Salon

C: Why does the client want to enter the salon business in India ?

I: India is a growing economy; the business will have potential to grow given the country’s population.

C: Is there any specific objective that they are trying to achieve such as targeted % profits, % market share, etc. ?

I: No, they just want to have a profitable venture as soon as possible.

C: Can you help me understand a little more about the kind of salon the friend wants to open.

I: It will be a unisex salon with premium services.

C: What is the budget for this business?

I: 20cr.

C: So, am I right in assuming that with this budget, he intends to run a chain of salons and not a standalone store?

I: Yes, that is correct.

C: Does the client wants to open the salons pan India?

I:  You can look at what factors should we consider for deciding the location of the stores.

C: Do they want to start a new venture or acquire an existing salon chain?

I: We would like you to analyse that.

C: Do you also want me to look at the opportunity cost of starting this salon for the friend?

I: No, you can ignore that and focus on what all will you consider for analysing the decision to enter the market.

C: So, now that I know a bit about the objectives and business, I would like to analyse the decision to enter based on internal factors of the company and market factors. I’ll start with calculating the market size.

I: Sure, go ahead.

C: 23cr. (Refer to market size calculation in next slide)

I: Now that you have calculated the market size, what other factors will you consider ?

C: I would look at the market share. Since India is a fragmented market in salon business, the client can look at attaining a higher market share only in case of acquisition of a large player in short run, otherwise establishing itself as a market player may be a long run phenomenon.

I: Sounds fair, what other factors will you consider ?

C: I would want to understand are there any barriers to entry, or regulations which the client should consider ?

I: No, there are no such barriers.

C: I will look at the internal company factors, comparing building the business from scratch viz-a-viz acquiring an established chain.

I: Sure, go ahead.

C: Starting with economic feasibility, his own venture, the costs would be – fixed and variable costs. Costs of land bought or acquired on lease, cost of equipment, admin staff and professionals, and running cost of utilities. For JV or acquisition, cost incurred will be the cost of acquisition.

For revenues, in a JV or acquisition, the revenue would depend on profit sharing agreement and would be relatively higher in initial few years at least as compared to own venture, owing to higher pricing and already established customer base. In own venture, it might take a few years to reach the competitive pricing in the market.

I: So, what would you suggest that they should do here ?

C: The decision here would depends on the success of their own venture and time taken. For the initial first year of business, a franchise model may have 2x customers and charge 1.5x price , resulting in 3x revenue. However, the dynamics can change in the long run.

I: Okay, beyond the profits, what other factors they should consider ?

C: On the operations and marketing front, the own business would require more investment in terms of time and money to market the venture, hire staff whereas in the acquired business, the client can leverage the brand image and customer base.

I: Assuming they want to go ahead with starting the business from scratch, how should they go ahead with starting the business?

C: The client should acquire/rent the land, hire trained professionals, source the equipments. Once the infrastructure is ready, the client should invest in branding and marketing for customer acquisition.

I: What are the factors you will consider for determining the location of stores?

C: Since it’s a premium salon, the working-class professionals in huh income societies would be the target customer segment.. Further, availability of land, accessibility to staff would also determine the location.

I: Would you recommend any strategies for customer acquisition initially ?

C: They can offer freebies, discounts and combos initially as an incentive for customers to try their services. Further, the client can look at attractive membership schemes for customer retention.

I: Sounds fair, we can close the case here.