MANAGEMENT ACCOUNTING STRATEGY

MAA8X00
ASSESSMENT OPPORTUNITY 1
Scenario based question
9 March 2022

Internal Assessor: Ms Caitlyn Krüll (UJ)

Internal Moderator: Mr Kevin Thomas (UJ)

INSTRUCTIONS:

 This section of the paper consists of 3 pages, including the cover page.
 Answer all questions on the word template (answer sheet) provided on uLink.
 Silent, non-programmable calculators may be used.
 You are allowed 10 minutes reading time at the start of the scenario based question. The purpose of
the reading time is to allow you an opportunity to read the paper and to do answer planning.
 You are also allocated 5 minutes to upload your answers to uLink.
 The question paper MUST be handed in at the end of the assessment.
 The objective test questions are loaded separately onto the uLink Assessment Opportunity One folder.
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Scenario based question

Background
Ares, Inc. is a multinational corporation headquartered in America, specialising in the design,
development, manufacturing and sale of iconic footwear and sportswear. The company has just
celebrated their 50th anniversary of being one of the world’s most valuable sporting brands.
Ares’s mission is to provide innovative sportswear, which inspires athletes throughout the globe.
Their definition of athletes extends to all humans, with a caption on their website reading, “If you
have a body, you are an athlete.”
Ares’s focus is developing their products sustainably and making a positive impact in the
communities they operate in. They believe in a fair and sustainable future, where everyone is on a
level playing field. Ares’s values encompass doing everything possible to expand human potential.
Sponsorship and resale
Ares sponsors many high-profile athletes and sports teams around the world. One of the most
famous sponsorships has been that of Mike Julian, a renowned basketball star. Ares produced
specialised and exclusive footwear for Mike Julian at the start of the sponsorship deal over 30 years
ago, and upon noticing the demand for these shoes, released them to the public soon after.
The on-going popularity and demand for these Julian sneakers (i.e. shoes) and others like them has
resulted in a booming shoe resale marketplace. The resale market, or resellers, are companies or
individuals who purchase goods with the intention of reselling them, rather than using them. In the
case of certain sneakers, whose value is believed to rise over time, the shoes are sold at a profit.
In recent years, sneakers are being seen as an asset class, like shares, with some people preferring
to invest in sneakers. It is a common belief that certain sneakers’ value will only rise over time,
providing a more favourable return on investment than traditional investments in shares.
This intentional strategy was taken by Ares, by only releasing limited quantities of one sneaker, with
millions of people around the world intent on getting their hands on the latest release. The demand
is high and the supply low, giving rise to a global sneaker resale market, which is estimated at
$6 billion. Customers camp out at store-fronts through the night to be the first at the door on days
that new sneakers are released.
In order to make the process fairer and accessible to more people, stockists of Ares shoes started an
online raffle system where a form is submitted of a user’s details, and if selected in the draw, the
user will be notified and taken through the payment and order process. If not selected, the user will
not be able to purchase the shoes.
Ares also developed the SHOOs App, which was designed to provide inside access to the latest
launches and exclusive Ares releases if customers signed up for an account.
Consumer Direct Initiative
Another strategic development was also recently introduced by Ares known as “Consumer Direct”.
This new development entails increasing Ares’s sales directly to the consumer, rather than via other
retail stockists, by improving its own digital channels. Included in this is the development and launch
of the SHOOs App, exclusive to Ares members.
By moving closer to the consumer, Ares intends to build its business on a global scale, by offering a
premium and seamless end-to-end online experience. None of Ares’s competitors have a similar
offering, and in this digital age, being technologically innovative is a core pillar in the company’s
strategy. This initiative will allow Ares to better “tap” into opportunities presented by the market
because the company will be closer to their customers, and therefore be able to serve them better.

MAA8X00 Assessment Opportunity 1 MAA8X00

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A recent news article has, however, placed Ares in a predicament. It has been brought to the public’s
attention that the son of the newly appointed vice president of the company, Ann Hour, has an
extremely lucrative sneaker reselling business. The article has described Peter Hour’s business,
where he confirms that he uses internet robots (bots), a software app that is designed to automate
the purchase of limited edition sneakers, having the advantage of speed over human buyers. Peter
used these bots to acquire sneakers on many online sites, including on Ares’ SHOOs App where Ares
launches new products. The payments were processed on Ann’s credit card. When asked for a
comment on this, Ann simply said, “I disclosed my son’s business as Ares’ policy required and I have
not violated any company rules or policies.”
Peter has also commented, stating, “My mother is not involved in my business in any way and has
never let me know ahead of time about new releases, or ever given me any discount codes to help
with my purchases.”
John Drake, CEO of Ares, has assured all employees at a videoconference that the company is taking
the controversy very seriously, saying, “There is no value more core to who we are than the trust our
consumers put into us, our brand and our products. This incident has sparked questions in our
consumers about whether they can trust us, particularly around the launch of new products.”
The article also reports that the use of bots has had a big impact on the industry. Sneaker fans do
not think they are getting a fair chance at buying newly released products at the normal
recommended retail prices, with one customer commenting, “You can’t get the shoe into your cart,
or if you do, you can’t get to the checkout screen. You sit there for hours stuck on one screen,
meanwhile the product is sold out because people are using bots to jump to the front of the online
queue.”
The article also uncovered that Ares customers do not feel that the process of how the company
awards who wins and who doesn’t on the SHOOs App is transparent.
Drake mentioned that they have been working on anti-bot technology for a few years and will revisit
making it a priority.

REQUIRED:

PART A

1.1 Explain whether Ares has effectively adopted a Position-based approach to its new “Consumer
Direct” initiative. Provide reasons for your answer. (5 marks)

1.2 Analyse sneaker resale companies as a stakeholder group of Ares using Mendelow’s matrix and
provide recommendations on how to manage this stakeholder group. (5
marks)

(Total for Part A = 10 marks)

PART B

1.3 Evaluate the ethical issues that Ares needs to consider in relation to what has been reported in
the news article. (9 marks)

1.4 Recommend practical steps that Ares should take in response to the ethical issues it currently
faces in light of the news article. (6 marks)

(Total for Part B = 15 marks)

MAA8X00 Assessment Opportunity 1 MAA8X00

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TOTAL = 25 MARKS

MAA8X00 Assessment Opportunity 1 MAA8X00