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Cash is king but jewellery looks nicer…

Before cash came along, people used to barter. Somebody who had grown vegetables would exchange potatoes they’d grown with a baker who’d baked bread. A farmer would exchange a cow with someone who had grown rice. And so on…

This was all very well if you had lots of vegetables or lots of cows but exchanging 1,000 kg of potatoes for the latest Xbox or taking a cow with you to pay for cinema tickets was never going to work.

As a result, along came cash.

The Lydians (now part of Turkey) are widely believed to be the first Western culture to make coins and their first coins came in to existence way back around the time of 700 BC.

Since then things have developed.

Bills of Exchange were introduced in Italy in the 12th century (Bills of Exchange are paper documents which enable traders to buy and sell goods without having to carry cash).

The Bank of England introduced printed cheques in 1717.

The first credit card in the UK was issued in 1966.

Online banking was launched in the late 1990s.

Through all of this cash has remained and there are now 180 currencies recognised as legal tender by the United Nations member states.

Things are changing though and Apple, Samsung and Google all have contactless payment systems whereby money is loaded onto an app on your phone and payment can be made by scanning your phone at a contactless terminal.

The company Ringly have taken things a step further though and have a partnership with MasterCard which enables you to pay for items with the tap of a ring.

The rings that Ringly sell (including the ring shown in the photo above) cost between $195 and $260 and use technology to link the ring to your phone to access the Ringly app. The app will then enable payment to be made. This is pretty impressive given that all the technology has to be fitted onto the surface of the ring.

The end result is that you will be able to purchase items via a contactless terminal by simply tapping your ring without getting your wallet or purse out.

So, is this a genuinely useful idea or just a “gimmick”? After all, you’ll still need your phone with you to make a payment.

Either way, it’s a nice excuse if you were thinking of buying a new ring.

Just to be a bit different I’ll eat…

What do you fancy for lunch today?

Do you want your usual lunch or would you like something a bit different?

A survey by New Covent Garden Soup found that office workers tended to show a complete lack of imagination when it came to lunch with most of those surveyed choosing the same lunch as they had yesterday.

More than 75% of workers who were surveyed had eaten the same meal for lunch for the past 9 months.

The most common lunches were sandwiches with the top 3 being ham in first place followed by cheese and then chicken. In 4th place was salad.

Yep, three quarters of people had eaten the same sandwich for 9 months.

In what was without a doubt, not a surprise, over 80% of respondents to the survey said they were “bored” with lunch.

Becky Spelman, a psychologist said that “eating the same thing every day means we risk not getting a wide enough array of nutrients, as well as simply being very monotonous. Making small changes, such as trying something new for our lunchtime meal, can – in a small way – help to open our minds to new experiences in other areas of life too.”

In summary, if you’re heading out to buy your lunch now and you’ve been eating the same ham sandwich for the last 9 months then maybe you could go for something dramatically different like a tuna sandwich instead…

Popcorn and profits

Despite the growth of online streaming services such as Netflix and Amazon Prime it seems that we are still going to the cinema to watch movies.

Cineworld is the 2nd largest cinema chain in the world with 9,500 screens in 10 countries and they have just reported their latest financial results.

Sales increased by 12% to £891 million in 2017 and profits showed a healthy jump of 23% to reach £121 million.

It’s probably stating the obvious but the success of a cinema chain is largely driven by how good the films are. Cineworld said that their 2017 box office performance had been “underpinned by a strong film slate”.

In 2017 the top 3 films they showed were Beauty and the Beast, Star Wars: The Last Jedi, and Dunkirk. Together, these 3 films grossed £197.4m for Cineworld.

If you compare this with their top three films in 2016 (Star Wars: Rogue One, Fantastic Beasts and Where to Find Them, and Bridget Jones’s Baby) the figure was £149.4m.

A difference of nearly £50 million.

It’s not just the ticket price that brings in revenue for them though as movie goers buy a lot of popcorn and fizzy drink on their night out.

Almost 25% of their revenue in 2017 was from refreshments and this showed an increase of 11% on the previous year as it rose to £220 million.

I guess a key question for the business is whether the blockbuster films will continue in 2018 and whether people will still be filling themselves with popcorn and coke.

The company seems positive and are expecting the strong results to continue. With films such as Solo: A Star Wars Story and Jurassic World scheduled for this year and Minecraft: The Movie and Frozen 2 due in 2019 who would bet against them.

More Change Please

Homelessness is a growing problem in a lot of countries but coffee company “Change Please” has come up with a brilliant business model that could help.

They’ve brought together the problem of homelessness with people’s love of coffee and have created a radically different coffee company that is now looking to expand around the globe.

Their whole focus is on helping people whilst at the same time providing an excellent cup of coffee to the end customer at a fair market price.

When it comes to suppliers, the coffee beans they use are from farms that support local communities. For example, one of their suppliers from Peru helps victims of domestic abuse and a supplier from Tanzania helps people injured by landmines.

Once the coffee beans arrive in the UK, the people who roast them and serve them are people who have been homeless and sleeping on the streets. They are trained as baristas and work at one of the company’s locations. They are paid the Living Wage of £10.20 per hour and are given help in terms of opening bank accounts and finding housing.

Whilst the big coffee chains such as Starbucks and Costa Coffee are discussing introducing recyclable cups, Change Please has beaten them to it as all of their cups are 100% recyclable.

All profits are being invested in helping reduce the level of homelessness.

Things are going well for the organisation and they are planning on expanding the number of locations they operate from in the UK. They are also in talks to open in Australia and America with the same ethos of helping homeless people get back on their feet via a well and truly ethical cup of coffee.

They have also signed agreements with 2 big supermarkets, Sainsburys and Ocado, to stock packets of Change Please coffee beans.

It’s a common sound on the streets of cities in the UK to hear people asking if you have any “Change please”. With this fantastic business model for a coffee company, hopefully it will soon be a common sight to see the request for “Change please” replaced by coffee outlets called “Change Please”.

Did you break your fast this morning?

Did you have anything for breakfast this morning before you headed to work?

If I’d asked that question a few years ago the chances are that the reply would have been positive and brought back nice memories of what had been eaten earlier at home.

Things are changing though and according to a recent study for the Grocer magazine, nearly half of those surveyed who were between 16 and 34 skipped breakfast altogether. Even those who had breakfast were only likely to grab a croissant from a coffee shop on the way to the office or eat a breakfast biscuit.

The report said that “Millennials may be more clued up to food and health trends than older generations, but in terms of traditional breakfast there are empty seats at the table”.

Whilst skipping breakfast isn’t necessarily that good for your health, there are also financial health consequences for companies who produce breakfast cereals. In the UK, sales of cereal over the last 12 months are down by £40 million.

A number of companies are trying to regain some of these lost sales though.

Weetabix Limited, the company that produces yes, you guessed it… Weetabix, are now producing biscuits, bars and breakfast drinks that can be consumed on the go or taken to work to be eaten.

Weetabix has been made in the UK since 1932 but in 2012 was sold to Shanghai-based Bright Food.

Bright Food had hoped that as part of the general trend to more western eating habits in China, eating cereals would become more popular. Whilst sales of Weetabix have increased in China, the market share was disappointing as the traditional rice and steamed bread maintained their popularity for the first meal of the day.

Weetabix has now changed hands and was purchased by the US company Post Holdings for $1.7bn (£1.3bn).

Post Holdings already own the Shredded Wheat and Bran Flakes brands so the acquisition of Weetabix seems a good fit.

Back to breakfast on the go though and if you’re one of those people who struggle to get out of bed in the morning and miss breakfast then look on the bright side, if you’re getting into the office late then at least you’re closer to lunchtime.

You can’t read this book…

Everyone seems to be on their smartphone or tablet at the moment. After all, when was the last time you read a book? Or let me ask you a slightly different question, when was the last time you coloured in a colouring book?

“Coloured in a colouring book!? I’m not a child”, I hear you say but whilst most people will come to the conclusion that the last time they coloured in a colouring book was when they were a young child, things may be changing.

One of the latest crazes doing the rounds in the UK at the moment is adult colouring books where grown men and women are buying adult colouring books to colour in. A quick Google search of “adult colouring books” will reveal the vast variety of such type of books (as an aside make sure you include the word “colouring” when searching for adult colouring books otherwise you may get an unexpected search result).

It’s been reported that more than 3 million adult colouring books were sold in the UK last year which represented over £20 million worth of revenue for the publishing industry.

Now, whilst certain trendy people may well be rushing to buy colouring books, the tax authorities in the UK are also getting interested in the trend.

The reason behind the tax authorities interest is that colouring books are currently treated as children’s books and as such are zero rated for VAT purposes (in other words VAT is not charged on the books).

