A Study on the Customer Satisfaction and Customer Loyalty of Furniture Purchaser in on-Line Shop

Table of contents

The current issue and full text archive of this journal is available at www. emeraldinsight. com/1598-2688. htm AJQ 11,2 146 A study on the customer satisfaction and customer loyalty of furniture purchaser in on-line shop Yongju Jeong and Yongsung Lee Department of Business Administration, The University of Incheon, Incheon, South Korea Abstract Purpose – The paper intends to explore the in? uencing factors on customer satisfaction and customer loyalty in the internet shopping mall through service quality based on the data obtained from furniture purchaser.

Design/methodology/approach – The research model and the relevant research hypothesis were set up through the data derived from the existing researches, and then the relevant hypothesis was tested through regression analysis. Findings – As result of analysis, the in? uencing factors on customer satisfaction of furniture purchaser in the internet shopping mall were proved to be product diversity of service quality, tangibles, responsiveness, interaction, stability, and customer satisfaction was found to be a signi? cant in? encing factor on customer loyalty in the internet shopping mall. Research limitations/implications – Although this study was carried out against actual furniture purchaser in selecting the samples, it reached the limit in considering the diversity of internet shopping mall, and sorting into on-line and off-line concurrent shopping mall and internet exclusive shopping mall. Originality/value – The study reviews the service quality measure suggested in the existing literature on service quality, newly applying it to on-line services environment, and then ? ding out the in? uence of service quality in internet shopping mall on customer satisfaction, customer loyalty, and repurchase intention as well as in which dimension they are built up.

Introduction

Owing to rapid development of information communication, e-commerce through internet is picking up briskly throughout the world. According to the survey of Korea National Statistical Of? ce, the volume of transaction in domestic cyber shopping mall in Korea steadily grew starting from 2001 when it reached approximately 3,400,000,000,000 won, which is well over 20,000,000,000,000 won in 2009. Like this, internet market is growing in non-negligible scale, and even it is expected to grow more and more in future.

Development of various information communication technology including computer has changed the consumption life of the consumers, and especially tons of changes take place in the consumers’ selection through their decision making. Such changes suggest a new environment characterized by global market, collapse of hierarchy, and economy of information era. Internet shopping mall is a business that can be operated at minimum expense with minimum labor force, which allows to ecure price competitiveness by minimizing distribution stages, and further provide better customer service than the existing off-line shopping by providing various information. These days, rapid growth of do-it-yourself furniture stimulates the tendency of purchasing furniture through internet shopping.

On-line furniture sales system was attempted by a small-scale ? rm at the beginning, but large furniture suppliers soon after jumped on to the on-line market band wagon without hesitation (The Korea Economic Daily, 2007, July 16). This study is intended to ? d out the factors of customer satisfaction and customer loyalty by exploring the characteristic of the users regarding customer satisfaction and customer loyalty of the furniture purchasers in the internet shopping mall, and then reviewing the literature on customer satisfaction and customer loyalty, conducting empirical research through statistical data obtained from questionnaire survey by establishing model and hypothesis after reviewing the literature on customer satisfaction and customer loyalty in order to discover the characteristic that appeared through the user’s purchase of furniture.

Theoretical backgrounds

Internet shopping mall Internet shopping allows the purchaser to search and survey the information on service or product by accessing internet shopping site through internet in remote place instead of retail shop as a physical space, and then enables to select or order the goods, and ultimately pay the money using credit card to purchase the goods/services (Ruth, 2000). It is de? ed as the collective concept of on-line shops having the products in a variety of lines where advertisement and exhibition of the products for internet shopping is carried out through electronic shopping mall, server is equipped with data like prices, structures, characteristics of various products, webpage provides information on the product together with multi-media information (Hoffman and Novak, 1996).

Internet shopping mall is characterized by connecting producer directly with ? al end-user while traditional off-line market comprises four steps from producer through ? nal consumer. In addition, it is rarely restricted by time/space, and easy to acquire information from customer. Traditional commercial transaction requires a large amount of investment to maintain ? xed assets and human resource, while e-commerce requires investment mainly for system installation only. Besides, in terms of advertisement, promotion, etc. owing to conversion to two-way from the existing one-way, it is changed into the style of one-to-one connection with customer.

