Internal factors influencing sales growth and solutions – the case of CAO fine jewellery co , ltd

CAO’s share of revenue contributed by customer classification Sources: Internal 2019 reports He supposes that the problem is the effective of marketing campaigns.. Without new design a

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-

TRUONG NHAT TIEN

INTERNAL FACTORS INFLUENCING SALES GROWTH AND SOLUTIONS –

The Case of CAO Fine Jewellery

Co., Ltd

MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh City – Year 2020

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-

TRUONG NHAT TIEN

INTERNAL FACTORS INFLUENCING SALES GROWTH AND SOLUTIONS –

The Case of CAO Fine Jewellery

CONTENTS

LIST OF TABLES iv

LIST OF FIGURES v

LIST OF ABBREVIATIONS vi

EXICUTIVE SUMMARY vii

1 PROBLEM IDENTIFICATION 1

1.1 Problem context 1

1.2 Company structure 2

1.3 Symptoms 3

1.3.1 Do not meet reachable target 3

1.3.2 Decreasing on revenue 4

1.4 Possible problems 5

1.4.1 Unable to retain old customers 5

1.4.2 Decreasing on ticket size of old customers 6

1.4.3 Low inventory turnover 8

1.5 Main problem validation 11

1.5.1 Unable to retain old customers 12

1.5.2 Decreasing of average ticket size of old customers 14

1.5.3 Low inventory turnover 14

2 CAUSES IDENTIFICATION 16

2.1 Potential causes 16

2.1.1 The effectiveness of marketing campaigns 17

2.1.2 Store managers and staffs are lacking knowledge and skills 18

2.1.3 High turnover rate 19

2.1.4 Do not delivery on time 20

2.1.5 Insufficiency net working capital 21

2.1.6 Inventory structure does not match to the plan 22

2.1.7 Missing analysis of target customers’ portrait 24

2.2 Cause validation 25

2.3 Final cause- effect map 28

3 SOLUTION 30

3.1 Alternative solutions 30

3.1.1 Building customers’ portrait and training with new material 31

3.1.2 Building customers’ portrait and reorganizing inventory structure 33

3.2 Solution selection 35

3.3 Action Plan in Organization 37

4 SUPPORTING INFORMATION 38

4.1 Research method summary 38

4.2 Interview transcript 39

4.2.1 Interview with Accounting Manager 39

4.2.2 Interview with Head of Supply Chain 40

4.2.3 Interview with Brand Manager 43

4.2.4 Interview with Chairwoman 44

4.2.5 Interview with Deputy Director 46

4.2.6 Interview with Sales Manager 47

4.2.7 Interview with PNJ Human Resources Manager 48

APPENDIX 49

Appendix 1: Confirmation e-mail about data 49

LIST OF TABLES

Table 1 Marketing’s 2019 internal report 17

Table 2 Sales staff test results 18

Table 3 Store manager test results 18

Table 4 CAO Human resources report of sales staffs 19

Table 5 Supply chain report 20

Table 6 Inventory report 21

Table 7 Sales and inventory report base on products price structure 24

Table 8 Estimating expense of building customers’ portrait and training with new material 33

Table 9 Estimating expense of building customers’ portrait 35

Table 10 Action Plan 37

LIST OF FIGURES

Figure 1 Company Structure 2

Figure 2 PNJ Net Revenue 3

Figure 3 CAO Net Revenue 3

Figure 4 CAO’s share of revenue contributed by customer classification 7

Figure 5 Problems mess 10

Figure 6 Average of ticket size (VND) 13

Figure 7 Customers’ structure 13

Figure 8 Initial cause-effect map 16

Figure 9 Products structure 2019 plan 22

Figure 10 Ticket size 23

Figure 11 CAO Fine Jewelry brand key 27

Figure 12 Cause – effect tree 30

LIST OF ABBREVIATIONS

CAO: CAO Fine Jewellery Co., Ltd

SJC: Sai Gon Jewelry Co., Ltd

DOJI: DOJI Gold & Gems Group

PNJ: Phu Nhuan Jewelry JSC

BODs: Board of directors

EXICUTIVE SUMMARY

Jewelry industry is very competitive, this is right for not only the big jewelry organization as

PNJ, DOJI, SJC but also local business The quality of products and services are the weapons

that they use to face with competitors CAO Fine Jewellery has been found with the purpose to

serve high-end customers who have desire for unique design and very high demand for quality of

the products as well as service In the past, CAO has been very successful but the market has

changed and the firm could not adapt it in the last two years The significant decrease in revenue

is a warning bell for the firm and CAO need to find the problems in order to improve the current

business situation Therefore, the purpose of this thesis is finding the key problems and provide

solution which is identified base on the analysis of theories and empirical interview stakeholders