The tax authorities are currently in talks with publishers about plans to classify adult colouring books as uncompleted books which would then make them liable to VAT at 20% in the same way that diaries and notepads are.

The net result is that if the tax authorities do reclassify the adult colouring books then either the books will become 20% more expensive for the individual purchasers or if they remain at the same published price, the publishers will have to take the hit.

More expensive adult colouring books? It’s enough to make you throw your toys out of the cot.

Should this have been predicted?

Picture the scene. You set up a company with two of your university friends. Things are going well but as is often the case with start-ups the work is hard, the hours are long and there is no initial salary.

Chris Hill-Scott was one such entrepreneur who founded a tech start-up business back in 2008 together with fellow Cambridge University graduates Jon Reynolds and Ben Medlock.

After setting up the company and getting it off of the ground, Mr Hill-Scott decided that being an entrepreneur was not for him. He resigned as a director, left the business and transferred his shares in the company to Mr Reynolds and Mr Medlock in exchange for a bicycle.

We’ve all done things that we have regretted but in hindsight Mr Hill-Scott should have stayed in the company. He now works for the Government Digital Service creating websites and it has been reported that the average salary for that type of job is in the region of £55,000.

The two gentlemen he left behind in the company though have faced a different journey. The name of the company the guys set up is SwiftKey and although you may not have heard of the company, you have almost certainly used their technology.

SwiftKey developed the predictive text technology which suggests the next word a user is about to type on their smartphone or tablet. It has been incredibly successful and their software is used on more than 300 million smartphones and tablets around the world.

The company estimates that the software it developed has saved over 10 trillion keystrokes for its users. Let’s just think about that figure for a moment. 10 trillion keystrokes – that amounts to more than 100,000 years of typing time and represents an awful lot of thumb pain which has been avoided.

SwiftKey is an incredibly successful company and yesterday Microsoft purchased the business for £174 million (or in dollar terms, just over one quarter of a billion dollars).

Mr Reynolds and Mr Medlock will both make more than £25 million each whilst Mr Hill Scott will receive nothing from the sale as he transferred his shares in the business in exchange for a bicycle.

It’s not clear how much the bicycle is worth but I don’t think you have to be a technology expert to predict what words that Mr Hill-Scott was probably thinking when he heard the news the business he helped set up had been sold for £174 million and he had received nothing….

Using food to pay a fine.

It’s never a good feeling when you receive a parking ticket. You may only be a few minutes late back to your car but if you’ve been issued with a penalty notice then there’s not a lot you can do apart from pay the fine. Similarly if you park in an illegal place and are issued with a penalty notice then again you’ll have to pay the fine.

So is this fair? Well I guess it is as you can argue that public authorities have an obligation to maintain parking order on the streets and police officers and traffic wardens in most countries have the power to issue fines for inappropriate parking.

But it’s December and the festive season is nearly upon us. Surely therefore there should be some festive spirit and there should be some leeway given on parking fines??

“Letting people off of a parking fine because it’s Christmas!” – well, that’s certainly a debatable point and I can’t see that happening in a lot of places.

Over in America though one Authority is offering a middle ground when it comes to parking tickets.

The City of Lexington Parking Authority in Kentucky has launched a “Food for Fines” scheme.

From 16 November to 18 December, anyone who receives a parking ticket issued by the Lexington Police Department or parking authority will be able to pay for it using cans of food instead of cash.

The food donated will be passed to the local food bank where it will then be donated to people in need (there are 4 food banks in Lexington and they provide over 120,000 meals a day to people across Kentucky).

For every 10 cans of food donated, $15 will be taken off of the parking fine.

This is the second year the scheme has been in operation and Gary Means, Executive Director of LexPark said “Last year, citizens brought in over 6,200 cans of food as payment for over 600 meter citations”.

That’s an impressive figure and I wonder whether the local shops will be stocking up on very small cans of food in anticipation of a similar number of parking violations…

Don’t upset your web developer.

Cash flow can be a real challenge for businesses. Smaller ones especially can find it very tough to get paid on time and bigger organisations can sometimes dominate the relationship.

After all, if for example you’re an individual freelancer and are negotiating with a large company for work you will find it tough to get short settlement terms. Also, if the big company is late in paying it’s very difficult for the smaller party to “force payment”. Going to court for payment of a relatively small amount of money isn’t cost effective as the legal fees would far outweigh the money owed.

Reddit user absando is a freelance web designer and recently posted a great illustration of how he dealt with things when a big company “forgot” to pay him.

He posted that ‘I used to do freelance translating work a few years ago and I finished a 1,200 word technical manual for an Indian client that had good reviews on their industry profile. Normally payment for freelance transitions can range between 30 to 60 days, and under my contract they had 60 days to pay the amount.’

Straight away we can see that absando has a tough time as 60 days isn’t a particularly short payment term.

Things got worse for him though.

He continued explaining ‘Fast forward to the 65th day since I delivered the project and I didn’t hear anything from them. After multiple phone calls, e-mails and Skype messages, I received no word from the client so I decided to give up, write a negative review and move on.’

Whilst a lot of people in that situation would have had to write off the debt, absando was lucky.

Six months later the same company got in touch with him and obviously forgot that they hadn’t paid him last time. This time the project was for some web design work and he played it really well as rather than ask for the money he was owed, he kept quiet about it and got on with the project.

In a stroke of genius though he completed the project on time but didn’t send it all in. Instead, he changed the lock screen to the fine piece of artwork shown above.

He continued: “Surely enough a couple of hours from the deadline the translation company was frantically trying to reach me, sending emails and even trying to call my American number. They were freaking out because the project was due for their client on the very same day, and if they didn’t get it they’d lose their business with them.

I gladly responded, saying: ‘Hey remember that freelancer you stood up 6 months ago, yeah that’s me. I have your project ready to go, but you need to pay me for my previous work PLUS interest.”

Needless to say the cash was deposited into his account within 30 minutes.

Nice work!

Adidas and Nike – who’s going to win this one?

What type of business would you say Adidas and Nike were in?

Are they sportswear brands, fashion brands or both?

I think it’s fair to say that they segment their markets pretty well and have both sports and fashion markets under control.

Last year Adidas spent more than 13% of their annual sales on marketing (the industry average is 10%) and they have just announced a “new signing” who is going to cost them a significant amount of money.

Kayne West, the world class sportsman renowned rapper will be the face of Adidas’s new Yeezy range of clothing and footwear.

Now, whilst you’re unlikely to see many top sportsmen wearing the Yeezy clothes and shoes whilst playing sport, Adidas are no doubt expecting to sell plenty of the Yeezy branded products to people who will be buying them for their cool factor (I appreciate that the definition of cool is a subjective matter and I’ll leave it up to you to decide whether or not you consider Kayne West to be cool…).

The amount that Mr West will receive has been kept confidential but it’s clearly not going to be an insignificant amount. He previously was an ambassador with Nike where according to sneakernews he was offered $4million per year to stay with them but he turned them down.

So, Adidas are using Kayne West to help promote their products to the “people who like Kayne West segment” but there’s another segment that is seeing some change.

The woman’s sportswear segment has to a certain extent been neglected by Adidas and Nike over recent years. Despite Adidas linking up with Stella McCartney (the famous designer and daughter of the Beatles singer Paul McCartney), competing brands such as Sweaty Betty and lululemon have experienced significant growth following their focus on the higher quality end of the ladies sportswear market.

To try to get a bigger share of the ladies sportswear market and to counter the threat that Sweaty Betty and lululemon are creating, Nike has announced a collaboration with Japanese fashion label Sacai (a brand I’m led to believe enjoys cult like status amongst certain fashion aficionados and as the images above from the Sacai Facebook page show, have very fashionable outfits).

Going back to Adidas and Nike, one thing is for sure and that is that both companies have changed beyond recognition from when they were set up.

In the 1920s in Germany, brothers Adolf and Rudolf Dassler set up a shoe making business but soon fell out with each other and went their separate ways.

Adolf (Adi) Dassler kept the original company but renamed it Adidas (named after his first name and part of his surname) whilst Rudolf left and set up the sportswear brand Puma.

Whilst Adidas and Puma were set up by brothers, Nike has an altogether different background.

Nike, was established in 1962 by Phil Knight, who incidentally was an accounting major, and is one of the best companies in the world in terms of getting its marketing just right.

That leads to my final observation and that is the fact that Nike do tend to get their marketing right. Will it necessarily be a bad thing for them that Kayne West has left them and is now with Adidas?

Does this winner only go out at night?

Imagine the scene. You want to go to a music Festival but the tickets are expensive.

What do you do?

I know. Why don’t you pay for the tickets with blood rather than money?

Now whilst this statement may sound a bit weird, some creative minds behind the Untold music festival in Romania have come up with an excellent idea which is a classic win – win situation.