Furniture industry

The structure of Korea’s furniture industry is driven to domestic demand while Taiwan to export market. Therefore, the industry is very weak in its management foundation owing to extremely ? erce competition within the same industrial circle, generalized phenomenon of design being imitated and the subsequent deterioration of pro? tability, etc. In addition, because of insuf? cient timber source at home, the industry depends on import from Indonesia, etc. for 95 percent of major raw materials such as plywood for furniture production, etc.

Domestic furniture industry has structural problems in both design and distribution sectors. Especially, in distribution sector, attacked by aggressive merchants who seek unlawful deals with low-price sale, general tax payers A study on customer satisfaction 147 AJQ 11,2 148 with sincerity tend to lose their competition foundation, and furthermore event companies or representatives hold their own discount sales ruthlessly, disturbing domestic distribution order, resulting in sharp drop of quality and subsequent damage to the consumers.

Accordingly, it is necessary to develop our furniture business circle again in such a manner of reinforcing production foundation centered on own specialized product of each while expediting cooperative relationship with professional companies for the other non-specialized products, and thus it is needed to establish production and operation strategy under new system, and then reinforce the competitiveness in price and distribution.

Service quality

Service means an intangible activity or bene? provided by the services provider to customer, which can be tangible product and something that is added to intangible service, or in an independent form (Kotler, 1991). With regard to the nature of service, there exist some different opinions among the researchers, but service is known to have four properties; being intangible, inseparability of production and consumption, heterogeneity, and perishability (Parasuraman et al. , 1985).

The concept of service quality can be represented in different way depending on aspect and approaching method. Especially, service quality has a aspect emphasized by subjective assessment recognized by each individual customer rather than that examined objectively being dif? cult to measure owing to its specialty. Generally, the de? nition of quality varies depending on the methods of approach driven to transcendental experience, product, manufacture, value, and user (Garvin, 1984). Parasuraman et al. 1985, hereinafter “PZB”) de? ned cognitive service quality, aside from objective quality, is a type of attitude “that is the comparison between consumer’s recognition of the result of service provided by the corporation and the expectation of consumer that should be provided by the corporation in their opinion”. Accordingly, cognitive service quality was observed through the degree and direction of the difference existing between consumer’s recognition and expectation (Woo-seong, 2006).

According to PZB, although there exists the difference of relative importance that assess the service quality depending on service types, there exists basically similar assessment criteria, and therefore the service quality observation system developed by them is the decisive factor of service quality that may be generally applied to service industry. Since then, Parasuraman et al. (1988) discovered that there exist correlation among ten decisive factors of service quality that were examined from Parasuraman et al. 1985) conducted against the corporations such as machinery repair and maintenance, bank, long-distance telephone company, credit card company, and security broker. Finally, they named SERVQUAL for it by combining ? ve factors (tangibles, reliability, responsiveness, assurance, and empathy). SERVQUAL can be also measured by gap score between the score of consumer’s performance recognition and score of expectation. Five dimensions comprising SERVQUAL and the description of each dimension is as shown in Table I.

As a result of reviewing the precedent research on the service quality of on-line shopping mall, it was found that the study on the satisfaction with loyalty and consumer satisfaction as result of the service quality of on-line shopping mall was conducted in such a manner that the property of on-line shopping mall was re? ected in the existing service quality dimensions to develop the dimension of on-line shopping mall service quality.

Customer satisfaction and customer loyalty

Customer satisfaction.

In the study on customer’s satisfaction/dissatisfaction, there exists inconsistency concerning its concept among the researchers, and a variety of attempts are carried out in its measurement. The de? nition of customer satisfaction can be divided into two; de? nitions driven to outcome and driven to process (Lee, 1995). From the aspect driven to outcome, customer satisfaction is conceptualized as the result of consumption experience such as the recognition felt by customer that the price paid is rewarded in proper or improper manner, emotional reaction against the retail shop or purchasing behavior related with purchased speci? product or service, or emotional reaction against the behavior in wider meaning such as consumer’s behavior or the market on the whole, comprehensive mental state that occurs when the emotion due to inconsistent expectation is combined with the emotion prior to the customer’s experience of purchase. The aspect driven to process is useful in that it generalizes the whole consumption experience, and it enables to examine an important process that reaches customer satisfaction through the measure of observing unique elements at each stage (Oliver, 1981). Internet shopping mall is a web site in virtual space in the name of internet.

