What's driving your Sales? SNAP?

SNAP is the “Supplemental Nutrition Assistance Program” (formerly known as “Food Stamps”) in the United States.  . “We put healthy food on the table for more than 46 million people each month.” http://www.fns.usda.gov/snap/ Could this be driving spikes in your sales?  If you are involved with food/beverage sales in the United States, very possibly, it could.   SNAP sales spikes can be large and short-lived.  Ignore SNAP and your product may not be available on the shelf when it's needed, losing sales opportunities.

A few key facts:

• Most food and beverage items are eligible for purchase with SNAP, excluding hot foods, foods consumed in the store, alcoholic beverages and tobacco products. 
• 2011 redemption exceeded $71 billion. 
• Redemption has doubled in the last 3 years 
• Approx. 15% of the U.S. population now receives SNAP benefits.  Participation rates vary substantially across states, counties and neighborhoods.
• Average monthly benefit of $134 per person enrolled. 
• Eligible non-participants left $29 billion unclaimed in 2011 
• Funds are made available by EBT card which can be used very like a pre-paid debit card to purchase goods.  Unused funds can roll-over to next month.

OK, we've established that it's big, actually very big, that it's relevant to a broad range of food and beverage products and that it impacts purchases for a large section of the population.

What makes it challenging for a retailer is that each state independently handles distribution of funds for its population and they are a long way from being consistent .  (Actually in some cases, individual counties can control how funding is distributed).  Each state distributes funds on specific days of the month of their own choosing.  Typically, they decide who gets funds on which day based on digits from a case file or Social Security number or the starting letter of the last name).

For example, as of 8/12, Virginia distributes all funds on the first of the month, Maine distributes funds somewhat equally between the 10th and 14th.

SNAP baskets are large and it appears that the bulk of these funds do get spent very quickly after being made available, so, if you're trying to sell food in Virginia, you need to be very well-stocked with products that resonate with the SNAP shopper on the 1st of every month.

Moreover, not all stores (even within the same state) will see the same spikes in demand because of differences in their shopper base.  If, for your product, the spike in sales at state level is  +50% over a "regular" day, there will still be stores that see almost no impact at all and some that see much more.

That distribution  of funds is based on day of the month causes additional issues with most forecasting and reporting systems that are based on weeks rather than days .  These sales spike (and subside again) quickly, at a rate that is largely hidden by looking at sales in weekly buckets.

• Do you know which of your products are most heavily impacted?
• Do you know which stores see the biggest spikes in sales?
• How can you persuade your replenishment system to plan appropriately for such short term spikes?
• Can your supply chain ensure delivery in advance of peak demand?
• Are your promotions planned appropriately around SNAP distribution dates?
• Are your planograms designed to handle these spikes  in demand?
• Can your planograms flex to handle spike and non-spike days or have you 'built a church for Easter Sunday'?
• Are you losing sales?

Balancing safety-stocks across DCs

Earlier today I saw and responded to a question posted on the IBF (Institute of Business Forecasting & Planning) LinkedIn Group.  It's a question I come across often so I thought I would repost it here (with a few edits).

Question:  
How do I go about preparing an aged inventory analysis? I need to show fast moving,slow moving item, then I want to transfer product with in DC's that are slow so that the amount of SS is balance



Response:
I would be wary of moving stock between DCs ("re-deployment") as a means of balancing safety-stocks, it can be very expensive while providing no no real gain.  Balancing stock is typically best done by rebalancing inventory levels when you next acquire production rather than through re-deployment.  As a general rule don't move anything until you have to: if you do, you will certainly incur freight cost and you may not fix a real problem.

If your inventory levels are very low you may risk cutting orders.  So how do you know if your inventory levels are too low?  In my experience, most businesses operate based on rule-of-thumb guidelines and in doing so risk both excessive stocks and cut orders (across a range of products and locations).  Do you know what your safety-stock really needs to be?  I'm talking about a valid, statistical inventory-model taking into account demand uncertainty (related to your forecast accuracy), supply uncertainty and lead-times?  Or is it more of an educated guess ?

