STRATEGY AND PERFORMANCE MEASUREMENT

Suggested Answer
Certified Finance and Accounting Professional Examination – Winter 2023

A.1 (a) The current marketing efforts can be executed on the website by adopting the
following 6I’s of e-marketing mix of Dunya Explorers.
(i) Interactivity: DE's current efforts include travel workshops, expo center events,
and one-on-one consultations.
Through website DE can extend interactivity by offering features such as online
booking and reservation systems, virtual travel events and webinars, and live
chat support. Customers can interact with DE representatives online, ask
questions, and receive real-time assistance.
(ii) Intelligence: Currently DE knows about customer preferences through their in-
person interactions, such as travel workshop attendees and one-on-one
consultations. However, this data may not be comprehensive, and the analysis
may be limited.
With e-marketing through a website, DE can collect a wealth of data, including
browsing behavior, destination preferences, and purchase history, this data may
be used by DE to understand customer preference allowing DE to tailor
marketing campaigns/promotions and recommendations based on individual
customer profiles. For example, the website can employ clickstream analysis to
identify customer preferences and suggest relevant travel options.
(iii) Individualization: DE currently provides personalized recommendations
during one-on-one consultations, but the level of individualization may be
limited due to resource constraints.
Through the website, DE can offer personalized experiences. When customers
visit the website, based on their past interactions and preferences DE can
provide tailored recommendations. For instance, the website can remember a
customer's favorite destinations, travel styles and offer packages accordingly.
Loyalty programs can be structured to reward repeat customers with
personalized incentives. Personalized email marketing campaigns can be sent
to registered users.
(iv) Integration: DE currently uses a variety of marketing channels, but the
integration between these channels may not be seamless. For example, offline
events like travel workshops may not be directly connected to their digital
marketing efforts.
DE can integrate their website with other marketing channels like email, mobile
apps, and social media. For example, they can send personalized email
marketing campaigns to customers who have registered on the website.
Additionally, the website can promote DE's presence on social media platforms,
webinars and virtual travel expos can be promoted on the website, making it
easy for customers to engage across multiple channels seamlessly.
(v) Industry restructuring: DE currently acts as an intermediary purchasing from
hotels and airlines on behalf of customers.
The website can streamline this process, by offering online booking and
ticketing services, DE can remove some intermediaries, providing customers
with more direct access to travel services.
(vi) Independence of location: Currently, DE's physical locations limit their ability
to serve their customers in areas where they don't have a presence. Customers
may need to visit a DE office in person.
The website can make DE independent of physical location. E-marketing
through a website can provide greater independence of location, for example:
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 STRATEGY AND PERFORMANCE MEASUREMENT
Suggested Answer
Certified Finance and Accounting Professional Examination – Winter 2023

 DE can reach customers nationwide or even globally, irrespective of

physical office locations.
 Online booking and ticketing services can be offered, removing the need for
in-person visits.
 Services like issuing online tickets and travel vouchers can be delivered
through email

(b) The three principles that are used to evaluate an e-commerce website are:

(i) Business and information privacy

(ii) Transaction integrity
(iii) Information protection

DE can obtained third party certification from services like “WebTrust” to provide
assurance to its customers that it is meeting these principles.

A.2 (i) Issue: Offering bonuses based on average time across the board does not take into
account the varying dynamics and repair needs of the repair centers in each city.

Recommendations: Assess performance of each repair center by incorporating the

varying dynamics and repair needs of each repair center. This may mean having
different average time bench marks for each repair center.
(ii) Issue: Repair centers in different cities may face varying challenges and workloads,
making it unfair to compare them solely based on average service times.

Recommendation: Implement region-specific targets that account for different work

environments and customer expectations. This ensures a fair evaluation and
incentivizes improvement within each context.
(iii) Issue: A sole focus on average time in resolving complaints might neglect the
importance of providing customer service to satisfaction.

Recommendation: Consider a more holistic incentive structure. This could involve a

combination of customer satisfaction scores, efficiency, and perhaps even innovative
problem-solving.

(iv) Issue: Only providing team based incentive may result in some technicians relying on
the hard work of their colleagues to meet targets without actively contributing.

Recommendation: Implement individual performance metrics alongside team

metrics. Recognize and reward individual contributions to discourage free-riding.
This could include acknowledging technicians who consistently go above and beyond
or contribute innovative solutions to common problems.