From those analysis, the thesis suppose that the orientation of the company has been abandoned

by the market and the lack of specific analysis method in identifying target customers is

identified as the main cause leading to CAO does not attract new customers

INTERNAL FACTORS INFLUENCING SALES GROWTH AND SOLUTIONS

- The Case of CAO Fine Jewellery Co., Ltd

1 PROBLEM IDENTIFICATION

1.1 Problem context

CAO Fine Jewellery (CAO) is one of the subsidiaries of PNJ group It has been found in 2005 with the purpose to serve high-class customers The products are limited with unique design and premium service CAO converges what the company most elite of PNJ group CAO are more favorable conditions than PNJ about product production, supply chain, sales systems and

processes However, from the 2016 to 2019, the business of CAO was decreasing ominously as the revenue growth rate was fluctuation In contrast, PNJ is a jewelry company making products for massive market have been growing dramatically This problem is presented more detail in the symptoms part So that, the purpose of this thesis to answer the question “why a subsidiary company having the same processes and supply chain but higher quality and service sales

systems leading to an unexpected result? In addition, which is the main problems affecting to the business of CAO Fine Jewellery company?”

1.2 Company structure

Figure 1 Company Structure

Sources: Internal 2019 reports

1.3 Symptoms

1.3.1 Do not meet reachable target

Figure 2 PNJ Net Revenue

Figure 3 CAO Net Revenue

Sources: Internal 2019 reports

According to the graph, we can see the number of the net revenue from 2016 to 2019 in PNJ group and CAO Fine Jewellery which is one of subsidiaries of PNJ group Both graphs choose the year of 2016 as a base to make the comparison The figure of percentage represents for the growth and falling of the following year

In the last few years, CAO’s net revenue was fluctuated After falling 33 percent in 2016

compare with 2015, the net revenue was increasing 28 percent gradually in the next two years In addition, CAO net revenue was decrease 8% in 2019 comparing with 2018 In the period of 2016

to 2019, the revenue was increasing very fast, after 4 years the revenue was doubled from 8,615 billion VND in 2016 to 17,000 billion VND in 2019 The average growth rate is minus 3% which was very not good Meanwhile, the average growth rate of PNJ group is 22% For that reason, the requirement of growth rate on net revenue is 20% and this is a reasonable target that the staff could achieve An achievable sales target is a motivation for the staffs perform

effectively (1) However, in the last year, CAO did not only achieve the target but also drop 17%

1.3.2 Decreasing on revenue

As mention above, the revenue decreased 17% in the last year leading to a result that the firm only get 67% of the sales target Additionally, it accounts for 50% of the firm’s KPIs For that reason, almost of the CAO’s staffs have not get the year-end bonus which affects to the working motivation of all employees Furthermore, this is also an evidence showed that the business of CAO having problems which need to be analyzed to determine next actions for the firm

To sum up, in the beginning, the company has been founded with the purpose to serve high-class customers to get higher profits However, both of symptoms are presented that the business of CAO company has performed not well, in the last 4 years When the activities of the firm were

decreasing, the company need to adjust the resources in order to maintain the profitability and adapt to the future challenge as well as take advantages of the next opportunities (2) For that reason, the board of directors need to consider whether closing the company or reorienting the company's strategy to maximize the investment

1.4 Possible problems

Following these figures above, they showed that CAO has inside problems definitely However, these are individual ideas, I need more other departments’ perspective So that, I interview

CAO’s head of main departments I use this question to ask them:

“I saw that the revenue and the EBIT of CAO decreased in 2019 sharply and just only achieve 63% of company target (growth 20 percent per year based on actual net

revenue) From the point of view of ahead of your department what do you think are the problems happening in CAO company?”

1.4.1 Unable to retain old customers

Firstly, I interview Mrs Nguyen Thuy Hau who is chief accountant

In her opinion, she said: “The reason for decreasing on revenue that is the stores do not sell enough You know that, we do not achieve the target on opening a new store and attracting the new customers and retain them”

She supposes that CAO depend on the loyalty customers to much and attracting few new

customers as well as retaining them stay with CAO They are potential loyalty customer if the firm satisfy them with premium products as well as services Because of lacking new customers, the company could not generate more revenue to cover the costs Sales and marketing teams are

responsible for convincing customers significantly and directly which are main motivation

affecting to revenue-earning of the company (3)

However, in the income statement 2019 showed that the marketing expense is just 42%

comparing with the 2019 plan, so that I ask Mrs Hau the second question:

“In the financial report of CAO, the marketing expense is 42% comparing with the 2019 target Do you think tightening marketing expense affecting to the business

performance?”