In fact, rather than a win – win situation it’s more of a win – win – win situation.

So who are the three winners in this situation?

The organisers of the festival identified the fact that Romania has one of the lowest percentages of people who donate blood (Romania ranks second to last in Europe regarding the number of blood donors with only 1.7% of the population donating blood) and came up with a novel way of helping to increase the amount of blood donations.

They offered free tickets and discounts to people who donated blood.

It was reported that up to 500 people donated blood so all in all a very successful project.

The Blood Transfusion Service was a winner as it received more blood and importantly raised awareness of the need for more blood.

The organisers of the festival were winners as this was a very slick piece of PR for a first-time festival and despite having top DJs such as Avicii and David Guetta headlining the event it was great to have national and global publicity as a result of this.

The third winner were the individuals who gave blood and obtained free tickets.

Mysteriously though, was there a fourth winner?

It hasn’t gone unnoticed that the festival took place in Transylvania which is the home of Bram Stoker’s legendary Dracula.
Dracula survives by drinking fresh human blood.

Was this in fact a ploy to build up the stocks of blood for the mysterious Count Dracula…

An impressive lady but competition is coming.

She’s an interesting lady.

Her full name is Barbara Millicent Roberts. She’s 56 years old and has had over 150 different careers including being a lifeguard, a doctor and a Spanish language teacher. Perhaps most impressively of all she travelled into space in 1965, four years before Neil Armstrong walked on the moon.

She’s managed to do all of this despite being only 29 cm tall.

The Barbie doll is the centrepiece of many a child’s toy cupboard and it’s been estimated that over a billion of them have been sold in more than 150 countries since they were first introduced in 1959.

There have been a number of business issues faced by Barbie recently. Even though there’s an Accountant Barbie, I should in fact clarify that and say that there have been a number of business issues faced by Mattel, the owner of the Barbie brand.

Some of you may have heard of Bratz dolls.

Bratz dolls were a competitor to Barbie dolls back in the early 2000s and they were pretty successful. They were so successful that by 2004 they had taken more than 40% of the UK toy doll market and had in fact also taken the top spot for sales of dolls which had been held by Barbie since records began 10 years earlier.

In 2006 Mattel sued MGA Entertainment, the owners of the Bratz brand as they claimed that the Bratz doll creator Carter Bryant was working for Mattel when he developed the idea behind Bratz.

In essence Mattel argued that as they were paying Mr Bryant to work on Mattel matters and not those of another venture the Bratz doll idea was Mattel’s and not MGAs.

Back in 2008 a Californian judge agreed with Mattel’s claim and told MGA to stop making and selling Bratz dolls and also ordered MGA Entertainment to pay Mattel $100 million in damages.

However, MGA weren’t happy with this decision and the case went back to court in 2011 where a federal jury delivered a verdict supporting MGA.

Now whilst the court cases between Mattel and MGA are all very interesting, if you’re a parent of a young daughter what is probably of more relevance is that the Bratz dolls are being relaunched onto the market this coming weekend.

So, if you’re queuing up with your daughter to buy a Bratz doll this weekend you can impress her with your background knowledge of who owns the brand as well as let her know that the UK doll market is the second largest and second fastest growing segment of the UK toy market and has grown 11% over the last year to reach £288m.

I’m sure she’ll be very impressed with your discussion and won’t at all be interested in the doll she’s about to get….

The Vatican Bank releases their results.

The Institute for Religious Works, or as it’s more commonly known “the Vatican Bank”, has just released its latest set of accounts and they show a sharp increase in profits.

blog-vatican-262x275The bank has just reported net profits of €69.3 million for 2014 which compares very favourably with the corresponding figure of €2.9 million in 2013.

So what has caused the turnaround?

The bank has reported that the improved figures were as a result of a fall in operating expenses together with higher income from trading in securities.

Last year, the management of the bank was replaced as part of a clean up ordered by the Pope to remove corruption in the bank. The reforms also involved the bank bringing in anti-money laundering experts to screen all the accounts to ensure they comply with international laws governing the banking sector and the bank’s new standards for clients. Over 4,000 accounts have now been closed since 2013 and whilst the majority were dormant accounts, 554 accounts were closed because they did not meeting the bank’s new standards.

President of the Board of Superintendence, Jean-Baptiste de Franssu said that “The long-term, strategic plan of the Institute revolves around two key objectives: putting the interests of the clients first by offering appropriate and improved services and by de-risking the activities of the Institute”.

In summary, the bank seems to be doing much better now. If you are interested in opening an account with the bank though it’s worth noting that the use of the bank is limited to clergy, Vatican employees and staff at its embassies. There are now reportedly over 15,000 clients on the banks books.

More details on the Vatican bank’s accounts can be found here.

Dividends – do you want them in cash or clothes?

Despite being one of the best known names on the retail market, Marks & Spencer is unusual.

Finland - M&S Helsinki Event Zone 3M&S is unusual in that it has got a very high proportion of individual shareholders.

Whilst a lot of other companies have major corporate shareholders such as pension and investment funds, M&S has over 190,000 private investors who between them hold 30% of the shares.

M&S has just announced an extremely novel idea involving these individual shareholders and their next dividend payment. The individual shareholders will be offered the chance to exchange their dividends for M&S vouchers at a 10% discount. In other words, they can exchange a dividend of £900 for M&S vouchers of £1,000.

That’s a very nice idea.

It’s optional and not compulsory so if individual shareholders still want to receive the dividend in cash they can.

Shareholders however who are interested in buying items from M&S get more for their money and from M&S’s point of view, given that their gross profit margin is more than 10%, they will still be making a profit on items that they sell to holders of these vouchers.

All in all a very innovative idea which works well for all parties.

Will we see this idea spreading to other companies when considering their dividend payments?

Who needs champagne for a celebration?

Gin and tonic is a drink that has caused a number of hangovers over the years but for two individuals it is going to make them very wealthy.

tonic waterGin is often credited with being a traditional English drink but the first recorded date for the production of gin was actually in the Netherlands in the 17th Century.

One of the key ingredients of tonic water is quinine.

Quinine is said to have many medicinal purposes and was first discovered by local tribes in Peru and Bolivia. Some people claim that quinine has medicinal purposes which helps various ailments including malaria.

The bringing together of gin and tonic happened in the early 1800s when British army officers in India were using quinine in an anti-malarial capacity and decided to hide the bitter quinine taste by mixing it with tonic water and then hiding the taste even further by adding gin.

The drink “gin and tonic” then came into existence.

Fast forward to 2005 and the company Fever Tree which was set up by Charles Rolls and Tim Warrillow produced their first bottle of upmarket tonic water.

Fever Tree tonic water has been selling very well since then and the company is now being quoted on the AIM (AIM is the Alternative Investment Market which is a sub-market of the London Stock Exchange and allows smaller companies to float shares with a more flexible regulatory system than is applicable to the main market).

The Fever Tree company has been valued at £154 million. That’s not a bad valuation for a company that’s selling tonic water.

There will no doubt be happy faces at the company and the success of the flotation will be toasted by a glass or two of champagne. Or should that be a glass or two of gin and tonics?

Getting the wrong measurements can be expensive.

In any project it’s important to take a step back and check that important things haven’t been missed.

The French train operator SNCF has just discovered that 2,000 new trains it had ordered are too wide for some of their platforms. The trains cost €15 billion.

The error arose because the national rail operator RFF gave the wrong platform dimensions to the train company SNCF. The national rail operators measured a number of platforms but all the platforms they measured were built within the last 30 years.

Unfortunately, they didn’t measure any platforms which were built more than 30 years ago as these were designed for slimmer trains and are too wide for the new trains to pass through.

It must have been a stressful day in the office when the mistake was identified and the solution to the error will be far from simple. Over 1,000 platforms will need to be adjusted before the new trains can become fully operational.

The total cost of amending the platforms will be more than €50 million.

Is now a good time to eat more chocolate?

It’s Easter weekend and in many countries around the world people celebrate by giving each other chocolate Easter eggs.

There could be some worrying news though for people who enjoy eating these chocolate eggs as well as anyone who enjoys eating chocolate in general.

chocolate-pricesThe price of chocolate is rocketing and in the last year alone cocoa prices have risen by 20% and it seems that the price rises will continue.

So, what is causing the increase in chocolate price?

The answer is that it is a simple case of supply and demand.

In December, the International Cocoa Organisation said there could be a 150,000 tonne deficit in the amount of cocoa beans produced in 2014.

There is a significant lead time in cultivating cocoa crops so the supply of cocoa will remain relatively static. In addition, the supply problems are being compounded by prospects of an El Nino weather pattern which can result in crop damaging dry winds in some of the leading cocoa growing countries in West Africa such as Ghana and the Ivory Coast.

Demand on the other hand is surging.