(FYI - the lead-time to move product between DCs is typically very much less than the lead-time for acquiring new production so if you are willing to include re-deployment as part of your ongoing solution you can manage with even less safety stock than a basic models may suggest.)

If you're projecting inventory to drop below this safety stock level within your lead-time, it's time to move your inventory.

At the other end of the scale, you may want to move product because otherwise it may expire through age or otherwise become obsolete.  Again though don't move it unless you have to.  A very similar calculation to that used for safety stock, that takes into account your demand uncertainty can tell you when you are danger of being over-stocked.   Assuming you will lose more money by throwing it away then you will by moving it across country, when inventory exceeds this maximum target, load up a truck and ship it to the closest/cheapest place that will sell through it.  

Guidelines on how to write a good resume

By Jackie, Researcher

Topic: Employment skills (Resume writing)

The objectives of this research are to find out how a good resume can be prepared in order to secure a job, what should be and should not be included in a resume content, how to give a good impression to the interviewers, and how to stand out from the crowd. Complete guides are given below for both CV and cover letter including a sample for illustration purposes.

Introduction

Ideally, a solid CV and cover letter are the first-step to secure a dream job. A good job seeker knows that a good resume is the key to an interview invite and ultimately, to employment. Aside from a summary of your abilities, work experience and education, a resume should reveal your unique selling point to entice a potential employer to hire you.

The cover letter

A successful and effective cover letter should basically answer this question: “Why should I hire you, and not the others? That’s why you should always personalize each and every cover letter that you write. However, there are some basic rules and guidelines on how to prepare a good cover letter:

1. Quote the job or position you are applying for and where you heard or read about the job.
2. Keep your self-introduction brief as the employer can get more details about you from your accompanying CV.
3. Ensure you highlight all your key achievements, experience, skills or personality traits in relation to the job advertised.
4. Keep the length of the cover letter to one page. Use easy-to-read fonts such as Times New Roman (12pt) or Arial (11pt) in black ink.
5. Ask a trusted friend, family member, career advisor or mentor to read through your draft letter to check for spelling or grammatical errors and to suggest improvements where possible.
6. Use good quality white paper to print your cover letter and CV. Ensure that they are smudge-free as you want to give the best impression possible.
7. If you are sending the application by snail mail, don’t forget to sign the letter before sending it out.

Covering all bases

Here is a 10-step guide on how to write an effective cover letter:

1. Always address the hiring manager by name. If you don’t know the person’s name, find out the name and designation by checking the company website or calling up the department.
2. Ensure you state the position you are applying for. The company may be advertising more than one position – don’t force the person reviewing your application to guess what you are applying for.
3. Start by introducing yourself briefly and where you found out about the job vacancy. State also if you would like to be considered for similar positions in the company.
4. Elaborate on why you are interested in the field or industry. Make it formal yet personable.
5. Briefly explain how your education and any work experience make you suitable for the job.
6. Mention any internships or other working experience, if any.
7.  Explain briefly how these experiences and qualifications have helped in developing the skills or personality traits required to perform the job being advertised.
8. Lead the hiring manager to your CV and make a formal request for an interview.
9. Maintain the polite tone of your message by thanking the hiring manager in advance for his or her time.
10. End the letter with your name printed at the bottom and a signature if you are preparing a hard copy application.

For email applications:

A cover letter is still essential. However, it should be sent as the body of the email with your CV enclosed as an attachment. State the job you are applying for in the ‘subject’ of the email. Also, save your CV with your name as the filename and don’t forget to attach it to the email. It is also highly recommended that you use an email account with your full name to appear more professional.

Sample cover letter

The CV

Your CV is an overview or summary of your qualifications and life experiences. It is essentially your personal marketing tool to make a good first impression on your potential employer. Since employers may receive hundreds of CVs a day, it is very important to ensure that your CV stands out from the rest.

