Spring 2009
X co Company Strategic
Analysis
Southern Utah University
CONSULTATION PROJECT
Table of Contents
EXECUTIVE SUMMARY .................................................................................................................................. 3
SITUATIONAL ANALYSIS ................................................................................................................................ 4
Structure, Leadership, Management and Evaluation of Strategy............................................................. 4
Company History, Background and Purpose ............................................................................................ 4
Current Situation and Strategy ................................................................................................................. 5
Current Situation................................................................................................................................... 5
Strategic Vision ......................................................................................................................................... 6
EXTERNAL ANALYSIS ..................................................................................................................................... 7
Porter’s Five Forces ................................................................................................................................... 7
Competitive Forces and Analysis ............................................................................................................ 11
Customer Analysis ................................................................................................................................... 12
Technological, Political, and Legal Factors.............................................................................................. 13
Demographics ......................................................................................................................................... 14
Economic Factors .................................................................................................................................... 15
Opportunities and Threats .......................................................................................................................... 16
Opportunities ...................................................................................................................................... 16
Threats ................................................................................................................................................ 16
INTERNAL ANALYSIS .................................................................................................................................... 17
Financial Analysis .................................................................................................................................... 17
Internal Organization and Corporate Culture.......................................................................................... 20
Marketing ................................................................................................................................................ 21
Value Chain ............................................................................................................................................ 21
Core Competencies ................................................................................................................................. 21
Strengths and Weaknesses ..................................................................................................................... 24
Strengths: ............................................................................................................................................ 24
Weaknesses ........................................................................................................................................ 25
RECOMMENDATIONS ................................................................................................................................. 26
APPENDIX .................................................................................................................................................... 28
X co
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EXECUTIVE SUMMARY
X co is a local hair and nail salon and boutique in Cedar City, UT. Our group has
developed a company analysis report for the use in benefiting the company in the future. The
following report is our findings, analysis, and recommendations for the company.
The company was established twelve years ago and recently was transformed into a
partnership. It is managed by Owner1 and Owner2 and has approximately six employees. Hair
services, nail services, tanning, permanent makeup and retail sales compromise the business.
The plan for a full service hair school is in the works and should hopefully be taking off in the
next few months. X co does not have a written mission and vision statement or a business plan.
There does not seem to be a current long-term strategy in place or a strategic vision.
Due to the type of industry X co competes in, competition is very high in Cedar City.
There are numerous hair salons in the area and barriers to entry are very low. We feel that
competition plays a huge role in the success of the salon and external factors need to be
examined. Customers are crucial to the service industry and creating a loyal customer base is
critical. New target markets need to be continually explored and captured. Marketing is very
important in this industry and clients need to be recruited and retained. The money spent on
marketing needs to be tracked. There are many opportunities that X co is capitalizing on;
however, they need to be aware of all of the threats in their industry.
X co needs to increase their bottom line. Products and services that are not profitable
need to be replaced by profitable services and products. The company needs to focus on their
core competences and maximize their profits through their successful endeavors. Although they
are a full service salon, some services may need to be removed to help the success of the
company. Knowing the company’s strengths and weaknesses is important for its long-term
success. It is important to capitalize on the strengths and try to minimize the weaknesses.
The remaining portion of the report will explain our in depth analysis of X co, followed
by our recommendations for the company. We feel overall that X co has some great ideas and
that they are headed in the right direction, but financially they are really struggling and large
measures need to be taken to ensure that bankruptcy is not in the near future.
The report is based solely on the information that was provided by X co and the
recommendations and analysis were derived from the information provided. Because new
accounting procedures have been incorporated and complete historical information was
unavailable, the report should not be considered 100% accurate of the company’s past, current
and future positions.
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SITUATIONAL ANALYSIS
Structure, Leadership, Management and Evaluation of Strategy
X co’s structure is similar to many other salons in the industry. It is managed by two
individuals, both equal partners. Owner1 started the company twelve years ago, and recently
added Owner2, a full partner, to the mix. In the past X co rented it’s booths to individual
hairstylists, but in the last year the company has implemented an employee-type business. The
sales are split 55%/45% with X co keeping the smaller portion. There are currently six
hairstylists and two retail salespeople. All employees receive a commission off of their direct
boutique sales. All stylists are employed by the company and the prices charged for the services
are uniform. X co strives to build loyalty to the store instead of a particular stylist, although
stylist loyalty is important in the salon industry. Most customers will go to the same stylist over
and over, or to a name brand chain that they trust. The goal is to get customers to the point
where they are comfortable receiving services from any of the stylists at the salon. X co wants
the customers to keep coming to the salon even if the stylists were to move to another location.
All salons fall into the category of a fragmented industry. This simply means that there
are no highly visible; well know market leaders in the industry, although there may be some
brand names or well known chains. Other characteristics are low barriers to entry, absence of
economies of scale, a local customer base, and a diverse market that requires a large number of
firms to accommodate the needs. There are also typically buyer specific requirements and many
firms that can meet the requirements. Customer loyalty is extremely important in this type of
industry. We believe that X co is very competent in their industry and knows that customer
loyalty is very important to the success of their business.
Owner1 mentioned that her leadership style is very lax and in the past she has let
employees get away with most things. She said she has been too lenient; however she is slowly
starting to demand more from her employees and raising the bar. Participative leadership is
probably the closest style that X co uses. We feel that their needs to be a balance, and from our
observations and our discussions with Owner1 we have come to the conclusion that Owner1 and
Owner2 are good at balancing each other out. They have training meetings throughout the
month and we feel that this is a good practice and should be continued.
X co does not have an explicit written strategy, and from our observations we have
concluded that they also lack a well organized implicit plan. It seems their main goal is to
generate revenue and profits; however they do not have a clear strategy to achieve that goal.
There is no direction for management and employees to follow. In the past, it seems that their
strategy has been a trial and error strategy with no specific, measureable goal in mind and no
plan to execute that goal. We feel that a well defined and executed strategy is crucial to the
continued survival of X co. A mission statement, a vision statement and a business plan need to
be formed to give them the direction they need.
Company History, Background and Purpose
X co was developed in 1997 by Owner1. As an entrepreneur, who already carved her
own way in the real estate industry, she saw a need and decided to take action. Cedar City is a
community where women are going to spend money to improve their image. The culture
encourages people to take care of themselves and most everyone worries about their appearance.
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Without immediate shopping areas and malls around, it is a good assumption that money usually
spent on clothes will be spent on substitute items such as hair care, shoes, and accessories. These
items are more available in Cedar City and Iron County. Even though there are several
competitors in the hair care industries, very few exist that specialize in high-end make up or
women’s shoes. This is a new focus and inspiration for X co.
X co relocated from Harding Avenue, a side street which low traffic flow, to Center
Street in April of 2007. This move brings new potential. It creates easier access and more
visibility. Capitalizing on that potential is the next big step for Owner2. The new sign on the
building has brought increased attention to the building and we believe that an outward facing
sign would have an even greater impact on increasing awareness. In the past, X co has not been
able to maintain a loyal customer base. We believe that this is due to the structure of the salon
industry and also due to the high turnover rates in the salon division. Customers are loyal to
individual hairstylists but not very loyal to specific hair salons. Customer retention is one of the
biggest current focuses for the company.
