Introduction
In the given case study, Bee Tan Corp is one of the leading e-commerce service provider. It provides a plat form for connecting the end customers and the merchants and is offering food services, online movie tickets and flight booking services as well. The company has had over 5 billion transactions in the last year cumulating to $340 billion of revenue excluding the commission charges. Though the mobile app of the company named BTM (Bee Tan Mobile) is amongst the top ten popular apps in the country but it is facing intense competition from one of its competitors Makan Corp which is also serving major portion of the domestic market (Belton, 2017). The company Bee Tan Corp is facing losses over last 3 years and is being considered as one of the complimentary service providers instead of an outright competitor and therefore the management is concerned towards the continuous losses despite the increase in the user and the revenue base.
Discussion and Analysis
Performance Analysis
The performance analysis of the company has been shown below in the table (Choy, 2018):
| (Amt in $’000) | |||
| Bee Tan Corp | |||
| Particulars | 2015 | 2016 | 2017 |
| Sales Revenue | 800,000 | 2,500,000 | 6,600,180 |
| Cost of Sales | 240,000 | 1,380,000 | 4,100,000 |
| Gross Profit | 560,000 | 1,120,000 | 2,500,180 |
| Selling and Marketing expenses | 1,440,000 | 1,710,000 | 2,300,000 |
| Research and development expenses | 220,000 | 490,000 | 758,000 |
| General expenses | 620,000 | 380,000 | 40,100 |
| Operating Losses | (1,720,000) | (1,460,000) | (597,920) |
| (Amt in $’000) | |||
| Drivers | 2015 | 2016 | 2017 |
| Annual transacting users | 200,000 | 245,000 | 300,000 |
| Average number of transactions per annual transacting user | 10,000 | 12,000 | 17,000 |
| Daily average food delivery transactions | 1,500 | 4,000 | 11,000 |
From the above inputs, we can see that the revenue of the company has increased multiple times in 2016 and 2017. The percentage of increase in the revenue has been staggering to the tune of 212% and 164% respectively in 2016 and 2017 (Erik & Jan, 2017). Furthermore in case the sales revenue per user us analysed, we can see that there is a considerable growth and it has increased from $ 4 in 2015 to $ 10.20 in 2016 and $ 22 in 2017. Similarly the cost per user has increased from $ 1.20 in 2015 to $ 5.63 in 2016 to $ 13.67 in 2017. In terms of percentage the same has increased from 30% to 55.2% to 62.1% and therefore the gross margin percentage has decreased from 70% in 2015 to 38% in 2017. The company has been efficient enough in decreasing the overall operating costs per user from 11.40 in 2015 to 10.33 in 2017 (Trieu, 2017).
In terms of the profitability, we can see that the company has declined in terms of gross profit but the rate of operating loss has declined considerably and has come down from 215% in 2015 to 9.06% in 2017. This indicates the company is improving rapidly in terms of profitability and it is expected that in a year or two, the company can be seen in profits. In case the reduction in operating losses is to be analysed as compared to the last year, then we can see that the same has declined 15% in 2016 and 59% in the year 2017 (Linden & Freeman, 2017).
In case the drivers are being used and analysed, we can see that there has been a gigantic increase in the number of overall transactions and the magnitude of increase has been 47% in 2016 and 73.5% in 2017. This goes on to show that the company has been concentrating in increasing the base of customers. Furthermore it can be seen that the cost per transaction has also not increased much over last 3 years and has moved from $1.26 per transaction in 2015 to $ 1.41 in 2017 (Heminway, 2017).
| Financial Analysis | 2015 | 2016 | 2017 |
| Sales revenue per user | 4.00 | 10.20 | 22.00 |
| Cost of Sales per user | 1.20 | 5.63 | 13.67 |
| Cost as a % of sales | 30.0% | 55.2% | 62.1% |
| Operating expenses | 2,280,000 | 2,580,000 | 3,098,100 |
| Operating expenses per user | 11.40 | 10.53 | 10.33 |
| Total no. of transaction | 2000000000 | 2940000000 | 5100000000 |
| Cost per transaction | 0.0013 | 0.0013 | 0.0014 |
| Operating Profit/(Loss) as a % of sales | -215.00% | -58.40% | -9.06% |
| Growth in Sales | 212.50% | 164.01% | |
| Reduction in operating losses | -15.1% | -59.0% |
From the above analysis, we can see that all in all, there has been a sustainable growth in the business both from the sales and profitability perspective. The increase in the customer base as well as the number of transactions per year is evident of the fact that the business has been progressing and growing year on year (Goldmann, 2016). The company forms the part of online business industry and there has been heavy competition off late in this industry due to the number of incentives that is being allowed to the customers. Furthermore there have been several new entrants as well in the business and so the domestic market is quite dispersed based on marketing and advertising strategy of the company and the ease of service being provided to the customer (Jefferson, 2017). Besides, the financial factors, the non-financial factors also needs to be given due regard when the performance evaluation needs to be done. For the continuity of the business, both the top line (sales/revenue) as well as the bottom line (net profit) is important and it is quite imperative from the calculations that the both have improved over the last 3 years along with the customer base but the management should be waiting for some more time for the company’s profit to break even.