According to Euromonitor the value of chocolate consumption in major emerging markets such as Asia and Latin America will grow at more than double the rate of the world average in the next 5 years.

It’s estimated that consumers in the Asia Pacific region will eat 1.096 million tonnes of chocolate by 2018. This represents a 27% increase from 2013 and compares to a 5% increase in Western Europe (the biggest current buyer of chocolate) over the same period.

So in conclusion, there are supply problems, rocketing demand and higher chocolate prices seem inevitable.

What better excuse therefore is needed to buy that extra chocolate bar now before prices rise?

Things will now be different for you if you eat chocolate…

Sometimes it’s the simple ideas in business that work.

24 years ago in April 1990, the retailer Poundland was set up. On the face of it their approach was pretty simple – all the items in their shops would retail at £1 (hence the name “Poundland”).

tobleroneThey now have over 500 stores and sell 3,000 different products which all retail at £1.

They have been incredibly successful and the company has just been floated on the London Stock Exchange with a value of £750 million.

Whilst the concept of everything in the shop being on sale for £1 has advantages such as creating a “value image” which has been successful in the recent economic downturn, there are clear challenges when it comes to what £1 can buy today compared to 24 years ago and importantly what £1 will be able to buy in 24 years time.

Looking at the 4Ps model then it’s clear that the Price has to remain at £1, Promotion is minimal with word of mouth being the preferred method and Place needs to be in the right location as people will not travel a long distance to buy something for £1.

That leaves Product.

People are attracted to Poundland because it sells recognised brands at a discount price so they can’t really switch to unknown brands. They have however identified an approach to maintaining their margins on well known products including the chocolate bar, the Toblerone (the chocolate bar with the hidden logo shown here).

Poundland have agreed with Kraft that a smaller Toblerone is produced. It is only slightly smaller than the standard bar – about one triangle shorter.

Importantly though, by reducing the size of the bar it enables the price to be held at £1.

It’s not just at Poundland where chocolate bars have been changing.

The chocolate industry as a whole is currently facing a number of challenges with Cocoa prices being very high.

So what do chocolate manufacturers do? Do they increase the prices to keep their margins or do they amend the product?

Well it seems that both Nestlé and Cadbury have been quietly shrinking the size of some of their chocolate bars on the market whilst at the same time pushing up some of their prices to maintain their profit margins.

A couple of years ago, some chunks of Cadbury’s famous Dairy Milk Bar were removed and the bar was reduced in size from 140g to 120g

Now whilst on the face of it some consumers may feel a bit cheated by this move it could arguably prove beneficial for waistlines.

Interestingly as well, will we see Poundland stocking a one chunk £1 Toblerone in a few years time?

Fancy nipping down the pub for a quick pint and maybe grab a latte and a croissant?

When I was in my teenage years, pubs in England were a very distinctive place; dark, smoky, slightly smelly, overwhelmingly male and mostly shut.

A legacy of previous societal norms meant that women rarely went into pubs unless they were with men.

A legacy of World War One legislation meant that drinks could not be served after 10.30pm or 11pm.  This generally meant a few hours of seriously intensive binging from about 8pm to 11pm, mostly on two nights per week.

croissantThis state of affairs was not great for earning a commercial return.  Pubs often occupy prime sites at expensive rental.  Trying to recover the operating costs of a business when the assets are only utilised for 10% of the time is a challenge and a half.

The first marketing innovation was to make pubs far more female friendly.

Curtains over windows were abolished in favour of plate glass windows.  Pubs started to sell a choice of wines.  The smoking ban came in.

Women were far now more likely to go to a bar with friends because the environment seemed less intimidating.  Unsurprisingly, where groups of young women went, groups of young men followed.

Doctors worried about the effects of all this on the nation’s health, but the tills kept ringing.

Laws governing opening hours were relaxed a few years ago, with some predictable, but probably transitional, issues of overindulgence, as a nation used to nanny closing the bar at 11pm now continued to serve, as people continued to drink at the, erm, efficient rate the previous law had dictated.

JD Wetherspoon runs a chain of bars in the UK, mostly in sites that previously were not bars. Car showrooms are a particular favourite choice of location because of the big windows that attract passing impulse customers.

They have started to open their city centre bars early in the morning, in an attempt to attract an extra crowd.

Some chains have slightly different staff uniforms in daytime and the evening; pseudo-Parisian coffee bar by day; unfussy drinking den by night.

The result is that JD Wetherspoon claims to sell 400,000 breakfasts per week (only McDonalds are bigger, with 600,000).

A recessionary environment means that customers have become open to the idea of hanging out in Wetherspoons with a cheap latte instead of a more expensive option in Starbucks.  It has achieved this growth remarkably quickly, as it only started to open for breakfast last year.

It’s a wonderful example of innovative business change, asset utilisation and absorption costing.

So, what’s this all about? Are things changing? Is it a load of bear or a load of bull?

The major stock markets around the world have been bear markets for the last couple of years but with the end of the recession looking like it’s here we should soon see a switch to a bull market.

Analysts around the world will be arguing one way or another on the timing of the recovery but where do the terms “bear market” and “bull market” come from?

There are two main views on the origin of these terms.

The first view is based on the methods with which the two animals attack.  A bear for example will swipe downwards on its target whilst a bull will thrust upwards with its horns. A bear market therefore is a downwards market with declining prices whilst a bull market is the opposite with rising prices.

The second view on the origin is based around the “short selling” of bearskins several hundred years ago by traders. Traders would sell bearskins before they actually owned them in the hope that the prices would fall by the time they bought them from the hunters and then transferred them to their customers. These traders became known as bears and the term stuck for a downwards market. Due to the once-popular blood sport of bull and bear fights, a bull was considered to be the opposite of a bear so the term bull market was born.

Whatever the actual origin of the terms though I’m sure most people will be relieved when we return to a bull market.

What has Liverpool FC got in common with an American newspaper?

John W Henry is the principal shareholder of the Fenway Sports Group. The company owns the American baseball club the Boston Red Sox as well as the English football club Liverpool FC.

Liverpool Home KitIn addition to his interest in sports teams, Mr Henry has recently purchased another business. This business though is a far cry from the hallowed turf of Liverpool’s famous Anfield ground.

Mr Henry has just purchased the American newspaper, The Boston Globe for $70 million.

The Boston Globe is one of America’s best-known newspapers and Mr Henry purchased it from the New York Times Co.

Was selling it for $70 million a good deal for the New York Times Co?

It won’t come as too much of a surprise to most of you but the newspaper business has been hit hard by the rise of the Internet. Newspaper readers are now going online to get their news and in a lot of situations the news websites are free. Why should people pay for a newspaper when they can get their news free of charge on the Internet?

The end result for newspapers is that their readership has fallen dramatically over recent years and importantly their advertising revenue has also fallen. Advertisers are now moving their advertising spend elsewhere – for example, spending money on Google adverts rather than newspaper adverts.

Just how much has all of this impacted on the value of a newspaper?

To put it into perspective, last week the New York Times sold the Boston Globe to Mr Henry for $70 million.

20 years ago the New York Times acquired the Boston Globe for $1.1 billion.

In other words, the value of the newspaper has fallen from $1,100,000,000 to $70,000,000.

That’s a big drop in value and for those of you that like to visualise things, if you had a briefcase with $1 million in it, the value of the Boston Globe has fallen by an amount equal to over 1,000 briefcases full of a million dollars.

So, did Mr Henry get a bargain when he bought the newspaper?

Only time will tell but for any Liverpool supporter out there you’re maybe thinking that Mr Henry should have bought the Tottenham player Gareth Bale who is currently on the verge of moving to Real Madrid.

Then again, Mr Henry bought the Boston Globe for $70 million and Gareth Bale is reportedly valued at $135 million – nearly twice the value of the Boston Globe.

You can remove this barrier to entry but it may well kill you…

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Any organisation that can create a barrier to entry which prevents new competitors entering the market can, in theory, keep prices high.

Economies of scale (think Airbus or Boeing), branding (think Apple) and distribution channels (think Coke) are all excellent examples of barriers to entry but one of the toughest barriers to break through are government licenses.

If a licence is needed to operate in that industry then that is the ultimate barrier. After all, without the license the company can’t operate.

Japan is the home of sushi and as you would expect some of the top sushi restaurants can be found in Tokyo.

Sushi is fish and we all know that fish is healthy for you. It may come as a surprise then that one particular sushi delicacy in Japan could end up killing you rather quickly if it is prepared incorrectly.

Certain parts of the poisonous blowfish are considered by many to be the ultimate in sushi. It tastes gorgeous although to be honest I’ve never tried it so I’m taking somebody else’s word for this.

