UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business TRUONG NHAT TIEN INTERNAL FACTORS INFLUENCING SALES GROWTH AND SOLUTIONS – The Case of CAO Fine Jewellery Co., Ltd MASTER OF BUSINESS ADMINISTRATION Ho Chi Minh City – Year 2020 UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business TRUONG NHAT TIEN INTERNAL FACTORS INFLUENCING SALES GROWTH AND SOLUTIONS – The Case of CAO Fine Jewellery Co., Ltd MASTER OF BUSINESS ADMINISTRATION SUPERVISOR: Dr Tran Vi Ho Chi Minh City – Year 2020 CONTENTS LIST OF TABLES iv LIST OF FIGURES v LIST OF ABBREVIATIONS vi EXICUTIVE SUMMARY vii PROBLEM IDENTIFICATION 1.1 Problem context 1.2 Company structure 1.3 Symptoms 1.3.1 Do not meet reachable target 1.3.2 Decreasing on revenue 1.4 Possible problems 1.4.1 Unable to retain old customers 1.4.2 Decreasing on ticket size of old customers 1.4.3 Low inventory turnover 1.5 Main problem validation 11 1.5.1 Unable to retain old customers 12 1.5.2 Decreasing of average ticket size of old customers 14 1.5.3 Low inventory turnover 14 CAUSES IDENTIFICATION 16 i 2.1 Potential causes 16 2.1.1 The effectiveness of marketing campaigns 17 2.1.2 Store managers and staffs are lacking knowledge and skills 18 2.1.3 High turnover rate 19 2.1.4 Do not delivery on time 20 2.1.5 Insufficiency net working capital 21 2.1.6 Inventory structure does not match to the plan 22 2.1.7 Missing analysis of target customers’ portrait 24 2.2 Cause validation 25 2.3 Final cause- effect map 28 SOLUTION 30 3.1 Alternative solutions 30 3.1.1 Building customers’ portrait and training with new material 31 3.1.2 Building customers’ portrait and reorganizing inventory structure 33 3.2 Solution selection 35 3.3 Action Plan in Organization 37 SUPPORTING INFORMATION 38 4.1 Research method summary 38 4.2 Interview transcript 39 4.2.1 Interview with Accounting Manager 39 ii 4.2.2 Interview with Head of Supply Chain 40 4.2.3 Interview with Brand Manager 43 4.2.4 Interview with Chairwoman 44 4.2.5 Interview with Deputy Director 46 4.2.6 Interview with Sales Manager 47 4.2.7 Interview with PNJ Human Resources Manager 48 APPENDIX 49 Appendix 1: Confirmation e-mail about data 49 iii LIST OF TABLES Table Marketing’s 2019 internal report 17 Table Sales staff test results 18 Table Store manager test results 18 Table CAO Human resources report of sales staffs 19 Table Supply chain report 20 Table Inventory report 21 Table Sales and inventory report base on products price structure 24 Table Estimating expense of building customers’ portrait and training with new material 33 Table Estimating expense of building customers’ portrait 35 Table 10 Action Plan 37 iv LIST OF FIGURES Figure Company Structure Figure PNJ Net Revenue Figure CAO Net Revenue Figure CAO’s share of revenue contributed by customer classification Figure Problems mess 10 Figure Average of ticket size (VND) 13 Figure Customers’ structure 13 Figure Initial cause-effect map 16 Figure Products structure 2019 plan 22 Figure 10 Ticket size 23 Figure 11 CAO Fine Jewelry brand key 27 Figure 12 Cause – effect tree 30 v LIST OF ABBREVIATIONS CAO: CAO Fine Jewellery Co., Ltd SJC: Sai Gon Jewelry Co., Ltd DOJI: DOJI Gold & Gems Group PNJ: Phu Nhuan Jewelry JSC BODs: Board of directors SM: Sales manager BM: Brand manager AM: Accounting manager CW: Chairwoman HR: Human resources SKU: stock-keeping unit vi EXICUTIVE SUMMARY Jewelry industry is very competitive, this is right for not only the big jewelry organization as PNJ, DOJI, SJC but also local business The quality of products and services are the weapons that they use to face with competitors CAO Fine Jewellery has been found with the purpose to serve high-end customers who have desire for unique design and very high demand for quality of the products as well as service In the past, CAO has been very successful but the market has changed and the firm could not adapt it in the last two years The significant decrease in revenue is a warning bell for the firm and CAO need to find the problems in order to improve the current business situation Therefore, the purpose of this thesis is finding the key problems and provide solution which is identified base on the analysis of theories and empirical interview stakeholders From those analysis, the thesis suppose that the orientation of the company has been abandoned by the market and the lack of specific analysis method in identifying target customers is identified as the main cause leading to CAO does not attract new customers vii INTERNAL FACTORS INFLUENCING SALES GROWTH AND SOLUTIONS - The Case of CAO Fine Jewellery Co., Ltd 1.1 PROBLEM IDENTIFICATION Problem context CAO Fine Jewellery (CAO) is one of the subsidiaries of PNJ group It has been found in 2005 with the purpose to serve high-class customers The products are limited with unique design and premium service CAO converges what the company most elite of PNJ group CAO are more favorable conditions than PNJ about product production, supply chain, sales systems and processes However, from the 2016 to 2019, the business of CAO was decreasing ominously as the revenue growth rate was fluctuation In contrast, PNJ is a jewelry company making products for massive market have been growing dramatically This problem is presented more detail in the symptoms part So that, the purpose of this thesis to answer the question “why a subsidiary company having the same processes and supply chain but higher quality and service sales systems leading to an unexpected result? In addition, which is the main problems affecting to the business of CAO Fine Jewellery company?” 