Covering all bases

Here is a 10-step guide on how to write a proper CV:

1.  Write your name at the top of each page in bold font so it is easily recognizable.
2. Provide your full name and correspondence address so that the potential employers will know how to address you.
3. Include other important contact information so that you can be easily reachable. Ensure that the phone numbers are correct as employers tend to call instead of email to make interview appointments.
4. Your education and qualification should come next. Always start with the highest qualification obtained and work your way backwards. It is also good to include your secondary school results if you are a fresh graduate.
5. Be sure to include any academic achievements in your CV. They serve as reinforcements of your aptitude and ability.
6. Emphasize the most valuable skills for the job you are applying for. Use tables and rating scales for things like computer skills and language literacy.
7. Detail your work experience. Again, start with the most recent and then work your way backwards chronologically. Emphasize the achievements in addition to listing the tasks you were involved in. This improves your employability.
8. List down all notable interests and activities, especially those that you are passionate about. Highlight any leadership roles you have previously held.
9. It is also good to add any additional skills which are not directly related to the job requirements, but are just as important, such as language proficiency and type of driving license.
10. Ideally, you should have one work-related referee and one academic referee. However, ensure that you have their permission to include them as your referees and that you are on the lookout for a job so you don’t spring any surprises on them.

Sample CV

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Conclusion

A well written CV and cover letter that addresses every point made in the job advertisement or position description is what you should strive for if you are serious about getting the job that you want.

Additional readings, related links and references:

Resume writing, cover letter, interview tips, job search tips, at the work place, and career advancement.

http://careers.jobstreet.com.my/resume

How to write a masterpiece of a resume?

http://www.rockportinstitute.com/resumes

How to write a successful CV?

http://www.kent.ac.uk/careers/cv.htm

How to write a resume?

http://www.youthcentral.vic.gov.au/Jobs+&+Careers/Applying+for+jobs/How+to+write+a+resume/

How to create a great resume?

http://internships.about.com/od/resumetipssamples/ht/ResumeTips.htm

Advantages And Disadvantages Of Franchising (Updated, August 2012)

By Jackie, Researcher

Topic: Business (Franchising)

The objectives of this research are to find out what are the major advantages and disadvantages of buying a franchise from the franchisee’s perspective. Basically, franchise is the practice of using another firm’s successful business model.

The benefits and drawbacks of buying a franchise

Franchise is a method of marketing and distributing based on a two parties relationship; 

that is the franchisor (the owner and granter of right) and the franchisee (recipient of right) relationship.

                

                Franchise or ‘business cloning’ is becoming more popular currently and it looks like a rapid growing trend of setting up a business nowadays as well as a strategic method for entrepreneurship as it usually carries lesser risks compared to conventional business start ups. Friendly speaking, franchising maybe a particularly good choice for ‘uncreative people’ who wants to start a business but has no prior business experience. It is advised that potential franchise owners should be aware and analyse all its benefits and drawbacks in detail before they decide to purchase a franchise.

Big Mac is a proven product of McDonald’s.

                Firstly, the most compelling advantage is the franchise offers a proven idea, product or service within an established market. This will definitely cut down research, experiment and survey costs as the potential franchise owners need not have to worry about the acceptability of a particular product or service by the general public. They also can save a lot of money, time and effort as they do not need to do market analysis like PESTEL analysis (Political, Economic, Social, Technology, Environment and Legal) nor SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) as these types of analyses have already been done by the franchisor. 

Starbucks’ logo is an image of a "twin-tailed mermaid, or siren as she's known in Greek mythology.

                Secondly, the purchase of a franchise with an established trademark or recognized brand name provides franchisees with considerable market power and reputation. For instance, the purchaser of a Starbucks’ franchise has a trademark with proven market power. The good thing about this is the owners no need to struggle for years in order to build up a good brand name or image which we commonly see in new entrepreneurs who have just stepped into the business world and wished to form their own products and company. Seriously, it is not easy to build a new brand name by our own efforts nowadays as there are too many brands out there whereby the competition is extremely high. 

Full training is provided for each step by the McDonald’s training team.

                Thirdly, another attractive benefit of purchasing a franchise rather than owning a store outright is the notion that the franchisor provides the franchisee ongoing support in terms of training, technical expertise, product updates and management assistance. These benefits are not available if a person plan to run a business on his or her own, thus making the process of operating a business other than franchise seems to be more difficult as the owners have to be more independent. A popular slogan in franchising is that people buying franchises to “be in business for themselves but not by themselves”. In short, the beauty of franchising is the availability of guide or “mentoring”.

