DEC 2012 QUESTION 3 – WEB CO

HI,

BECAUSE THIS IS A WRITTEN QUESTION, MY ANSWERS DON’T CORRESPOND TO THE MARKING SCHEME ANSWERS AND I NEED GUIDANCE WHETHER I’M CORRECT OR NOT SO KINDLY HELP ME AND PLEASE GRADE ME OUT OF 20.

HERE IS MY ANSWER:

IN QUARTER TWO, THERE HAS BEEN A SALES GROWTH BY 25%. THIS MAY PARTLY BE DUE TO THE REASON OF ADVERTISING IN THE ONLINE FASHION MAGAZINE, AND THEREFORE WEB CO HAS GOT A WIDER MARKET FOR IT’S PRODUCTS OR IT MAY ALSO BE BECAUSE THE INCREASED POPULARITY THAT WEB CO HAS GOT FROM SEARCH ENGINES AND THE COST OF ADVERTISING AND SEARCH ENGINE FACILITY (220,000) IS WELL COVERED BY THE SIGNIFICANT INCREASE IN SALES OF 550,000. QUARTER 2 HAS CERTAINLY PERFORMED BETTER, GIVING EXTRA SALES REVENUE TO THE BUSINESS.

THE NET PROFIT MARGIN IN QUARTER 2, HAS FALLEN BY 8.3%. This is due to profits being cut because of the expenditure on advertising and search engines and the expenses of setting up the “fast track” delivery services, although sales have increased, the net profit has decreased (this is because of the decreased profit margin now earned on sales of above $100 due to the $10 discount.) The net profit margin has decreased significantly and ways must be found to increase it, for example, by reducing the discount levels gradually and cutting down on advertising or looking for a cheaper magazine to advertise in.

The total number of orders from customers has increased by 22.1% in quarter 2. This maybe because of the increased popularity the company has derived, through the search engine, and better incentives for customers (like the fast track delivery service) and thus the brand image of the company has increased which has led to higher number of orders.
The total number of visits has increased by 39.49% in quarter 2. This maybe due to the advertising in the online magazine, or out of curiosity from customers to find out more about the $10 discount. The website availability was also improved and therefore existing customers may have been visiting the website more frequently to do subsequent purchases of items. Also, due to the “fast track delivery” new customers or existing customers who have ordered goods, maybe visiting the website more often in order to track their order. So we can’t attribute the whole 39.49% increase to good marketing, there are other reason too (as highlighted above), though the percentage rate of increase is a good one overall.
The disappointing thing in quarter 2 is the conversion rate . Even after so much advertising and popularity from the search engine, there is a decrease of 5% in the conversion rate from visitor to purchaser in quarter 2. This might suggest that the website doesn’t appeal to potential customers and is poorly designed or not pleasant to view (difficult fonts with poor colour combinations) or is very hard to navigate, and thus potential visitors may find it difficult to place an order and thus go to another website instead. The change by the IT departments (assumed changes are highlighted above) has had an adverse effect on Web Co. The website may not have been available all the time too, and thus visitors may not have been able to place an order when they later came back to the website to buy goods.
The website availability ratio has stayed the same between both quarters and thus we can conclude that the IT department has been inefficient in improving their operations in quarter 2 and this may have an adverse effect on Web Co (such as a lower conversion rate from visitor to purchaser)
The $10 discount has really worked in quarter 2, resulting in a 37.4% increase in customer spending more than $100 per visit. This has had the effect of boosting sales for Web Co and giving it extra revenue through the 1740 extra customers, and has the added advantage of clearing stock from it’s warehouses and thus reducing cost of sales and increasing the gross profit margin.
The “fast track” service has led to an increase in subscriptions of 158.69%. This is tremendous and is very advantageous for Web Co as it now has a much larger audience base to target and communicate details of offers and other marketing activities. This increase in subscriptions will certainly increase future sales of Web Co, if it uses these increases wisely and sends the people details of effective and cost saving marketing activities. Therefore, the company should come up with a marketing strategy to deal with the increase in subscribers.
Overall, a very good performance in quarter 2 but care must be taken not to drive profit margins too low ( due to excessive discounts) as it is affecting the net profit margin of Web Co.

(total 20 marks)