4.1 SUPPORTING INFORMATION Research method summary CAO revenue has been decreasing suddenly in the last two years which signal that CAO having problems According to the internal data showing that CAO having three possible problems affecting to the business However, the author needs to collect more information from the managers and the staffs in order to find out the main problems The interviews are conducted with the key stakeholders who are head and manager of CAO’s department including Administrative council, director, accounting, supply chain, marketing, sales and HR departments After interviewing stakeholders, a problem mess was draw out with potential problems leading to the symptom In the next step, the author conducted interview and analysis the data and processes from internal report with the support of theories and concluded that the main cause is lacking of customer portrait which helping decision marker orient their strategy clearly and exactly After that, the alternative solutions have been determined base on current resources of the company, these solutions are supported by theories which help the stakeholders realize some advantages and disadvantages of each of alternative solution Finally, the decision marker agreed to implement two options alternately By designing a suitable action plan without overlap the objectives of both alternative solutions, the company could conduct both solution including one is used for improving the current business and one is used for long-term purpose which are changing all the products’ category structure Therefore, the action plan will take around eight months with the expense VND 1.4 billion in total If the action plan could prove the effectiveness The firm could may call for more investment to expand the business and improve brand name in the jewelry industry 38 4.2 Interview transcript List of interviewees No Name Department Position Pham Thi My Hanh Administrative Council Chairwoman Pham Hoang Ngoc Anh CAO Fine Jewellery Deputy Director Nguyen Thuy Hau Accounting department Accounting Manager Pham Minh Tu Supply Chain Head of Supply Chain Ho Tuong An Marketing Brand Manager Le Kim Loan Sales Sales Manager Phan Xuan Linh Chau PNJ HR Department HR Manager 4.2.1 Interview with Accounting Manager Date: Jan 10th 2020 Location: CAO Fine Jewellery Co., Ltd Duration: 20 minutes Question: I saw that the revenue and the EBIT of CAO decreased in 2019 sharply and just only achieve 63% of company target (growth 20 percent per year based on actual net revenue) From the point of view of ahead of your department what you think are the problems happening in CAO company? Answers: The reason for decreasing on revenue that is the stores not sell enough You know that, we not achieve the target on opening a new store and attracting the new customers and retaining the old one 39 Question: In the financial report of CAO, the marketing expense is 42% comparing with the 2019 target Do you think tightening marketing expense affecting to the business performance? Answers: I think it does not affect Because the revenue earned during the campaign period was not meet the target As I mentioned before the marketing campaign targeted wrong customer group and failed in opening new stores, so that we could not attracted them to our stores to buy products leading to decreasing revenue 4.2.2 Interview with Head of Supply Chain Date: Jan 10th 2020 Location: CAO Fine Jewellery Co., Ltd Duration: 30 minutes Question: I saw that the revenue and the EBIT of CAO decreased in 2019 sharply and just only achieve 63% of company target (growth 20 percent per year based on actual net revenue) From the point of view of ahead of your department what you think are the problems happening in CAO company? Answers: I think that the main customers group who contribute the more than 85% However, their tickets size are decreasing gradually So that we have to attract new customers to replace the left customers In the last year, marketing campains not meet the target as we expected Therefore, I think the main reason for reducing on revenue is that marketing targeting wrong customers segment Question: Do you think that because of pricing policy and quality of product affecting to the buying decision of customers? 