She said that: “I think it does not affect Because the revenue earned during the campaign period was not meet the target As I mentioned before the marketing campaign targeted wrong customer group and failed in opening new stores, so that we could not attracted them to our stores to buy products leading to decreasing revenue”

Base on perspective of Mrs Hau, she supposes that low marketing cost usage does not affect to the results of marketing campaigns, because the campaigns perform depend on the early

marketing 2019 plan So that, the marketing performance could be the problems leading to attract loyalty and new customers

1.4.2 Decreasing on ticket size of old customers

After taking with Mrs Hau, I interview Mr Pham Minh Tu being head of supply chain the same question with her

He said: “I think that the main customers group who contribute the more than 85% However, their tickets size are decreasing gradually So that we have to attract new customers to replace the left customers In the last year, marketing campains do not meet the target as we expected Therefore, I think the main reason for reducing on revenue is that marketing targeting wrong customers segment”

Figure 4 CAO’s share of revenue contributed by customer classification

Sources: Internal 2019 reports

He supposes that the problem is the effective of marketing campaigns Because they are focus on the wrong customer segment, they could not recruit the number of customers as expectation In contrast, Ms An is brand manager, she supposes that the price policy is to high, the products designs update slowly and employee high turnover in marketing department (the opinions of Ms

An are presented in the next part) And the supply chain department is in charge of product price policy as well as product designs Therefore, I ask Mr Tu with the second question:

New 12%

Loyalty 86%

One-time 2%

SHARE OF REVENUE CONTRIBUTION

“Do you think that because of pricing policy and quality of product affecting to the buying decision of customers?”

He said: “In my opinion, the pricing policy is suitable for the high-class jewelries

Moreover, the melting old product process was slow which was affected by changing in ERP core system That is the reason why we could not recover the capital to produce or buying new products leading to lacking new design and inventory turnover was slow One more problem, that is our website, there were nothing change in the last year, it is not suitable for a luxury brand like CAO”

From the conversation with Mr Tu, I find out that the possible problems are the low

effectiveness of marketing, and slow update new product design Obviously, marketing

performance impacts to sales generating directly and slow melting old product affects to the net working capital leading to update product design slowly Without new design and attractive campaign, CAO could not convince the loyalty and new customers to buy the product leading to unable to retain old customers and decrease loyalty customer sales as well as ticket size Product design makes differences and unlimited successful on sales which is impacted positively (4)

1.4.3 Low inventory turnover

I interview Ms Ho Tuong An brand manager with the question mentioned above

She said: “In marketing view, I suppose that the main problems we are not get the target that is we did not attractive new customers successful That is because the pricing policy

is to high and the design was old which is not updating to meet the trend You know, in the last year, there were 3 new ABMs (assistant brand manager) applied for the job but not qualify and adapt So that, marketing department was under very high pressure And

about the efficiency of marketing campaign, I think them good enough because they achieved all of KPIs The traffics of every campaign meet the target but the sales team could not convince customers to buy products as well as generate sales I suppose that they are lacking brand knowledge and sales skills”

In the interview with Mr Tu, he mentioned that ERP core changing affecting to the melting product processes So that, I wonder does it affect to the marketing department Therefore, I ask her the second question

“Do you think we are having the problems in website and our processes?”

She said: “The website is not the problem but we should invest to improve it And about the marketing processes it is not clear definitely with the other departments

Furthermore, every luxury company always have creative director position but we have not So that is also a reason for lacking special design for our luxury customers”

After the interviews with Ms An, she supposes that the possible problems are high price policy, employee high turnover rate, slow update new design, lacking brand knowledge and sales skills

of sales team Salespersons’ skills level affecting the orientation level of customers positively and significantly (5)

Generally, after gathering ideas from departments’ head Every head of a department has defined the problems of the company differently basing on their perspective From that, I built the

problems mess before I draw the initial cause-effect map below However, it does not seem very clear but messy Therefore, I need to interview with the deputy director the one has the overview

of the organization would give me the answers more exactly

Figure 5 Problems mess

1.5 Main problem validation

In the next day, I hold a meeting with three head of departments and chairwomen to show them this problems mess with the purpose to determine which is the main problem Firstly, before showing the map, I asked chairwomen the question the same which I asked 3 head of

departments

“I saw that the revenue and the EBIT of CAO decreased in 2019 sharply and just only achieve 63% of company target (growth 20 percent per year based on actual net

revenue) What do you think are the problems happening in CAO company?”

