Making crucial business decisions is a complicated process that requires an in-depth analysis and understanding of various factors. Java For You case study might be an excellent example of what obstacles an entrepreneur may face when running a company (Jaffke and Schultz, 2013). Jim and Kathy, shareholders of Java For You, as well as Sue, their Manager of Operations, dealt with the tough task of evaluating the firm as Kathy decided to sell her part of the business. In this paper, the evaluation of Java For You, according to the data provided, will be made.
Financial Situation Analysis
It might be assumed that in 2012, Java For You had a quite unstable financial situation. It should be noticed that the company had a substantially decreased income of $5 544 if compare with five years before, not taking into account the unsuccessful Brookings Drive shop. Particularly, the net income in 2011 was $28 475, which is five times higher than in 2012. Furthermore, the firm had a loan for a new oven, which required annual payments of $3 300 for ten years since 2011. Total liabilities of Java For You were the sum of $58 156 that might be considered substantial as it is the third part of the total assets of the company. It seems reasonable to conclude that the firm was in a risky financial situation as its incomes began to decrease in 2011, and it had a critical amount of liabilities.
Competitive Environment Analysis
The market in which Java For You was operating could be characterized as follows. Big enterprises had competitive advantages in purchasing, manufacturing, and marketing when small firms had these advantages in specialized products and in serving a narrow market segment. Moreover, there was competition from beverage companies, as well as from giants such as Starbucks, Panera, and McDonald’s. Competition could become even more intense if a transnational company that specialized in coffee drinks, such as Dunking Donuts (“Dunkin’,” n.d.), would enter the market. In this case, all the rivals in the market would have to provide creative product differentiation and lower their prices.
Then, keeping in mind the fact that the firm established below-the-market costs, it should be stated that the company undertook the lowering-prices strategy (LaMarco and Thompson, 2019). It might be supposed that Java For You chose an efficient pricing approach as it was a small enterprise in the extremely competitive market, and it served a concrete niche. However, in 2012, the pricing power became less considerable as the incomes decreased.
It might be essential to notice that the competitors, both big and small, had sufficient product differentiation. Starbucks, Panera, and McDonald’s paid attention to this issue to a great extent as they are full-scale transnational companies. However, local rivals such as Grocery Super Market, Local Deli, and Bread Shop also seemed to care about the mentioned aspect of their business, which was continuously increasing competition. Hence, entering the market was considerably difficult for newcomers as their potential rivals were creating severe conditions for the company.
Kathy’s Core Business Problem
The primary business problem that Kathy identified could be the decreased incomes and the significant liabilities of Java For You. Since the market competition was too harsh, she could be genuinely concerned about the further solvency and success of the firm. Since 2011, the company’s profits became lower to a great extent, and Kathy fully realized and recognized the core business problem – it was dangerous to take the responsibility of the business further.
Alternative Pricing Strategies
It was noticed that Java For You pursued the low-cost pricing strategy that was not efficient enough in 2012 as the decreased profits took place. The alternative approach could be a value-based one because it could provide the company with the opportunity to get some advantages (Bloomenthal, 2019). According to the value-based pricing policy, a firm establishes prices for its products or services, basing them on what the client is willing to pay for (Guo, 2019).
Augustovski and McClellan (2019) state that even if this firm can charge more for a product, it sets prices primarily considering customer interest and data. Java For You could implement the described approach accurately, if it, for instance, proposed some significant offers and promotions regarding its bread. This bread had 50% of the total sales of the company; hence, customers were interested in this offer. Making such an accent could lead to a solid foundation for the business.
The second alternative could be a competition-based pricing policy, as there were plenty of successful and noticeable competitors in the market. This strategy indicates the importance of prices established by rivals because it affects the actual pricing to an exponential extent (Mazrekaj et al., 2016). Even a small difference in provided costs in the extremely competitive industry may result in reduced loyalty of customers. Thus, Java For You could consider commonly accepted market prices as the defining factor and adapt its offers to them. However, the value-based strategy seems a more appropriate one as the firm had a perfect location and could regularly assess its clients’ needs.
Problems with the Decision-Maker
The decision-making process of the Java For You team might be considered quite effective and appropriate with an unsubstantial remark. In this regard, the only problem that should be detected is the idea of opening the second shop near Washington University. This shop was unsuccessful and contributed to decreased profit margins. Nevertheless, it should be mentioned that the team realized the mistake and closed the Brookings Drive shop, which led to increased incomes. The abovementioned allows assuming that the management of Java For You demonstrated the flexible decision-making approach that could be adapted to various situations.
Problems with the Decision-Maker (Alternative)
The decision that Kathy made was due to the urgency that occurred as a result of her husband’s illness. Even though Jim thought that it was quite a rush and an insensible solution, Kathy had a few reasons to act that way. In 2011, the incomes of Java For You were already unstable to an exact extent, even without considering the second shop. It is the characteristic of a business that requires several substantial shifts and policy changes.
Keeping in mind the fact that her husband had severe troubles with his health, she would not be able to take part in the reorganization of the business permanently, which could lead to the company’s downfall. When even one member of the top management of a firm cannot fully participate in its affairs, the success of such an enterprise is not likely to take place. Moreover, Kathy suggested a reasonable idea – to evaluate the business “comparing the price/earnings ratio of Java For You with its closest competitors,” which seems to be the right decision (Jaffke and Schultz, 2013, p. 94). Thus, no crucial and critical problems with the decision-maker were identified.
Risks to the Business in Kathy’s Thinking
In Kathy’s vision, the competitors did not demonstrate any significant strategic weaknesses, and she proposed to evaluate the business taking into account the rivals’ success. In her thinking, there were no visible and notable alternatives for Java For You to implement to increase its profit margins. Furthermore, there was a vast risk of the fail of the chosen pricing strategy. Due to the intense competition in the industry and the presence of huge rivals, there was a high possibility that competitors would give a cheaper offer that would level the strategy’s advantage. Thus, it might be supposed that the real risks to the business can be assessed as compatible with the ones in Kathy’s thinking.
Risks with Recommended Business Model
The value-based strategy also has several risks that the firm would have taken into account if it decided to implement it. Such an approach would require some additional costs and efforts for monitoring customers’ interests and collecting their feedback every day (Decker, 2019). Then, constant pricing change may also confuse clients and make them perceive this process as an indicator of a company’s instability and changing quality of products. Nevertheless, it should be claimed that the lower-cost approach seemed not to remain profitable; thus, the above strategy could be an appropriate option for Java For You.
In conclusion, it seems reasonable to state that Java For You had been quite a profitable enterprise before the substantial decrease in incomes took place in 2012. It existed in a severely competitive environment; hence, the company was facing many business hardships and risks. It was claimed that Kathy rationally assessed the risks to the business. Then, the recommended pricing strategy was the value-based one as the owners had the opportunity to continuously monitor clients’ preferences if they would be ready to spend money on this process.
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