40 Answers: In my opinion, the pricing policy is suitable for the high-class jewelries Moreover, the melting old product process was slow which was affected by changing in ERP core system That is the reason why we could not recover the capital to produce or buying new products leading to lacking new design and inventory turnover was slow One more problem, that is our website, there were nothing change in the last year, it is not suitable for a luxury brand like CAO Question: Can you give me some information comparing with between of CAO and PNJ? Answers: CAO has the average inventory turnover is only 0.5 cycle comparing to PNJ is to cycle We have 19% of inventory can’t be cleared, because of new processes Question: Can you tell me more about the new processes and how it affects to CAO? Answers: when PNJ go-live new ERP system, almost the processes of PNJ have been affected Although we are a company different with PNJ, we have to using the same system with PNJ group and it affects to our processes too I will show you the data to tell you how does it affects to our order situation to wholesales suppliers, the table above showed that delivered rate is 96% in spite of delivered on time rate is just only 60%, especial new collection and fulfillment classification Therefore, delivered not on time could be the cause for lacking new design to attract new customers However, this is an external issue and it is really hard to force supplier commit the delivery date Although, CAO and supplier have contract but they would accept compensation to meet other more valuable orders such as PNJ, SJC, Doji Question: As you mentioned, CAO have a lot of hard to sell products and old products which are bought and exchanged with loyalty customers Could you give me some information about them? 41 Answers: The inventory report showed that CAO has 20% number of product as well as 19% inventory value need to be cleared CAO would have VND 17,5 billion net working capital to buy and produce new designs affecting to the quality of the campaign and the number of new customers obviously Question: in the beginning of the year, CAO has a business plan which has been used for operational orientation of the company in 2019 Please tell me about current inventory structure comparing with the original plan! Answers: The table showed that the value of actual sold structure does not match to actual inventory structure and the plan Moreover, entry level is just only 21% of total inventory meanwhile the plan is 50% lacking of motivation for attracting new customers and retaining them Question: You suppose that CAO could not attract new customers is reason for decreasing in revenue In your perspective which is the cause leading to it? Answers: In my opinion, our target customer segment was wrong from the beginning We are too ambitious to target a market where we not have a competitive advantage Our brand name is not strong like Louis Vuitton, Channel, Tiffany, Pandora When the brand name is popular on the jewelry market, we can sell with the premium price to earn money Question: which are the benefit when we have right target customers? Answers: Understanding our potential customers is very helpful for design team to design new collection from that supply team could plan needed material used to make them Planning needed buying material could help us to reduce the time go to Hong Kong jewelry market to choose by 42 hand We can send to suppliers our list of needed materials and gems when we have 2D blueprint from design team That could help them repair our order and decrease time to search for gems 4.2.3 Interview with Brand Manager Date: Jan 10th 2020 Location: CAO Fine Jewellery Co., Ltd Duration: 20 minutes Question: I saw that the revenue and the EBIT of CAO decreased in 2019 sharply and just only achieve 63% of company target (growth 20 percent per year based on actual net revenue) From the point of view of ahead of your department what you think are the problems happening in CAO company? Answers: In marketing view, I suppose that the main problems we are not get the target that is we did not attractive new customers successful That is because the pricing policy is to high and the design was old which is not updating to meet the trend You know, in the last year, there were new ABMs (assistant brand manager) applied for the job but not qualify and adapt So that, marketing department was under very high pressure And about the efficiency of marketing campaign, I think them good enough because they achieved all of KPIs The traffics of every campaign meet the target but the sales team could not convince customers to buy products as well as generate sales I suppose that they are lacking brand knowledge and sales skills Question: Do you think we are having the problems in website and our processes? Answers: The website is not the problem but we should invest to improve it And about the marketing processes it is not clear definitely with the other departments Furthermore, every 43 luxury company always have creative director position but we have not So that is also a reason for lacking special design for our luxury customers Question: Do you think that the quality of marketing campaign is the reason for decreasing in sales? Answers: With the limited budget (46% of the original 2019 plan) and unstable human resources situation I have done 82% comparing with the plan that is an acceptable result And the main cause is that the knowledge and