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Strategic Financial Management (MB361F) : April 2005: Question Paper
Strategic Financial Management (MB361F) : April 2005: Question Paper
Strategic Financial Management (MB361F) : April 2005: Question Paper
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< Answer >
8. Which of the following statements is/are true?
I. If the EBIT – EPS indifference point is higher than the expected EBIT, raising equity is better
II. At the EBIT – EPS indifference point, a firm is indifferent between debt and equity
III. If the EBIT – EPS indifference point is lower than expected EBIT, raising equity is better.
(a) Only (I) above (b) Only (II) above
(c) Only (III) above (d) Both (I) and (II) above
(e) Both (II) and (III) above.
< Answer >
9. Consider the following data regarding Punjab Tractors:
Investment base Rs.1,000 crore
Cost of capital 10%
Investment turnover 2
Residual income 20 crore
The return on investment (ROI) of Punjab Tractors is
(a) 10% (b) 11% (c) 12% (d) 13% (e) 14%.
< Answer >
10. The following information is available about Kun United & Co.:
Rs. in crore
Gross Fixed Assets = 75
Accumulated Depreciation = 25
Total current assets = 150
Current liability = 50
EBIT = 30
Working Capital Leverage (WCL) for 20% increase in current assets will be
(a) 0.238 (b) 0.313 (c) 0.588 (d) 0.652 (e) 0.885.
< Answer >
11. According to RBI, which of the following conditions have to be satisfied by a SSI unit to be classified
as sick unit?
I. The Principal or interest in respect of any of its borrowal accounts has to remain overdue for
periods exceeding 2½ years.
II. The Principal or interest in respect of any of its borrowal accounts has to remain overdue for
periods exceeding 2 years.
III. There should be erosion in networth due to accumulated cash losses to the extent of 50 percent or
more of its peak networth during the preceding 2 accounting years.
IV. There should be erosion in networth due to accumulated cash losses to the extent of 50 percent or
more of its peak networth during the preceding 3 accounting years.
(a) Only (I) above (b) Both (I) and (III) above
(c) Both (II) and (III) above (d) Both (I) and (IV) above
(e) Both (II) and (IV) above.
< Answer >
12. Which of the following is not an assumption of Modigliani Miller Approach of capital structure?
(a) Information is freely available to investors
(b) Transactions are cost free
(c) Investors have homogeneous expectations about future earnings of a company
(d) Growth of a firm is entirely financed through retained earnings
(e) Securities issued and traded in the market are infinitely divisible.
< Answer >
13. Which of the following is/are assumptions of multiple discriminant analysis?
I. There are two discrete groups to be analyzed.
II. The independent variables can be analyzed in a linear manner for discriminating between the two
groups.
III. The values of the variables are distributed lognormally.
END OF SECTION A
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Section B : Problems/Caselets (50 Marks)
• This section consists of questions with serial number 1 – 7.
• Answer all questions.
• Marks are indicated against each question.
• Detailed workings/explanations should form part of your answer.
• Do not spend more than 110 - 120 minutes on Section B.
Year Ending
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
March 31st
FCF 7 4 1 –2 3 7 4 1 –2 3 7
In future the trend is expected to remain the same. The cost of capital of the firm is 15%.
You are required to find the value of the firm as on April 01, 2004.
(6 marks) < Answer >
3. Vipin Industries Ltd. is contemplating to invest in a new project which requires an initial investment of Rs.70
crores. The project is expected to generate earnings before interest and taxes of Rs.20 crores every year. The firm
is evaluating alternative sources of financing to fund this project. It plans to raise the funds in the form of equity or
debt. Its present capital structure is given below:
Current annual earnings before interest and taxes stand at Rs.7 crores. Additional debt can be issued at 16% p.a.
and equity at Rs.35 per share. At present, the firm pays a dividend of Rs.3.50 on each equity share and wishes to
maintain the same level of dividends. The firm is in the tax bracket of 35%.
You are required to
a. Determine the change in the pay-out ratio if any, if the firm wishes to maintain the current level of dividend
per share and the company earns an EBIT at which it is indifferent between equity and debt.
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b. Determine the EBIT at which the firm is indifferent between a debt-equity ratio of 2:1 and 1:1.
Caselet 1
Read the caselet carefully and answer the following questions:
4. Traditionally, the free cash flow method is considered to be a reliable measure of business valuation. Discuss in
brief about the features of this method. Why it is significant for the shareholders?
