Page 12 - OCS Workbook - Day 1 Task (May 2018)

CIMA MAY 2018 – OPERATIONAL CASE STUDY

Performance

Revenue grew by 7.9% from 2016 to 2017, resulting in an increase of 20% in operating profit. This
also increased operating margins from 4.0% to 4.5% but this still seems very low for such a
premium product.
In terms of working capital and liquidity, the operating cycle shortened but inventory days and
payables days still seem excessive.
Budgeting

Budgets are prepared on an incremental basis and incorporate a standard absorption costing
system. However, we are told very little more about the preparation process – who is involved,
how overheads are absorbed and so on.

Budgeted sales for 2018 give an increase in revenue of 6.2% over 2017 but we are not told how
this was determined / justified.

Future challenges
Mansako faces a number of key challenges.
Firstly it needs to protect and enhance its brand through new product designs and store
makeovers. However, it needs to balance product development with the potential to create dead
stock.
Secondly, it needs to consider carefully whether and the extent to which it undertakes price
discounting. This will help shift surplus inventory but comes at the risk of damaging the brand
Finally Mansako needs to decide how to achieve growth when its main markets have stagnated.
This could be through new product lines such as menswear or developing geographical markets
with better prospects, such as Asia.

3 KEY TOPICS

The key topics that this case would suggest are as follows:
Marketing – brand management

The company’s brand is critical to its marketing strategy and overall business model. Given this,
tasks relating to managing the brand are likely to come up. Make sure you can discuss how to
strengthen and position the brand effectively and consider how you would respond if events
arose that could threaten the brand, such as quality problems or ecological issues. With such tasks
it is vital that you relate your comments to the specific circumstances of Mansako.

Marketing – pricing
Pricing is a vital part of the company’s market positioning within the ‘affordable luxury’ segment.
Between 2012 and 2015 it set prices too high and suffered as a result. On the other hand, we are
told that excessive price discounting can erode or even destroy the value of brand. As a result the
directors need to be careful to set the prices to reflect the affordable luxury of the products.
Make sure you can discuss the different considerations and approaches to pricing and be able to
discuss this within the larger marketing mix.

8 KAPLAN PUBLISHING