skill of sales team which have problems, sales staffs could not convince new customer and sales products during the without campaign period 4.2.4 Interview with Chairwoman Date: Jan 10th 2020 Location: CAO Fine Jewellery Co., Ltd Duration: 20 minutes Question: I saw that the revenue and the EBIT of CAO decreased in 2019 sharply and just only achieve 63% of company target (growth 20 percent per year based on actual net revenue) What you think are the problems happening in CAO company? Answers: As we have already known that the revenue decreased suddenly, we only achieve 63% comparing with the 2019 plan In my opinion, our company have problems The first one, this is the process, the changed ERP system affect to the whole PNJG even the others subsidiaries such as PNJ production, PNJ Lab, CECL and not exclude us (CAO) Furthermore, we failed in magnetizing new customer The majority of our revenue contributing by loyalty customer with 86% percent Therefore, we need to reconsider the effectiveness of marketing campaigns 44 Question: Although, changing core system affect to the processes of the PNJ group However, this is an unchangeable factor Furthermore, it happened one year ago, so that staffs have gotten used to the new processes It seems to be that changing ERP have not very much effected CAO anymore There are other problems need to be considered, can you give me some opinion? Answers: I agree with you Marketing campaign is not efficient It seems to be that we have chosen the wrong customers group leading to be failed in attracting new customers and retaining them In addition, loyalty customers usually change or sales the previous product to the new one Although CAO have the revenue, we have to buy the old one, so that is the reason for using inefficient working capital, that is the reason why we have low inventory turnover Moreover, ticket size of our loyalty customers is decreasing, some of them prefer to buy product from PNJ because they have new collections much more than CAO Question: brand key is an important feature affecting to the orientation of the firm, CAO should consider very careful before change it Can you give me advise? Answers: Review our brand key is necessary It is direction for all the operation of our organization Depending on the brand position we determine the styles of CAO orientating our product designs, sales training material as well as our brand documents About our loyalty customers, we already know who they are, we serve them well and they love our products However, we have not satisfied the new customers yet Whether the group of top affluence of millennial is our new customers target? Base on the data of customers of PNJ and public demographic report of trustable organizations, we need to build our new customers portrait from that rebuild our strategy and new customers segment 45 4.2.5 Interview with Deputy Director Date: Jan 10th 2020 Location: CAO Fine Jewellery Co., Ltd Duration: 20 minutes Question: Because of slow process of CAO’s suppliers and partner, the melting progress of our firm is effected leading to poor performances Does CAO have any protection? Answers: The cleared stock process was slow because of PNJ are in trouble of changing ERP core system This is a short-term issue and at the end of 2019 they backed to normal Additional, CAO would follow the contract with other suppliers to clear the stock Question: Which method is used to define customer target? Does CAO have enough information to analysis? Answers: It seems to be that we just only define ticket size of new customers which used to build products structure plan and that is not enough We need more define more detail such as ages, hobbies, styles to build a new customers portrait From that we build our product profiles, designs, marketing big ideas, contents, as well as training material Question: PNJ Group has their own strategy department which have business analysis team Their expertise could help us to build customers’ portrait clearly Why does not CAO as PNJ for supporting? Answers: From the early of 2019, CAO Fine Jewellery changed the marketing strategy Marketing team has chosen the group of top affluence millennial as a potential customer target Because of the expense issue, all the information was proposed which was collecting by desk 46 research methods without suggestion from PNJ group Therefore, this is opportunity to rebuild our long-term strategic detail and basically Question: Does CAO has enough confident to believe that PNJ would give us a results which meet all requirements of the firm? Answers: CAO is a subsidiary of PNJ group It has a different process as well as working culture So that, we can’t send them our requirement simply and hope that they will accept it We need to hold this as a small project in two weeks and send our staffs to take part in to the team in order to supervisor the quality 4.2.6 Interview with Sales Manager Date: Jan 10th 2020 Location: CAO Fine Jewellery Co., Ltd Duration: 20 minutes Question: Do you think low skills and knowledge sales staffs could affect to store performance and