Small Business Management - Trunki by Magmatic Company - Case Study Example

Small Business Management Introduction Trunki is an innovative ride-on children’s suitcase produced by a Bristol-based design company called Magmatic Ltd. Rob Law is the owner and the director of the company and the brains behind the Trunki suitcase. Law came up with the investment idea in 1997 while at university and turned his investment idea into practice in 2003 but the company that he established collapsed as a result of various obstacles (Bourret, 2012). However, Law re-established the business in 2006 and a potentially damaging appearance on BBC’s Dragons Den programme turned his venture into success. His idea was dismissed by the dragons as unworthy but the fact that he featured in the TV series brought awareness of Trunki to the public. As a result, consumers, distributors and retailers got interested in the product. This led to a tremendous increase in sales of Trunki within a short period of time. By June 2012, Magmatic Ltd had sold over 1,300,000 suitcases and made a £6m-Turnover and a profit of £1m in the previous year (Bourret, 2012). This paper analyses various issues affecting the production, sales and marketing of Trunki. 1. a) The identifiable risks for Trunki, how can they be planned for and the risk reduced As in any other business enterprises, the sale of Trunki by Magmatic Company is exposed to various risks, which may negatively affect its performance. One of the major risks that this company may be facing currently is financial risk. According to BBC (2009), Law funded the growth of this investment mainly through debt financing from an angel investor and from financial institutions such as Princes commercial banks and the Small Firm Loan Guarantee. The company has not completely re-paid the loans and interests and therefore, it is exposed to the risk of inability to re-pay, in case sales and cash flow level reduces great enormously (Besley & Brigham 2008, p. 586). This risk may be counteracted by continued strong performance of this company. Additional financial risks associated with Trunki relates to any changes that may occur in the tax and foreign exchange rates, which may adversely affect the company’s returns. These changes are external to the business and hence, difficult to control. Trunki is also exposed to a strategic risk associated with possibility of change in consumer tastes and preferences in the future. This risk can be counteracted by establishing measures that will help to keep track of consumer feedback (Besley & Brigham 2008, p. 586). Finally, this company is exposed to risk of compliance to bureaucratic or legislative rules and regulations in all the countries where it operates. These include environmental concerns and employee protection regulations. Such risks can be mitigated through gaining awareness of the rules and regulations governing the industry and remaining compliant to them in all countries where this company operates (Besley & Brigham 2008, p. 587). b) The possibilities of failures for Trunki, their identification, their outcomes and their effects The possibilities of failure for Trunki are currently low due to its strong performance in the recent years and high possibility of future success in the global market (Smarta, 2012). However, this business may fail under various circumstances. For example, a change in the tastes and preferences of consumers and failure by the company to investigate market changes, leading to lower sales for Trunki. Also, new competitors may rise, with better products and services compared to Trunki’s products, thereby snatching the market share for Trunki. Additionally, new laws and regulations may be developed restricting the production and/or sale of Trunki. Under such situations, the company would record negative returns. The declined financial performance would eventually lead to collapse of this business ((Besley & Brigham 2008, p. 598). 2. a) The alternatives for financing for Trunki and the most suitable financing source Magmatic can use either debt or/and equity financing to expand Trunki into new business areas (Ajami & Goddard 2006, p. 299). The main source of equity funding for this company currently is retained profits from this business. Trunki can also use debt financing from banks, government agencies, asset-based lenders and business suppliers. Trunki is a well established business venture with a proven record of success. The company’s sales have been increasing at a high rate in the last few years, with high levels of profits recorded (Smarta, 2012). Therefore, it is likely that Rob Law is going to re-invest realized profits to expand this business into new areas. This is also the most suitable mode of financing for this company since it ensure financial stability for this company in the future ((Ajami & Goddard 2006, p. 299). b) Reasons why other forms of financing are unsuitable As mentioned, the most suitable option for financing that Rob can use to expand Trunki into new business areas is to re-invest realized profits. Currently, the company has a good profile and is able to acquire a loan from debt financing institutions. However, this will lead to a new obligation for this company to repay the loan and the interest charged on it. In case the company’s sales reduce in the future, the debt payment will lead to reduced level of cash flow. In extreme cases, the company may be unable to repay the debt and interest rate. This may put the business’s survival at risk. In short, debt financing will introduce a new finance risk which may adversely affect the company in the future. Additionally, debt financing will lead to an additional cost associated with interest charged on loan (Ajami & Goddard 2006, p. 302). 