(6 marks) < Answer >
5. The Securities and Exchange Commission (USA) has repeatedly pronounced in the course of financial
statements filed by enterprises that the EBITDA doesn’t mean net income, doesn’t measure liquidity and isn’t
part of the Generally Accepted Accounting Principles. EBITDA has been alleged to only create an appearance of
stronger interest coverage and lower financial leverage. In this context, state the limitations of using EBITDA as
a measure of determining the cash flows in an organization.
(6 marks) < Answer >
EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, has been used by analysts and investors
as a tool to measure the fiscal health of the many high tech, media and other asset-heavy firms that do not generate
earnings, but instead incur plenty of depreciation, amortization, and other charges. In the 1980s through the 1990s,
many analysts and others believed that peeling away these expenses, which generally were not directly incurred in
operations, would enable them to more accurately analyze and compare the core operations of companies. In fact, many
treated EBITDA as a modified cash flow statement, sometimes mistakenly referring to it as free cash flow.
It should be noted, though, that while a cash flow statement reconciles a company’s net income or loss for a period to
the company’s cash position as of the end of that period, EBITDA does not. EBITDA is also different from a free cash
flow statement, which is basically EBITDA reduced by capital expenditures (purchases of generally long-lived assets
like machinery, equipment or other items that show up on the balance sheet instead of the income statement). And of
course, because EBITDA excludes so many expenses, it does not measure net income. In light of this, some people
have questioned its usefulness.
In the 1980s people started to use EBITDA to find good candidates for LBOs as EBITDA was thought to be a good
indicator of a company s ability to meet debt payments. They would project growing EBITDA in the future and say that
the company could handle much more debt. Using an EBITDA-based analysis, LBOs would then put huge amounts of
debt in companies and then later find that there was not sufficient cash to service the debt. John Percival, an adjunct
finance professor at Wharton, is one who never quite accepted EBITDA as a valid tool. In some of my classes, I call it
EBIT Duh, he says. It is the lazy analyst’s cash flow and it is dangerous.
But EBITDA has its takers too. That was clearly demonstrated in the case of WorldCom, which saw its stock go into a
free-fall and was recently delisted after the company reported that it had inflated its EBITDA by $3.8 billion over a
five-quarter period by simply, and improperly, classifying routine operating costs as long-term capital costs.
Caselet 2
Read the caselet carefully and answer the following questions:
6. In what way is corporate culture important for those inside the company and those outside the company? Discuss.
(6 marks) < Answer >
7. The caselet mentions that the internal culture of the organisation does eventually influence how the customer sees
it — and therefore the `equity' of the corporate brand. Do you agree? Discuss.
(6 marks) < Answer >
Even the sceptics in the corporate world are beginning to admit the possible existence of something called the corporate
culture, although to the hard-headed accountants and engineers the words seem currently in favour, mainly amongst the
thinking types and academics. What is distinctive about a company, almost amounting to a flavour of its ways of
working (Sumantra Ghoshal calls the `smell of the place'), could constitute a business advantage, which will gain in
significance in the future.
This flavour, like good wine, matures and evolves over time. And the older any organisation (not even necessarily a
business) gets, the less easy it is for any one person or group to change its content dramatically. True, the Ford Motor
Company today is not what it was under Henry Ford in the early years, but all inside and outside would agree that there
is yet a discernible Ford way of doing business, method of managing the process of building cars and of selling them,
which can be seen anywhere in the world. What is more, this extends to ways of relating to employees, customers,
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which can be seen anywhere in the world. What is more, this extends to ways of relating to employees, customers,
suppliers and dealers. Although the connection might seem far-fetched to some people on the face of it, the internal
culture of the organisation does eventually influence how the customer sees it — and therefore the `equity' of the
corporate brand.
The more explicitly one articulates the elements of a culture or `the way', the easier it is to ensure a degree of
standardisation in execution of major policies. It is also easier to inculcate it in new entrants and draw the line of
negotiability. To know what is debatable and negotiable and what is not saves a lot of time and energy. One can avoid
needless stress otherwise demanded by having to explicate the essence to others in a crisis situation. A written code of
conduct, of course, is one form of such expression but it cannot anticipate all possible eventualities nor be as flexible as
guidelines. It has been found even written codes need to be supported by visible behaviour or `walking the talk',
especially by the senior managers. This is only all the more important when considering Indian companies going global
and wanting to establish companies elsewhere in Asia or further beyond. As a well-integrated and ingrained culture
becomes more and more internalised, it would create the space for managerial initiative. It would make for more
effective working and behaviour in what would be already a stressful situation, working against unfamiliar competition
in an unfamiliar market. Establishing the minimal bases for sound action is also very essential also for another external
reason - maintaining the character of the company everywhere. Sony, Toyota, and McDonald's are often cited as
splendid examples of this. Wherever you go in the world, you can expect the same quality and level of service — or so
the expectation goes.