I’ve never tried it because I’ve never had the opportunity although even if I did have the opportunity I would have a few doubts. The reason is that as well as the edible parts of the fish, some of the organs of the fish are filled with poison called tetrododoxin which is more deadly than cyanide.

Now, if you’re eating blowfish then one thing for sure is that you want the chef to know what he or she is doing. You don’t want them making a little slip of the knife and including by mistake some of the poison as before you have a chance to say “does this fish taste a bit funny to you?” you would be on your way to a quick death.

The Japanese government have therefore heavily regulated this part of the sushi industry and there are only a handful of locations that have a licence to prepare and serve blowfish.

In October though new laws are coming into place which remove the need for a licence (or to use business strategy terminology, remove a barrier to entry).

So the good news for anyone that fancies trying some of the blowfish is that it’s likely to become a bit cheaper after October. The question though is whether price will be the key decision making factor when people are deciding to eat a meal which if prepared incorrectly could quickly kill you…

Bad news. You can’t buy a Ferrari because…

Do you drive a Ferrari?

Now whilst some of you may be lucky enough to say “yes” and some of you may be ambitious enough to say “not yet”, my guess is that most of you will answer “no” to that question.

ferrari-pricingIf you do however happen to be in the enviable position of being about to buy a Ferrari then I’ve got some disappointing news for you in that Ferrari has just announced that they will be limiting the sales of their luxury sports car.

Restricting sales of your product is a pretty unusual approach in business as most companies are keen to sell as many of their products as possible.

It’s quite a clever move by the Italian sports car manufacturer though as the reason they are scaling back on production is to limit the number of new Ferrari cars on the roads and to try to protect the Ferrari brand’s image of exclusivity.

The argument is that the more Ferraris there are on the road, the more common they will be so people won’t see them as prestigious exclusive items and won’t be willing to pay as much for them in the future. Limiting their production will enable Ferrari to keep their prices high.

The number of Ferrari cars sold in the first quarter of this year was up 4% with the company having a net profit of Euro 80m (an increase of 42% on the same period last year).

A very successful start to the year and in an attempt to continue the success the production will be limited to below 7,000 cars in 2013 compared to 7,318 in 2012.

So, sorry to break the news to all of you that were in the process of deciding what colour your new Ferrari was going to be but the good news is that they don’t appear to be restricting the number of Ferrari T-Shirts and baseball hats that are being sold.

Would you have ridden this wave differently?

I’ve got a couple of friends who are keen surfers. If you speak to them they will tell you that successful surfing is all down to getting the timing right and catching the wave at the right moment.

billabongIt looks like timing is also an important issue if you happen to hold shares in one of the world’s largest surfing brands.

Billabong is Australia’s largest surfwear company and is currently the target of a takeover bid.

Billabong was set up by Gordon Merchant in 1973 when he started making surf shorts on his kitchen table and selling them to local shops.

The company rode the waves of success over the following 35 years and developed a strong following amongst fashionable surfers (as well as a strong following amongst people who had never been near the sea!)

Back in 2007 the company was valued at A$3.8 billion (approximately £2.5 billion at today’s exchange rate) but unfortunately for the shareholders the global recession bit and faced with increased competition from other fashion brands the sales of Billabong products fell dramatically.

Last February the shareholders turned down an offer of A$842 million (£560 million) to buy the company.

Earlier this year the company reported their largest ever loss after writing off most of the value of its main brand.

It’s not exactly smooth water for the company and they are currently in sale discussions with a consortium made up of a former director and a private equity company. The value of the offer on the table at the moment is A$287 million (£190 million).

£2,500 million to £560 million to £190 million.

As they say in the surfing community, it’s all in the timing.

Would you lose weight to get a cheaper ticket?

Samoa is a small group of islands situated in the Pacific Ocean, approximately half way between Hawaii and New Zealand. I’ve heard it’s a beautiful place and hopefully one day I’ll be lucky enough to visit it. Following a recent announcement though then maybe it would be worth my while losing a bit of weight before I go there.

airline-flight-ticketsAlthough it’s only a very small country with a population of less than 200,000, the national airline has just launched a unique ticket pricing policy which if any of the major airlines followed would please one group of people but upset another group.

So who would be pleased and who would be unhappy?

Put simply – overweight people would be unhappy.

So what is their pricing policy?

Well, the airline has announced that ticket prices for their flights would be based on the combined weight of the passenger and their luggage. In other more blunt words, the fatter you are the more your flight ticket will cost whilst the slimmer you are the cheaper your ticket will be.

Are Samoa Air leading the way and will other airlines follow?

Arguably this is a fairer way of charging for flights as after all one of the major costs of airlines is fuel and the heavier you are the more fuel will be needed to move you through the air. This is especially true for the small planes that Samoa Air use.

It does also seem unfair when a slim person who has 1 kg of luggage above his or her limit is charged an excess luggage fee when somebody who is 50 kg heavier than them but is within their luggage limit doesn’t suffer an excess luggage fee.

Good luck to the airline with this novel pricing policy and also to their management accountants who will no doubt be monitoring movements in the average waistlines of the population when they are putting together their annual revenue forecasts.

What have Louboutin shoes and Cadbury chocolate got in common?

Whilst wearing Louboutin shoes and eating Cadbury chocolate would probably represent a pretty good night out for lots of women around the world, they are two very different products.

Louboutin shoes are top of the range designer ladies shoes that can cost well in excess of £1,000. They are worn by female auditors undertaking inventory counts in dusty warehouses some of the most famous (and wealthiest) women in the world.

Cadbury on the other hand are a UK company that has been producing chocolate bars since 1824.

So, what have they got in common?

The answer is colour and both companies have managed to get a trademark for the distinctive colour that is used in their products.

Most major companies will have trademarks on their name or logo but having a trademark on a colour is pretty unusual.

Louboutin shoes have a distinctive red sole and a couple of years ago they were successful in trade marking these red soles.

Cadbury has just been successful in registering its right to use their distinctive colour purple on their chocolate packaging. It wasn’t an easy process though as they first registered their right to use the colour purple back in 2004.

After they applied for the trademark 8 years ago, Nestle, a major competitor to Cadbury argued against the registration by Cadbury and the matter went to court.

The court case was finally settled this week with the judge deciding in favour of Cadbury.

This means that Cadbury are now the only company in the world that can have chocolate wrappers with the colour purple. Well, to be precise, they are the only company in the world that can have the Pantone 2685c purple colour on their chocolate wrappers.

Now, I’m an accountant and not an artist or designer but I do wonder just how different the Cadbury trademarked Pantone 2685c purple is from Pantone 2684, 2686, 2687…

Will this tablet give you a headache?

Has your computer ever frozen on you? Of course it has but don’t worry, it even happens to the experts.

We’ve all heard of Microsoft and their arch rival Apple.

Although they are often classified together, up until this week there was a major difference between them.

Apple is mainly a hardware company (think iPods, iPads and Mac computers) whilst Microsoft is a software company (think Windows operating systems and Microsoft office software).

It may have come as a bit of a surprise therefore that last week saw the announcement that Microsoft would soon be selling their own tablet computers. At a launch in LA, Microsoft showed their upcoming tablet which goes by the name of mPad (actually, I made that last bit up about the name mPad as it is in fact called “Surface” but personally I prefer mPad).

As a strategic business move this is quite risky. Using their software in their own hardware will have obvious advantages in terms of the potential to win some of the market share from Apple but do they risk upsetting some of their major customers?

OEM’s (Original Equipment Manufacturers) such as Hewlett-Packard and Acer use the Windows operating system in their PCs.

Putting it another way, companies like Hewlett-Packard and Acer have a supplier (Microsoft) who has now suddenly become a competitor.

Are they going to be happy paying a supplier who is now directly competing with them?

Maybe the question is irrelevant though as after all, what other operating system could they use?

The other interesting thing was that the launch was very “Apple like” with the presentation being very slick.

Well, I say very slick but there was one moment when Microsoft boss Steve Sinofsky had just explained to the audience how users could “browse smoothly” when you guessed it, the device froze.

The video below shows Mr Sinofsky in action when the new tablet froze at the opening presentation.

Would a pizza encourage you to get a vasectomy…

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Companies often offer incentives to encourage people to sign up for their products or services.

BOGOF is a term that’s well known in marketing circles.

It stands for “Buy One Get One Free” and as the phrase implies it is a sales promotion encouraging people to buy a product or service. If they pay for one they’ll get the other one free.

In a somewhat unusual approach to promoting a particular service, a doctor in Massachusetts in America is currently offering a free pizza with every vasectomy.

Now, call me old fashioned but the decision as to whether or not you get a vasectomy should in my opinion be driven by other factors other than the offer of a free Spicy Meat Feast Deep Pan Pizza.

Evan Cohen, the manager of Urology Associates who are offering the promotion was quoted as saying that March is the most popular month for vasectomy operations.