The purpose of the company is difficult to define; they offer so many different products
and services. The biggest reason why it is so difficult to pigeonhole the company is because X
co doesn’t have a mission or a vision statement. It seems as though this has hurt the company
because there is no real objective or symmetry between the employees and management. We
have addressed the fact that a mission statement could help their situation. X co is dabbling in
several different industries from hair care and tanning to jewelry and retail. Some items carried
in the store are: brand name shoes, hair accessories, jewelry, lotions, hair care products, skin care
products, and Bare Escentuals Makeup--their best selling retail product. X co also offers several
services such as, hair styling, nail care, skin care treatments, massages and even tanning. Such a
wide focus makes it difficult for X co to excel in each area. At the same time their broad array of
service and retail items may also give them a strong competitive advantage. In today’s world,
the one-stop-shop has grown in popularity. X co could become the super spa shop in Cedar City
where women can indulge themselves all day long, but is that what the Cedar City market is
demanding?
Current Situation and Strategy
Current Situation
X co moved to its new location April first, over two years ago, into a bigger store located
just a few blocks from SUU on Center St. Originally the new building they moved into was a
full salon, but they remodeled and turned the front of the store into a shoe and accessory shop.
The back of the store was left as a salon. Not too long ago X co received a heavy blow as the
previous hair stylists left and took many of their clientele with them. To prevent another huge
loss of clientele in the future x co has changed the way it pays its employees. The hair stylists no
longer rent booths, but are paid on commission. Individual clients to owner2 are encouraged to
switch between hair stylists. X co would like its customers to feel comfortable no matter who
cuts their hair.
X co is currently rebuilding a loyal customer base. Business, which usually slows during
the winter months, has been especially slow this year due partly to the recession.
X co haircuts are priced for the mid to high end class of customers. X co offers a wide
variety of products and services. Among the many services they offer are: permanent makeup,
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hair extensions, waxing, tanning, massages, piercings, haircuts, hair dying, highlights, and
perms. The products that they offer are: hair accessories, necklaces, earrings, sunglasses,
bracelets, purses, lotions and skin care/spa products, hats, belts, leg warmers, candles, hair care
supplies, watches, women’s shoes and boots and Bare Escentuals makeup. Their current
product and service offering is broad. Most of their revenue-32%- comes from hair care with
high margins on their hair dying. 25% of their revenue comes from Bare Escentuals makeup
sales, and 24% of their revenue comes from the sale of accessories. Skin care and hair care both
make up about 10% of revenue each.
X co is currently seeking to become a licensed beauty school. They are currently on track
to be up and running by June 8th 2009. They will be able to instruct 12 students at a time. The
Academy will allow X co to offer cheaper haircuts. The price for the students and the patrons
will still be above Evan’s Hairstyling College, but the quality of the education and the quality of
service will be higher, than Evans. They will have to rearrange the store and put more booths up
front to accommodate their future students.
X co spends more than the average salon on advertizing. They advertise in the phone
book, they offer coupons in the newspaper, and air ads on the radio. They have attached flyers to
doors in complexes around Campus. They have even offered free ear rings as a way to increase
their customer base. Currently their advertising is geared toward long term Cedar City residents
who will likely return for years to come. X co has a simple system set up to help them keep
track of the forms of media that draw in new clients, but record keeping diligence is less than
optimal.
X co is bringing in enough to survive, but has no focused strategy. They are aware of
their profit drivers and are readily willing to pursue new ventures. But as they change their game
play they must also change their strategy. If they are to offer cheaper haircuts through their
students they should actively select and target new customers.
Strategic Vision
Main Attraction currently does not have a vision or mission statement. It is
recommended that Main Attraction work on developing a vision or mission statement as soon as
possible to help give the company and its employees direction and goals to work toward. This
will help employees know and understand what is most important to the company and what they
need to focus on in their respective jobs. Without this, it can be difficult for a company to make
day to day decisions that will add value to their bottom line. Day to day decisions have the
tendency to pull the company in many different directions. Without a specific plan the end result
will be that the company has spent its resources and energy without really moving forward or
making the needed changes. This can create feelings of frustration: you work extremely hard,
but do not accomplish much.
This strategic plan often involves several parts. The first part is called a vision or mission
statement and it is a general ideological statement of what the business would like to
accomplish. This is always posed as a futuristic goal or outcome that the company would like to
reach. Some strategic plans contain both a mission and a vision statement. The major difference
between the two is that a vision statement is more ideological and harder to measure while the
mission statement is usually more objective and tangible. Often times the vision statement will
be more vague and lack specific, achievable goals.
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The second part of a mission statement consists of a strategy that will help the company
work towards its goal. This portion briefly outlines how the company intends to achieve their
mission. This portion will help the employees clearly understand why the company makes
certain decisions, or adopts certain policies.
Finally, the mission/vision statement should include specific goals and objectives that the
company would like to meet. These are usually shorter term goals and are meant to be markers
that help the company move along to their ultimate goal. The goals need to be specific in nature
and they need to be measurable. If they aren’t measurable, the employees will have no idea
whether they have achieved their goals. These goals also need to be realistic so that they
motivate the owner and employees rather than discourage them.
Generally it is a good idea to brainstorm with employees about specific goals and
objectives so that employees feel ownership. They will not only add insight but will also
empower employees who will be more willing to work towards the goals that they helped set. It
is also a good idea to revisit the goals and objectives of a company periodically to see what goals
have been met and to set or revise existing goals so that the company can get back on track and
continue in the right direction. Sometimes due to anomalous circumstances a company may
wish to modify their vision or mission statement, but as a general rule the vision/mission
statement shouldn’t be subject to frequent changes. Although their goals and strategy might
have change frequently due to the rapid nature of change of a global market.
Finally, remember that the mission/vision statement shouldn’t be a chore. It will take
some work to create a great mission statement but it the rewards will far outweigh the effort
spent. A mission/vision statement will help act as a roadmap for the company. When choices
would bog down a company a mission statement will point a clear direction to head. It will help
direct all your efforts so that you can accomplish more with the same amount of effort. “Those
who fail to plan, plan to fail.” [Anonymous]
EXTERNAL ANALYSIS
Porter’s Five Forces
Porter’s Five Competitive Forces were developed by Michael E. Porter in his 1980 book,
Competitive Strategy: Techniques for Analyzing Industries and Competitors. Since then, this
tool has become an important method in analyzing an organizations industry structure in a
strategic process. Corporate strategy should meet the opportunities and threats in the
organizations external environment and should be based on an understanding of industry
structures and the way they change. Porter’s Five Forces Analysis can provide valuable
information for three aspects of corporate planning, taken from www.AManager.org:
Statistical Analysis: The Five Forces Analysis allows determining the attractiveness of an
industry. It provides insights on profitability. Thus, it supports decisions about entry to or exit
from an industry or a market segment. Moreover, the model can be used to compare the impact
of competitive forces on their own organization against their impact on competitors. Competitors
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may have different options to react to changes in competitive forces from their different
resources and competence's. This may influence the structure of the whole industry.
Dynamical Analysis: The Five Forces Analysis can reveal insights about the potential
future attractiveness of the industry. Expected Political, Economical, Sociodemographical,
Technological, Legal and Environmental changes can influence the five competitive forces and
thus have impact on industry structures. Useful tools to determine potential changes of
competitive forces are scenarios.
Analysis of Options: With the knowledge about intensity and power of competitive
forces, organizations can develop options to influence them in a way that improves their own
competitive position. The result could be a new strategic direction, new positioning, or
differentiation for competitive products.