END OF SECTION B
8. With growing levels of uncertainty and risk, firms are having to face an indecisive and non-deterministic future.
Effective Risk Management is gaining prominence and increasing attention in the corporate world. What are the
various approaches using which firms can manage their risks?
(10 marks) < Answer >
9. Target costing has recently received considerable attention in the industries around the world as it gives
competitive edge in launching new products. Explain, what is target costing? Also discuss the benefits of target
costing.
END OF SECTION C
Suggested Answers
Strategic Financial Management (MB361F) : April 2005
Section A : Basic Concepts
1. Answer : (b) < TOP >
Reason : According to the second proposition of MM theory of capital structure, ke = ku + (ku – kd) D/E.
Therefore, ke = 0.12 + (0.12 – 0.10) 0.5
= 0.13 or 13%.
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2. Answer : (e) < TOP >
Reason : The assumption that the share prices are determined by earnings forms the basis of the P/E ratio.
The replacement cost takes into account only the tangible asset of the company, and not its
intangible assets. In estimating the continuing value of the firm, the two cash flow methods used
are the growing free cash flow perpetuity method and the value driver method.
3. Answer : (e) < TOP >
Reason : While price to book ratio depends upon the return on equity, growth rate of dividends and the cost
of equity under the Marakon approach, the value created for shareholders is measured by the
difference between the book value of equity B and the market value of equity M, where M stands
for how productively the firm has employed its equity or capital contributed by the shareholders.
4. Answer : (d) < TOP >
Reason : Bonus issues require conversion of reserves and surpluses into equity, not stock splits. Both
bonus issues and stock splits result in an increase in the number of shares. Only stock splits result
in reduction of face value
6. Answer : (c) < TOP >
Reason : An extreme way of managing risk is to avoid it altogether. This can be done by not undertaking
the activity that entail risk. So, the correct answer is ‘c’.
7. Answer : (b) < TOP >
Reason : Dt = cr EPS t + (1 – c) Dt – 1
⇒ 2.0 = c × 0.5 × 4.5 + (1 – c) 1.8
⇒ c (2.25 – 1.8) = 2.0 – 1.8 = 0.2
⇒ c = 0.44
i.e., Relatively more weightage is attached to past dividend than to current earnings
hence firm is a defensive firm.
8. Answer : (d) < TOP >
Reason : If the expected EBIT is lower than the EBIT – EPS indifference point, raising equity is better
alternative as it will give higher EPS
9. Answer : (c) < TOP >
Net income
Reason : ROI = Investment
Net income = RI + k × Investment = 20 + 0.1 × 1000 = 120 crore.
120
⇒ ROI = 1000 = 0.12 i.e. 12%
10. Answer : (d) < TOP >
CA CA
Reason : WCL = TA + ∆ CA = NFA + CA + ∆CA
150 150 150
= = 0.652
= 50 + 150 + 150 x 0. 2 = 200 + 30 230 .
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11. Answer : (b) < TOP >
Reason : According the RBI, the following conditions have to be satisfied by a SSI unit to be classified as
sick unit: (i) The principal or interest in respect of any of its borrowal accounts has to remain
overdue for periods exceeding 2 ½ years and (ii) their should be erosion in networth during the
preceding 2 accounting years.
12. Answer : (d) < TOP >
Reason : (a), (b), (c) and (e) are the assumptions of Modigliani Miller Approach of capital structure.
Regarding growth no assumption have been made in the M-M approach. Hence (d) is not correct.
13. Answer : (d) < TOP >
Reason : The technique of multiple discriminant analysis is based on the assumptions that:
• There are two discrete groups to be analyzed
• The independent variables can be analyzed in a linear manner for discriminating between the
two groups
• The values of the variables are distributed normally, not lognormally, as given in the
question.