Apparently the Spring weather offers a more comfortable recovery period than other months and also for sports lovers March has what is known as “March Madness” when the NCAA’s college basketball tournament takes place. This tournament features 68 basketball games on television throughout the day and evening for most of March.

So, there you go. Who needs a BOGOF promotion as what better incentive can there be to have a vasectomy done that sitting at home with your feet up watching basketball and eating a free pizza??

The TV commercial by Urology Associates advertising the free pizza offer is below.

Fast food or slow drinks?

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What price should you charge for your products?

As any professional business qualification student knows, there are several different pricing strategies that can be used when setting the price for your product.

vodkaYou could for example base it on the internal factors of how much it costs you to produce (cost plus pricing) or you could use external factors such as how much a customer is willing to pay for it (perceived value pricing).

So if you owned a cafe what pricing strategy would you use?

Well over in Moscow in Russia a new cafe has taken an unusual approach to pricing.

The trendy Babochki Anticafé does not charge for food and drink. Instead the customers are charged according to the time they spend at the cafe.

Customers pay one ruble and 50 kopecks for each minute they spend at the cafe. This works out at approximately £2 per hour.

Now this got the accountant in me thinking as I must admit that I am partial to the occasional social drink and there are some very good Russian vodkas out there.

A pleasant evening spent drinking some of the top (and very expensive) Russian vodkas at £2 per hour seems like a good deal (even allowing for the charge for the time when I fall asleep in the cafe at the end of the evening)

Alas for anybody thinking of grabbing a drinking bargain the refreshments are limited to tea, coffee and deserts.

Still, it’s certainly a novel approach to pricing food and drink and we wish the Anticafé well.

What would you do if your credit card balance was this big?

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Sometimes it’s difficult to get a feel for economics and the concepts and amounts involved.

A friend sent me an email that’s doing the rounds on the internet and it emphasises rather nicely the issues behind the financial problems that the US currently faces.

It moves away from “grown up economic terms” to instead use an example about the US financial problems which people will find easy to understand.

They may also however find it a bit shocking.

The US financial position can be succinctly stated as:

1.    US Tax revenue: $2,170,000,000,000
2.    Fed budget: $3,820,000,000,000
3.    New debt: $1,650,000,000,000
4.    National debt: $14,271,000,000,000
5.    Recent budget cuts: $38,500,000,000

Now, if you simply remove 8 zeros and imagine it is a household budget you’ll get the following:

1.    Annual family income: $21,700
2.    Money the family spent: $38,200
3.    New debt on credit card: $16,500
4.    Outstanding balance on the credit card: $142,710
5.    Total budget cuts: $385

There. It’s easy. Who said economics was difficult?

Now, how do we go about extending the credit card limit again?

What is about 20% of your height and could make some companies very happy?

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Here’s a good question – what is about 20% of your height and could help a number of fashion companies to increase their sales by a significant amount?

The answer is a “mini-me”.

Top fashion brands such as Burberry, Barbour jackets and Ugg boots have all seen increases in sales of certain items of clothing recently and some people are putting it down to the ex-Spice Girls singer, model and husband to David, Victoria Beckham.

Mrs. Beckham recently took time out from shopping to give birth to a baby daughter called Harper.

Photos in the press show that baby Harper is not only a cute looking baby but that she also follows her mum in the fashion stakes.

Now whilst Harper is only a few weeks old and therefore doesn’t get overly involved in detailed discussions with her mum as to what she will wear, the photos show that mother and daughter are wearing matching outfits.

This has resulted in a boom for sales of “mini-me clothing”.

A fashionable mum who owns a Burberry trench coat for example can now buy a mini version of exactly the same coat for her young daughter for £375.

If mum wears the trendy Australian Ugg shoes then the lucky baby daughter can also own her own pair for £104.

Anyone with young children will appreciate that they grow at a remarkable rate and this got the accountant in me thinking about the “cost per hour of use ratios” that will apply to these clothes purchases.

Unless your dad goes by the name of David Beckham then I think the resulting figures will be a bit of a shock…

Should you get married if you’re a finance person?

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Marriage – that traditional bond between man and woman where they share their journey through life. Joining in together with the good times and the bad times but above all being a symbol of ultimate love between a man and a woman.

That’s all very nice but forget about all that romantic stuff, if you’re a finance person is now the right time to get married?

One of the cornerstones of a marriage is the gold wedding ring and they are likely to be getting more expensive in the near future as yesterday the price of gold hit a new all time high record price of $1,610 an ounce.

Why has the price suddenly shot up? Is it because the world has suddenly got all romantic and there has been a surge in demand for gold wedding rings?

The answer has nothing to do with weddings but rather the case that gold is seen as a “safe haven” for investments during times of global economic uncertainly.

With the current economic problems in Greece and thoughts that high debt countries such as Italy and Spain may get drawn into the crisis, investors are avoiding shares and government bonds and instead investing in gold.

So, looking on the bright side for those of you that are about to get married, although your wedding ring is likely to become more expensive to buy, not only will your “emotional wealth” hopefully grow after you get married but so will the value of the gold investment on your finger.

Then again, whether you’ll ever be looking to sell your wedding ring at any stage in the future is another discussion altogether…

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Get rid of the Michelin star and you’ll be a better restaurant…

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Running a successful restaurant is tough.

Whilst a good restaurant can me it look easy, there are a lot of things you need to get exactly right to be successful. Everything from the ingredients, the menu, the chef, the ambiance and the waiting staff have to be just right.

Plus don’t forget that it’s a very competitive industry with new restaurants popping up all the time.

Perhaps one of the best differentiators a restaurant can hope for is to earn the renowned Michelin star. This award it only given to the most elite of restaurants.

As with a lot of businesses that adopt Porter’s generic strategy of differentiation, creating differentiators comes at a cost.

La Lisita restaurant in the French city of Nimes is run by top chef Olivier Douert and received its first Michelin star in 2006. It has however just done something that many people would consider unthinkable.

Namely, they have voluntarily given back their Michelin star and reverted to a “standard” restaurant.

Surely this is commercial suicide?

Giving up the most prestigious award a restaurant can achieve can’t help the restaurant, can it?

In fact though they may well be better off as a result.

The restaurant has given up the star so that they can reduce their costs to a more reasonable level. There are several requirements for having a Michelin star. These include having a minimum ratio of one waiter for every five to six customers compared to a standard restaurant where the ratio is closer to one waiter for every twenty customers.

It was proving difficult for La Lisita to recover these additional costs as higher spending customers weren’t visiting as often as they were before the financial crisis so they decided to drop the star.

They are still planning on serving great food but under a slightly different model.

Could this be the first of many restaurants that obtain the Michelin star to prove that they can but then revert to a different model to make more money?

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Do you wear cheap chic or luxury clothes?

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Floods earlier this year caused significant damage to major cotton crops around the world. A knock on effect of this is there is now a shortage of cotton and as a result cotton prices are currently at record highs.

“Cheap Chic” is a business model adopted by various clothing companies where, as the name suggests, clothing is made as cheap as possible but at the same time designed to be fashionable.

We’ve blogged elsewhere about Primark’s techniques for producing cheap clothing and yesterday another leading producer of Cheap Chic released their results.

Hennes & Mauritz, or H&M as they are commonly known, released their latest figures and they weren’t particularly attractive. They showed a 3rd consecutive fall in quarterly profits.

One of the main reasons for the fall in profits was the high price of cotton.

At the cheaper end of the clothing market the cost of material as a proportion of total cost is a lot higher than when compared with luxury brands such as Prada and Burberry where the material proportion is a lot lower. These luxury brands will instead have a higher ratio of other costs such as design, branding and marketing.

Back to H&M though and they have decided not to increase their prices to offset the higher material costs. Instead, they have accepted lower margins.

This contrasts with other clothing companies such as Next who have increased their prices due to higher costs.

70% of H&M is controlled by the founding Persson family so they have the power to maybe take a more long term approach to this issue. They are reportedly accepting lower margins on individual items with the hope of recovering this by increasing their share of the market due to their lower prices.

To me this is an interesting strategic business debate on how to deal with the knock on effects a natural disaster can have on the retail clothing market. Only time will whether H&M have done the right thing in accepting lower margins or whether they should have increased their prices along the same lines as Next.

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Would you criticise me if I spent ALL of YOUR bonus on alcohol?

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One of the ways that governments around the world have tried to kick start the economy during the recent recession has been through the reduction of interest rates.

10 years ago the Bank of England base rate was 11.38%.

Today, the current rate is 0.5%.

If individuals have variable rate loans or mortgages on their home and the interest rate falls, their interest payments will also fall.

As a result these people will have more money in their bank account and in theory this additional money should make them feel more relaxed about buying goods. If these additional goods are purchased then the economy is stimulated.