Campaign allows KFC to communicate its message and brand to wider audience

                Fourthly, an established marketing network is usually provided. In other words, the franchisees do not need to do marketing on their own as the franchisor will do it as a whole. Just imagine if a person venture into a business which is not franchise, he or she has to struggle to attract customers by advertising. The point is if a person runs a business on his or her own rather than franchising, then most likely the advertising will be ineffective and not as successful as franchise. This is because franchise has its own marketing network plus the summation of all collectable advertising fees from all the franchisees creates a large pool of money where they can use a more expensive modern approach of advertising such as advertise in television, radio and billboards.

Pizza Hut’s truck.

                Fifthly, relationship with suppliers has already been established once a franchise is bought. The owners do not have to worry about getting reliable, trustable and good suppliers on their own. Besides, the prices of goods are usually cheaper due to economy of scale too. Even if the inflation sets in, the franchisee will be less affected as compared to other form of business because goods are ordered in a very large amount by the franchisor before distributing it to the franchisee and this enables the trade discount to take place too.

Total estimated initial investment for Freddy’s Frozen Custard & Steakburgers.

                This is however, there are certain major drawbacks of which the potential franchise owners must take into consideration before they make up their mind especially the initial cost of purchasing and setting up a franchise operation as they could be quite high. Therefore, usually franchise owners will suffer a huge amount of cash outflows at the beginning before they can enjoy profits. This is because, a large sum of money has to be paid for the trademark, necessary renovation to make the franchise looks identical with the others, purchase of furniture, stocks, machinery, payment of salaries and so on.

Royalty fee reduces profits

     

                Besides, the distribution of profit will be smaller as the franchisee is required to pay ongoing royalty fee usually monthly and is typically calculated as a percentage of gross sales, not net profit. This is to avoid franchisee from manipulating his or her franchise expenses in order to reduce net profit and this will directly reduce the royalty payment. The point is when royalty is computed based on sales, as long as there is a revenue even the franchise is making losses in a particular period, the franchise owner is still required to pay the royalty fee. When this situation arise, it is like “add salt to the wound”.

Restrictions on creativity

                Furthermore, there is a restriction on creativity. Many franchise systems are very rigid and leave little opportunity for individual franchisees to exercise their creativity. This is an often-cited frustration of franchisees. This is because most franchisors impose appearance and design standards, thus limiting the ways a franchisee can operates his or her franchise. Although, these standards can help in promoting uniformity, they can also limit franchisees’ new ideas and ability to cater to local tastes or needs.

KFC apologises to i-City outlet assault victim

                 In addition, if some of the franchisees in a franchise system starts performing poorly and makes an ineffective impression to the public, this can somehow affect the reputation and eventually the sales of a well-run franchise in the same system. In short, although all the franchises operate independently, but they are still inter-related and connected. For example, there is a recent case in Malaysia where a man was assaulted by a KFC’s kitchen crew member at its i-city branch in Shah Alam. A video recording of the assault went viral on YouTube. KFC’s reputation was damaged because of this incident and the fast food chain’s deputy president had met and apologized to the victim.

Sometimes a franchise agreement can be too strict and seems to be unfavourable 

                Moreover, there are also some issues relating to the duration, nature of the commitment and problems of termination or transfer. For a variety of reasons, many franchise agreements are difficult and expensive to terminate or transfer. Furthermore, virtually every franchise agreement contains a non-compete clause. These clauses vary in term of severity, but a typical clause prevents a former franchisee from competing with the franchisor for a period of two years or more. Often, a franchise cannot terminate a franchise agreement without paying the franchisor substantial monetary damages.

                In conclusion, the future of franchising is still bright. As franchising continues to become a more pervasive form of business, regulators and franchise associations are likely to intervene in ways that strengthen the viability of the franchise concept.

