Question

Apsung Ltd produces and sells the AS mobile phone with three models in the range, the AS10, AS20 and the AS30. In the UK Apsung Ltd sells via its own stores located in all major cities as well as to the electronics superstore CPW World. To encourage CPW World to stock the phones a substantial trade discount has been agreed.

In addition, Apsung Ltd sells the phones directly to customers online of which 70% of these sales relate to the UK with the remainder sold overseas.

The latest income statements for Apsung Ltd are detailed below.

	AS10	AS20	AS30	Total
	£’000	£’000	£’000	£’000
Sales Revenue	1,737	2,895	1,158	5,790
Variable Manufacturing Costs	530	905	1,222	2,657
Trade Discounts	25	25	25	75
Salesforce commission costs	15	25	32	72
Total costs	570	955	1279	2,804
Contribution	1,167	1,940	(121)	2,986
Fixed manufacturing costs	185	302	382	869
Sales and marketing costs				232
Administration costs				185
Net Income	982	1,638	(503)	1,700

Apsung Ltd want to understand the profitability of their products when sold via the different routes to market, particularly as the AS30 has a negative contribution and have provided the following information relating to sales:

1. The company’s own stores account for 50% of the total sales revenue and these are split between the AS10, AS20 and AS30 in the proportions 3:5:2.

2. CPW World are a growing source of income and now account for 20% of the total sales revenue. They sell £115,800 of the AS30 and sales of the AS10 are double this amount. The balance of their sales relate to the AS20.

3. The online UK sales have the same breakdown by product as seen in their own stores.

4. The balance of sales by product relates to the online overseas customers.

In addition:

1. The price of each type of product is the same for all customers.

2. Variable costs can be allocated to products in the same percentage per product as shown in the income statement.

3. Trade discounts are only given to CPW World.

4. Sales commission is 1.25% of selling price.

5. Fixed manufacturing costs should be allocated to customers based on sales value of each product.

6. Sales and marketing costs as well as administration costs should be allocated to Home Stores, CPW World, UK online and Overseas online in the proportion 3:2:2:1.

Required:

Prepare a detailed customer profitability analysis for Apsung Ltd by customer group. 

Answer 1

Answer 1) Xiaomi as a brand is becoming very successful because the product that Xiaomi makes is of top notch quality and the price is also nominal, along with this Xiaomi is known as a brand which is famous for making diversified products such as T Shirt, Air Purifiers, Shoes, Bags, Pens, Television, Laptops, Led Light and Smartphone’s as well. So it’s important for a firm with such diversified nature and big product catalogue to enter into the international markets because in China there are many rivals of the firm the biggest rival in China is Huawei so in order to grow higher and expand more Xiaomi needs to enter the international market.

Talking about why specifically Xiaomi needs to enter Hong Kong, Taiwan, India and South Asia because these markets are more of a price sensitive market, customers here do not have that much of high earning capacity when compared to that of English countries and mindset of people in these countries is also a bit different customers here try to save more money rather than spending money, so this is a major cause why Xiaomi as a brand should enter such countries because the products that Xiaomi make are of nominal price.

Answer 2) There are many reasons of why Xiaomi is in trouble the major reason is the growing hatred for Chinese products, after this pandemic there is a kind of anger and feeling of cold war in customers and the government as well where customers from all over the world are demanding for boycotting Chinese product, in India even 120+ Chinese applications are also banned so this is leading towards a technology war. Another issue is that Xiaomi is not considered as a brand for good quality products, customer have a average image of Xiaomi when it comes to quality of product.

Answer 3) Well I would choose India as my major country because the population in that country is very high, next to China and the average income of people there is also not that high that is the per capita income in India is on a lower side when compared to English countries so this will help Xiaomi in making cheap and low cost products in India and sell them and along with this will target countries like Pakistan, Sri Lanka, Bangladesh because these are the nearby countries of India and one production plant in India will help in exporting goods to these countries as well..

Talking about mode of entry, the mode of entry that I will choose is:

1) Online Platform: Starting business via online platform means will be easy as the cost of channel members and mediators will be nil and the customer will also be attracted by online platform because social media usage in these countries is very high. So I will be going with online platform.