(v) Issue: Good performance is not acknowledged/rewarded if all technicians are given
salary increments solely based on inflation rate. Hence, it does not encourage
technicians to improve their performance for better rewards.

Recommendation: Consider additional performance-based incentives to reward

excellence. This will encourage technicians to improve their performance to gain the
reward.

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 STRATEGY AND PERFORMANCE MEASUREMENT
Suggested Answer
Certified Finance and Accounting Professional Examination – Winter 2023

A.3 Presented below are the quality-related costs:

Prevention Costs:
 Design phase costs for incorporating Design for Manufacturing and Design for
Reliability principles.
 Supplier audit costs to ensure reliable component sources.
 Inspection costs upon material receipt to verify compliance.
 Training costs of skilled personnel.

Appraisal Costs:
 Inspection costs during the assembly process to minimize errors.
 Testing protocol costs to assess functionality, capacity, and safety.
 Comprehensive documentation costs covering specifications and inspection results.

Internal Failure Costs:

 Costs associated with correcting errors identified during the design or assembly
phases.
 Rework costs to fix defects found during inspections or testing.
 The cost of scrapped items

Another category of cost that should be considered is:

External failure costs:

Examples include:
 dealing with customers’ complaints
 the costs of carrying out repair work under a guarantee or warranty
 the costs of recalling all items from customers in order to correct a design fault
 legal costs, when a customer takes the organisation to court
 the cost of lost reputation: when an organisation gets a reputation for poor quality,
customers will stop buying from it.
 customers returns and refunds
 warranty claims

A.4 (a) Classification under BCG Matrix

Men’s Shoes:
Market growth – High (14.9%), Market Share – High (10.1, Market Leader), in 2023

In 2023, Footwear’s overall market has a high growth of 14.9% and RPL is the market
leader by having 10.1% share. Moreover, RPL’s share in the market is growing with
a high growth rate each year.

Hence, men’s footwear division can clearly be classified as a Star.

Ladies Purses:
Market growth – Low (1.8%), Market Share – Low (2.6%), in 2023

This division is operating with a low market share and the overall market also has a
very low growth rate each year.

Hence, this division may be classified as a Dog.

Formal Clothing:
Market growth – Low (8.5%), Market Share – Low (4.3%), in 2023
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 STRATEGY AND PERFORMANCE MEASUREMENT
Suggested Answer
Certified Finance and Accounting Professional Examination – Winter 2023

This division has a low growth rate of till 2023 (below the cut-off 10% market growth
rate) and market share is low (i.e. it is not market leader).

Therefore, technically speaking, this is classified as Dog (based on 2023 data).

However, it must be noted that the projected market growth rate for the next two years
(2024 and 2025) is high (above 10%) and the market share estimates shows steady sign
of increase too.
Hence, it could be classified as a potential Question Mark.

Casual Wear:
Market growth – Low (1.7%), Market Share – High (66.7%, Market Leader), in 2023

RPL has a high market share, being a market leader with 66.7% market share in 2023,
but the overall market size is growing just nominally.

Hence the Casual Wear division is clearly a Cash Cow.

(b) Presented below are Ansoff matrix strategies as proposed by Mr. Shakeel.

MS – Diversification Strategy
Mr. Shakeel is proposing to develop new product i.e. women and children shoes,
which is a new market for MS division.

LP – Market Penetration Strategy

Mr. Shakeel is proposing to increasing advertising of the existing product in the
existing market.

FC – Market Penetration Strategy

Mr. Shakeel is proposing to reduce price or offer discounts for the existing product in
the existing market.

CW – Market Development Strategy

Mr. Shakeel is proposing to venture into new markets by going into different cities
and including middle income families with the existing product.

(c) The risks associated with the strategies proposed for the four divisions are as follows:

Men’s Shoes (MS)

(i) Establishment of manufacturing facilities would require significant investment,
which carries significant risk in case the company is unable to acquire the type
of market share as per the plan. Besides manufacturing, heavy expenditure in
other aspects would also be required. For example, advertisements and other
promotional activities, and new marketing staff may also need to be hired.
(ii) The proposal intends moving RPL into markets of which RPL has very little
experience, hence, there is high risk of failure.
(iii) Star products still need investment to capture larger share in the growing
market. Diverting attention away from star product may hurt its growth.