Additional readings, related links and references:

The Benefits of Franchising

http://www.youtube.com/watch?v=KCObP7-5dwE

Should You Buy A Franchise?

http://sbinfocanada.about.com/od/franchiseinfo/a/buyfranchise.htm

The Advantages and Disadvantages of Franchising

http://emievil.hubpages.com/hub/The-Advantages-and-Disadvantages-of-Franchising

Purchasing a Start-Up Franchise? Here are some Advantages and Disadvantages

http://www.franchiseknowhow.com/buying_franchise/prosandcons.htm

What Are the Benefits & Drawbacks of a Franchise?
http://www.ehow.com/list_6811866_benefits-drawbacks-franchise_.html

Clustering with a destination in mind

I've posted before on Cluster Analysis, in an attempt to demystify one of the more accessible and useful analytical approaches for CPG/Retail teams (see Cluster Analysis - 101) .

Finding groups of similar stores (for example) can be a very effective way to manage the complexity of offering each store group what they really need without having to deal with each one individually, a mammoth task.   Whether you are looking to find groups of stores, shoppers, regions, products or even sales patterns a very similar approach can work for you.

Clustering is part of the journey it's not a destination.  If you don't know and understand what decisions your analytic work should enable  (your destination) how can you build a good model?



Let's take a real-life example again around store clustering.  Much of this work is done to help define the assortment offering at each store.  Get the right products in each store and sales should increase: good news for the retailer and good news for the manufacturer.

I've seen a number of approaches to this work and many start out with "we need a cluster analysis" - good idea.  Sadly, many then forget why they needed that cluster analysis, pull all the data they have on stores, throw it at a clustering model and hope something useful falls out the other end.   What sort of data would that be?  Well, assuming you have access to Point of Sale data, its easy enough to get a measure of overall sales for your category (to split the big stores from the small ones).  Many of you will also have access to demographic data (ethnicity, income-levels, household size, age etc.) that you can map to store locations.  Maybe you also have geographic data like latitude/longitude by store and you could throw that in too.

As long as your data is (largely) error-free and complete the cluster analysis will run, but the output may or may not support your decision process.  Remember that we started with a goal of wanting to understand what products to put on the shelf.  Is this supported by knowing the demographic mix?  Only indirectly - if we know that we a  group of stores serving an, on average, older population we can make assumptions about the sorts of products they would prefer and guess at how much more of these products to put on the shelf.  Analytically speaking, "assumption" is a rather bad word: "guess" is a curse-word.

(BTW - there is some very good work being done to more accurately map local demographic data to  stores.  It gets complicated very quickly, feels cutting-edge and even "cool", but, if it does not support you in reaching your particular destination, its not useful to you right now.)

We can do so much better than this by keeping the destination in mind throughout the process.  We want to improve assortment by store so let's start by ignoring demographics, ignoring geography and let's look at sales.  We want to know what sells well and what sells badly by store.  Even for one category there can be hundreds of products in the mix so we really can't analyze this by product.  We can get sales profiles though based on key product characteristics.  Here's one such profile (mocked up for this example) for prepared food products.

Just visually looking at these 8 stores, you can see that:

• some stores sell relatively less "American"  food (3 and 8)and a higher proportion of Italian and/or Asian foods.
• some stores sell relatively more chicken and less beef (4,5,7)
• some stores are heavily value oriented (1,4,7) , some mid-range (3,5) and some heavy on premium (2,8)

Deciding which product characteristics are most relevant to your category is still a challenge and you may go through a few cycles of exploration in determining what really characterizes the difference between stores but I'm hoping you can see that this is already a much better approach that the one we started with and it's tied directly to the decisions we need to make on product assortment.

Getting the sales profile data may be a bit more challenging: you still need Point-of-Sale data and potentially a lot of it as you will need to start with at least item:store level detail.  You will most likely need a DSR or a very friendly and flexible database administrator with time on his hands to get it into this format.  (If you do not know what a DSR is check out my posts Point of Sale Data – Basic Analytics and Data Handling - the right tool for the job)

Based off sales-profile data and a few hours work we can have clusters that are built on product  preferences of shoppers in these stores - what better to drive your assortment decisions ?