There are some assumptions that Porter makes with his Five Forces model. The first
being that buyers, competitors, and suppliers are unrelated and do not interact and collude. The
second is that the source of value is structural advantage and creates barriers to entry, and third is
that uncertainty is low, allowing participants in a market to plan for and respond to competitive
behavior.
www.mindtools.com
There are five competitive forces that shape every industry and every market. They
determine the intensity of competition and the profitability and attractiveness of an industry.
Corporate strategy should modify the competitive forces to improve the condition of the
organization. Through the analysis, management can decide how to exploit certain
characteristics in their industry.
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The first is entry of competitors, or how easy or difficult is it for new entrants to start to
compete, which barriers do exist. The easier it is for new companies to enter the industry, the
more cut-throat competition there will be. Factors that can limit the threat of new entrants are
known as barriers to entry. Some examples include: Existing loyalty to major brands, incentives
for using a particular buyer (such as frequent shopper programs), high fixed costs, scarcity of
resources, government restrictions or legislation, entry protection (patents, rights, etc.),
economies of product differences, brand equity, switching costs or sunk costs, capital
requirements, access to distribution, absolute cost advantages, learning curve advantages, and
expected retaliation by incumbents.
The second is the threat of substitutes, or how easy can our product or service be
substituted, especially cheaper. What is the likelihood that someone will switch to a competitive
product or service? Because of the type of service, there are very few substitutes in other
industries. If the cost of switching is low, then this poses to be a serious threat. Here are a few
factors that can affect the threat of substitutes: buyer propensity to substitute, relative price
performance of substitutes, buyer switching costs, perceived level of product differentiation, fad
and fashion, and technology change and product innovation. The main issue is the similarity of
substitutes. For example, if the price of coffee rises substantially, a coffee drinker is likely to
switch over to a beverage like tea because the products are so similar. If substitutes are similar,
then it can be viewed in the same light as a new entrant.
The third is the bargaining power of buyers, or how strong is the position of buyers and
can they work together to order large volumes. This is how much pressure customers can place
on a business. If one customer has a large enough impact to affect a company's margins and
volumes, then they hold substantial power. Here are a few reasons that customers might have
power: small number of buyers, purchases of large volumes, switching to another (competitive)
product is simple, the product is not extremely important to the buyer, they can do without it for
a period of time, customers are price sensitive, buyer concentration to firm concentration ratio,
bargaining leverage, buyer volume, buyer switching costs relative to firm switching costs, buyer
information availability, ability to backward integrate, availability of existing substitute products,
buyer price sensitivity, and price of total purchase.
The fourth is the bargaining power of suppliers, or how strong is the position of sellers
and are there many or only few potential suppliers and is there a monopoly. This is how much
pressure suppliers can place on a business. If one supplier has a large enough impact to affect a
company's margins and volumes, then they hold substantial power. Here are a few reasons that
suppliers might have power: there are very few suppliers of a particular product, there are no
substitutes, the product is extremely important to the buyer, they cannot do without it, the
supplying industry has a higher profitability than the buying industry, supplier switching costs
relative to firm switching costs, degree of differentiation of inputs, presence of substitute inputs,
supplier concentration to firm concentration ratio, threat of forward integration by suppliers
relative to the threat of backward integration by firms, and cost of inputs relative to selling price
of the product.
The last force is the rivalry among the existing players, or is there a strong competition
between the existing players and is one player very dominant or all equal in strength and size.
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Highly competitive industries generally earn low returns because the cost of competition is high.
A highly competitive market might result from: many players of about the same size, no
dominant firm, little differentiation between competitor’s products and services, a mature
industry with very little growth, and companies can only grow by stealing customers away from
competitors. For many industries, this is the major determinant of the competitiveness of the
industry. Sometimes rivals compete aggressively and sometimes rivals compete in non-price
dimensions such as innovation, marketing, etc.
Below is a chart on how to reduce the power of these five forces in your company. Some
of the examples may not specifically apply to X co, however they should be considered by
management to improve their company.
Reducing the Bargaining Power of Suppliers
Partnering
Supply chain management
Supply chain training
Increase dependency
Build knowledge of supplier costs and methods
Take over a supplier
Reducing the Treat of New Entrants
Increase minimum efficient scales of operations
Create a marketing / brand image (loyalty as a barrier)
Patents, protection of intellectual property
Alliances with linked products / services
Tie up with suppliers
Tie up with distributors
Retaliation tactics
Reducing the Competitive Rivalry between Existing Players
Avoid price competition
Differentiate your product
Buy out competition
Reduce industry over-capacity
Focus on different segments
Communicate with competitors
Reducing the Bargaining Power of Customers
Partnering
Supply chain management
Increase loyalty
Increase incentives and value added
Move purchase decision away from price
Cut put powerful intermediaries (go directly to customer)
Reducing the Threat of Substitutes
Legal actions
Increase switching costs
Alliances
Customer surveys to learn about their preferences
Enter substitute market and influence from within
Accentuate differences (real or perceived)
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Competitive Forces and Analysis
Barriers to entry in the Cedar City beauty salon industry are very minimal. There are
many salons already in the area. High customer volume creates much competition in the market.
The only barrier to entry is licensing. Beauty salons must have a business license along with
being accredited. The fixed costs are minimal and no special products are needed. Loyalty to
hair stylists is moderate and incentives to use a particular provider are almost non-existent. A
variety of price ranges exist but the market is close to saturated and highly competitive.
Threats of substitutes for A.M.A. are moderate to low. Women are typically very
particular about their hair style and cosmetics. These are items that can create repeat customers;
once you accommodate a customer, they’ll be coming back again and again. With the young and
low income college students, this may vary slightly more but fashion is always going to be
important to most women.
Buyers don’t have much bargaining power in the salon industry because there are so
many of them. Almost every person gets their hair cut and usually several times a year. Thus
there is a large market of clients for salons. Customers can range from two years old to ninety
years old. Even though the costs of switching to a different salon are very low, people are
creatures of habit and will normally stick with one salon or brand of makeup. Most people who
cut their hair regularly and pay for high service will have developed a loyalty to their stylist.
Buyers have most, if not all, of the power in this market so it’s important for beauty salons to
differentiate and stand out. X co could accommodate each demographic to gain market share.
Discounts for certain groups, such as SUU employees, students, or frequent buyers will bring in
more customers.
Suppliers in this market have a low bargaining power. They salons are going to be the
ones pushing and promoting their products. Salons are free to choose which brands they carry.
It is the suppliers responsibility to convince the salon to carry their brand, either through
discounts, sales, promotions, or other things that benefit the salon. There are enough different
brands of hair care products for the supplier power to have relatively low bargaining power.
There exists a wide variety of beauty salons in Cedar and it is very hard to gain
substantial market power in this industry. There will probably never be a monopoly in the hair
industry. Substitutes exist, but the final product is extremely important to the buyer and
switching to substitutes could be costly. A little bit of differentiation in products and services
exists, which could give suppliers of different brand products a small advantage but the market is
too large to create a monopoly. It would be very hard to create a dominate market share within
any service industry due to the sheer fact that people have different preferences and needs. The
wide variety of needs and preferences of the large customer base makes it difficult for any one
stylist or salon to gain or maintain a monopoly in the hair care industry.