14. Answer : (d) < TOP >
Reason : Default risk is the risk arising due to default with respect to obligations by outsiders to the
enterprise. This risk cannot be the consequence of any borrowing resorted to by the firm. The
other risks, interest rate risk, liquidity risk and financial risk are directly the effect of a high
degree of financial leverage employed by the firm in its capital structure.
16. Answer : (c) < TOP >
1,60,000
= 26,667 = 5.99 or 6 app.
18. Answer : (e) < TOP >
Reason : Type of asset financed, product life cycle, current capital structure and credit rating are all direct
determinants of capital structure of a company while the type of raw material used does not have
any direct relationship with it.
19. Answer : (a) < TOP >
Reason : Target costing is based on external analysis of markets and competitors, and is a cost
management tool that reduces a product’s costs over its entire life cycle. But it is difficult to use
in the presence of complex products because on the one hand, analysis of costs needs to be
performed at various levels, while on the other, the activity of tracking costs becomes more
complicated and cumbersome.
21. Answer : (c) < TOP >
Reason : Baumol model is a deterministic model of cash budgeting. It assumes that the cash inflows as
well as outflows are incurred evenly over the planning horizon. Conversion of securities into cash
takes place at regular intervals. So both statements (II) and (III) are incorrect. Hence the correct
answer is (e).
25. Answer : (d) < TOP >
Reason : Costs that arise due to materials and products that fail to meet quality standards and result in
manufacturing losses are called internal failure costs
26. Answer : (b) < TOP >
Reason : As per Pecking order theory of financings, the preferred order of finance for firms are as follows:
internal equity, debt, preference capital and external equity.
27. Answer : (b) < TOP >
Reason : When assets, which are not readily marketable, is required to be sold for need of funds, the non-
marketability may lead to liquidity risk. Thus the assets not being readily marketable give rise to
marketability risk.
28. Answer : (e) < TOP >
Reason : Managers with limited free cash flow are less prone to make wasteful expenditures. Agency
conflicts are particularly likely, when too much cash is available with the managers. This happens
to be an important reason for why firms reduce excess cash flow in a variety of ways.
29. Answer : (b) < TOP >
Reason : Of the given factors, value growth duration only is a value driver as per Alcar Model all other are
financial factor determining firm’s value as per Marakon Model.
30. Answer : (d) < TOP >
Reason : Converting an existing division into a wholly owned subsidiary is called equity Carve-out.
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Section B : Problems
36506.25 + 36225.28
1. a. Average sales per day = 2 × 360 = Rs.101.02 lakhs
Average stock Raw materials and stores
416.84 + 441.47
= 2 = Rs.429.16 lakhs
331.79 + 262.58
Average finished goods inventory = 2 = Rs.297.18 lakhs
253.89 + 214.79
Average WIP inventory = 2 = Rs.234.34 lakhs
2016.76 + 1399.15
Average accounts receivable = 2 = Rs.1707.96 lakhs
1558.21 + 1324.02
Average accounts payable = 2 = Rs.1441.12 lakhs
Average raw material and stores consumed per day
15957.14 + 960.09 + 1655.39
= 360
= Rs.51.59 lakhs
214.79 + 20088.33 + 408.67 − 253.89
Average cost of production per day = 360
20457.9
= 360 = Rs.56.83 lakhs
262.58 + 20457.9 + 9305.87 + 2425.29 − 331.79
Average cost of good sold per day = 360
32119.85
= 360 = Rs.89.22 lakhs
Durations of various stages of the operating cycle
429.16
Duration of raw material and stores stage (Drm) = 51.59 = 8.32 days
234.34
Duration of WIP stage (Dl wip) = 56.83 = 4.12 days
297.18
Duration of finished goods stage (Dfg) = 89.22 = 3.33 days
1707.96
Duration of accounts receivable stage (Dar) = 101.02 = 16.91 days
1441.12
Duration of accounts payable stage (Dap) = 51.59 = 27.93 days
Weights for various stages of the operating cycle
51.59
Raw material and stores stage, Wrm = 101.20 = 0.51
51.59 + 0.5 + 5.24
Work in process stage = 101.02 = 0.57
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89.22
Finished good stage, Wfg = 101.02 = 0.88
101.02
Account receivable stage, War = 101.02 = 1.00
51.59
Account accounts payable = 101.02 = 0.51
Duration of weighted operating cycle
Dwoc = Wrm . Drm + Wwip. Dwip + Wfg . Dfg + War . Dar – Wap . Dap
= 0.51 × 8.32 + 0.57 × 4.12 + 0.88 × 3.33 + 1 × 16.91 – 0.51 × 27.93 = 12.19 days.
b. Working capital requirement
= Sales per day × Weighted operating cycle + Cash balance requirement
= (101.02 × 1.10) × 12.19 + 150
= Rs.1504.58 lakhs.
