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Marks & Spencer – the figures weren’t padded out but what about…

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Marks & Spencer (M&S) are one of the best known retailers in the UK. First established back in 1884 they have been a mainstay of British fashion for as long as anyone can remember.

They have however had a turbulent journey over the last few years but yesterday they announced their results for the quarter ended 2 October and a number of things were quite impressive.

First of all, the ability to release their figures within 3 working days of the end of the quarter was in itself no mean feat.

The figures themselves were also very good with group sales up by 6.5% and all the major divisions showing impressive growth. So, how have they managed this? After all, although we’re coming to the end of the recession people are still being careful about money.

According to Marc Bolland, the Chief Executive of M&S, “Customers are returning to quality. In Food they are responding well to our better value and innovation, and in Clothing are increasingly choosing M&S’s great fashions and quality that lasts.”

They were also successful in introducing “innovative new products” (classic Ansoff’s Product Development). For example, they have just announced that they will be the first to launch men’s “enhancing underpants” on the UK high street.

On the ladies side of things the success of the “Wonderbra phenomenon” has been well documented since they were introduced in the 1990s but in the words of M&S the Bodymax enhancement pants for men have a number of advantages.

The “frontal enhancement pants” are “specifically designed to visibly enhance your shape” and the “bum lift pants” are said to “lift and shape your buttocks for a visibly sculpted look”.

Mr Bolland also said that there had been “a positive response to increased investment in marketing”. It will be interesting to see how they market the enhancement pants.

Now, you’re possibly thinking what sort of person would buy these enhancement pants? You may also be wondering how comfortable they are to wear.

In answer to this final point I’ll let you know as soon as my pair are delivered.

£2.5 billion but can you have your cake and eat it?

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On Monday it was reported that China’s Bright Food Group was investigating the potential purchase of Britain’s United Biscuits for up to £2.5 billion.

Whilst on the face of it one food company buying another food company isn’t that exciting it does raise some interesting points.

Importantly, it also makes you think of whether Jaffa Cakes are in fact biscuits rather than cakes…

First of all though in classic Michael Porter’s Competitive Advantage of Nations terms then particular countries are considered to be strong in certain industries.

Germany for example is renowned for the production of high powered cars such as Audi, BMW and Porsche. Japan is a world leader in high tech cameras such as Canon, Nikon and Pentax.

Britain on the other hand is a powerhouse in the production of biscuits. After all, who needs luxury cars and high tech cameras when you can have a lovely cup of tea with a nice biscuit or two?

Secondly, the fact that another company from a so called emerging market is now potentially making a significant acquisition of a company in a more developed market sends an interesting signal about the current trend of globalisation.

Both these points are all very well and good but what’s this all about a biscuit or cake discussion?

United Biscuits produce some household name products including McVitie’s biscuits, Hula Hoops and Twiglets. They also produce Jaffa Cakes.

Jaffa Cakes were the subject of an infamous tax case a few years ago. To cut a long story short the debate was whether a Jaffa Cake was a cake (considered to be a basic foodstuff and hence not liable to VAT) or a chocolate covered biscuit (considered to be a luxury food product and hence liable for lots of VAT).

So, how on earth can you decide whether a food product is a cake or a biscuit?

The deciding factor was that when a cake is left to go stale it gets hard whereas when a biscuit is left to go stale it goes soft.

The argument went to a VAT tribunal (which is in effect a type of Court) and as part of the evidence put forward a 30cm Jaffa Cake was baked and left to go stale (and hard) so as to convince the tribunal that it was in fact a cake.

The final result was that Jaffa Cakes are indeed cakes so you can now have your cake and eat it (VAT free).

Do you own a iPhone or is it a Hiphone, an Ephone or a Ciphone?

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On Saturday Apple officially launched the iPhone 4 in China. They also opened up two new flagship stores in Shanghai and Beijing.

China is the world’s largest mobile market with more than 800 million subscribers so it would seem to make sense that Apple sell their products there.

Why has is taken them so long to launch the iPhone 4 in China though? After all, the iPhone 4 was originally launched in the US back in June and in countries such as Australia, Netherlands and Singapore in July.

The handsets themselves are manufactured in China so it’s not as though they haven’t had any experience of doing business in the country.