The competition in Cedar City between beauty salons is moderate to high. Not one
company dominates the industry and all are roughly the same size. Many salons exist in Cedar
City and most are comparable in prices. One stylist may be preferred over another but can be
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replaced quite easily. Fashion is a big factor in determining what company a customer will
utilize most and can be a great advantage to a company. Within the cosmetic industry, there is a
very low threat of substitutes. Women are very loyal customers when it comes to makeup and
usually don’t switch brands. Bare Escentuals has a moderate to low threat of substitutes. It is
only sold in one place in the Cedar City area and that is at X co. There many beauty salons in
Cedar City carrying similar products and serving a sizeable number or clients.
Customer Analysis
The following information is taken from The Small Business Development Center
Network. More than 250,000 businesses in the United States are classified as beauty salons.
Beauty salons are business establishments that offer primarily hair care and nail treatments. In
the United States, more than 845,000 persons are employed in the beauty industry. Experts
believe that mid-size salons will offer specialization of services; e-commerce will grow among
salon professionals; the recruitment and retention of good hairdressers will challenge owners
over the next decade; a small number of salons will retail products; and consolidation of
manufacturers and distributors are selling directly too. By the year 2010, the number of
teenagers in the United States is estimated to grow to 35 million. Teenagers spend an average of
$80 on themselves each week. Young women (ages 12-24) out-buy all other age groups when it
comes to hair care, skincare, cosmetics, and fragrances. When polled, a majority, (63%), of
medium-to-large-size salons owners and managers indicated that the numbers of men using their
salons has increased. Men are requesting hair, skin, nail, and body treatments, and 41 percent of
them purchase retail products at salons. Men’s hair coloring is one of the fastest growing
segments of the hair care market.
When asked to define the most typical customer, Owner1 said it would be a woman
between the ages of 18-30. Because they have not been tracking demographic or customer data,
there are no accurate records of their customers. The information given in this paragraph is
solely based on the estimates that Owner1 gave us off of the top of her head. They do have a lot
of repeat customers that come in on a monthly basis to have services done. We feel that repeat
customers are an important part of the success of their salon. However, new cliental also need to
be recruited, and their new hair school may be beneficial in achieving this objective. The
number of men to women who frequent X co is currently about one to five; however there is no
accurate data collection to determine how accurate these numbers are. After talking with Ms.
Porter about their customers, we have agreed that a better system needs to be in place to track
and monitor their customers. Currently, they do have a system in place that has all of the desired
capabilities. However it is not being utilized. We feel that for their type of service business,
customer retention is top priority and correct recording of demographics and subsequent
marketing to those customers must be recorded. More focus on tracking and retention of
customers is one of the top suggestions that we have for management. Current customers should
be rewarded for their business and programs should be initiated to attract new customers.
Typically in the salon industry, people are loyal to their hair stylist and not necessarily
the salon. Although X co is taking measures to fix that mindset, with their high employee
turnover rate, they are losing many customers. We also believe that they are missing out on a
huge market of college students. Although they may not be quite as profitable, the increase in
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business could potentially help attract new, permanent customers. Their target market should be
as wide as possible due to the nature of the industry. We feel that it would be beneficial for the
company to target and advertise to many diverse and new segments and then focus on retaining
those segments.
Technological, Political, and Legal Factors
Technology is not a major factor in the hair industry but innovation is very important. As
part of the fashion industry, knowledge of new and hip ideas is essential. If a new form of skin
care comes out, it’s expected that high-end providers know about it and can educate and advise
their customers. The “in” hair styles need to be conveyed to customers. A hairstylist is like a
beauty consultant and needs to be familiar with trends and new techniques. Especially in the hair
care industry, women customers like to form some sort of bond with their hair stylist. This bond
must be formed because style and beauty are very important to women of all ages. Some sort of
trust must be formed in the relationship for the company to retain loyal customers. Employees
need to create strong relationships with their customers because customers don’t typically like to
receive beauty services form people they don’t trust. If there is a lack of trust stylists won’t be
able to sell customers products or services, the customer will likely suspect the stylist has ulterior
motives. There must be mutual trust and knowledge sharing is a way for stylists to increase the
trust.
A computer system where financials and customers can be tracked is extremely
important, in our opinion. Leprechaun Spa and Salon is the current system that X co uses. This
system tracks purchases and can separate the different departments and their percentage of sales.
It keeps track of customers and what they spend and how often they return to the store. It even
measures employee productivity. All of this is quite beneficial in examining the effectiveness of
each area. Although this is good information, we believe that the system needs to be used to
track customers and what they are purchasing, to create benefits for loyal customers and other
programs. Attracting new customers and keeping old ones is essential. By focusing on what
customers spend most of their money on and what entices them to come into the store in the first
place, operations could be improved drastically. Many effective marketing and advertising
programs could be implemented. Marketing and advertising is an area that X co has tried to
improve for several quarters.
Another use of technology that could provide extensive benefits for x co would be a
website. Use of the internet would be an exceptional technological advantage to the company.
Many new comers and travelers use the internet to plan vacations or look up information about a
new town. This website could be linked to the websites like CedarCity.biz, or yellowpages.com.
Even though travelers wishing to shop would probably venture to St. George, even though Cedar
City has shops that could easily satisfy customers, these shops are hard to find. By placing their
information online, X co could increase its visibility. The internet is one of the most highly used
technological tools and should be used for the benefit of the company.
Some of the legal factors would deal with corporate responsibility. The company is
responsible for any product it sells, uses, or recommends. Bleaching and color products could be
very detrimental to someone’s hair if not used correctly. The company could be sued or even
shut down because of improper uses. Skin care products and even tanning could cause problems
X co
13
for customers and the company. Standing by their products and knowing they are healthy is an
ethical issue but could become a legal issue if a situation resulted in damage to a client. X co
must try to avoid any legal problems, and keep their upbeat image. They can educate their
employees on proper uses of products so they don’t accidentally misinform customer in such a
way that it results in improper use of a product. Posting a warning sign on the tanning bed is
pertinent for the company to avoid a lawsuit. Following the law is important but even more
important is to be ethical. For the most part, if X co practices good ethics they won’t have any
legal issues. X co is a limited liability company, which is less risky than a simple partnership.
The partner’s obligations are limited to their own capital contributions.
Demographics
In 2008 Utah was the number one growth state with a 2.53% increase in the population.
Utah has been and will likely remain among the top ten for fastest growing states, partly due to
the dominant cultural norm of large families. Iron County is growing at a faster rate than the
state of Utah. Over a 7 year period from 2000-2007 Iron County grew 22.4% while the overall
population in Utah grew 18.5%. Cedar City is growing at an even faster rate than Iron County.
If the population of the state as a whole is expected to grow 56% from 2000-2030, we could
expect, ignoring the weaknesses associated with extrapolation, that Cedar City will grow 85%
from 2000-2030. This estimate is not too much of a stretch considering that the growth
prediction for Cedar City from 2000-2012 is 40.9%. Also it is important to note that the median
income for women in Cedar City is $19,831, compared with the median income for men of
30,800. The income information is important to consider because most of the clients of X co are
women.
Comparing Cedar city statistics with Iron county statistics one would note a huge
difference between the percentage of the population that is between the ages of 18 and 24.
Considering that Cedar city makes up 60% of Iron county population, the difference is
significant. In fact the population of young adults between the ages of 18 and 24 is almost 3
times the proportion of any other age group. The major reason for this large anomaly is that
SUU and other institutions of higher learning in Cedar City have drawn in many young adults
from around the state. X co should be aware of the large potential client base of young adults. It
is also important to note that Cedar City makes up 62% and Enoch 11% of the total population of
Iron County.
