Evaluate the opportunity that is identified by Chris and Val in the case using the analytical tools you have covered in class? What Chris and Val discovered was the dry cleaning industry was fragmented, low entry barriers and undifferentiated. The duo started off by working with two professional dry cleaning businesses where they could analyze customer relations, the running and fixed costs, the buying habits and customer retention rate. They found out that the stores were either plant stores or dry stores.
The Dry stores are either independently owned or they are owned by plants who own chains. The bridge that Chris and Val are trying to create for the customer is quality and cost of coming to get there cloths dry cleaned. The customer base they are trying to target is the working class; since many industries like oil industries require their workmen to wear specific suits and they have their own dry cleaning plants. There is a window of opportunity where Chris and Val could have a contract with the big industry for dry cleaning there.
There has been a gradual decline in business, the clean feels that the cost of maintaining the machines and hiring good staff is cutting down on profits. Since most customers cannot afford to have machines fixed in their own houses, they are forced to keep switching cleans and a 35 to 40 percent switch is considered normal for these business but it just keeps going around. People in smaller towns have lesser choices and people in big towns are still restricted to their neighborhood.
Another consideration is the space cost; a plant store will easily spread over thirteen hundred to two thousand square feet whereas five hundred square are required for a dry store. Often strip malls include a dry cleaning store, where the rent cost can vary depending on the location of the mall itself. Many stores are located next to grocery stores, so when people come to buy groceries they can also come and get their cloths dry cleaned but the cost of renting a place next to a grocery store is still pretty high; around $18 to $30.
However, for the DAG group, there is a window of opportunity where a good investment, wisely managed administration will ensure customer loyalty and good profits in the long run. One thing to be kept in mind is that no customer is going to spend extra money on gas going to the other end of the town to get the cloths dry cleaned better. They might do it for special occasions to ensure the quality of the cleaning and to make sure the fabric is protected but that would be targeting a niche market which is often not the most profitable.
Chris and Val got together and carefully studied the customer segment that comprises of the market base, and they decided that they could be classified in three categories. The heavy users that dry clean their cloths nearly every day or every other day form the minority of the customers since they belong to white collar professions where they wear expensive clothes, and are more concerned about missing buttons or things that come to notice, time that they spend with the cleaners and convince rather than the quality of the dry cleaning itself.
However, since women also form a bulk of those customers, they are likely to notice poor quality of cleaning and switch the stores so it would be better to provide good service, and customers will be willing to pay an extra dollar in return for good services. As far as these affluent customers are concerned, they will merely complain about the price out of habit but they really are not interested in knowing how much they are spending. Any coupons and discounts available to regular clientele or on bulk orders are going to resolve the issue of costs. In this case, the customer might get carried away and bring in more clothes.
Then they are light users who dry clean their cloths regularly but do not use the store services much. They do care about quality and convenience and they are also price sensitive so they are more likely to dig for coupons and promotional offers. Then at the bottom of it are the occasional customers who will come maybe once a month to get clothes dry cleaned for special occasions like Christmas and weddings. They have the least amount of customer loyalty and will simply take their clothes to a more affordable place if they can find one, or if the costs are even raised a little.
The key success factors that were identified by Chris and Val is that they offered the most consistent services, which does not have to be the best but the customers are more concerned about the fact that there should be no stains and no missing buttons and the clothes should be returned timely. This success factor needs loyal employees and a diligent store manager who checked the clothes after they had been cleaned. Most often the success of the business is based on the amount of effort put in by the owners, who thought of themselves as good business and not just as cleaners trying to earn a living.
With professionalism, they realize the importance of good code of ethics and conduct, keeping and maintaining a good workforce, hiring professional and experienced managers to run their stores and keeping good financial records. Along with it, keeping in touch with your customers and addressing these issues and concerns also helps to run the business better. The happier the customers, the better the business would flourish since word of mouth matters in the service industry. Another important factor is the long hours.
Customers are likely to come and drop their clothes if they can do it after they are done with long working hours, (healthcare workers are usually short of time and come back from work late) and if the turnover rate is good. Having a 24 hour dry cleaner shop and being open on weekends would help attract even the busiest of customers from all walks of life. College students are usually short of time and prefer doing their chores on weekends so te services offered would also attract them. Location and appearance mattered to the customers, they preferred stores in busy areas, where they could run other errands while dropping off clothes.