< TOP >
2. Free cash flow scenario for next 5 years
Rs.in crore
2005 2006 2007 2008 2009
4 1 –2 3 7
P.V of explicit free cash flow upto 2009
4 1 −2 3 7
+ + + +
1.15 (1.15 )2 (1.15 )3 (1.15 )4 (1.15 )5
=
= 3.48 + 0.75 – 1.32 + 1.72 + 3.48
= 8.12
P.V. of free cash flow of all period considering the cyclical nature of the cash flow
= 8.12 + 8.12 PVIF (15%, 5 yrs) + 8.12 PVIF (15%, 10yrs) + 8.12 PVIF (15%, 15yrs) + . . .
1 + 0.497 + (0.497 )2 + (0.497 )3 + ...
= 8.12
1 8.12
= 8.12 × 1 − r = 1 − 0.497 = Rs.16.14 crores.
< TOP >
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(7 − 0.84) 0.65
Current EPS = 1 = 4.004
3.5
Current pay-out ratio = 4.004 = 0.87 = 87%
3 .5
To maintain the same dividend per share, the new pay-out ratio should be .64 = 96%.
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b. DER is 2 : 1 :
Let equity be x and Debt will be (70 – x)
6 + (70 − x )
Then, 10 + x = 2
6 + 70 – x = 20 + 2x
76 – 20 = 3x
56
x = 3 = Rs.18.67 crores
Additional equity = Rs.18.67 crores and additional debt = Rs.51.33 crores.
Hence, total equity = 18.67 + 10 = 28.67 and Total debt = 51.33 + 6 = Rs.57.33 crores
DER is 1 : 1 :
Let equity be x and Debt be (70 – x)
6 + (70 − x)
Then, 10 + x = 1
6 + 70 – x = 10 + x
76 – 10 = 2x
66
x = 2 = 33
Additional equity = 33 and Additional debt = 37
Hence, Total equity = 33 + 10 = Rs.43 crores and Total debt = 37 + 6 = Rs.43 crores.
Indifference EBIT is the value of EBIT in the following:
(EBIT − 6 × 0.14 − 51.33 × 0.16) × 0.65 (EBIT − 6 × 0.14 − 37 × 0.16)0.65
18.67 33
1+ 1+
35 = 35
EBIT − 9.053 (EBIT − 6.76)
1.533 = 1.943
1.943 EBIT – 17.59 = 1.533 EBIT – 10.363
0.41 EBIT = 17.54 – 10.363
EBIT = 7.227/0.41
EBIT = Rs.17.63 crores.
< TOP >
4. Companies generate revenue by selling their products and services to another party. In the process company
generates revenues and incurs expenses in the form of salaries, cost of goods sold, selling and general
administrative expenses and research and development. The difference between operating revenue and operating
expense is depicted in terms of Operating Income or Net Operating Profit.
To produce revenue a firm has to not only incur operating expenses, but it also must invest money in other
avenues like real estate, buildings and equipment, and in working capital so that the usual business activities are
continued at with ease. Apart from the above, companies incur expenses in the form of income taxes. The amount
of cash that’s left over after the payment of these expenses from operating income by the company is known as
Free Cash Flow (FCF). The FCF method is an important measure to analyze a company’s effectiveness. The
simple equation used to calculate FCF is: FCF = Net Operating Profit – Taxes – Net Investment – Net Change in
Working Capital.
This measure is useful from the point of view of the shareholder also because FCF is the cash that is available to
pay the company's various claim holders, especially equity holders. Free cash flow method is an in depth analysis
of the cash flow schedule of any company. Proper analysis of this method provides a better understanding of the
revenue generation and operating aspect of the companies
14 that are very critical from the points of view of the
revenue generation and operating aspect of the companies that are very critical from the points of view of the
shareholder.
