Reference no: EM131404680

ACCOUNTING BEHAVIOUR AND APPLICATIONS

Assessment- Case Study Analysis

VKY COSMETICS

Introduction

VKY Cosmetics Company is a retailer of beauty products, operating over 150 stores in many countries throughout Asia. VKYhas been in operation for twelve years and was one of the first companies within its market to offer medium to high quality, prestigious beauty products.
The business's most popular product ranges are skincare, fragrances, hair care and cosmetics. VKY traditionally sells primarily middle to high-end international brands sourced from Japan, France, Italy and the United States, as these brands are perceived by VKY customers as suitably high quality and prestigious.

VKY doesn't always carry the entire product range for a particular brand. Instead it usuallycarries only the most popular products.VKYis renowned for its ability to stock an exceptionally broadrange of different brands from all round the world, so that typicallyany one of 12,000 quality products could be available in any one store on short notice.

The RetailMarket for Beauty Products

The retail market for medium to high quality, prestigious beauty products is exhibiting strong and continued growth in Asia. While markets in countries such as Japan are well-developed, they are still expanding. In addition, markets in countries such as Hong Kong and Korea are growing at a rapid rate, due primarily to the increasing number of women entering the workforce, and rises in disposable income.

In recent years, VKY has experienced considerable success in capturing the growth in the retail market for medium to high quality, prestigious beauty products. It is now well known for its ability to supply an exceptionally wide range of well-known brands, featuring quality products, at extremely competitive prices. This success has meant that among the businesses within its market-Japan, for example, VKY now enjoys one of the highest market shares.

The market is also continually evolving. Changes in fashion, technological improvements, and the desire to continually innovate mean that cosmetics and skincare companies are introducing new products into the market weekly.

"This is a phenomenal industry that thrives on innovation, creativity, challenge and change. The future is full of opportunities for success and let's all do our best to take advantage of this"

William Lauder, CEO of Estee Lauder

Often the most successful beauty product retailers are those able to be the first to have the newest, most innovative and unique products on their shelves. VKY has consistently been able to do this, due primarily to its strong relationships with its suppliers.

Competitors

When VKY first entered the beauty products market, it was one of the few businesses to offer prestigious brands at discount prices. Now however, VKY faces competition from drugstore chains, department stores, and other discount cosmetic retailers. In addition, two discount cosmetic retailers have recently tried to copy the VKY business approach. While these businesses have not yet had any real impact on VKY's market share, VKY recognises the importance of monitoring these businesses in the future.

In terms of future competition, it is unlikely that there will be any significant new entrants to the beauty product retailing market in the near future, as the market is reasonably saturated. Furthermore, a number of existing retailers, VKY included, have negotiated exclusive deals with some cosmetic companies to be the sole (or one of a limited few) providers of their beauty products, thus limiting the opportunities for new entrants.

Store Operations

The location of VKY's stores has been carefully selected. Stores are usually situated in high-end shopping malls, or in busy shopping precincts, to capture as many of its target customers as possible. VKY endeavours to ensure that no customer has to travel far for a VKY Store.

VKY wants its customers to see its stores as the place to go to for the widest range of the best, most innovative beauty products on the market. At any one time VKY has access to over 12,000 inventory items sourced from its suppliers, which it could make available for sale in its stores on very short notice. As a result VKY relies heavily on successful inventory management.

Furthermore, as VKY stocks such a large range of products it needs to ensure only the most in-demand products are stocked in store. The company aims to anticipate the needs of customers, so that it can have these products in-store before its competitors. In order to identify these products,VKYrelies on regular access to information about such factors as consumer preferences, sales levels for different products and product lines, and any new and innovative products coming onto the market.In particular, it's critical that VKY's marketers continually observe trends in the beauty products market and search for new opportunities.

VKY's advertising and marketing is also directed towards creating an image of a VKY store that suggests convenient "one-stop" shopping, a wide range of quality, prestigious products, well-situated location and expert advice. As part of this process its marketers havedeveloped the catch-phrase "Live the VKY Experience" to represent a visit to a VKY store.