Utah Demographic projections
Seven year projected growth (15.6%) 2000-2007
Projections for population growth from 2000-2030 for the state of Utah 56.1%
Demographic information compiled from the following sources
Utah demographics:
http://quickfacts.census.gov/qfd/states/49000.html
http://www.redorbit.com/news/science/145557/utah_growth_rate_soaring/index.html
Iron County demographics:
http://www.census.gov/population/projections/SummaryTabA1.pdf
X co
14
http://factfinder.census.gov/servlet/GCTTable?_bm=n&_lang=en&mt_name=DEC_2000_PL_U
_GCTPL_ST2&format=ST-2&_box_head_nbr=GCTPL&ds_name=DEC_2000_PL_U&geo_id=04000US49
http://www.cedarcity.org/FAQ.asp?QID=120
Fastest growing states:
http://www.forbes.com/2008/12/22/fastest-growing-states-forbeslife-cx_ls_1222realestate.html
http://money.cnn.com/2005/12/22/real_estate/fastest_growing_states/
http://www.census.gov/Press-Release/www/releases/pdf/Top10FastGrow.pdf
Economic Factors
Currently we are in an economic recession which can drastically impact the amount of
economic activity a business may have. Depending upon whether the good offered by the
business is an inferior good, a normal good or a luxury good the amount of business could
increase, decrease or stay relatively constant. It is expected that a hair salon fits nicely in the
normal good category. This means that during recessions, business activities may decrease
slightly but one wouldn’t expect a dramatic change in business levels. This was determined by
analyzing the following aspects of the good/service provided at X co: the necessity of the
good/service, the proportion of income spent on the service/good, and the availability of
substitutions for the good/service. Since a majority of the business comes from women’s hair
styling, and the purchase of makeup and accessories, these were used to determine how the
business would be affected during a recession.
Most women rank getting their hair done and buying makeup and other beauty products
fairly high on their priority list. As such, these goods and services are deemed quite necessary.
Even during tight financial times, it is expected that most people will still get their hair done and
will still need to buy makeup and other beauty products. Many people may try to wait a little
longer between haircuts and or styles but eventually they will need to get it done. They may also
opt for a cheaper brand of makeup but often times they are loyal to their brand.
Beauty costs are generally low when compared to an individual’s income but depending
upon the services and products purchased, they can be a significant portion. Therefore it is
expected that some people will cut back a little on some of the services they buy, but in general
the customers will still purchase goods and services at slightly lower level.
Finally, there is an abundance of substitutes for the supplies sold at X co. Customers
could shop around at other Beauty and Salon businesses trying to find a cheaper price. They
may also opt to do their own hair or styling at home. However, most people don’t have the
knowledge and experience to do as good of a job and aren’t willing to sacrifice the quality for the
small amount of money they would save. Therefore it is expected that despite the recession,
most customers will continue to shop at X co.
Due to the recession, it is possible that customers of other salon businesses may be
looking around for a better value in Cedar City. This current economic downturn provides a
good opportunity to attract and capture potential clientele. With the possible slow-down in
business, it is also important to look at non-value added costs that could be cut. When a
company cannot easily increase revenues, it should look for ways to cut costs. This will help a
X co
15
company make it through the slow times. Now is a great time to offer products that give the
consumer more value. Helping consumers get more “bang” for their buck will help expand the
current customer base. If X co offers a higher priced set of goods, it may find it difficult to
maintain strong sales since consumers are looking for the better bargains. High priced products
may have a slow moving inventory. If this is the case for X co, these types of goods and or
services should be removed to help save on costs and make room for higher value goods.
Opportunities and Threats
Opportunities
X co is situated close to SUU, which has a large student body. Over 7,500 students attend
SUU. X co has the opportunity to market their services to a large customer base of students. X
co is the exclusive retailer for Bare Escentuals in Cedar City. Bare Escentuals is a highly sought
after line of makeup. X co could use Bare Escentuals sales to pull in more clientele into their
services by cross selling; offering coupons for hair cuts or hair dyes when customers buy Bare
Escentuals makeup. The more customers that are introduced to X co’s services the more
customers X co will keep as regular customers. That is if X co maintain their high level of
service, and their retention ratios remain unchanged.
Another opportunity arises with the introduction of cheaper haircuts through the
new beauty school at X co. X co has the resources to allow their students to offer higher service
than Evans Hairstyling College, for a slightly higher price than Evan’s. There will be no match
in Cedar City for that level of quality and Service at such a price. College students will likely be
very interested in high service and lower price. Many college students have meager incomes and
are price sensitive. At the same time they don’t want to skimp on quality.
Threats
The hair care industry is a $55 billion dollar industry, but Utah, in general, has a
disproportional amount of entrepreneurs per capita (Richards 2007). The hair care industry in
Cedar City is highly competitive. Cedar city has twenty four salons that range in price and
quality.
Richards J., E. (2007). Utah entrepreneurs face venture hurdle retrieved fromhttp://marriottschool.byu.edu/cet/resources/DeseretNews/dn04_29_07.html
The changing environment is also a threat to the traditional salon. We see the rise of low
cost low service providers such as Great Clips that offer the basics for a significantly cheaper
price. Along with the rise of low cost providers we see a matching change in preference in the
younger generation of consumers. It is more characteristic of the older generation to appreciate
the simple pleasure of knowing their barber on a first name basis; especially in Cedar City which
still holds the small town feel. The new trend is less loyalty to a specific shop, and more
importance placed on convenience, price, and quality. At the same time all of the demands for
efficiency at the expense of community leaves a void, for everyone longs to feel connected and
appreciated. This is a possible area where A.M.A. could develop its strength, if it can help its
X co
16
clientele to connect in meaningful ways during hair styling and through transactions, they might
be able to secure loyal customers.
Worries about the current recession might lead to a slight shift of customers from more
expensive, higher service salons to less expensive salons. The recession increases the chance of
customer migration to cheaper stores such as Great Clips, or customers might opt to buy their
own hair trimmers and cut their hair at home.
INTERNAL ANALYSIS
Financial Analysis
The company uses a computer software system called Leprechaun to track their finances.
Since they have only been using this system for just over a year, the available financial
statements are limited to just over a year of data.
The sales (both retail and service) have been increasing fairly steady throughout 2008 and
peaked to an all time high of just over $15,000 for the month of December. For the first part of
2009, the sales have dipped somewhat but since the economy is currently in a recession, it is
expected that the revenue would decline somewhat. Since X co opened a boutique section in
their store in October 2008, their sales have increased. Unfortunately, the increase in sales hasn’t
continued nor has this increase been substantial. This addition to the store probably puts more
pressure on the business to increase sales to offset the added costs of goods and services. So far
it doesn’t appear as though the store is doing much better.
Looking at the break down of sales since the opening of the boutique, roughly 25% of all
the sales have been through accessory (boutique) items. So it appears as though the decline in
total monthly sales can be contributed to more than just a decline in boutique sales. This is
probably just a general down turn in business due to a slowing economy and not necessarily poor
performance for the boutique section alone.