There are various reasons why companies have phased product roll outs in different countries. The sheer scale of a “global launch” for a company like Apple would be extremely challenging. Having sufficient inventory in stock on global launch day would not only be a logistical nightmare but would probably be physically impossible.

An additional challenge for Apple is that they need to agree matters with their strategic communication service providers in each territory (in other words, the mobile phone operator they will be partnering with in each particular country). This also takes time.

Anyway, from now onwards we’ll be seeing the iPhone 4 in China but anyone that has been to China recently though could be forgiven for thinking that the iPhone 4 has already been in the country for a while.

A significant issue for Apple is the increase in the number of iPhone clone companies.

As well as clone companies that produce illegal fake copies of the phone there are also businesses that produce reasonable quality phones which are very similar to the iPhone. They are designed so that they try not to break any patent protection that Apple has set up. I’m sure though that Apple’s patent lawyers are monitoring these products very closely!

A quick search on the internet for example shows websites selling products such as the HiPhone, the Ephone and the Ciphone. With prices starting at less than $100 there will be a significant number of people opting for these items.

Oh, and in case you were wondering the photo above is of the Hiphone.

Has the Big 4 become the Big 3?

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Things have changed. You won’t be hearing much about PricewaterhouseCoopers any more.

Is this breaking news? Does this mean that we will be talking about the Big 3 rather than the Big 4?

Should PricewaterhouseCoopers partners and staff be rushing to recruitment consultants to get another job?

There’s no need to panic as all is well with the company. What they have done though is undertaken a rebranding exercise.

The company has commonly been referred to as PwC since it was established via a merger back in 1998 between Price Waterhouse and Coopers & Lybrand. With effect from Monday though they will now officially go by the name of pwc.

As part of a multi-million pound make over not only will the company be known as pwc but the corporate logo and corporate colours have changed.

The new logo incorporates the letters “pwc” in lower case along with a 6 rectangle symbol in shades of orange and red.

According to pwc, the brand was refreshed “in order to strengthen, and modernise how it represents its worldwide network to its clients, its people and the communities in which it operates.”

Global brand consultants Wolff Olins designed the logo in collaboration with PwC employees and clients. The complete rebranding process reportedly took two years.

From a personal point of view, I like the new logo and orange/red spectrum colours which I think are nice fresh, clean colours.

What about people from some of the other accounting firms? My guess is that they must be relieved. With KPMG having blue/white, Ernst & Young black/yellow and Deloitte navy/green it must have been a relief all round that pwc went for orange/red.

Forget the great Polish and Russian vodkas, the best vodka in the world is officially English. Now, go and open a packet of crisps to celebrate.

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At this year’s San Francisco World Spirits Competition the best Vodka in the world award was won by a small distillery based in rural England in Herefordshire. Chase Vodka beat off 115 other entries to win.

This is a superb achievement by them.

I’ve been lucky enough to try some of the vodka. It’s certainly very nice and I have to say I think their award was thoroughly deserved. I hasten to add though that I haven’t tasted the other 115 vodkas so can’t really give an unbiased view!

Chase vodka has got a rather unusual background. It was founded by local potato farmer William Chase. Now William certainly knows a thing or two about potatos. He was the person that founded the upmarket potato crisp company Tyrrells.

Tyrrell’s crisps were only launched 8 years ago in 2002. In classic strategy terminology they were very much promoted on the differentiated manner as being of a better class of crisp, being hand crafted and a top quality product. His passion for potatos paid off and in 2008 he sold 75% of the crisp brand for a rather tasty £40 million.

Not content with sailing the world on his personal yacht or buying a private island to retire to he built on his core competencies and developed his love of potatos into another upmarket brand but this time to be enjoyed by adults only.

Again, using strategy speak the chase vodka business is nicely vertically integrated with the potatos being grown on the farm as well as the distillery and the bottling process being in the same location.

It’s not cheap – retailing at £32.95 it is over 3 times as expensive as the supermarket own brands but it’s hand crafted by a small team of workers and each bottle is reportedly made out of 250 top quality potatos. Comparing this with the mass market vodkas made out of left over grain then you can see why the pricing is different.

