SECTION C: ESSAY TYPE QUESTIONS [60 MARKS] Answer ALL questions QUESTION ONE [20 marks] Case study: Revlon Tshepo has al

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SECTION C: ESSAY TYPE QUESTIONS [60 MARKS] Answer ALL questions
QUESTION ONE [20 marks] Case study: Revlon Tshepo has always wanted
to run his own hair salon. After leaving school, he went to the
local college where he has gained several qualifications in hair
styling and beauty treatments. Following college, he was lucky
enough to be employed as a junior hairdresser at a local hair and
beauty salon, where he was able to gain experience and develop his
hairdressing and customer service skills. Tshepo is certain,
however, that now, three years on, he could successfully run his
own business, which would potentially make him far more money than
he receives in his current position. There has recently become a
vacant shop premises available, not far from the salon where he
currently works and his home. Tshepo believes that if he was to set
up in opposition to his current employer, many of his loyal
customers would switch to his business, as they like his cheerful
approach and creative styles. He has decided to investigate
different business options and is wondering about applying for a
franchise. During his training, he worked in a city centre branch
of Revlon, an international hair and beauty salon that sells
franchises to enthusiastic entrepreneurs who want to run their own
hair and beauty business. The information provided by Revlon states
that a franchisee would need at least P30,000 to buy and set up a
franchise under the franchise’s name in existing premises. In
return, Revlon would provide a strong brand name that it claims,
for any new business, could boost sales by at least 25%. Revlon
would, as the franchiser, provide training, advertising, a range of
its own branded products, as well as a branded website and software
support. Any equipment required could be bought or leased through
Revlon. Tshepo would therefore be responsible for recruitment and
appointment of staff and the day to day operation of the business.
As well as the initial cost of buying the business, Tshepo would
also have to pay Revlon for using the brand. There would be an
annual charge of P5,000 and a service charge calculated as 5%
of revenue. In his initial plans, Tshepo is estimating that his
first year takings would be about P250,000. Tshepo is unsure
whether he would be better ignoring the franchise idea and setting
up on his own. To find the initial payment he would need to have a
bank loan, as well as use all his savings. He knows however, that
there is evidence that franchises are more likely to succeed in the
very competitive and low profit hairdressing market. Case
questions:
a. Analyse the impact on Tshepo’s new business of choosing to
locate near a competitor. (6 marks)
b. Advice Tshepo by elaborating at least four (4) shortcomings
of investing in a franchise business? (4 marks)
c. Tshepo is considering two options for his new business.
Justify which one of these options Tshepo should choose (10
marks)
Option 1: Applying for a franchise
Option 2: Setting up on his own