Of course, even if clustering is the right analytic tool, if you have a different destination in mind, this may not be how you want to get there.

A last thought: this does not need to be the end of our journey.  We can use geographic and demographic data not to build the clusters but to help us describe them or to find out which geo/demographic features are related to specific sales profiles.   More on this in future posts.

How to calculate Internal Rate of Return (IRR)? (Critical Review)

By Jackie, Researcher

Topic: Education

Area of discussion: Finance; Management & Cost Accounting

Chapter: Investment appraisal methods – Internal Rate of Return (IRR)

The objectives of this research are to analyze few different methods which are available to calculate Internal Rate of Return. There are some advantages and disadvantages of using each method as none of them are perfect. Basically, there are three types of methods which I saw students often use in examinations and these methods are usually recommended in any relevant academic text books too. They are trial and error method, reverse calculation method, and linear interpolation method. For this discussion, I have randomly taken one question from previous college’s Management Accounting exam and I will apply all these three methods into the same question and we shall see which method is more preferable, faster or perhaps easier to use.

Introduction

Ideally, the Internal Rate of Return (IRR) of an investment project is the cost of capital or required rate of return which, when used to discount the cash flows of a project, it will produce a net present value of zero.

Let’s take a look at this question:

Trial and error method

Only use this method if there is no other better method available. It is very time consuming and thus, not recommended in exams.

Reverse calculation method

Highly recommended (simplest and most direct approach) especially when the discount factor is a whole number and the net cash inflow is the same for every year. Not suitable for discount factor that comes along with decimals as well as different annual net cash inflow. 

Linear interpolation method

It is appropriate to use when two NPV points are known. It is suitable for condition where the discount factor comes along with decimal place or when the annual cash inflow is different. However, the main weakness is “the further the two NPV points located from each other, the less accurate and reliable the computed rate will be”. Thus, the computed figure can only serve as approximation as it was not accurate.

We say ‘approximately’ since, in using linear interpolation we have drawn a straight line between two points on a project NPV line that is in fact a curve. The straight line will not cut the x-axis at the same place as the project NPV curve, so the value we obtained by interpolation is not the actual value of the IRR, but only an estimated value.

Illustration of why the IRR estimated by a single linear interpolation is only an approximation of the 

actual IRR of an investment project.               

Additional support material: PVIFA’s table

Additional readings, related links and references:

Calculating Internal Rate of Return Using Excel or a Financial Calculator

http://www.investinganswers.com/education/time-value-money/calculating-internal-rate-return-using-excel-or-financial-calculator-2129

How to calculate Internal Rate of Return (IRR), and when is the time and in what situation IRR is not recommended to use?

http://www.experiglot.com/2006/08/09/how-to-calculate-an-internal-rate-of-return-irr-and-when-not-to-use-it/

Advantages and disadvantages of Internal Rate of Return (IRR)

http://www.svtuition.org/2010/05/advantages-and-disadvantages-of.html

Finding Internal Rate of Return (IRR) using Excel

http://www.youtube.com/watch?v=jeGa9JF8pzs

Calculating Internal Rate of Return (IRR) and Net Present Value (NPV) using Excel

http://www.youtube.com/watch?v=xzqpfpq6vSk&feature=related

Better Business Reporting in Excel - XLReportGrids beta released

In my last Blog entry, I talked about reporting in Excel, some of the reasons I choose to make heavy use of  them, and some of the issues that stop me using them even more. (see Better Business Reporting in Excel)

• Pivot-tables can only show you data (although lots of it)
• Pivot-charts show you a chart, but only 1 per pivot-table
• If you want the same report for multiple grouping (e.g months, years, brands or locations) you add these groups to your pivot-table and select them one at a time to print.

XLReportGrids is a free Excel add-in, now available in beta test, that builds grids of reports with multiple copies of a template sized to fit the page.   Templates are just a range of cells in a worksheet that are driven by a pivot-table.  Build templates with: charts, formulas, images, pivot-tables, text boxes, anything that can be added to a worksheet.