Using Ansoff’s matrix terminology they have also undertaken rather nice product development and launched a limited edition Marmalade Vodka.

Now, for me a lovely breakfast is a fresh pot of tea with some nice toast and marmalade. Should I be rethinking things though so that I opt for Marmalade Vodka instead?

Hair today, gone tomorrow? It’s certainly a risk for Procter & Gamble.

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As one of the best known and most successful companies in the world Proctor & Gamble certainly know a thing or two about branding. It also seems that they are pretty switched on when it comes to risk.

Over in the States, American Football is huge. One of the most well known players is Pittsburgh Steelers player Troy Polamalu.

Anyone that has watched a game that he has played in will instantly recognise him. He has very distinctive hair.

He is of Samoan descent and has not cut his hair for 7 years. Far from being in bad condition though his hair is in excellent condition and his flowing locks would no doubt make many a woman jealous.

P&G make the famous Head & Shoulders shampoo and when deciding on a suitable person to promote the product settled on Polamalu. If you’re interested you can even play a Polamalinator game here.

No details have been disclosed of how much he’s been paid for the sponsorship deal but it’s no doubt a significant amount.

Successful, healthy, sporty and a sex symbol to a lot of women in America meant that he was the ideal person for promoting Head & Shoulders and the return was no doubt there.

“Risk and Return” is an issue that is involved in all major decisions within business. Whilst the return is there with Polamalu what about the risk?

P&G seem to think that one of the risks is in the loss or damage to his famous hair. They announced earlier this week that they had just insured his hair for $1 million. Apparently if Polamalu loses 66% or more of his hair during the next 7 months then Lloyds of London insurance will pay out $1 million.

So, the branding works well. Risk seems to be covered but what about the legal aspects? Did anyone check the small print to the contract as to whether a haircut is allowed during the next 7 months? I hope so otherwise it could very well be the most expensive haircut in history.

“There’s no such thing as a free lunch” but will there be such a thing as a free drink or cheap drink in the future?

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Binge drinking in the UK is a major problem. City centres at the weekend can be full of people that are literally trying to drink as much as possible in as short a period of time. Violence and health issues often ensue.

As well as the disturbances to local residents there are also the costs both health-wise to the drinkers and financially to police forces, hospitals and society at large arising as a result of this binge drinking.

As a potential solution to this problem, the government is currently investigating whether to ban free or cheap drink promotions. One of the ideas being discussed is whether to make it illegal to sell alcohol below cost price. In other words to prevent businesses offering “loss leaders” on drinks so as to encourage higher spending at a later date.

If you’re an accountant, and assuming you’re not reading this in the middle of an actual binge drinking session yourself, this raises an interesting discussion on what exactly is meant by “below cost” and in particular the term “cost”.

The major alcoholic drinks manufacturers produce a range of drinks. Diageo for example produce drinks as varied as Smirnoff vodka, Johnnie Walker whisky and the famous Irish stout Guinness.

Identifying the cost of each particular drink would be challenging exercise. Whilst they no doubt have sophisticated management accounts which allocate overheads and indirect costs in certain ways, there would be a clear debate as to which was the “correct” allocation of these costs.

Apportioning overheads such as head office costs, R&D and marketing to individual products would result in a certain amount of flexibility in terms of identifying the cost figure to use for “below cost” purposes.

One solution to this inherent problem of identifying the cost of individual products has been proposed and that is setting the minimum cost of the drinks as equivalent to the duty and VAT that needs to be paid on the particular drinks.

So, the next time you’re out having a quiet drink with some non finance friends feel free to start a discussion about how much each of your drinks cost to make. You can then explain about the various possible methods of allocating indirect costs. Then again, talking about management accounting cost allocation whilst out with your friends may result in your  non finance friends starting a binge drinking session themselves…

It’s a rather nice TV and a “bargain” at £6,999 but you’ll have to wait until 1 October to get the most out of it.

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If you are one of those people that keep on losing the TV remote control then you’re going to have fun when you need to keep track of your 3D glasses as well.

We blogged earlier this year about the launch of 3D televisions and their position within the product life cycle.

When it comes to the marketing mix (the 4Ps) there are certain characteristics that are found at the introduction stage.