Chen and Wells (1999), in measuring the attitude to the web site, suggested three aspects; informativeness that shows the degree of usefulness of information provided by web site to the visitor, entertainment of web site that shows the degree on how it meets emotional necessity and desire of the visitor, and organization of web site that shows the degree on how it provides the visitor’s desired information and product/service in convenient and prompt way.

Customer loyalty

Typically, customer loyalty means the property of customer to repeatedly purchasing speci? c subject (brand, product, service, shop, etc. with affection regardless of the change in the circumstance (Jacoby and Chesnut, 1978; Oliver and Swan, 1989). There are the variables for measuring customer loyalty such as devotion into speci? c subject, repurchase intention, and intention to recommend to others, etc. (Reichheld, 1993). Especially, customer loyalty is known to arise from the result of customer satisfaction in general. Customer loyalty in on-line can be de? ned the tendency of customer to keep on using speci? c web site with affection (Anderson and Srinivasan, 2003). Customer with high loyalty is supposed to keep a speci? web site with him/her using bookmark function, frequently visit it, and show high site adhesion with high detention time. In addition, Dimension Tangibles Reliability Responsiveness Assurance Empathy De? nition Physical facility, equipment, outlook of employee Ability to perform the committed service in reliable and correct manner Will of assisting the customer and providing quick service to the customer Knowledge, courtesy, ability of the employees that give rise to reliability and assurance Careful concern and individual interest in the customer

A study on customer satisfaction 149

Table I. Five types of SERVQUAL AJQ 11,2 they are very friendly with the site, and positively promote or recommend it to the others. The customers of high customer loyalty like this is very possible to purchase the goods from that site, and tends to consistently purchase again from that site in spite of positive marketing activity by other sites (Anderson and Srinivasan, 2003).

Design of research

Research model and establishment of research hypothesis

This study aims for reviewing service quality measure suggested in the existing literature on service quality, newly applying it to on-line services environment, and then ? nding out the in? ence of service quality in internet shopping mall on customer satisfaction, customer loyalty, and repurchase intention as well as in which dimension they are built up. Therefore, research model for empirical analysis was established as Figure 1 based on the result of precedent research. As research model, based on the results of previous studies; Lee and Lin (2005), Lee (2006), Jeon (2006), etc. the dimension of on-line service quality were suggested to ? nd out its in? uences on customer satisfaction, customer loyalty, and repurchase intention: H1. Product diversity of service quality in on-line shopping mall will have positive (? in? uence. H2. Tangibles of service quality in on-line shopping mall will have positive (? ) in? uence. H3. Responsiveness of service quality in on-line shopping mall will have positive (? ) in? uence. H4. Interaction of service quality in on-line shopping mall will have positive (? ) in? uence. H5. Stable service quality in on-line shopping mall will have positive (? ) in? uence. H6. Customer satisfaction with service quality in on-line shopping mall will have positive (? ) in? uence on customer loyalty. Service quality Product driversity H1 Tangibles H2 H3 H4 Interaction H5 Customer satisfaction H6 Customer loyalty 50 Responsiveness Figure 1.

Research model Stability

Method of research In this study, the questionnaire survey was targeted against the customers aged from 20s to 50s who had experience of purchasing furniture from on-line shopping mall. To accomplish the purpose of research, questionnaire survey was carried out for approximately ten days from August 6, 2009 to August 15, 2009. Total 140 questionnaire sheets were collected out of 150 distributed to the subject. Among 140 sheets collected, 131 were adopted except nine returned deemed to be answered with insincerity.

In this study, survey was targeted to the persons who purchased the products in furniture category 1 made of steel or wood available in on-line shopping mall.

Empirical analysis

Reliability analysis

In this study, in order to measure reliability, Cronbach’s a coef? cient – internal consistency analysis – was used. The reason of adopting Cronbach’s a coef? cient was to enhance variable reliability by sorting out the items affecting reliability and then ruling out those variables when several items were used to measure the same concept.

Normally, it proves to be suf? cient when Cronbach’s a coef? cient appears at least 0. 6, and therefore reliability coef? cient on each variable was suggested in Table II to show reliability for each item.

Validity analysis

In this study, the result of exploratory factor analysis on service quality, customer satisfaction, and customer loyalty in deriving the factors that in? uences on customer satisfaction and customer loyalty of furniture purchaser in the case of on-line shopping mall as shown in Table III.