X co LLC
Profit & Loss
January through December 2008
Income
$,168.53
COGS
,535.85
Gross Profit
,632.68
Expenses
,820.95
Net Income
-188.27
X co LLC
Profit & Loss
X co
17
January through March 2009
Income
$,644.80
COGS
,635.11
Gross Profit
,009.69
Expenses
,629.04
Net Income
-,619.35
From January 2008 to December 2008, X co has experienced a net loss of just over
$23,000. This is in part due to slow sales for the beginning of 2008 coupled with the opening of
the boutique portion of their store which required an increase in inventory as well as remodeling
expenses. The costs of adding the boutique were paid for through Owner1’s partner who bought
into the company by paying for this addition. Although the actual expense of remodeling the
store for the boutique doesn’t affect the net income, the added costs of carrying and selling the
inventory do. Looking at the profits and losses for the first three months of 2009, the trend of
losses is continuing into this year.
Currently, the financial health of the company does not look good. If they do not
increase their sales to improve their bottom line, the company will need a continuous inflow of
outside funding just to make payroll. The only alternative option is to either reduce costs or look
for other means of income to help get them through this slow patch. Serious thought needs to be
taken on how to overcome this recession and downturn in business. Failure to do so could result
in difficult financial times and even bankruptcy for the business.
X co LLC
Expense Summary
January through December 2008
Product COGS
18.43%
Commission-Stylist
17.09
Charges
14.96
Botique COGS
13.83
Rent
10.88
Labor
6.44
Advertising
3.33
Utilities
2.42
Salon Supplies
1.7
Merchant Acct Fees
1.55
Other
9.37
Total
$414.73
Looking at their expense breakdown, X co spends a majority of their money on payroll
(commissions and labor) with the next largest expense for cost of goods sold. Advertising
comprises only 3.3% of their expenses but given their size, this does not seem outrageously large
or small. It is uncertain what the other expenses comprise of but they do make a significant
X co
18
portion of their expenses. Perhaps this can be looked at more closely to determine where they
may be able to cut some costs.
When we took a look at the different products and their frequency of sale we discovered
some interesting statistics. The following information was obtained by looking through a
breakdown of their inventory and sales for the past 15 months.
Between 1 and 10: There are 318 Body care products that have been sold less than 10 times but
more than once over the past 15 months.
10 or over: These products have been sold more than 10 times in the last 15 months.
Bounce spray
Lazer Straight
Blonda Shampoo
Finishing Mist 10
Pure Color Protect
Root Pump
Electric Wax 11
Guts 10
Iron Smoother
Pure volume conditioner
Waalaa Teasing Com
Glee Face Color
Warmth Face Color
Bisque
Summer Bisque
Well Rested radiance
Queen Phyllis eyes
Queen Tiffany eyes
Nude Beach eyeshadow
Skin rev-er upper
Soul eyeshadow
Light foundation
Fairly Light foundation
Fair foundation
Golden Medium foundation
Medium Tan foundation
Starter Kit tan
Quick Change brush
Handy Buki Brush
Prime Time for Eye
Get Started Eyes
Prime Time found p
Eyes Cheeks Lips L
Bare Minerals Facial
Blemish Therapy R.
X co
19
45 or over: Sold more than 45 times in the last 15 months.
Hats
Wallets
Moroccan oil
Medium foundation
Starter Kit light
Mineral Veil
100 or over: Sold more than 100 times in the last 15 months.
Sunglasses
Medium Beige foundation
Starter Kit medium
300 or over: Sold more than 300 times in the last 15 months.
Jewelry
400 or over: Sold more than 400 times in the last 15 months.
Shoes
The 318 items that haven’t sold more than 10 for the past 15 months should probably be
eliminated. The other option is to have the hair stylists push those items, or to reposition those
items on the shelves so that they will sell better. However, since the hair stylists have been
trained to sell, but do not sell these low selling items, these items should be replaced with
accessories and body care products that do sell. Foundation seemed to be a good seller overall.
The Starter Kits do very well also. Moroccan oil and Mineral Vail also sell well. X co has items
that sell well they just need to replace the low selling items with higher selling items. There is
definitely room for improvement in this area.
Internal Organization and Corporate Culture
X co has a unique internal organizational and corporate culture. In the past, the
hairdressers have rented out booth space and they had a more contract-type work environment.
Within the last year, the structure has changed and now all hairdressers are employees of the
business. They are paid 55% of the total sale and the remaining portion is given to A.M.A. The
stylists are also able to keep all tips that they receive. All transactions are run through the
company and profits are split.
As you enter the front door you sense a relaxed atmosphere, and it seems like a very
pleasant place to work or shop. The employees are friendly and helpful and interact well with
the clients as well as with each other. However, we did notice that it took a few minutes before
we were asked how we could be helped. X co has a very tight-knit family feel. It seemed like
the operations were very family oriented as well. The business transactions were relaxed and
personal to the point of being a little too relaxed. While we were there for an interview, we
noticed that cash was lying on the counter from a previous transaction. The cash was not placed
in the till while we were there, and the cash drawer was also left open for long periods of time
during transactions. This could lead to possible dishonesty with employees and customers and
more precautions should be taken. The owners expressed some concern about this happening in
X co
20
the past and we feel that more security measures should be taken to avoid it happening again in
the future. We sensed a lack of professional structure in the business and we believe that it could
be run a little more effectively.
The atmosphere was great and the employees seemed happy with the internal structure.
Everyone was pleasant and the culture seemed similar to other salons in the area.
Marketing
Currently, X co does marketing through radio, print ads, and phone books. Soon, they
will have an internet website available which will also help to market their business. X co needs
to track how effective their advertising is. Presently, X co does not track the response to their
marketing efforts and they don’t know how effectively their marketing budget is being spent. If
they were to track responses from advertising, they would know how to better spend their
marketing budget. The company’s software is capable of tracking this for them if they choose to
use it.
One of the largest markets in Cedar City is the students of Southern Utah University. X
co doesn’t advertise heavily to SUU students and we feel it is a large untapped resource that
should be focused on. With the addition of the beauty school, X co should advertise directly to
students on the campus since they will be looking for a great value.
Cedar City offers a coupon book for new residents. We feel herein lies a great
opportunity for X co. They could use the coupon book to attract new customers and increase
awareness of their establishment. Especially because most students at SUU are from outside the
area and do not have a stylist or other loyal connections to local businesses. X co has a great
chance to gain new customers.
Value Chain
The Value Chain is used to analyze companies and find where value is created within the
process. The purpose of any company is to generate sales and earn a profit. The margin is
considered the added value of the product and can help determine how much profits should be
earned. The value added must exceed the costs put into the value chain.
X co
21
The Primary Value Chain activities are inbound logistics, operations, outbound logistics,
marketing and sales, and service. Each of these activities is used to evaluate the firm. The
support for these activities is firm infrastructure, human resource management, technological
development, and procurement.
Inbound logistics deals with the receiving and warehouse activities such as the products
the salon uses like shampoos and conditioners. Operations are considered to be any of the
actions to create the final products from the raw materials. Outbound logistics are the
distribution of the products. Marketing and sales activities are used to inform and persuade
buyers to purchase the product. X co does little marketing for the products and services they
provide. Service activities are activities such as customer support that enhance or maintain the
product. Typical hair salons consist almost entirely of service activities but with X co’s boutique
section, the company includes some of the other value chain activities as well. Service is still the
main value adding activity for A.M.A. though.
The support activities are the activities that the company needs to focus on to create a
more even flow in the value chain process. Procurement has everything to do with the
purchasing of goods. Goods must be purchased at levels that will allow profitability in the
company. Most of the time the goal is to get the highest quality product at the lowest price.