Witness for example the high prices that are currently being charged for 3D televisions – a Samsung UE55C900 52 inch 3D TV was today for sale at the John Lewis shop in Oxford Street in London for £6,999 plus £139.95 for two pairs of 3D Active Glasses (this in itself provides an interesting example of pricing given that one pair of 3D Active Glasses costs £59.95 – if you need a calculator to spot the significance then maybe a career in finance isn’t for you!).

The lack of 3D content however was always going to be a problem at the initial stages. After all, a top of the range 3D TV isn’t that good if there aren’t a lot of 3D programmes to watch.

Sky TV in the UK though is about to come to the rescue. They announced today that they will be launching a dedicated 3D TV channel on 1 October. Some highlights of the launch weekend include coverage of golf’s Ryder Cup as well as the film Monster vs. Alien.

The good news for Sky subscribers with the latest Sky+ HD set top box is that they won’t need any additional Sky equipment to watch the 3D content. They “only” need one of the latest 3D TVs.

If you’re in the UK you can look forward to a rush of “P – Promotion” for 3D TVs in the autumn. We’ll report back in a years time but expect by then the “P-Price” to have fallen, the “P-Product” to have developed, the “P-Place” for purchasing to have increased and the “P-Promotion” to have…..

How much do condoms cost to buy? Well, I guess anywhere from £1 to £2.5bn…

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Reckitt Benckiser, the Anglo – Dutch consumer products group, has agreed to buy the maker of Durex condoms for £2.5bn.

Last week the board of SSL recommended that the shareholders accept the offer from Reckitt which was at an effective 33% premium on the share price.

In addition to Durex condoms SSL also make Scholl shoes but £2.5bn is a lot of money and a 33% premium is pretty good in today’s environment. Should the shareholders therefore grab this opportunity with both hands?

Students of business strategy will be aware that there are both pros and cons of acquisitions. The general view amongst analysts in this situation though appears to be that it represents a good fit for the Reckitt business.

Firstly, Reckitt will strengthen their health and personal care division which is currently their fastest growing area. Health and personal care is considered by many to be a key area for businesses going forward (this is a nice link to PESTEL within the syllabus).

Secondly, SSL has a larger presence in a number of emerging markets. In particular SSL are in a strong position in China, a country where Reckitt are relatively weak compared to their competitors.

Cost savings from synergies of course can never be ignored. If the deal goes ahead there could be reported savings of £100m a year in terms of removing duplicate jobs, combining distribution channels, etc.

Marketing synergies are also important. Reckitt for example produce the headache tablet Nurofen.

It’s 225 years old and has just given birth to a beautiful newly born one pound baby.

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The Times newspaper in the UK is one of the oldest in the world. It was first published in 1785 and for 219 years until 2004 it followed the traditional route of quality journalism delivered via a “broadsheet” newspaper.

In 2004 certain traditionalists were shocked when the newspaper moved to the smaller compact size favoured by the tabloid papers. This move proved to be successful though and the new size appealed to both the younger generation and commuters who no longer had to try to read their paper without upsetting the person next to them.

This was a good example of a successful adjusting of the product component of the marketing mix.

The Times has had one of the better newspaper websites and last week they completed their transition so that their website no longer has any free content. Instead, readers now have to pay £1 to read the online version of the newspaper. The “product” costs the same whether it is a paper version or an electronic version.

From mid June users were asked to register free to read articles but from last week when you clicked through you were greeted with the following:

Reports suggest that since the requirement to register was brought in last month the viewing figures of the website have almost halved.

The requirement to pay for viewing will no doubt cause viewing figures to drop even further.

The paper’s owner, Rupert Murdoch’s News Corp, will be expecting viewing numbers to fall but importantly for them they believe that charging for content will enable them to continue at the forefront of quality journalism.

There are also reports that the Sun and the News of the World, two other UK titles in the News Corp portfolio, will also disappear behind a website paywall. These papers are more “down-market” than the Times so it will be interesting to see how this will work.

The traditional newspaper street vendor’s call of “Read all about it, read all about it” may soon become “Read all about it either in this newspaper or the online version for the same price”. But then again will there be any paper newspapers being sold in a few years or will it all be electronic?