As result of factor analysis, product diversity of service quality, tangibles of service quality, responsiveness of service quality, interaction of service quality, stable service quality, customer satisfaction, and customer loyalty were classi? ed to be the factors, and the variable to be excluded being less than 0. 5 in factor loading did not appear.

Testing of hypothesis

To test the hypothesis, analysis of correlation among variables and multiple regression analysis between antecedent and dependent variables were carried out.

Result of factor analysis Notes: Extraction method: principal component analysis; rotation method: varimax with Kaiser normalization; rotation converged in six iterations strategy of enhancing customer satisfaction and customer loyalty by grasping which factors in? uence on customer satisfaction and customer loyalty of furniture purchaser in on-line shopping mall, and to which degree it has in? uence if so.

In carrying out regression analysis, it may produce wrong interpretation if independent variables are not mutually independent or regression coef? cients are estimated incorrectly. In other words, there could exist the problem of multi-collinearity. In order to conduct the test for equal variance and normality that are the premise of multiple regression analysis, testing of multi-collinearity was carried out. Pearson’s correlation was used in the analysis of correlation, which shows there exist no problem of multi-collinearity (Table IV).

Testing of hypothesis between customer satisfaction and antecedent variable.

As the antecedent factor of customer satisfaction, diversity of service quality, tangibles of service quality, responsiveness of service quality, interaction of service quality, and stable service quality were set up, and then multiple regression analysis was conducted to test the in? uence on customer satisfaction (Table V). Table VI is the result of analysis on the signi? cance for individual variables. Each b coef? cient appeared 0. 361 for diversity of service quality, 0. 526 for tangibles of service quality, 0. 364 for responsiveness of service quality, 0. 486 for interaction of service quality, and 0. 32 for stable service quality.

Table VI. Multiple regression analysis between customer satisfaction and antecedent variable importance of regression coef? cient appeared 0. 360 for diversity of service quality, 0. 518 for tangibles of service quality, 0. 375 for responsiveness of service quality, 0. 497 for interaction of service quality, and 0. 356 for stable service quality. In the result of analysis, absolute value of beta coef? cient for tangibles of service quality appeared large and therefore, it is deemed to be the variable of best explanation of all. F-value of regression model was 50. 647 (? 0. 000) proved to be of signi? cance, and Durbin-Watson value was 2. 16 (close to 2) deemed to satisfy the assumption of independence. As result of testing, the coef? cient of determination (R 2) – one of the measures that show the adequacy of regression estimated from sample data to the observed value appeared 0. 476. Therefore, 47. 6 percent of variation on customer satisfaction that was the dependent variable as result of regression analysis was well explained by antecedent variables. AJQ 11,2 154 Thus, ? ve factors such as diversity of service quality, tangibles of service quality, responsiveness of service quality, interaction of service quality, and stable service quality were found to directly in? ence on customer satisfaction at a signi? cant level.

Testing of hypothesis between customer loyalty and customer satisfaction. F-value of regression model was 38. 763 (? 0. 000) proved to be signi? cant, and Durbin-Watson value was 1. 912 (close to 2). Therefore, it is deemed to satisfy the assumption of independence (Table VII). The coef? cient of determination ( ) was 0. 212, and therefore 21. 2 percent of variation on customer satisfaction that was a dependent variable as a result of regression analysis. That is, customer loyalty is explained by customer satisfaction, and it was found to directly in? ence on customer loyalty at a signi? cant level (Table VIII).

Conclusion

This study aimed for analyzing the in? uence on customer loyalty exerted by product diversity, tangibles, responsiveness, interaction, stability, and customer satisfaction that are suggested as service quality factor felt by furniture purchaser in internet shopping mall. The result is as follows. First, as result of exploring the factors in internet shopping mall service quality which in? uence customer satisfaction, it was proved product diversity, tangibles, responsiveness, interaction, and stability have positive in? ence on internet shopping mall customer satisfaction. As on-line shopping mall market reaches maturity, it is thought time-saving is the main reason for the customer to prefer internet shopping, and the shopping malls focus on their service on such needs. Second, as for the relationship between customer satisfaction and customer loyalty concerning internet shopping mall service quality, more satisfaction with internet shopping mall appeared to have more positive in? uence on customer loyalty. In result, it seems that the consumer satis? ed with internet shopping mall can keep consistent relation with internet shopping mall in future.