Features 

• Lightweight, Microsoft-Excel add-in (2007, 2010) 
• Easy to install and easy to use.
• Templates are just a range of cells in a worksheet.  
• Build templates with:  charts, formulas, images, pivot-tables, text boxes, anything that can be added to a worksheet.
• Layout tools make it easy to build clean, professional templates.
• Select the number of rows and columns for your
• Automatically scale to fit the page-size and orientation.
• Generate multiple 'Grids in the same workbook
• Work with multiple page-fields so the rows and columns have meaning
• Optionally add outlines, border gaps and shadows
• Refreshes in seconds, on demand.
• Write the chart legend to a header section, printed on each page
• Lock value axes so they all show the same range
• Easy to automate

Download the beta test version now from our site:  tools.crabtreeanalytics.com 

and help us build a better tool.  The beta version is intended for testing, you will find bugs and usability issues that we have not.  Please report them to us in as much detail as you can so  we can fix them.

The beta version will be active though the end of October.  We will probably make frequent updates to it during the next 3 months so be sure to check back here often.

Have fun and when you build something you like, please send us a copy to include in our gallery.

Advantages And Disadvantages Of Using Social Networking For Business Purposes (Updated, August 2012)

By Jackie, Researcher

Topic: Business (Social Networking Websites)

Information technology has taken the world by storm. However, its potential is often debated. There are many pros and cons of using social networking websites, such as the Facebook for business purposes. However, the successfulness is still depending on how a company able to exploit them.

The strengths and limitations of using social networking websites

Facebook fan gate pages are a great way to encourage people to become fans of your brand on Facebook.

           

                The advancement of information technology has opened up a broad world of contact, made the world looks smaller and inspired majority of the businesses nor individuals to utilize social networking websites such as Facebook, Twitter, Linkedin, Youtube, Friendster and Myspace as an useful communication tool to develop effective marketing strategies, save cost and budget, gain global awareness, encourage brand-building, share information and build public relationship, irrespective of geographic barrier and cultural differences. However, its potential and capability contain both strengths and weaknesses which will greatly affect the user.

Advantages (1): Marketing purpose

The fan page of General Motors Co on the Facebook Inc website. 
Many companies have started to advertise their product in social networking nowadays.

                Firstly, companies can communicate and receive feedback through interaction with the public and thus, create indirect advertising and improve overall marketing strategies. According to Beard (2009), social networking allows web users to socialize, gives an opportunity for the public to express their view regarding the quality of products and services provided by a particular company, improve or build customer relationship and enable customers to gain awareness of a brand via online publicizing. For instance, The National Geographic Society has created a fan page on Facebook to notify its members about its daily activities, researches and issues. Chruscinski (2011) states that social networks will be viewed by mass audiences which had proven to be true by The Nelson Company of which 22.7 percent of the world internet time in July 2010 was spent on social networking website. Besides, the creation of an online community and forum will draw interested parties’ attention, increased exposure with a little effort, at the same time identify and attracts potential customers. Beard (2009) highlights that the feedback and respond received from customers are essential for doing business analysis in order to understand customer behavior and current trend to make sure that a company is not outdated. Information received through online survey can provide a true and fair key market research for future planning and decision making. Therefore, in my opinion, it will be a convenient platform to host events and gatherings plus, if customers like our ‘updates’, they will have a tendency to share and spread it to their family and friends.

Advantages (2): Cost-saving

Social networking is a “modern marketing tool” which is believed can 

offer far more advantages as compared to “traditional strategies”.

                Secondly, companies can save marketing, advertising, publicity and recruitment expenses as most of the social networking websites are usually free. If not, it is still considered relatively cheap as compared to other traditional media like television, radio, or newspaper. Besides, it is far reach where companies can access to global market with immediate effect. Moreover, it is usually easy to use, do not require legal procedures, and long-lasting as posted information can stay online for a long period of time unless someone removes it (Grunert, 2009). Brooger (2010) explains that interested parties or clients can search a product or service offered by a company easily by surfing the related websites. In addition, if a company is facing any challenge or problem, the company can easily seek advice from experts via social networking websites and most beneficially, the advice is normally free. On the other hand, Beard (2009) suggests that it could also be an excellent recruitment tool where company can advertise job positions to a wider audience. This allows them to discover more about candidates’ background before deciding whether to pursue their application. Moreover, online advertising campaign can maintain a controlled budget, raise a company visibility and popularity, attracts attention of potential customers.