Along with this, good neat clean parking spot and well lit areas attracted the best and most customers. The DAG eventually came up with a strategy of their own which included number of important factors, like building up large plants ‘superstores’ which were capable of supporting about $750,000 in sale annually. The stores would be located in an area which is densely populated, which a good influx of people and they would be in attractive buildings with ample parking space. That is one of the key factors, since in dense areas, parking is the most difficult to acquire thus scaring away potential customers. Bewsey & Bewsey, 2002) The services that they would offer customers who would be able to pay premium price, about 10 to 15 percent higher than the average cost but would offer services such as Sundays open, long hours, quick turn over, and credit card facility.
That would be a good thing is many cleaners accept checks or cash only. Is the superb acquisition is an attractive opportunity for Chris and Val? Why or why not? Superb Cleaners is a North Virginia cleaning business out on sale. It is located on a freestanding building on busy street and the business has been declining ever since the store manager died of a sudden heart attack, nd the owner, owing to his other business interests and investment in the city does not want to bother with it. It has good quality of work and a spacious on site plant which is capable of doing more business than it is currently doing. This means that by proper allocation of resources; and proper management, it can become a good source of income for Chris and Val. However, they are concerns and problem with this business, a capital of at least $40,000 would be required to install washing machines since they only did dry cleaning and not laundry.
That is an increasing disadvantage because many clothes are washed and only certain kind of clothes require dry cleaning. (Fallek & Johnson, 2003) Customers would prefer using a facility which could provide them with both of the facilities. There is problem with the location, it is located on the ‘going home’ side and not many customers would bother to take a complete left turn to do laundry on their way to home and would prefer something that came on their way to or from the work, since it is more convenient. It also seemed over staffed, something that means that the business is not being properly run.
To acquire Superb cleaning for 450,000 with some share in the future would be a bad idea. The owners seems reluctant to let Chris and Val do some investigative field work on the site of a business and acquiring this and immediately laying off the extra employees would not be in the good will of the company. Since so much investment is required after the business has been purchased and it will take considerable time and effort to make it profitable and get good returns on the business, it would be a bad idea to purchase it. These are just the problems on the surface.
On acquiring the business the duo might find that the dry cleaning machines are old or cost too much to run so that would just lead them to debt. What are the advantages and disadvantages between acquiring a dry cleaner or starting on their own? Chris and Val have now spend 6 months doing market research in the area and they have come across very few cleans that they would hold as ideals. Majority of the stores are located in strip malls; the disadvantage being that there is absolutely no space to expand. There is no question of buying out more spaces or installing extra equipment in them.
Also, the timings would have been regulated with the strip malls which would not be able to meet their goals on long hours and Sundays open. Another disadvantage of buying up an existing store would be that it would take considerable time and effort to convince new customers that the business that has changed hands and is now going to provide better services. Once a customer gets a fixed idea in there head, it is very difficult to change and unless they can get more dedicated employees, new machinery and changes done to most of the business they buy it might not turn out to be a profitable venture. Dry Cleaning Delivery) The advantage of acquiring a dry cleaner would be that they would just have to take over and improve the working condition and the hunt for employees, training them on machines, acquiring new machinery would not be something to instantly worry about. Also, even if they would have a few customers, they would still be taking over a running business. The old financial records would be able to provide an insight into where they are losing profits and making losses and old records of customer complaints and suggestions can be dealt with.
The advantage of starting up their own cleaning business would give the space to Chris and Val to run it and set it up entirely by their choice. They can choose the kind of machinery, services and start building a good customer base from the very start. They can provide extra services and discounts as such. The biggest disadvantage of starting up their own business would be simply the capital involved, they have no house or equity on which they can apply for a house loan and Rainer would give them the start up the capital only on the condition that the profits would be spilt 50 percent with them.
Is there an opportunity to change the game? There is a window of opportunity to change the game in the cleaners industry but the reason why it has deteriorated is because the customers are not bothering enough about it. Increasing costs of dry cleaning has led to more people to buying clothes that can be washed, and many times it is cheaper to buy new clothes than to get the old ones dry cleaned and have they risked being spoilt. The idea behind changing the market is very challenging but it requires more capital than Chris and Val have access too.