Technology development is important and part of any business. Innovation is essential
especially in a trendy industry like hair care. If a company doesn’t or can’t keep up with the fast
changing market conditions, they will certainly fail.
Production technology, internet marketing activities, customer relationship activities,
financial processes, and many other activities are all part of technological development. Human
resource management is the strategy of recruiting, hiring, and firing employees. The mission of
the company will determine the direction that human resource management should take. This is
an area where X co is falling short as we’ve outlined earlier. Firm infrastructure is what
determines how the company will run. It may control the accounting department or the
information systems of the company. The strategy of the company will also determine the
infrastructure and set a standard as to how the company will operate. A.M.A. has little firm
infrastructure and needs to develop some policies and procedures so it can be treated like a
legitimate company by it’s employees and customers.
X co
22
X co adds most of its value to products through the services they provide. Marketing and
sales is an area that can be improved on dramatically as we believe this is a critical aspect in the
highly competitive Cedar City market. Improving the overall operations of the business will also
provide value to the products they provide. By adding value in these different ways, X co can
create a greater margin on their products because they add more value than their competitors.
Core Competencies
X co’s floor plan is ideal. Shoes and other accessories are situated in the front of the
store, and the hair cutting stations are in the back. There is also a side door that leads directly to
the hair cutting stations, allowing easy access from the parking lot. The location of the store is
also ideal, located close to downtown, and the SUU campus. The store is very clean,
aesthetically pleasing and well organized. X co has six full time employees with whom it
maintains good employee-management relations.
X co’s primary line of business is hairstyling. At A.M.A., and other higher end
hairstyling salons, cutting and dying hair is not just about the final product but about the
experience. A major part of the experience is forming and maintaining good relationships
between the hair stylist and the client. This is especially important to women who value
connecting through communication more than men, speaking in general. Companies have
noticed the different needs of women and have adapted their services to meet those needs.
Curves, for example, has been very popular due in a large part because it noticed that women are
social creatures that depend on each other for support. Traditional gyms were not very women
friendly. Curves designed a facility where women could sit around and talk to each other while
on the bike or treadmill. They could form relationships and help encourage each other. A. M. A.
provides a similar environment that also includes a separate playroom where kids can entertain
themselves and not be a distraction. Another main part of the experience is pampering and the
feeling of increased beauty that the clients feel after their hair has been cut, dyed or highlighted.
If the experience were not a big part of A.M.A., the end product would be the only thing that
mattered, and everybody would head over to Great Clips.
X co sells Bare Escentuals makeup which, according to Owner1 is the best decision they
ever made. Bare Escentuals is a fine line of makeup with a positive public image. There are
those who will go out of their way to buy Bare Escentuals makeup. No other store in Cedar City
offers Bare Escentuals, and there is only one store in St. George that carries Bare Escentuals.
X co began to carry a line of women’s shoes because there were few locations in Cedar
that offered quality dress shoes for women. Shoes and Makeup were added to x co to increase
the volume of customers. The store has the potential to bring in a high customer base. Their
accessories and makeup line contain hot items.
Another core competency at X co is their service and value. The stylists are very
professional and A.M.A. has high customer satisfaction levels. The stylists attend hair shows
and take classes. They keep up to date with the trends. A.M.A. offers a high level of service for
a decent price, similar to a day spa in the services they offer. They use high quality hair dyes and
hair care equipment.
Management employee relations are high. Work schedules are flexible, and management
is very accommodating to the workers.
X co
23
Strengths and Weaknesses
Strengths:
X co currently offers a wide variety of products which helps to bring in additional
customers. They sell some products that people won’t be able to find anywhere else in Cedar
City, which helps to attract many new customers. Selling these products may help increase X
co’s exposure, and revenue, and help to generate a continuous customer base. In addition to
selling unique products, they also offer a wider variety of services than you would expect at most
salons in Cedar City. They offer permanent makeup services, a massage therapist, and they can
even offer you real estate services (through a separate company also owned by the owner).
Despite the fact that X co carries many products that cannot be found anywhere else in
Cedar City, they don’t charge outrageous prices for these goods. Many of their products are
priced at or slightly below what would be considered reasonable prices. X co has strived to offer
superior products and experiences at reasonable prices.
Bare Escentuals is a high turnover product. X co carries an extensive collection of body
care products that are currently not selling well. Herein lies another opportunity. X co can either
be more proactive in selling their other products or they can replace the low selling products with
more sought after products that also fit in with their current unstated strategy.
Recently the owners of X co have decided that they want to open up a Hair Cutting
Academy. This new venture will take place in the same building and allow 6 to 12 students the
opportunity to learn hair cutting theory and expose them to a true salon atmosphere at the same
time. The only other hair cutting school in Cedar City is Evans Hairstyling College.
This new academy will offer students a better learning environment which more closely
matches the individual attention that most students seek in their post graduation experience.
According to Owner1, it will also offer tuition rates that are slightly lower than the average
tuition rates for Utah although this is not official yet. The academy will offer some basic
services such as haircuts and styling at discounted prices which they hope will attract a different
market segment which prefers a lower price. This will help draw in new customers which will
increase their customer base, and increase revenues. Since this academy will be a separate entity,
the academy’s revenue will not directly help X co’s bottom line. Instead, the academy will help
to subsidize some of the costs of the building and equipment and will help to attract potential
customers and help to advertise X co. A detailed analysis of the academy’s strengths has not
been completed since it will be a separate entity from X co. Only the symbiotic relationship
between the academy and X co has been studied.
X co also has a different approach to the way the beauticians are paid. Each worker is
paid commission for the services they render and for the retail products their customers purchase.
The commission on retail products is based on a sliding scale. If the employee sells more
products, then she will make a higher commission rate. This type of incentive should help to
motivate the employees to sell more to the customer. Previously, the employees had to rent out
their booth and were paid strictly by the hair they cut, now, the employees don’t rent booths and
all have consistent pricing. This has been done to help achieve conformity and tie the customers
X co
24
to the establishment more so than the individual stylists. In an attempt to help the employees sell
the product more effectively, X co also offers training sessions where the employees can learn
more about the specific benefits from each different brand and product line. If the employee has
extensive and accurate knowledge on a variety of products, and has built trust with a customer, it
will be more likely that a customer will be willing to try something new.
Weaknesses
Some of X cos strengths could also prove to be a weakness given the right circumstance.
Having to stock extra product that most salons don’t carry, also exposes X co to higher inventory
costs as well as a risk that customers won’t buy some products before they are obsolete or
expire. If the demand for these additional items doesn’t overcome the added costs, they will hurt
the company’s profit more than they help. Offering a wide array of products and services can
cost the company a lot in terms of equipment, employee training, as well as time and energy
devoted to selling each product and service. Spreading your resources too thin can hurt the
customers’ perception of your quality and service. If you focus in just a few areas and deliver an
exceptional product, customers will notice and respond favorably. However, dabbling in too
many different business aspects at once could result in mediocre service in all the areas. Special
care should be taken that X co isn’t being spread too thin as to not provide the necessary level of
service in all the areas.