Disadvantage: Put company’s image, reputation and business opportunity at risk

Besides deteriorating physical health, the security of using social 

networking to do business is also questionable.

                There are certain drawbacks of using social networking websites. For instance, lack of control, directly affects company’s reputation, requires deep information technology knowledge, consumes a lot of time, could be risky, side effects might occur and needs high commitment for the person in charge. According to Brooger (2010), every message, comment and feedback that are being posted online are not fully controlled or regulated by the company. In addition, it might be hard to attract targeted audiences because they may use different social websites. Karimi (2009) warns that negative comments and complaints received from customers or clients as well as posting controversial opinions can tarnish a company’s reputation as many web users can view and spread it globally. Therefore, the companies have to carry heavy responsibility as all online activities should be handled cautiously and have to be monitored regularly to avoid problems. Besides, creating groups or event pages are not easy as it requires good computer skills, information technology experiences and deep knowledge and understanding on social networking. Brooger (2010) explains that using social networking websites might consumes much time as companies have to remain active to keep in touch with its regular customers. Next, internet fraudsters will have the opportunity to run illegal activities by using company details. Meanwhile, information posted online can be abused or misused by competitors. Consequently, individuals’ contact numbers and e-mail addresses that are being put online might lead to stalking and online harassment (Niharikas, 2010). Niharikas (2010) also warns that social networking can be absolutely addictive to employees which can cause serious errors in work and also reduce efficiency and productivity in term of time spent. Lastly, as large effort and resource investment are required, the person in charge of social networking must be highly committed and responsible. Social networks have to be updated consistently and frequently to keep the interest of the targeted audiences, but at the same time, always bear in mind that irrelevant posts could also turn off followers and clients as it is very annoying and disturbing (Grunert, 2009).

                All in all, companies should make full use of the extensive range of benefits of which can be acquired by using social networking websites, but they must remain prudent and cautious all the time especially in selecting the things to be posted as a tiny mistake in posting can lead to a significant downfall of a company. I believe social networking websites can provide far more functions as compared to conventional types of media like billboards, in term of prolong the usage duration, save cost and increase profitability. In short, users must think clearly, use it wisely and carefully.

References

‘Advantages And Disadvantages of Social Networking Sites’ 2010, The Tech Edition 18 March, viewed 5 July 2012, http://www.thetechedition.com/advantages-and-disadvantages-of-social-networking-sites/

Beard, A 2009, ‘The Pros & Cons of Social Networking as a business’, Gooruze 7 October, viewed 4 July 2012, http://www.gooruze.com/articles/1682/The-Pros--Con-of-Social-Networking-as-a-business/

Brooger 2009, ‘Using social networking sites for business marketing: Advantages and disadvantages, Brooger9 July, viewed 5 July 2012, http://brooger.com/business-finance-money.php/using-social-networking-sites-for-business-marketing-advantages-and disadvantages

Chruscinski, D 2011, ‘The Pros & Cons of Social Networking in Business’, ehow 11 January, viewed 4 July 2012, http://www.ehow.com/info_7756235_pros-con-social-networking-websites

Grunert, J 2009, ‘Effective Social Networking Marketing Strategies’, Suite101 1 June, viewed 5 July 2012, http://www.suite101.com/content/effective-social-networking-marketing-strategies_a121975

Karimi, S 2009, ‘Pros and Cons of Using Facebook to Promote Your Business Online’, Hubpages29 April, viewed 5 July 2012, http://hubpages.com/hub/Pros-and-Cons-of-Using-Facebook-to-Promote-Your-Business-Online

Niharikas 2010, ‘Pros and Cons of Social Networking Websites’, Bukisa 15 November, viewed 4 July 2012, http://www.bukisa.com/articles/ 396327_pros-and cons-of-social-networking-sites-for-business-marketing-advantages-and-disadvantages