To support this image, VKY stores have a specifically planned look and layout. Each store is designed to represent a contemporary, bright and exciting image, which will draw in walk-by traffic as well as regular customers. It has the feel of a candy store, with bright trays of products, and sample tables. VKY sales consultants are continually moving around the store, greeting customers and offering help. VKY believes it is critical that its consultants don't simply sell products, but also have the knowledge and expertise to help customers select the best products for their needs. As a result, consultants are required to undertake at least 6 months training in all major brands, with most consultants also specialising in one product area - e.g. hair care, skincare, cosmetics or fragrances.

In short, the aim is for customers to see a visit to a VKY store as a unique and fun experience, where they are able to linger, try out the newest products, seek advice from experienced sales consultants and come away with quality products at an exceptional price.

VKY Customers

VKY customers tend to exhibit a number of common characteristics. A typical VKY customer could be described as follows;

• High monthly income;
• Preference for imported products;
• Preference for quality, prestigious products;
• Not very price conscious;
• Preference for brand names;
• Willing to try new, innovative products;
• Fashion conscious;
• Exhibits strong brand loyalty, especially to skincare products.

Introduction of VKYHouse-brand- An unusual failure for VKY

RecentlyVKY decided to introduce its own house-brand under the brand name of, simply, "VKY". The brand included a range of skincare and cosmetics offeredata substantially lower price range than its regular products. These products were also very different from VKY's usual products. Theywere given very simple names, such as "facial cleanser", and "daily moisturiser"whereas the names given to the prestigious products VKY normally sold were far more glamorous and distinctive. In addition, the house-brand products were verysimply packaged, and had an emphasis on natural ingredients. Prices were kept low as production was undertaken primarily domestically.

VKY products were placed on shelves at the front of the store, so that customers on entering the store, and from the street, would see the house-brand first, before any other brand.

VKY was extremely disappointed to see that its house-brand was initially not popular, contributing less than 5% to company turnover in 2016. Sales were so infrequent that many products had to be removed from shelves as they had not been sold by their use-by-date. In short, customers just didn't seem to like the house-brand.

Management was concerned that not only had they not been able to sell their house-brand, it may have had a negative impact elsewhere. A number of stores had reported that customer numbers had declined since the introduction of the house-brand.

ASSESSMENT REQUIREMENTS

Word Guideline: 1,000 words (excludes executive summary, tables of contents, headings, and any tables and appendices).

You are required to prepare a short Business Report (not an essay) in which you address the following;

1) Using the information contained in the case, outline and explain VKY Cosmetics Company's;

a. Means of Competitive Advantage;
b. Business Mission, and;
c. Identify 3 Key Success Factors (KSFs) and justify.

You must provide an explanation, using the information in the case, for your choice of business strategy and key success factors.

2) In light of the business strategy and key success factors you have identified above, AND using your knowledge of VKY's operations gained from the case;

a. Identify three Management Accounting System procedures and routinesfrom the list below that you believe would be useful in supporting VKY to achieve its business mission and competitive advantage. (Note that not ALL of these procedures and routines will necessarily be useful).

b. For each procedure/routine you choose, briefly explain WHY you believe they would be useful, given VKY's business strategy.

List of Management Accounting System Procedures/Routines

• Budgeting - identify the budgets you believe would be useful to VKY
• Flexible Budgeting
• Capital Budgeting (including net present value techniques)
• Variance Analysis
• CVP Analysis
• Inventory Management - Economic Order Quantity or Just in Time Purchasing
• Cost of Quality Reports
• Provision of Routine Management Reports - identify the reports you believe would be useful to VKY
• Pricing Procedures - Cost-Plus and/or Target Pricing and Costing
• Customer Profitability Analysis
• Activity Based Costing

Note: If you have forgotten the purpose of these procedures and routines you will need to do some brief revision before you address this issue.The procedures and routines you choose can come from the list provided above, or you can choose different procedures/routines, as long as they would form part of a management accounting system.

3) Provide an explanation of why the introduction of the VKYhouse-brand initially failed.

* The maximum penalty (deduction) for not following business report writing guidelines.
* Please read the rubric carefully.

Please refer to the guidelines on Writing Business Reports provided on Blackboard and discussed in class.These guidelines will provide you with valuable information to apply to this assessment task as well as assessment 2, the Major Project. Please note that your Report will be assessed in line with the guidelines.