Ladies Purses (LP)

(i) Advertisements in top international fashion magazines and on local television
channels may be very costly and may not be advisable as it may not produce
expected results considering that it’s a Dog product.
(ii) Even if it is cash positive, LP may not stay cash flow positive for long enough
to reap the benefits of advertisement.
(iii) A strategic choice of ‘doing nothing new’ is a high-risk choice, because
competitors are likely to be much more innovative and competitive.
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 STRATEGY AND PERFORMANCE MEASUREMENT
Suggested Answer
Certified Finance and Accounting Professional Examination – Winter 2023

Formal Clothing (FC)

(i) Since, the product can only be classified as a question mark in the future, it may
not reach the question mark status i.e. The estimates of market share and market
growth may not be met. Therefore, care must be taken when devising strategies
based on its potential.
(ii) Reducing prices may take away the exclusive appeal of FC for high end
customers.
(iii) Customers may start waiting for discounts to buy the product resulting in
periods of low revenue from sales as well as reduced profit margins.
(iv) If FC division fails to increase sales, its business will have no strategic direction,
and will suffer from ‘strategic drift’.
(v) A strategic choice of ‘doing nothing new’ is a high-risk choice, because
competitors are likely to be much more innovative and competitive.

Casual Wear (CW)

(i) Being a cash cow, the performance of this division is highly crucial for RPL.
Hence any damage to the existing market as a result of introduction of the
proposed strategies would be highly damaging.
(ii) Since RPL is already marketing footwear and formal clothing in other cities, it
would not pose much problem introducing products of other divisions in these
markets. However, market for high income customers has totally different
dynamics as compared to the market for middle income customers. The brand
name may suffer if it becomes associated with relatively lower quality goods.
Hence, if the new market has to be developed, a new brand name would be
more appropriate.
(iii) The strategy would require a lot of investment as a much greater number of new
designs would require to be introduced.
(iv) Diverting cash cow funds to market development strategies of CW would have
opportunity cost of using these funds for the development of other products and
markets.

A.5 (a) Despite arguments favoring leniency, the management seemingly has no option but
to adhere to the company’s code of ethics for the following reasons:
(i) The theft was uncovered through a whistle blowing complaint, indicating
internal awareness of the incident. Leniency here could discourage future
whistle blows.
(ii) Besides the complainant, it’s likely that other employees are also aware of this
activity by Mukhtar. This could also send a signal that one can get away with
such acts without repercussions.
(iii) Mukhtar’s conduct, cannot be justified because of the serious illness of his
brother. He should have pursued legal alternatives or possibly sought assistance
through the company’s employee-friendly CSR policy.
(iv) Mukhtar’s status as a star performer should not exempt him from consequences.
No one is indispensable or above the law, no matter how good a track record
he may have.
Considering the above, I would suggest the following course of actions to the
management:
 Strictly adhere to company’s code of ethics to maintain integrity and fairness,
regardless of an employee’s status. Any leniency could undermine ethical
standards and discourage whistle-blowing.
 Communicate the decision clearly to all employees to maintain trust and set
clear ethical expectations.
 Consider reviewing and improving CSR policies to provide better support for
employees in personal crises, thus preventing similar incidents in the future.
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 STRATEGY AND PERFORMANCE MEASUREMENT
Suggested Answer
Certified Finance and Accounting Professional Examination – Winter 2023

(b) MCL’s responsibility from an ethical standpoint

MCL is not ethically obligated to act solely based on its high profits. These profits
stem from a turnaround in the business circumstances rather than any unethical act
or manipulation of business conditions on the part of MCL.

However, increasing CSR spending is a valuable consideration. It represents a means

of sharing the company’s fortunate earnings with all stakeholders, rather than
exclusively benefitting the shareholders.

Business Case
Establishing the hospital may offer following commercial benefits for MCL.
(i) An immediate relief would be the significant reduction in the mounting
pressure, which would enable the management to better focus on operations.
(ii) The most important point to note here is that the company’s agreement with
the government is expiring within the next four years. Hence, an improved
relationship could be quite helpful in renewing of the agreement.