< TOP >
5. While cash flow, which is the amount of cash left after money comes into and goes out of an organization during a
certain time period, can’t be easily distorted or subject to imprecision, EBITDA is easy to manipulate by using
creative accounting techniques for revenue, expenses and asset write-downs. Earnings are not cash but merely
reflect the difference between revenues and expenses, which are accounting constructs. EBITDA is inappropriate
for many industries because it ignores their unique attributes. It's a poor measure of cash flow for companies
undergoing a great deal of technological change or for firms that have short-lived assets (those lasting, say, three
to five years) and need to keep upgrading their equipment to stay up-to-date.
Several are the accepted limitations of EBITDA as a principal determinant of cash flows. EBITDA ignores
changes in working capital and overstates cash flow in periods of working capital growth. It ignores distinctions in
the quality of cash flow resulting from differing accounting policies, as not all revenues are cash equivalents.
Apart from being a misleading measure of liquidity (quick access to cash), it says nothing about the quality of
earnings. It is neither a common denominator for cross-border accounting conventions nor can be an adequate
stand-alone measure for a company’s acquisition multiples. It doesn’t consider the amount of required
reinvestments, especially for companies with short-lived assets, whether it’s cable equipment or trucks. When
used in bond indentures created by the bondholders for protecting their interests and agency related conflicts, the
measure does not offer the required level of protection. In simple words, EBITDA as a measure can drift from the
realm of reality.
< TOP >
6. To define culture is both easy and difficult at the same time. It is a set of widely accepted guidelines that influence
company employees' behavior, a set of underlying values, a way of life all rolled into one. It is something
indefinably real, which can be felt, like the wind on your face — but not held in the palm of your hand or put
under a microscope. Put in a mundane way, it tacitly dictates the `done things' and the `not done things' inside a
company. It is partly dependent on history, origins, and the type of business and the leadership but not on any one
of them singly.
A little depth of observation will show that the internal benefits of culture are far from being just intangible or
conceptual. It can result in greater effectiveness in implementation and value-driven behavior, including decision-
making throughout the organization. Indeed, contrary to what one might think, it can also contribute to speed and
efficiency of decision-making. Consider the following: If the values, beliefs and ways were explicit, widely shared
and unambiguous, any educated person could make almost any decision given the same information; and the result
is unlikely to be far different from what it would be if the senior-most person handled the situation. This is one of
the truly unsung benefits of a culture of standards and guidelines rather than bureaucratic procedures. As a result,
the area manager working a thousand miles away from headquarters and facing an unfamiliar situation cropping
up need not feel paranoid about inviting a tonne of bricks on his head when he returns to base. He can tackle the
problem (say, with a customer or a Government officer), confident that what he decided would be acceptable, and
indeed much the same as what his Managing Director might have done in his place.
The global consumer is a major reason for the concern for culture. The global outlook and the marketplace that
engenders it demands as a minimum that a Body Shop outlet or a Marks & Spencer store everywhere in the world
will look and feel familiar to the customer coming there, hoping to get the shopping ambience and experience she
has been accustomed to `at home'. This applies to the airport brands from whisky to cheese and chocolates that
vast numbers of travellers — backpackers just as much as business travellers — rush into for the last-minute gift
buying before departure. The customer takes it for granted that the truly global brands will be there and will feel
and taste the same no matter where in the world they are made.
< TOP >
7. There is definitely a link between internal culture of an organization and its effect on potential customer. The link
is more readily apparent in hotels, banks and airlines because of the very nature of the service. Think back to the
best interaction that you had with airline counter staff, a bank teller or the front office or room service staff of a
hotel. And you will conclude that you can never disconnect in your mind the brand experience from your
impression of the individual. Therefore, what the customer is paying for is largely for the experience at the `touch
point' or the `moment of truth' when the employee, trained in the ways of doing business according to the culture
and traditions of the company, enters into a direct relationship with the customer. Today, the consumers have a
wide variety of brands available to choose from. They are ready to pay a little more price but they want an
excellent service to be provided. We can see that banks like ICICI or HDFC have become so strong brands within
such a short period of time only because of the service they provide. LIC has been rated as the number one brand
in insurance sector because of the same reason. The same goes true with all brands irrespective of the industry.
All else is mere talk, compared to what one gets as direct experience. The experience that a customer gets in turn
depend upon what the culture of the organization is and to what extent it has been ingrained into the employees
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depend upon what the culture of the organization is and to what extent it has been ingrained into the employees
delivering the product or service. Hence culture plays an important role in creating the brand equity.
< TOP >
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