sales? Answers: Actually, Sales team has used PNJ training documents for our staffs about sales skills and brand However, CAO has higher customer segment who willing pay for unique design and luxury services Moreover, high turnover rate affects to the sales staffs’ performance So that, the stores have low skills staffs could not convince new customers efficiently Question: Does CAO have any training document? Answers: I have started working at CAO in 2018 and the firm does not have any training document until now Once the training documents are completed, the staffs will be more 47 convenient in learning skills and brand knowledge We not need to spend more resource on training new member because of the training videos can reuse The new staffs can review training videos in free time 4.2.7 Interview with PNJ Human Resources Manager Date: Jan 10th 2020 Location: CAO Fine Jewellery Co., Ltd Duration: 20 minutes Question: Could you give me some information of the last test? Answers: Base on the test results, we can see that 83% sales staffs are not qualified the test, only 17% of them are at standard level And three fourth store managers are failed the test just only one are at standard level Question: How is the employees’ turnover rate of CAO between 2018 and 2019? Answers: The CAO turnover rate is much higher than 2018 Besides, high turnover rate affects to the quality of staffs as well as spending resources to train them In jewelry fashion, knowledge about material of the product is very important such as diamonds, gemstones, gold, and the competitive 48 APPENDIX Appendix 1: Confirmation e-mail about data Confirmation e-mail about data of CAO 2019 internal report which are used in this thesis 49 REFERENCES Mcfarland RG, Challagalla GN, Zenor MJ The Effect of Single and Dual Sales Targets on Sales Call Selection: Quota versus Quota and Bonus Plan Mark Lett 2002 05;13(2):107 Argilés-Bosch JM, García-Blandón J, Ravenda D, Valencia-Silva M, Somoza AD The influence of the trade-off between profitability and future increases in sales on cost stickiness Estudios de Economia 2017 06;44(1):81-104 Madhani PM Sales and Marketing Integration: Enhancing Competitive Advantages IUP Journal of Business Strategy 2016 12;13(4):50-77 Landwehr JR, Labroo AA, Herrmann A Gut Liking for the Ordinary: How Product Design Features Help Predict Car Sales GfK Marketing Intelligence Review 2013;5(1):38-43 Pettijohn CE, Pettijohn LS, Taylor AJ The influence of salesperson skill, motivation, and training on the practice of customer-oriented selling Psychology & Marketing 2002 09;19(9):743-757 Innis DE, La Londe B,J Customer service: The key to customer satisfaction, customer loyalty, and market share Journal of Business Logistics 1994;15(1):1 Marvel HP, Peck J Inventory Turnover and Product Variety J Law Econ 2008 08;51(3):461 Chen C, Chuang M Integrating the Kano model into a robust design approach to enhance customer satisfaction with product design Int J Prod Econ 2008 08;114(2):667 Ishaq HM, Yaqoob A Impact of Customer Orientation of Salespeople on Customer Buying Behavior Global Management Journal for Academic & Corporate Studies 2016;6(1):94100 50 10 Noormoradia S, Mozafarib A Investigating Relationship among Marketing Mix of 7p with Accosting International Journal of Economic Perspectives 2017;11(1):1431-1437 11 El-Ansary A Selling and sales management in action: Sales force effectiveness research reveals new insights and reward-penalty patterns in sales force training The Journal of Personal Selling & Sales Management 1993 Spring;13(2):83 12 Woods K Exploring the Relationship Between Employee Turnover Rate and Customer Satisfaction Levels The Exchange 2015 09;4(1):33-43 13 Stone M, Foss B, Henderson I, Irwin D, al e The quality of customer information management in customer life cycle management Journal of Database Marketing 2003 04;10(3):240-254 14 Ali M, Asif M Inventory Management and Its Effects on Customer Satisfaction Economics of Knowledge 2012 Summer;4(3):11 15 US Patent Issued to Accenture Global Services on Jan for "Digital consumer data model and customer analytic record" (Irish Inventor) US Fed News Service, Including US State News 2017 Jan 10 16 Kim J, Joohyung P, Glovinsky PL Customer involvement, fashion consciousness, and loyalty for fast-fashion retailers Journal of Fashion Marketing and Management 2018;22(3):301-316 17 Hossein Bodaghi KN, Rostamzadeh R The impact of customer satisfaction, customer experience and customer loyalty on brand power: empirical evidence from hotel industry Journal of Business Economics and Management 2018 09;19(2):417-430 18 Marsella A, Stone M, Banks M Making customer analytics work for you! 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OF ECONOMICS HO CHI MINH CITY International School of Business TRUONG NHAT TIEN INTERNAL FACTORS INFLUENCING SALES GROWTH AND SOLUTIONS – The Case of CAO Fine Jewellery Co. , Ltd. .. in spite of the fact that they know the important of them (8) Their information would help the companies understand more about their behaviors base on their infographic data Thence, the company