Which the point of view of a chairwoman she said that: “As we have already known that the revenue decreased suddenly, we only achieve 63% comparing with the 2019 plan In

my opinion, our company have problems The first one, this is the process, the changed ERP system affect to the whole PNJG even the others subsidiaries such as PNJ

production, PNJ Lab, CECL and do not exclude us (CAO) Furthermore, we failed in magnetizing new customer The majority of our revenue contributing by loyalty customer with 86% percent Therefore, we need to reconsider the effectiveness of marketing

campaigns”

Although, changing core system affect to the processes of the PNJ group However, this is an unchangeable factor Furthermore, it happened one year ago, so that staffs have gotten used to the new processes Therefore, the solution for this problem is collecting the issues list and

training for them about the manipulation on the software and new processes again

She said: “I agree with you Marketing campaign is not efficient It seems to be that we have chosen the wrong customers group leading to be failed in attracting new customers

and retaining them In addition, loyalty customers usually change or sales the previous product to the new one Although CAO have the revenue, we have to buy the old one, so that is the reason for using inefficient working capital, that is the reason why we have low inventory turnover Moreover, ticket size of our loyalty customers is decreasing, some of them prefer to buy product from PNJ because they have new collections much more than CAO”

Other head of departments agrees with the deputy director’s answers Thus, we have three

problems that we need to validate such as: unable to retain old customers, decreasing of ticket size of old customers and low inventory turnover

1.5.1 Unable to retain old customers

In the last year, CAO has done many marketing campaigns to attract new customer and build the brand name However, it did not work well Customer’s satisfaction is one of the ultimate goals

of company (6) CAO has done a good job with loyal customers (86% sales contribute by loyal customers) but the figure also shows us the weakness of CAO which is lack of new customers and unable to retain them

Figure 6 Average of ticket size (VND)

Figure 7 Customers’ structure

Sources: Internal 2019 reports

The pie chart showed that the new customers in 2019 is 42% less than the old one is 55%

However, the revenue contributing only 12% much less than 86% of loyal customer So that, to

New, 306 , 42%

Old, 406 , 55%

One-time,

23 , 3%

raise the revenue in the next year, CAO need to retain those old customers and attract more new customers

1.5.2 Decreasing of average ticket size of old customers

Average ticket size is an indicator that our company used to estimate the average sales per

customer It helps our company to build strategies and sales plan such as price strategy, product offers, promotion… In the initial cause-effect map above showed that it is affected by 2 factors including marketing performance and new design These two factors also affect to the lacking of new customer problems Therefore, this is an identical problem

1.5.3 Low inventory turnover

Limit of inventories is an unavoidable problem of retailers and inventory turnover is an indicator helping them to measure the performance of the company or store (7) In jewelry industry,

product design is very important especially CAO is a luxury jewelry fashion company

Diversifying product designs is necessary and it is affected by the inventory turnover Low inventory turnover lead to lack of new designs affecting customer satisfaction (8) Additional, low customer satisfaction not only having effect on the purchase decision of new customer but also loyal customers

Head of supply chain said that: “CAO has the average inventory turnover is only 0.5 cycle comparing to PNJ is 1 to 2 cycle We have 19% of inventory can’t be cleared, because of new processes”

Sales person plays an important role impacting to customers’ buying decision Therefore,

companies try to improve their services quality via training sales skills and products knowledge for sales staffs So that, retail stores could not have a good performance without trained staffs

There are many factors affecting to customers’ purchasing decision in a retail store, especially in jewelry industry product quality and designs which are the key factors Therefore, products have not variety of models would bore customers (9) Moreover, satisfying customer need is one of the final aims of marketing Attracting customers and their loyalty is one of survival in this competitive market Customers are satisfied who could bring financial as well as non-financial benefits to the organization (10) Marketing campaigns do not satisfy customers without

understanding their characteristics In conclusion, a company are poor performances sales stores, lack of new designs and wrong customers target which are leading to unable to retain old

customers On the other hand, there are an identical problem which is decreasing of average ticket size of old customers and an unchangeable problem which is low inventory turnover as changing processes Finally, the main problem is lack of new customers definitely After

specifying the main problems, I draw the new initial cause-effect map and heads of departments also propose some initial causes leading to the main I added some potential causes would lead to the problems such as: poor performance of stores, lack of new design, wrong customers target From that, I present to the heads and deputy directors about the cause and collect more

information as well as possible causes

Figure 8 Initial cause-effect map

2 CAUSES IDENTIFICATION

2.1 Potential causes

In the previous meeting, our company has defined the main problem which is lacking of new customers and some potential causes However, there are several factors need to be considered such as the effectiveness of marketing campaigns, store managers and staffs are lacking

knowledge and skills, high turnover rate, do not delivery on time, insufficiency net working capital, inventory structure does not match to the plan, missing analytics of new customer

portrait

retain old customers

2.1.1 The effectiveness of marketing campaigns

The defined main problem is unable to retain old customers, so that next topic of the meeting we listed some causes could lead to the main problem From the previous ideas of two head of accountant and supply chain, they still focus on the effectiveness of marketing campaigns