Lower interest rates may also encourage individuals and organisations to take out new loans. This money can then in turn be used to buy products which again should stimulate the economy.

Now, whilst low interest rates are good for people that are borrowing money, they are not so good for people who are investing money and looking to receive interest on the cash they’ve invested.

Certain parts of the population are more reliant on interest received as part of their income than others. Pensioners for example, who are no longer working can be hit particularly hard as they often rely on interest income.

I’ve just had a quick look at the internet bank Egg.

Egg was established in 1998 and 4 years ago was bought by Citigroup (Citi). It’s one of the top internet banks around and offers good interest rates when compared to some of their competitors.

But what sort of interest rate do you get?

The Egg site today includes the following text:

“Egg Savings Account – watch your money GROW.

Get 0.60% gross pa/AER variable and watch your savings grow.

Includes a fixed 12 month introductory bonus rate of 0.10% gross pa/AER from the date your account is opened on balances from £1 to £1 million.”

The accountant in me likes to play with figures so let’s just think about this for a moment.

If you open an account with Egg with a £1,000 deposit, after the first year you’ll receive a bonus of £1.

Yes, a whole £1.

My favourite drink is London Pride beer and a pint will set me back £3.50.

Just think, in one year’s time if I invested £1,000 in the Egg savings account I could blow the bonus on just over a quarter of a pint of beer.

Then again, I couldn’t actually buy a quarter of a pint as I’d have to pay tax on the £1 bonus received…

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What a remarkable change of direction for a car but are the guns safely locked away?

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Land Rover and Jaguar cars are classic British cars but their fortunes have really changed over the last couple of years.

This turnaround has arguably been due to “Globalisation”.

Land Rover was established in the UK in 1948 and manufactures the famous 4×4 off-road vehicles including the Range Rover whilst the first Jaguar cars came off the production line back in 1922.

A few years ago Jaguar Land Rover (JLR) was loss making and was asking for UK government support to keep it afloat.

The support from the UK government never came and the JLR business was bought by India’s Tata Motors for £1.5 billion in 2008.

This week the company announced its results for the year to 31 March 2011 and it has made a remarkable journey over the last couple of years.

The latest figures show revenues 51% higher than the previous year at nearly £10 billion with the number of cars sold being up 26% to 243,621.

What has caused this turnaround and why the reference to Globalisation?

Well, the British car company was acquired by an Indian company. This Indian company injected serious amounts of money to fund investments including new car models.

Although the cars are made in the UK, 75% are exported around the world. The last year has seen an acceleration of demand for the luxury JLR models in emerging markets such as China and Russia and these are the main growth areas.

So, a British car company owned by an Indian company selling to Chinese and Russian clients.

Ignoring the fact that a base model Jaguar or Land Rover is already pretty expensive it appears that some of this new demand wants to spend even more on their cars.

If £85,695 for the Range Rover autobiography isn’t enough to spend then there’s also the possibility to have a bespoke Range Rover model made for £140,000.

Amongst other things the extra £54,000 does however buy you a hand crafted gun cabinet in the boot for when you go hunting as well as a drinks cabinet which includes free drinks for the first year of ownership.

With alcohol, guns and a powerful car involved I’m assuming that after spending £140,000 the owner can afford to pay for a sober chauffeur to drive the car.

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What has the end of the world got to do with business strategy?

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Mr Harold Camping, an 89 year old evangelist from America predicts that tomorrow Jesus Christ will return to earth and true followers will be swept up, or in his words “raptured”, to heaven.

He predicts that giant earthquakes will sweep across the world to mark the start of the destruction of the earth and with the exception of the 200 million people that will have been raptured to heaven the rest of the world’s population will perish during the earth’s destruction.

Now, with a little bit of luck you’re sat at your desk with a cup of coffee reading this and the world didn’t come to an end on Saturday.

There’s a nice business strategy example in this though and it also involves a number of pet dogs and cats…

Some of the better known business strategy models include:

The Rational Model – the “original” strategic planning model with 3 clear steps of Analysis – Choice – Implementation.

The Emergent Model – made famous by Mintzberg’s analysis of Honda’s entry to the US motor bike market.

Logical Incrementalism – small regular changes to the strategic approach.

And then there is the concept of “Freewheeling Opportunism”. This is the situation where an organisation doesn’t have a formal plan but takes advantage of opportunities as and when they arise.

In a classic freewheeling opportunism move an American entrepreneur has just set up Eternal Earth-bound pets. This business offers a service to those individuals with pets who believe that they will be raptured tomorrow.

Unfortunately the rapture process highlighted by Mr Camping doesn’t allow people to take their pets. Eternal Earth-bound pets has taken quick advantage of this by offering a service to look after the pets after their owner has been raptured.

As at the time of writing, more than 250 clients have paid $135 for their pets to be looked after after the rapture.

Eternal Earth-Bound Pet’s tag line on their website is:

The next best thing to pet salvation in a Post Rapture World

Eternal Earth-bound pets has a no refunds policy if the end of the world doesn’t happen…

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Are they really going to get their money’s worth for $8.5 billion?

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What was founded 8 years ago by 2 entrepreneurs and was last week bought by Microsoft for $8.5 billion?

Little did Swedish entrepreneur Niklas Zennstrom and his Danish colleague Janus Friis realise that the Skype product they introduced back in 2003 would be worth a mighty $8.5 billion 8 years later.

Skype, whose name comes from the abbreviation of the initial project name of “Sky peer-to-peer” has turned into the most successful online voice and video phone service.

It has over 650m users with the vast majority of users only use the free call facilities.

Even allowing for its success in terms of the numbers that use it, it’s still a pretty hefty amount that Microsoft paid for it.

If you look at the history of the company you’ll see that Zennstrom and Friis founded it in 2003, it was then purchased by eBay for $3.1 billion in 2005 in the anticipation that it would be integrated into their online auction site to help people negotiate over their purchases.

This wasn’t a huge success and eBay cut their losses when they sold it 4 years later to a group of investors with the company valued at $2.75 billion.

The investors that bought it from eBay though have done pretty well.

With Skype being valued at $2.75 billion in 2009 here we are 2 years later with Microsoft buying it for $8.5 billion – a pretty healthy return of approximately 300% over a couple of years.

If you look at the figures behind Skype then some people will argue that Microsoft have paid over the odds for Skype.

In summary, the latest reported annual figures for Skype are:

Sales: $860 million

Profit (eh, actually it’s a loss): ($7 million)

Amount Microsoft paid for it: $8.5 billion (or $ 8,500 million)

So, Microsoft paid $8,500 million for a company whose most recent reported annual results showed a loss of $7 million.

These figures clearly show that Microsoft are hoping to create a lot of value from the acquisition of Skype and possible integrations discussed include using Skype within Microsoft Outlook and their computer game XBox.

This is a big amount of money to recover though and only time will tell whether the largest acquisition in Microsoft’s history will turn out to be a good call or not.

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The flight is cheaper than a single piece of paper…

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Ryanair is Europe’s largest low cost airline.

Their strategy is very much based on cost leadership and is a classic “no frills” approach on the strategy clock model.

In simple terms you don’t pay a lot for the service but at the same time you don’t get a lot. This approach can be very successful when comparing for example to another extreme where you pay a lot but don’t get a lot!

It released its results for the final quarter of 2010 today.

Air traffic control strikes and the bad weather in December were blamed for the Euro 10 million loss that was reported although the company is still confident of achieving full year profits of between Euro 380 million and Euro 400 million for their year ended 31 March 2011.

The average fare during the last quarter was reported as being Euro 34 and this will get you the flight and that’s about it. Extras which require additional payment include taking hold luggage, payment by credit card and seat allocation.

Their whole ethos is to minimise their costs. For example, they have a pretty aggressive policy when it comes to boarding passes.

Their terms and conditions state that passengers must print out their boarding pass at home. If they fail to do so and need one printed out at the airport then Ryanair will charge the passenger £40 to print the one piece of paper.

£40 to print a single piece of paper is pretty high but Ryanair argue that if passengers print out the boarding pass at home then it saves the cost of employing check in staff at the airport.

They have reported that people who forget to print out the boarding pass and are subsequently charged £40 remember to print it the next time.

Of course, it could be that if they’ve been charged £40 for printing one piece of paper then “next time” may well be with another airline as opposed to Ryanair.

The sound of the tills ringing was music to their ears even though there was no music in the shop…

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Christmas shopping for me is normally a last minute rush before the shops close on 24 December.

This year though I was determined to be organised and last weekend headed off to hit the shops in London’s West End.

It was a pleasant surprise to find that arguably the two most famous shopping streets in London (Oxford Street and Regent Street) were car free as they had been shut to traffic to encourage early Christmas shopping.