However, a counter argument against the proposal is that the cost of establishing and
running the hospital at 5% of the total revenues, could be considered high. MCL
should weigh this against the cost associated with voluntarily increasing electricity
generation price paid to the government. Ultimately, the decision should be made by
considering both strategic and financial benefits.

A.6 (a) Although a conclusive opinion cannot be formed due to the limited industry
information, two apparent reasons that might explain the lower EPS for SPL
compared to the industry are:
(i) Almost three-quarter of the industry consists of private firms, which are not
subject to the various compliance costs typically borne by listed companies like
SPL.
(ii) General environmental non-compliance among the other companies.

SPL and APL represents 27% market share of the industry. Hence, the remaining 24
companies have an average market share of only 3% each (100-27/24).
This indicates that although a major share of the market is held by relatively small
manufacturers, comparing them is challenging due to lack of publicly available
information. Therefore, gathering detailed information about the entire industry may
not thus be feasible. Consequently, it seems more appropriate to compare SPL directly
with APL, rather than comparing SPL’s performance with that of the industry.
(b) Comparison between SPL and APL
Capital expenditures
 It appears that only SPL and APL have made major investments in the packaging
industry over the last 5 years.
 It is also evident that while SPL was trailing APL in total revenue before the
installation of new plant, it has since caught up with APL. This indicates that the
new plant installation has been much more successful in driving business growth
for SPL compared to APL.
Gross profit margin
 The gross profit margin has declined and this decline as a percentage of sales is greater
than that experienced by APL. Though there could be various reasons for this, one
possible reason could be the higher fixed costs associated with the new plant, such as
depreciation.
 Further, it needs to be seen which of the two companies have been more successful
in passing on the impact of the increased costs to the customers i.e. by increasing the
prices.
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 STRATEGY AND PERFORMANCE MEASUREMENT
Suggested Answer
Certified Finance and Accounting Professional Examination – Winter 2023

Net profit margin

The net profit margin as a percentage of sale has also declined more significantly for SPL
compared to APL. If this decline is attributed to comparatively higher salaries, aimed at
better retaining and motivating employees, it could be considered an investment likely to
yield substantial returns in the future.

EPS/ROCE
An interesting observation is that, while EPS for SPL has declined, its ROCE has
improved significantly.

This improvement suggests that SPL’s decision to partially finance the plant through the
issuance of shares was a sound one as the interest cost would likely be lower due to lower
borrowings when compared to APL.

Future Prospects
Significant improvement in ROCE despite having lower profits than APL, also suggests
that SPL is repaying its long-term debt far quickly than APL.

Consequently, if both companies maintain consistent performance, it seems likely that

SPL’s EPS will rise more rapidly in the coming years, potentially resulting in a substantial
greater increase in shareholders’ wealth compared to APL.

(c) Some of the non-financial factors, which may be considered by SPL are as follows:

(i) Innovations: SPL has installed a plant having latest technology, making it crucial
to examine the innovations it has implemented in its existing products to better
meet the customer need. Further, it also needs to examine what new products SPL
has developed to expand its market reach.

(ii) Impact on Environment: The CEO has informed about SPL’s compliance with
environmental laws. To effectively assess the outcomes of this compliance, it is
essential to consider both the resultant reduction in carbon emissions and any
increase in the share of recyclable products within the company’s total
production/sales.

(iii) Employee productivity: While offering high salaries to employees has numerous
benefits, these benefits can be fully realized only when equal emphasis is placed on
their training and development, thereby enhancing their productivity. Employee
productivity, satisfaction, and motivation can be assessed using indicators such as
the percentage of wastage in production, employee turnover, and spending on
training and development.

A.7 (a) Affluent market

Advantages:
 Higher average income compared to low income segment means people in this
segment have more income at their disposal.
 Higher market revenue growth compared to low income segment means there is
more opportunity to capture higher revenue from a growing market.
 Higher increase in population compared to low income segment means there is
a higher increase in potential customers.