3. a) Marketing strategies that have been employed Magmatic Ltd. uses public relations as the main marketing strategy. According to Smarta, (2012) Magmatic’s strategy involves arranging meetings with journalists and then taking that opportunity to wow them with the products. The journalists then relay information about the company and its products to the pubic through various kinds of media (Bourret, 2012). Law has also been interviewed severally in various kinds of media and this has played a huge role in raising the awareness of the product to potential consumer, retailers and distributors. Apart from this, Trunki is increasingly being advertised through the internet, in the social media. Lately, Magmatic produced a ‘Night at the Museum-style viral’ video to coincide with new dinosaur product, which is available in You Tube. The company also has Facebook profiles which are updated regularly to keep the public always informed about its activities. Law explains that the social media has greatly raised the awareness of Trunki internationally and has been an interactive way of engaging with customers. ‘Word of mouth’ has also been an effective strategy employed by this enterprise (Bourret, 2012). b) Ways in which these marketing strategies can be improved There are various ways in which this company can improve its marketing strategies for Trunki brand. The public relations strategy that is currently capitalized on largely focuses on awareness of Trunki brand to potential consumers, retailers and distributors. The awareness campaign can be strengthened by active advertisements through various kinds of media such as newspapers, Televisions and Newspapers (Shimp, 2008, p. 7). Additionally, the company may produce a video and give it freely to airlines to be aired during travel. There is also need for greater engagement in the social media through the use of additional social sites such as Twitter and Fun space. It is also important to consider adding new features or services to make the products more appealing to consumers. c) The unique selling points offered by this business One of the unique features of Trunki is that though the suitcases resemble toys or luggage, they may not be classified as either. A child can sit on the suitcase scoot along on it or ride on it as the parent pulls (Smarta, 2012). The purpose of these products makes them unique, which helps to reduce competition from toy and luggage producers. Further, after Trunki produced the first batch of products in 2006, Law injected light-hearted messages into promotional literature. For instance, he stated that “sounds like you had a poorly Trunki, but we’ve got a remedy” (Bourret 2012).The company also started placing instructional sheets on how to fix Trunki products, while law appeared on pictures accompanying such messages wearing a doctor’s outfit. Generally, these messages elicit a positive perception of Trunki by parents, bringing out the power of a conversational, fun approach (Bourret 2012). 4. a) The opportunity for growth of Trunki Trunki has grown tremendously in the last five years and is currently being sold in 95 countries in the world (Smarta, 2012). Trunki still has an opportunity to expand distribution channels into new, untapped markets in countries where it does not sell currently. Additionally, there is need to explore untapped markets within countries where the product is available. Secondly, Trunki is currently produced in United States, China and in UK and the product is exported to other countries. As Ferrell & Hartline (2010, p. 21) explains, some consumers show a higher loyalty rate for domestically produced goods, compared to imported goods. The company has an opportunity to expand its production or outsource the production in other nations in which there is potential for market growth. Further, this company uses innovation in all aspects and this is the main driver for its successful performance. It has an opportunity to ensure global success in the future through continued innovation and introduction of more desirable products and services in the future (Ferrell & Hartline, 2010, p. 21). B) The most appropriate growth model for Trunki The most appropriate growth model for Trunki is organic model. This model involves expanding a business and increasing turnover by sticking to the original growth strategy, rather than through acquisitions or mergers. An enterprise may increase sales in the existing markets or explore new markets in new geographical regions or use new sales or distribution channel, but still stick to the original business model. This model adopts a natural growth, rather than forcing investment with outside growth. According to Korudi (2009, p. 75) this type of model is much safer to a small business enterprise than a rapid growth through acquisitions and mergers. This is because the enterprise applies a model that has been tried and tested. The organic model gives a business enterprise opportunity to try any new growth strategy before applying it or before moving into a new one (Korudi, 2009, p. 75). It is also easier on finances of an organization since it avoids the need for outside investment. Specifically, an enterprise can grow naturally by re-investing profit back, thereby avoiding outside investments. As well, this growth model is most appropriate for a unique business such as Magmatic which may not easily find similar organizations to form mergers with or to acquire. Though organic growth usually takes longer compared to other growth models, it is the most suitable for Trunki. Magmatic can achieve organic growth by selling Trunki range of products in new geographical areas or in countries where the products are not available. It can also develop additional distributional channels in the old markets or sell new products or services to the existing customers (Korudi, 2009, p. 76). Conclusion In conclusion, there are various issues that relate to the performance of Trunki Brand. The issues examined in this section relate to the risks that the brand is exposed to, financing sources, marketing strategies and opportunities for growth. As examined, Trunki can be said to be a successful business venture with a great potential for growth. References Ajami, R A & Goddard, G J 2006, International business: Theory and practice, M.E. Sharpe, Hampshire. BBC 2009 “Dragon’s Den” Viewed 14, January 2013, Besley, S & Brigham, E F 2008, Principles of finance, Cengage Learning, New York. Bourret C 2012, “Magmatic (Trunki): Rob Law MBE” Viewed 14, January 2013, Ferrell, O C & Hartline, M D 2010, Marketing strategy, Cengage Learning, New York. Korudi, J 2009, Business Strategy: A guide to taking your business forward, John Wiley & Sons, London. Shimp, T A 2008, Advertising, promotion, and other aspects of integrated marketing communications, Cengage Learning, New York. Smarta 2012, “Rob Law – Trunki” Viewed 14, January 2013, Read More