As aforementioned, the result of this study shows that excellent service quality of internet shopping mall operator becomes the factors that can improve the competitiveness of shopping mall, and furthermore the internet shopping mall could R Table VII. ANOVA 0. 216 Adjusted 0. 212 F-value 38. 763 F-signi? cance 0. 000 Durbin-Watson 1. 912 Independent variable Table VIII. Multiple regression analysis on customer loyalty (Constant) Customer loyalty Unstandardized coef? cients b SE 2 0. 002 0. 236 0. 052 0. 051 Standardized coef? cients b 0. 238 T 20. 036 5. 603 Signi? ance probability 0. 962 0. 000 Note: Dependent variable: customer loyalty raise customer loyalty if they would improve service quality consistently to get satisfaction from the customers. Although this study was carried out against actual furniture purchaser in selecting the samples, it reached the limit in considering the diversity of internet shopping mall, and sorting into on-line and off-line concurrent shopping mall and internet exclusive shopping mall. Thus, a further study needs to be done to ? nd the aforementioned area.

References

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  12. “Applying a modi? ed technology acceptance model to determine factors affecting behavior intention to adopt electronic shopping on the world wide web: a structural equation modeling approach”, doctoral thesis, Drexel University, Philadelphia, PA. Woo-seong, L. 2006),
  13. “The effects of service quality on customer loyalty in online shopping mall”, Master’s thesis, Sejong University, Seoul. A study on customer satisfaction 155 AJQ 11,2 Further reading Gefen, D. and Straub, D. W. (2000),

“The relative importance of perceived ease of use in IS adoption: a study of e-commerce adoption”, Journal of the Association for Information Systems, Vol. 1. About the authors Yongju Jeong is graduated from Korea National Open University. He is also graduated in MA from University of Incheon and doing PhD in University of Incheon.

Yongju Jeong is the corresponding author and can be contacted at: cyjangunsa@hanmail. net Yongsung Lee is graduated from the Department of Administration, University of Incheon. He is also graduated in Information and Communication Engineering, University of Incheon. He received his Master of Business Administration from University of Incheon Admission. 156 To purchase reprints of this article please e-mail: reprints@emeraldinsight. com Or visit our web site for further details: www. emeraldinsight. com/reprints

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Premier Furniture

Premier Furniture Company It was mid-Aprll. and Richard Zimmerman, credit analyst for the Premier Furniture Company, was completing his first round of credit reviews for 1984. Two of his accounts”Deslgners, Inc. of Pittsburgh, Pennsylvania, and Walcott Department Stores of Hartford, Connecticut”had moved well beyond the credit limits set by Premier. It was Zimmerman’s Job to determine the appropriate corrective steps. After his third look at the customer file for Designers, Inc. Zimmerman was still undecided. He had evaluated the account as “satisfactory” In his annual review in early 1983, but his reservations at that time were not lessened by the performance in fiscal 1984. It was evident that the substantial sales to Designers in the last three months did not necessarily signal an Improved relationship. Zimmerman was also troubled by the most recent numbers of Walcott Department Stores. Walcott had been a reliable account since 1951 but had posted a large operating loss in fiscal 1984.

His review was further complicated by the tact that the owners had recently opened stores in Worcester and Springfield, Massachusetts. Although Walcott’s future obviously depended on how the branch stores fared, Zimmerman had no reason to assume their success or failure. 4h*fi, Designers (ffL+Uee, , FM-x-r eve, It was obvious to Zimmerman that the Designers and Walcott accounts invited a raised eyebrow, but given Premier’s credit policy the numbers came as no surprise. quality home furniture for distribution to dealer cooperatives, independent home furnishing retailers, and regional furniture chains.

The company advertised its lines nationally and attempted to maintain intensive coverage of trading areas by istributing through stores strategically located with a particular marketing area. Beginning in 1975, however, Premier found that product quality and service no longer assured success in the broad range of outlets the company had cultivated. Credit terms and financing of dealers became a critical marketing tool, and in the words of credit manager Karl Freund, “Premier soon found itself backed into the position of supporting numerous customers in order to maintain adequate distribution for its products. Unfortunately, Premier’s heavy financing of dealers coincided with a national credit squeeze and higher interest rates on borrowed money. tg¦, Zimmerman was also aware that many of Premier’s customers had waited out more than seven years of a relatively soft market only to suffer a noticeable decline in sales in the late summerand early fall of 1983. As in previous downturns, stores featuring lower-priced lines were hit first, followed by quality retailers at the end of the year.