Proposal to mitigate the losses
As is evident from the above calculations, though the company has been improving and growth in terms of revenue and the customer base and market reach, but the major concern for the management has been the continuous series of operating losses incurred by the company. Some of the ways which the company can implement to mitigate the losses in the upcoming years are mentioned below:
- The company should try to venture in to the local market where the company is not seen as one of the major competitors but only a complimentary service provider. The same can be done by improving the level of marketing and advertisement in the local market and giving more incentives and offers to the dealers and the customer respectively. This will have a two way benefit to the company as the local restaurants and cafes would be incentivized to sell the product of the company Bee Tan Corp and would thus promote the same amongst the customers rather than the product of the competitors (Alexander, 2016). Furthermore, with discounts and offers, the customers and the end users will be encouraged to use it rather than product of other company which would come at higher prices.
- The company can implement different types of pricing schemes which are available in the market. For example differential pricing can be used as one of the alternatives and the areas in which are remote and competitors are not situated, higher prices can be charged and the places and areas which is within the city and there is competitive pressure, lower prices can be charged (Marques, 2018).
- Furthermore, streamlining of all the operational activities and outsourcing the same to one vendor totally or doing it in house can be considered and evaluated. This will not only result in improving the work flow but there will be clarity of activities and the segregation of work and good internal control on the processes can lead to efficiency and effectiveness in the conduction of the operations and can fasten up the process (Raghupathi & Wu, 2018).
- The company should also consider going into bulk contracts with the vendors by offering discounts on the same. In this way, the entire production facilities will be utilised and the company can go for economies of scale and thereby reducing the overall cost of production (Werner, 2017). This can result in one of the major savings and thereby increasing the gross margin as well as the net margin.
- One of the other steps which needs to be taken up by the management is to reduce the operational costs such as those of research and development expenses and the general expenses of the business. This will help in reducing the operational costs and thereby helping in increasing the margins. Fixed costs like those of rent, electricity and other fixed costs cannot be reduced at times but the variable costs can be reduced by achieving economies of scale (Meroño-Cerdán, et al., 2017).
- The company should also be considering the option of outsourcing few of the food outlets and launching of the new complimentary features on the mobile app like those of home delivery at any time of the day, special incentive to first order, referral and bonus schemes to attract the crowd (Kewell & Linsley, 2017). This will help in increasing the traffic on the sites and increasing the number of clicks.
Conclusion
From the above discussion and analysis, we can conclude that the business of Bee Tan Corp has been a growing and prospering one in the last 3 years. It has made a huge improvement in increasing the overall sales revenue and has also been able to attract a huge market base and number of customers. But the major constraint with the company has been that it has not been in profits off late and has been suffering the operating losses and therefore the management of the company is concerned for the same. In the above section the financial analysis of the company has been done and ways have been suggested so as to improve the profitability and reduce the costs in the coming future. The heavy competition from Makan Group and its online app Makan Corp Mobile can be negotiated with the help of incentives and offers for the customer and dealers. Furthermore if the quality is good, it will lead to acquisition of customer base and help the company in becoming the market leader. Cost per transaction is one area which needs to be worked upon and reduced so that the company can make use of economies of scale.
References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp. 411-431.
Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd.
Choy, Y. K., 2018. Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis. Ecological Economics, p. 145.
Erik, H. & Jan, B., 2017. Supply chain management and activity-based costing: Current status and directions for the future. International Journal of Physical Distribution & Logistics Management, 47(8), pp. 712-735.
Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish Business. Financial Environment and Business Development, Volume 4, pp. 103-112.
Heminway, J., 2017. Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents. SSRN, pp. 1-35.
Jefferson, M., 2017. Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland. Technological Forecasting and Social Change, pp. 353-354.
Kewell, B. & Linsley, P., 2017. Risk tools and risk technologies.. The Routledge Companion to Accounting and Risk, 15.
Linden, B. & Freeman, R., 2017. Profit and Other Values: Thick Evaluation in Decision Making. Business Ethics Quarterly, 27(3), pp. 353-379.
Marques, R. P. F., 2018. Continuous Assurance and the Use of Technology for Business Compliance. Encyclopedia of Information Science and Technology, pp. 820-830.
Meroño-Cerdán, A., Lopez-Nicolas, C. & Molina-Castillo, F., 2017. Risk aversion, innovation and performance in family firms. Economics of Innovation and new technology, pp. 1-15.
Raghupathi, W. & Wu, S., 2018. The Strategic Association Between Information and Communication Technologies and Sustainability: A Country-Level Study. IGI Global, disseminator of knowledge, p. 26.
Trieu, V., 2017. Getting value from Business Intelligence systems: A review and research agenda. Decision Support Systems, Volume 93, pp. 111-124.
Werner, M., 2017. Financial process mining – Accounting data structure dependent control flow inference. International Journal of Accounting Information Systems, Volume 25, pp. 57-80.