Disadvantages:
 Does not align well with current product offerings.
 Requires substantial investment to meet the preferences of affluent market
segment.
 May need to make a costly change to the existing setup to strengthen the brand
image.
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 STRATEGY AND PERFORMANCE MEASUREMENT
Suggested Answer
Certified Finance and Accounting Professional Examination – Winter 2023

Low-income market
Advantages:
 Aligning with budget-friendly fuels and basic maintenance services aligns with
the preferences of the existing low-income market and could facilitate a
smoother transition for Oleum.
 Oleum’s affordable loyalty programs for middle income segment can easily be
extended to community-centric loyalty programs that inherently share similar
requirements.
 The larger customer base and potential for volume sales can offset lower profit
margins.
Disadvantages:
 Lower average income compared to affluent market segment means people in
this segment have lesser income at their disposal.
 Lower market revenue growth to affluent market income segment means there
is lesser opportunity to capture higher revenue.
 Lower CAGR in consumer growth compared to affluent market segment means
this segment is growing at a lower rate.

Recommendation:
Therefore, considering the current preferences of Oleum's middle-income market
and the limited budget for expansion, it would be logical and easier for Oleum to
incorporate the Low-Income Petrol Market.

(b) (i) Based on the recommendation to target the Low-Income Petrol Market, here
are the 4Ps (Product, Price, Place, and Promotion) marketing mix strategies for
Oleum:
 Product:
 Budget-Friendly Fuels: Introduce a range of cost-effective fuel options
that cater to the budget constraints of the low-income market.
 Basic Vehicle Maintenance Services: Offer essential vehicle
maintenance services at affordable prices, focusing on the most
common and necessary repairs.
 Community-Centric Loyalty Programs: Develop loyalty programs that
emphasize community engagement and offer tangible benefits, such as
discounts, free services, or community events.
 Price:
 Competitive Pricing: Set prices that are competitive and affordable for
the low-income segment, ensuring that Oleum remains an attractive
option within this market.
 Tiered Loyalty Discounts: Implement tiered loyalty programs where
customers can earn increasing discounts or rewards based on their
frequency of visits or volume of fuel purchased.
 Place:
 Strategic Location Selection: Identify locations in areas with a high
concentration of the low-income population, ensuring easy accessibility
and convenience for the target market.
 Community Partnerships: Establish partnerships with local community
organizations at low-income population areas, schools, or businesses to
enhance brand visibility and trust within the community.
 Mobile Stations: Consider flexible station setups, such as mobile
stations or pop-up stations in areas with high demand but without a
permanent petrol station.

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 STRATEGY AND PERFORMANCE MEASUREMENT
Suggested Answer
Certified Finance and Accounting Professional Examination – Winter 2023

 Promotion:
 Localized Marketing Campaigns: Tailor marketing campaigns to
resonate with the specific needs and aspirations of the low-income
community. Emphasize affordability, practicality, and community
benefits.
 Social Media Engagement: Leverage social media platforms to engage
with the target audience, share community events, and promote loyalty
program benefits.
 Collaborative Promotions: Collaborate with local businesses or
community events for joint promotions, creating a positive association
with the brand.
 Educational Initiatives: Conduct educational campaigns on basic
vehicle maintenance and fuel efficiency to empower customers and
build trust.

(ii) The balanced scorecard for Low-Income market segment is:

 Financial Perspective:
 Revenue Growth: Measure the growth in revenue from the low-income
market segment.
 Profitability: Monitor the profit margins associated with budget-
friendly fuels and basic maintenance services.
 Return on Investment (ROI): Evaluate the ROI of initiatives such as
loyalty programs and community partnerships.

 Customer Perspective:
 Customer Satisfaction: Measure customer satisfaction through surveys
and feedback regarding fuel quality, service, and overall experience.
 Market Share: Track the increase in market share within the low-
income petrol market.
 Loyalty Program Participation: Monitor the participation and
engagement levels in the community-centric loyalty programs.

 Internal Processes Perspective:

 Operational Efficiency: Measure the efficiency of fuel delivery,
maintenance services, and overall station operations.
 Supply Chain Management: Evaluate the effectiveness of the supply
chain in ensuring a consistent and affordable fuel supply.
 Quality Control: Monitor the quality of fuels and services to ensure
customer satisfaction.

 Innovation and Learning Perspective:

 Innovation: Track the implementation of innovative solutions, such as
new cost efficient solutions, new cost saving practices, eco-friendly
additives and technology integration, to meet customer preferences.
 Employee Training and Development: Assess the training programs
and development opportunities for employees to enhance their skills.
 Community Engagement: Measure the level of engagement with the
local community through partnerships and events that enhances
networking and learning.

(The End)

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