which it undertakes.
As B-Fit Program is a government initiative, the government has to demonstrate that it is spending tax payers money in the best possible manner which brings improvement in the society and lives of people.
VFM can be measured as follows:
Effectiveness
Effectiveness means that the objectives of the program are achieved. If the objectives of the program is not achieved, then the money spent on the program may be wasted.
I think Optima will face challenges in meeting this criteria. This is because the performance measuring criteria involves both qualitative aspects and quantitative aspects. It is difficult to measure qualitative criteria as they are subjective. Further, the Heath Department has not yet agreed on the performance measures.
All this may cause issues for Optima to demonstrate that it has achieved the program objectives.
Efficiency
Efficiency means that maximum output is achieved with minimum input or resources. This is important as government has limited funds and hence they have to spend it in most efficient manner in order to achieve maximum number of outputs.
The B-Fit program is geographically spread in poor areas of the country. It has to target 100 schools with 20,000 students. Our staff have to visit each school twice a week for next 6 months.
As the scope of the program is quite wide, it will be challenging for Optima to demonstrate efficiency,
Economy
Economy means that the program has to be within the allowed budget. This is important to keep the program on track as government has limited funds and may not be able to afford overrun.
We have not analyzed the cost of the program as yet. In a worst case scenario, our maximum spending budget should be $10m. We will have to track all costs and monitor them very closely in order to ensure that we do not overrun the budget.
Best regards
Senior corporate business analyst
####### THREATS
Data Security
Big data requires high level of security as it contains sensitive and personal information about members. The risk of hacking is high. Hence we will have to make sure that data is secured by using strong password management, access controls, firewalls, etc.
Expertise
Big data will require skills and expertise. I agree with HR director that our staff don’t have the skills to carry out complex data analytics nor engage in social media marketing. However, I don’t think its a show stopper.
We can recruit staff with required skills and experience in this area. Or we can engage with an IT specialist firm or consultant who can do this task for us.
High Initial Investment
Big data involves high initial investment. However, it may be necessary to make this investment as it is a long term thing and if we don’t invest now, we will be left behind as several competitors are already using big data.
(B) Mobile Technologies
####### BENEFIT FOR OPTIMA
Better Engagement with younger generation
The app would allow us to better engage with members, using features such as mobile fitness programmes and challenges, rewards programmes, community interest forums and push notifications. The app would also provide an opportunity to have a two-way interaction with members, beyond the times when they are physically in the club.
Regular communication and engagement with members will improve retention and customer satisfaction.
Improved marketing
App will provide us with an opportunity to change how we approach traditional marketing, by making use of social media marketing such as facebook, twitter, Instagram, SEO, forums, etc. currently we are just relying on word of mouth, TV, radio and poster advertisements which is not sufficient.
This will lead to more revenues as we can target more customers with personalized marketing.
####### BENEFIT FOR MEMBERS
Convenience
Some customers prefers fitness classes delivered directly into their homes through smart devices, such as mobile phones or tablets. This causes convenience to customers. Also it will increase the geographical reach for us as a company.
More interaction
The younger generation prefers using smart phone apps. They link to track their progress through fitness apps and gadgets. Hence app will help the members achieve their targets and remain satisfied.
Older Members
While younger people might embrace mobile technology, adjusting to mobile marketing and engagement may be harder to sell to older members. Many of our older members come to play tennis and socialise and don’t engage with technology in the same way as younger people.
While I do agree that older people might not prefer apps, it does not mean we ignore the younger generation. The use of app is optional. Whoever wants to use it can use it. It is not necessary for the older people to use the app. They can continue their activities without the app.
Weakness Implications Recommendations
On at least 300 occasions in the last three months, customers without the correct access requirements have been allowed to enter club premises without customer passes/access codes being checked.
Security access systems in at least eight of our clubs are currently faulty. Despite all of the affected clubs’ management being aware of the problems, no work to repair faulty access systems has yet been actioned in two of these clubs.
This shows lack of security leading to unauthorized entry
There is a risk that a person who is not a member can also enter and use the club
This can pose safety threat to members, employees and assets
revenue leakage as customers and outsiders can use any facility without any checking of their membership entitlements
Security access system should be implemented strictly
Random checking of membership cards
Faulty security systems should be fixed on high priority
Use of security guards or biometric techniques can be considered
One club manager organised the refurbishment of their indoor swimming pool, at a significant cost to their club. The club manager authorised the work without following Optima’s tender process. The company who carried out the refurbishment work was owned by the husband of the club manager and no authorisation from head office for this refurbishment was obtained before work commenced
Unauthorized work can lead to unauthorized expenditure which can be of significant amount
Misuse of company funds leading to financial loss to the company
Lack of transparency
Chances of fraud, collusion or conflict of interest
All refurbishment above a ertain amount to be approved by management before it is executed
Tender process should be followed
Company to make sure there is no conflict of interest
Branch should not have huge funds with them.
All payments to be controlled centrally
Strict warning or disciplinary action to be taken against mangers who violate company policies
6- Optima (Sep Dec 2021) - Answer by Sir Hasan Dossani (full drafting)
Module: Strategic Business Leadership (SBL)
University: Association of Chartered Certified Accountants
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