Although the streets were closed to traffic the number of shoppers made up for it. It also seemed as though every other shopper walking along Oxford Street was carrying a Primark shopping bag.

For those of you that haven’t heard of Primark, they are a very successful budget clothing brand with 145 shops in the UK together with an additional 62 shops in 6 other countries.

They compete via a classic cost leadership strategy whereby they keep their costs low by way of a variety of business techniques including for example:

•    Purchasing  stock in huge quantities so as to benefit from economies of scale;

•    Only stocking items in popular sizes so as to avoid “using up” valuable shop space with items that don’t sell so well;

•    Minimising advertising spend (why pay models and magazines when they can let their prices do the advertising for them?);

•    Not playing any music in its stores (why pay licence or royalty fees to artists?).

As well as focusing on cost leadership they are masters at “fast fashion”. In other words, they manage the supply chain to get the fashionable styles into the shops as quickly as possible so that they match the very latest designs that are seen on the catwalks and in the fashion magazines.

Gone are the days of fashion having 4 distinct seasons as far as Primark is concerned.

With so many people carrying Primark bags last week then my suspicion was that they were doing very well with their sales.

Press reports yesterday did indeed indicate that Primark did very well at the weekend.

It was reported that they had their most successful one day single shop performance in their 41 year history on Saturday.

The tills at their Oxford Street branch rang up to the tune of £820,000 in the one day.

Whichever way you look at it that’s a pretty good figure for one day’s worth of sales at a single shop.

Their cost leadership approach to strategy seems to be working. As well as their success on Saturday, their reported profits for the 53 weeks to 18 September 2010 showed profits increasing by 35% to £341 million on sales up 18% to £2,730 million.

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.

Is this your shopping list: bread, milk, eggs and Viagra?

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Monday could be a big day for a lot of people.

Tesco, one of the leading UK supermarkets, will commence selling the erectile dysfunction drug Viagra.

Viagra has been a huge success for Pfizer. It’s one of their blockbuster drugs and millions of the little blue tablets have been sold over the last 10 years.

One of the drawbacks though for a lot of men that want the drug is where to get hold of it from. In the UK you generally need either a doctors prescription or to risk buying it from potentially suspect internet sites.

Tesco are one of the most successful supermarket chains in the world. In strategic Ansoff’s Matrix terminology they have done very well with market development (4,811 stores in 14 countries with an amazing 2,482 stores in the UK alone) together with product development (an estimated 40,000 product lines ranging from pizza to petrol to perfume).

Tesco are about to add another product line to their offerings and from next Monday shoppers will be able to pick up Viagra from over 300 Tesco stores.

As finance people we know all about the challenge of getting pricing decisions right.

Tesco are not the first mainstream chain of stores to stock Viagra. Last year, the high street chemist Boots became the first store in the UK to sell Viagra without a prescription. You can currently buy 4 of the blue pills from Boots for £55.

A price skimming or premium pricing strategy for Tesco wouldn’t really work as the Viagra market is a mature market. Tesco has instead undertaken a classic penetration pricing strategy whereby they price the product at an attractive price with the aim of growing its market share.

From Monday, you will be able to buy 8 of the blue pills at Tesco for £52.

Whilst the per tablet charge at Tesco is a lot lower than what can be found at Boots, £52 is still a significant amount of money. There’s a recession on and times are hard for a lot of people. Only time will tell whether Tesco made the correct pricing decision.

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?

“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…

Things are getting more expensive in China but is this good news for McDonalds?

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A report issued by Credit Suisse this week highlighted the fact that costs of manufacturing in China are on the increase.

Average salaries for example have increased from $1,000 per annum in 2000 to nearly $4,000 in 2010. This increase, together with the cost of transporting goods to Europe and America, means that the cost base has increased significantly and importantly is likely to continue to increase.

A number of companies have invested in China principally on the basis of their low cost base.  The rising cost base though is causing concern for a number of companies.

Will they be able to switch production to other low cost locations such as Bangladesh or Vietnam? They probably will be able to but it could be costly.

Will they be able to pass on these cost increases to the end consumer by way of price increases? Given that we are only just starting to come out of recession my guess is that this will be challenging to say the least.

But does all of this really come as a surprise? With the explosion of globalisation over the last couple of decades and companies manufacturing in cheaper location or “off shoring” services then surely it’s simply a case of supply and demand.

If companies set up offshore operations in a certain territory which is renowned for having, for example, good quality cheap IT skills then when other companies join them there will be a surge in demand for these individuals and wages will increase.

It will take a number of years or even generations but some people’s view is that eventually there will be very similar wage levels wherever you are in the world.

Back to the increase in wages in China though and whilst this will be bad news for a number of companies there will also be companies that will benefit from the increase in local spending power. McDonalds for example are no doubt licking their lips in anticipation at all the Big Macs that could well be sold in China in the near future.

Is this the real Willy Wonka? After all he bought enough chocolate on Friday to make over 5 billion bars of chocolate.

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Anthony Ward, a British financier who set up hedge fund Armajaro Holdings, bought a huge chunk of chocolate on Friday.

To be precise, he spent over £650 million buying 241,000 tonnes of cocoa beans.

This was the highest single purchase of cocoa for nearly 15 years and happened as cocoa bean prices rose to their highest level for 23 years. On news of the purchase cocoa futures for July delivery jumped by 1.5%.

The trade took place on Liffe (the London International Financial Futures and Options Exchange), a market which trades contracts in commodities such as sugar, coffee and cocoa.

As well as the sheer size of the transaction the strange thing about it was that Mr. Ward’s company has actually taken delivery of the cocoa. This is very unusual as the vast majority of cocoa transactions normally involve traders exchanging option or futures contracts without actually taking possession of the beans.

So why has he purchased so much chocolate?

He’s a very astute and wealthy businessman who reportedly lives in a £10 million house in Mayfair, London.

The speculation is that he is stockpiling huge volumes of cocoa in order to be in a strong negotiating position. Harvests in the cocoa heartlands of Ghana and Ivory Coast have recently been weak and there is an increase in demand for chocolate in the Chinese and Indian markets.

It looks like chocolate prices are on the rise so what better excuse for me to stock up on some chocolate before the price rises. Somehow though I don’t think my stockpile will be anywhere near Mr. Wards…

Are Go-GO Hamsters skimming into my Christmas shopping?

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My 9 year old niece is a lovely girl and has some great characteristics. One of my favourites is that she’s a determined little girl who knows exactly what she wants! Christmas is fast approaching and top of her Christmas present list this year is a “Go-Go Hamster”.

For those of you outside of the UK you may not have heard of these toys. They are small battery operated hamsters with a retail price of £10. They are the latest must have toys for Christmas. I was determined not to leave Christmas shopping until the last minute this year and went off in search of some Go Go Hamsters. A slight problem however in that the shops have sold out of them! The big chains such as Toys R Us have sold out and even exclusive Hamleys in London has sold out.

A quick look on certain websites such as E-bay however shows that it is in fact possible to buy Go Go Hamsters. Some are being sold for more than £50 which when comparing to their retail price is a hefty mark up.

Anyway, back to ACCA Paper F5 and CIMA P2 and what exactly does my Christmas shopping list have to do with these papers? Students should be aware that Price skimming is where prices are set at a high price to catch customers willing and able to pay the price. Are we seeing an unofficial price skimming approach by individuals selling Go Go Hamsters?? Some may argue that it is simply individuals taking advantage of supply and demand and selling at a profit. The important thing for paper F5 though is to be aware of the concept of price skimming as well as all the other pricing strategies that a company can adopt (if you’ve forgotten then have a quick look at pages 14 and 15 of our ExPress notes).

In conclusion, I won’t tell you whether I actually bought a Go Go Hamster or not in case a certain 9 year old niece is studying F5 at an early age….

Thinking of Christmas already?

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Pricing is an important area of ACCA and CIMA. There are a variety of pricing methods discussed in the syllabus including customer based pricing and competition based pricing. Broadly speaking, the former is based on the amount that customers would be willing to pay for benefits whilst the latter involves setting prices based on the prices of competing products.

In the UK, the Toy Retailers Association has just released their list of the top 12 toys that they expect to be most in demand in the UK this coming Christmas.

The interesting thing about the list is that the average price of the toys is just over £26. This compares to an average price of £32 in the Christmas 2007 list. This represents a fall of nearly 20%.

Has this fall been driven by cost savings by the manufacturer on labour or material? Or maybe reductions in transport and storage costs?

My guess is that the toy manufacturers are aware of the recession and the impact on parents buying power (customer based pricing issue). They are also aware that the toy industry is an extremely competitive industry and at the moment their competitors will be offering cheaper products (competition based pricing).

Either way, I’m sure that there won’t be a lot of children debating this issue on Christmas day when they open their presents!