Although the decline in sales was not severe, the drop in volume and subsequent price cutting reduced the profit margins of some retailers enough to offset profits earned in the first half of 1983. As might be expected, the downturn in the market was quickly passed on to manufacturers. Many of Premier’s customers tightened their belts by reducing orders for new lines and reorders for established lines. They believed that the price cutting in the second half of 1983 had resulted in considerable overbuying by consumers, and they were therefore anticipating a downturn in sales.

The dramatic drop in orders affected manufacturers across the country. Orders for shipment fell 10% from February to March, and then an additional 20% from March to April. E-fifi f&fllikh, lit, Alpha The Designers and Walcott files sat on his desk awaiting his decision, but Zimmerman was still mulling over the contradictions posed by the files. He knew, for instance, that Walcott enjoyed fairly steady sales throughout the year and that 50% were cash or charge sales. The remaining sales were installment purchases which called for 25% down and the balance in 6 monthly payments.

Premier, on the other hand, supposedly sold on terms of 3% in 10 days, net in 60 days”and had established a $50,000 limit on Designers and a $75,000 limit on Walcott. In truth, Premier’s terms had become negotiable. Zimmerman was also frustrated by the fact that Karl Freund expected to see a foot on the brake while the sales manager was pressuring him to ut both feet on the gas. Given his Job, Zimmerman believed that it was in the company’s interest to know the difference between a good customer and a bad risk.

But with the sales manager insisting that liberal financing was the only way to spark an upturn in orders, Zimmerman felt caught in an impossible position. The time had come to seek the advice of the company’s credit manager. Five minutes after collecting the essential information from each file (see Exhibits 1 through 5), Zimmerman placed the folder in the hands of Karl Freund. f&RhF, 1511?±0, , premier, “”fifi, Q, fi-nmew,?-¦, fi-nmeilfr, A credit analyst for a furniture manufacturer is confronted with two customers who have exceeded their credit limits.

The financial performance of each has been weak, and one of the customers has a highly leveraged balance sheet. Industry conditions are weak; the manufacturer apparently has excess capacity; and the credit analyst is caught between the conflicting demands of the sales managers and the credit manager. The case provides an opportunity for ratio analysis. The Premier Furniture Company of Newfield, North Carolina, centers on manufacturing high-quality home furniture for distribution.

By 1975, Premier found that product quality and service no longer assured success in the markets they were in; therefore, credit terms and financing of dealers became a critical marketing tool. Regrettably, Premier’s weighty financing of dealers corresponded with a national credit squeeze and higher interest rates on borrowed money. In 1984, Richard Zimmerman, the credit analyst for the Premier Furniture Company, took over the task of assessing the financial health of Premier’s customers. Two of their accounts, exceeded the credit limits previously set by Premier. Premier had to make a decision on Designers Inc. d Walcott”they needed to fgure out the difference between good customers and bad credit risk. premiefiwzb,

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Guillermo Furniture Store Flex Budget

Abstract The purpose of this paper is to explain, firstly, how the cost relationships and behaviors at Guillermo Furniture Store determine decision-making prerogatives for the manager. Next this paper explains what control system might Guillermo use to help it achieve his store’s organizational goals. Lastly this paper provides a break-even analysis on the current situation considering the possible effects of selling the flame-retardant separately for Guillermo. Guillermo Furniture Store Flex Budget In 1980, The Guillermo Furniture Store was enjoying a profitable business in Sonora, Mexico.

During 1990 the company began to lose its high profitability. It was able to identify the problems. Now it had to make amendments to survive and make good profit. It realized that proper accounting needed to be done, and costs etc needed to be evaluated before decisions were made. Hence, a number of things needed to be considered. The first and foremost thing that must be considered for Guillermo Furniture Store is, how the cost behaviors at Guillermo can affect the decision making prerogatives as well as the strategies that the managers can adopt.