X co’s location is just off a major street in Cedar City. Despite the fact that the location
is good, the store doesn’t stick out much from its surroundings. Many people drive by the store
everyday and many people that we have talked to have never noticed X co. A lot of businesses
have large signs which point perpendicular to the road and offer passersby a direct view of store
information. The current sign on X co runs parallel to the street, and can only be viewed once the
passersby are nearly right in front of the business. Since most motorists are concentrating on
what is directly in front of them, they will not notice the sign at all. Compared to other salons in
Cedar City, X co is not very visible.
Apart from the unique retail products and services that X co offers, there isn’t much to
distinguish them from the many competitors they have in Cedar City. Their prices are average,
not the lowest and not the highest. Without much differentiation, there won’t be any reason for
customers to choose X co over a competitor’s business. One of the main reasons someone
chooses one salon over another is the relationship that can be formed between stylist and
customer. Most of the stylists at X co are new to X co since they have recently had a high
turnover rate with their employees. This is a major disadvantage in a small town where most
people already have a ‘friend’ who cuts and styles their hair.
X co doesn’t have a business mission statement or vision statement. Without this, it
makes it more difficult for the company to have direction. They don’t have specific goals
planned and also don’t sit down with employees to review their performance, goals, and training
needs. All of these things would help this company grow and learn. Absence of these things
will cause the company to grow much slower than could otherwise be possible.
Although the academy provides many opportunities for X cos growth, it also provides
some weaknesses. Opening the academy and offering discounted services may cannibalize
X co
25
potential sales from X co. Certain customers may get their hair done through the academy rather
than X co. It is expected that the cannibalization will not be extreme and that the benefits will
outweigh these drawbacks.
RECOMMENDATIONS
After an extensive evaluation of the salon market and of X co we would recommend the
following:
We recommend that Owner1 and Owner2 take time to formulate a concrete strategy, and
evaluate their current unwritten strategy. They currently and frequently try many new ventures
to see what works. Their willingness to try new ventures and product lines is admirable, but
their performance would improve if they would sit down and develop a mission, a vision and a
strategy with specific measurable goals. If they had a specific destination in mind and then
formulated an actionable plan to get there they would be more satisfied with their results.
Internal strategy recommendations
X co has a good portion of shelf space. Bare Escentuals Makeup sells very well and
brings in the masses. But the majority of shelf space is underutilized; stocked with items that
just do not sell. X co needs to discover what products their customers really want and then stock
those items, so that more of their shelf space will be better utilized. On a side note, lining the
shelves with high end products does enhance the client’s perception of the store, but we do
believe that there is a way to stock the shelves with products that are both high end and big
sellers.
Also we recommend that X co simplify its focus; put more effort into its core business, of
hairstyling and merchandising. If the tanning, massage and permanent makeup end up costing
the company more than they bring in revenue we encourage X co to eliminate those offerings. A
more accurate record of services and products purchased would help in the evaluation. We
found one tanning purchase for the past year. We do not believe this to be an accurate account of
all tanning for the past year, but if it is the case, we believe that the tanning room could be better
utilized.
External strategy recommendations
X co has decided to offer Hair stylist classes. This will allow them to offer cheaper haircuts
while still maintaining high levels of service. We believe that this would be a desirable service
for college students, who would be overjoyed to find high quality low price hairstyling. We
recommend that at the beginning of the coming fall semester X co advertise to the students at
SUU. There are a few ways that X co could advertise to the SUU student body.
 They could attach fliers to the doors of all the student apartment complexes.
 They could advertise through the school newspaper.
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
They could offer a 10% discount along with the many other companies who offer through
coupon books directly to students. Get their name posted on the Paint the Town Red
card.
We also recommend that X co increase its visibility. If city policy allows for it X co should
place an attractive sign that will face oncoming traffic. We have talked to many Cedar City
residents who drive by the store frequently but never notice it. The building blends in well with
its surroundings. Much effort has gone to beautify the interior of the store. The inside looks
absolutely amazing. X co needs to do something to grab attention of passing traffic. Their
location is ideal: we recommend that they capitalize on their location.
Another recommendation is for X co to track the effectiveness of their various forms of
advertising. Currently X co uses radio and newspaper ads frequently. Our conclusion is that
there are more effective ways to spend advertising dollars. There is no way to know how
effective a certain marketing program is unless it is evaluated. For example AMA could offer a
15% discount for mentioning that they heard the ad on the radio, or print a coupon in the
newspaper as a way to keep track of customer response. NewNeighborlist.com is the website for
a company that provides lists of new residents to a specific area. Since these new move ins will
likely not have a hair stylist X co can use this company to target new residents. We suggest that
X co invest the time and effort necessary to evaluate their different marketing campaigns and to
use a variety of different marketing techniques to reach more people.
Increase cross selling. Give a discount on products bought at time of hair cut, and offer
coupons for hairstyling to those who buy frequently, but do not style their hair at X co.
We believe that X co has the talent and fire it needs to become very successful if they will
employ the discipline needed. Owner1 and Owner2 need to sit down and formulate a plan and
then evaluate that plan on a quarterly basis. They might have all the right cards but if they don’t
play their cards right they won’t be profitable.
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APPENDIX
Census information
Cedar City demographics 2000
20,527 Total Population
34,730 2012 Projected Population
Twelve year Projected Growth (40.9%)
6,486 Households
4,682 Families
39.0% of the households had children under the age of 18
59.8% of the households had a married couple
Population spread
28.2% 18 or younger,
27.4% between the ages of 18 and 24
22.6% between the ages of 25 and 44
14.0% between the ages of 45 and 64
7.8% over the age of 65
For every 100 females there were 95.6 males.
Iron county demographics 2000
33,779 Total Population
43,526 2007 Projected Population
Seven year Projected Growth (22.4%)
43,526 Total Population 2004
10,627 Households
8,076 Families
41% of the households had children under the age of 18
64.2% of the households had a married couple
Average household size 3.11
Average family size 3.45
13,618 housing units
Population spread
31.20% 18 or younger
20.60% between the ages of 18 and 24
23.60% between the ages of 25 and 44
16.10% between the ages of 45 and 64
8.60% over the age of 65
For every 100 females there were 98.40 males.
Race composition
31,416 or 93% white
119 or 0.35% Black or African American,
737 or 2.18% Native American,
251 or 0.74% Asian,
1,383 or 4.09% Hispanic or Latino.
Iron county income
$33,114 Median income for a household in the county
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$37,171 Median income for a family
$30,800 Median income for males
$19,831 Median income for females
$13,568 Per capita income for the county
2002 Iron County
$17,939 Per capita income--An increase of 14.0% from 1997 and
13.10% of families were below the poverty line
19.20% of the population was below the poverty line
Iron County income per capital was 58% of the national per capita income
Iron County Population Increase
Utah Population Estimates Committee (UPEC) Update 8/11/08
2000.............................................................. (34,079) up 3.6%
2001.............................................................. (35,541) up 4.3%
2002.............................................................. (36,122) up 1.6%
2003.............................................................. (37,559) up 4.0%
2004.............................................................. (38,925) up 3.6%
2005.............................................................. (41,397) up 6.4%
2006.............................................................. (43,424) up 4.9%
2007.............................................................. (44,813) up 3.2%
Iron County Population Estimates 2007
Population
Percentage of County
Cedar City 27,784
(62%)
Enoch
4,929
(11%)
Parowan
3,136
(7%)
Paragonah
582
(1.3%)
Kanarraville
358
(0.8%)
Brian Head
134
(0.3%)
New Castle, Hamilton Fort, etc. 7,618 (17%)
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