However, based on marketing’s 2019 internal report has showed that marketing achieves 82% complement comparing with the expected plan

Sources: Internal 2019 reports

Furthermore, Ms An supposed that: “With the limited budget (46% of the original 2019 plan) and unstable human resources situation I have done 82% comparing with the plan that is an acceptable result And the main cause is that the knowledge and skill of sales team which have problems, sales staffs could not convince new customer and sales

products during the without campaign period”

Table 1 Marketing’s 2019 internal report

2.1.2 Store managers and staffs are lacking knowledge and skills

Training and sales have positive correlation relationship seriously The sales forces performance effectiveness could not be improved without training (11) Thence, to confirm about brand

manager opinion I asked HR department of PNJ group to test our sales staffs and store managers

in order to find out whether they lack of knowledge or not HR has used standard sales test of PNJ group and the table below showed the result:

Table 2 Sales staff test results

Table 3 Store manager test results

Sources: HR Internal 2019 reports

HR manager has comment that: “Base on the test results, we can see that 83% sales staffs are not qualified the test, only 17% of them are at standard level And three fourth store managers are failed the test just only one are at standard level.”

2.1.3 High turnover rate

HR department show the remarkable turnover rate of CAO in the human resources 2019 reports

in the following table:

Table 4 CAO Human resources report of sales staffs

Sources: HR Internal 2019 reports

Turnover rate formula:

𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑟𝑎𝑡𝑒 = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑙𝑒𝑎𝑣𝑖𝑛𝑔 𝑑𝑢𝑟𝑖𝑛𝑔 𝑑𝑢𝑟𝑖𝑛𝑔 𝑝𝑒𝑟𝑖𝑜𝑑

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 𝑑𝑢𝑟𝑖𝑛𝑔 𝑝𝑒𝑟𝑖𝑜𝑑 × 100

HR manager has said that: “The CAO turnover rate is much higher than 2018 Besides, high turnover rate affects to the quality of staffs as well as spending resources to train them In jewelry fashion, knowledge about material of the product is very important such

as diamonds, gemstones, gold, and the competitive ”

The high turnover rate has positively correlated relationship to customers’ dissatisfaction

significantly which is not only new customers but also loyalty customers Furthermore,

increasing in employee turnover also raises several costs such as requirement, interview and training (12)

2.1.4 Do not delivery on time

Customer services is one of the most important factors affecting to the customer satisfaction and decision to buy products directly Making jewelry to customer orders and delivery on time is an element contributing to the quality of company service directly It helps the company to retain loyalty customers and increase customer conversion rate (13) However, CAO are facing with problem which is delivery not on time Therefore, deputy director asked head of supply chain to show the report of situation of goods supply

Table 5 Supply chain report

Sources: Internal 2019 reports The head of supply chain presented that: “The table above showed that delivered rate is 96% in spite of delivered on time rate is just only 60%, especial new collection and fulfillment classification Therefore, delivered not on time could be the cause for lacking new design to attract new customers However, this is an external issue and it is really hard to force supplier commit the delivery date Although, CAO and supplier have

contract but they would accept compensation to meet other more valuable orders such as PNJ, SJC, Doji ”

2.1.5 Insufficiency net working capital

Table 6 Inventory report

Sources: Internal 2019 reports

CAO has around 20 percent value of networking capital could not use to buy new products CAO’s sales could be increased, if that amount of need to be cleared products turns to money as soon as possible The capital would be used for buying and designing new products which are trending and attractable The head of supply chain has some comment:

He said: “The inventory report showed that CAO has 20% number of product as well as 19% inventory value need to be cleared CAO would have VND 17,5 billion net working capital to buy and produce new designs affecting to the quality of the campaign and the number of new customers obviously”

In the other side, Ms Ngoc Anh (Deputy director) suppose that CAO has signed business

contracts with suppliers even PNJ and they need to follow the contracts Their slow progress in business affect CAO business so that, the firm need to claim them compensation because of breaking contract

She said: “The cleared stock process was slow because of PNJ are in trouble of changing ERP core system This is a short-term issue and at the end of 2019 they backed to