There are many different ways in which the cost relationships and behaviors can affect the decision the manager takes. Costs are receptive to any changes in production and sales and cost behavior is one of the best ways of describing this change. However, in order to be effective, the data must be comparable to similar and relevant data. If the correct, present and previous data is properly analyzed, Guillermo will be able to determine its CVP (cost volume profit) relationships easily.

The way in which Guillermo allocates cost, will be the deciding factor in, how efficiently and easily cost behavior and relationship analysis can be done for it. It is a general rule in accounting that, if a cost is easily traceable to its origin and can easily be allocated under the right head, then analysis becomes easy. Basically there are four major heads in accounting; service departments, production departments, products and services, and customers department. The costs allocated to each can further be simplified into direct and indirect costs. Once allocation is complete, the next step is important.

Managers of the various departments must watch how these costs are behaving in their departments. What are the costs sensitive to? Etc. The managers must keep a track of the costs associated with the production and services department, because these costs are interrelated to other costs and also have an influence on the actual cost of products and services. The higher the cost incurred the higher will be the price of the product for the customer. Another important aspect of costs which help managers in making decisions is customer profitability and how costs affect it. Costs are allocated in the different departments on certain bases.

These bases are called cost drivers. When managers constantly monitor them, they can build relationships between the costs and their drivers. One way in which managers can determine their decision making behavior is, to have rules and regulations for allocation of costs under different heads. For example rent is usually allocated on the basis of floor area occupied . Besides this it is important that fixed and variable costs are separated, because many decisions of production can change on this basis. If the above steps are taken, it will become easier to manage things for Guillermo.

Another important thing for Guillermo is the types of control systems that it uses. A management control system helps in gathering data of costs etc which helps in making financial and production decisions and evaluating the performance of the departments, the company and employees (Horngren, 2008). Guillermo has to make certain changes if he wishes to achieve his goals. For this, just like any other organization he has to make sure his teams understand their role and accept the change. In order to ensure that the change is not met with resistance, he will need to explain it and that means communicating the change properly to the employees.

Guillermo has many options regarding the control system he can adopt. However, developing the ideal control system for Guillermo would depend on which alternative he selects. The right one will make his business profitable and prosperous once again. Basically Guillermo has three options. Firstly, he can reduce his production cost by using technology (i. e. he can automate his production process). This would mean an initial cost of buying machinery etc, but in the long run the cost of production would go down.

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Guillermo Furniture Store

Guillermo Furniture Store For many years, Guillermo Navallez has owned and operated a small and profitable wood furniture making company in beautiful Sonora, Mexico. He has enjoyed an abundance of raw materials, low labor costs, and limited competition. This has recently changed due to a few significant events (1) new competitors from overseas, using high-tech automation manufacturing processes, resulting in exact furniture specifications at rock bottom prices and (2) Sonora, Mexico labor cost have dramatically increased due to emerging new industries and companies.

Guillermo Furniture has been forced to reconsider his current business model and implement a change in strategy to remain in business and competitive (ACC561, Guillermo, 2009). Guillermo Furniture SWOT Analysis Prior to addressing the outlined questions we must understand Guillermo Furniture Store’s current; Strengths, Weaknesses, Opportunities and Threats (SWOT). Managers use accounting information for many different types of decisions. Information uncovered in accounting provides; scorekeeping, attention directing and/or problem solving, but we first need to understand our current environment (Horngren, 2008).

The first course of action for Guillermo Furniture is to have an objective SWOT analysis performed in order to have a clear picture of the company’s current position in the market and among the competition. Of course, a more detailed SWOT analysis would be needed for a more specific focus and direction. Strengths: Strengths identified during the SWOT analysis is an abundant supply of raw materials, inexpensive labor, and a market that allowed a price premium for quality. Weaknesses:

The Guillermo Furniture Company was shown to be weak in manufacturing process and technology when a larger competitor started operations in direct competition. This made the company’s market position uncompetitive due to lack of manufacturing automation and labor costs. Guillermo also would like to remain independent, thus he would not benefit from the strengths of merging or having his small company acquired to facilitate growth. Opportunities: Guillermo has multiple opportunities to improve his company’s future.

First, the company could expand the selection of furniture produced through new manufacturing processes. Second, the patented furniture coating product, could easily become the driving force behind Guillermo growth and competitive advantage. And finally, Guillermo could develop a new business unit division, and combine it with an investment in technology for the coating manufacturing to further improve his unique selling proposition. Threats: The Guillermo Furniture Company faces a myriad of threats. A new and large competitor that uses advanced technology and automation.

Rising labor costs, declining sales due to competition, eroding margins, and declining revenues with sales losses. The current climate of mergers and acquisitions in the furniture industry is producing stronger competition with more economies of scale and leveraging of power in the marketplace. Budgets and Performance Reports The basic purpose of accounting information is to help make strategic decisions. Regardless of who is making the decisions, understanding accounting information allows for a more informed, and better decision (Horngren, 2008).

Accounting reports are classified into two types; Accounting and Financial reports. Budgets and performance reports are vital information for a company that is looking to survive, compete and expand in their marketplace. Guillermo would benefit immensely by using these reports to see data trends in different business segments. For example, a performance report showing real versus budgeted sales would identify the most viable and profitable business segments in both short and long-term.

Guillermo could then use these data trends to build a 5-10 year forecast for individual business segment manufacturing viability. Guillermo must evaluate each business unit taking into account fixed and variable costs associated with the fixed assets required for operation. Once this evaluation is completed, business models for revenue, costs, profit margin, and resource investment could be compared for each of the proposed business units. • Manufacturing as currently in place • Manufacturing with investment in new technology • Broker Business Segment Product Coatings Business Segment Lastly, Guillermo could use performance reports to identify growth segments for immediate and future resource investment. He could identify declining segments and begin to diversify or limit future investment in these segments. For example, demand for moderate furniture is growing while the demand for high-end furniture is on the decline. While limiting further investments in declining segments, use them as sources of income for the higher profit margins they do produce.

The proceeds from this could be re-invested in the growing market segments. Ethics and Accounting Decisions Regulation of accounting systems seeks to ensure the reliability of the information that accounts provide. “However, no regulation can be as effective in ensuring liability as holding accountants to high ethical standards” (Horngren, 2008). Organizational and individual ethics influence critical decision-making processes, with potentially negative results affecting the bottom line. Ethics are based in part on core values imparted on individuals throughout a lifetime.

Each person perceives right and wrong based upon ethics and consequently his or her actions will follow these parameters. Technology also promotes organizational ethics; however, ethical and moral conflicts will increase work-related stress amongst employees. This behavior negatively influences organizational behavior. Guillermo must decide whether to transition from manufacturing to distribution, and if he does remain in manufacturing, are there potential ethical violations if he continues to broker as well.

This author believes Guillermo would have the personal ethical dilemma of continuing to employ human labor from his city, or transition to a more automated production thus saving him money from his bottom line, and making the company more efficient and effective. The current economy has been shaped with bad ethical decisions in accounting practices. One only needs to look as far as Tyco, Enron and WorldCom to understand how pressure to perform and expand can corrupt a company. The bottom line for Guillermo Furniture Company will be how Guillermo responds to the competition and how his desire to remain ndependent affects his decision making process. Relevant Accounting Information and Decision Making The most relevant accounting information for Guillermo to consider would be the following examples. • Short and Long-Term Demand Forecasts, Revenue Generation, Pricing, Cost, and Profit Margin for each Business Segment. • ROI in months / break even when determining the ROI on New Technology Investment • Compare Expected Revenue, Margins and Net Income from all three business opportunities.

Forecasting demand for each segment, pricing and production costs for each opportunity • Assets Management…. Develop a plan to support assets that are profitable, and a plan to divest the underperforming. Conclusion The Guillermo Furniture Company has enjoyed years of profitability without constructing a business dynamic plan. With the larger direct competition moving in, this has shown the weaknesses in the Guillermo Furniture Company. Guillermo must immediately change the course of direction in order to remain solvent in the current marketplace.

The statistics available through accounting practices will give him the necessary tools to make both short and long-term decisions to remain a viable company in today’s global economy. References ACC 561 Course handout: Scenario: The Guillermo Furniture Store. Retrieved July 19, 2009 from the material section of the course description page. Brealey, R. ., Myers, S. . & Marcus, A. J. (2007). Fundamentals of Corporate Finance (5th ed. ). Boston: McGraw-Hill Irwin. Horngren; Sundem; Stratton. (2008). Introduction to Management Accounting (14th ed. ). Upper Saddle River, NJ: Pearson / Prentice Hall.

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Federal Reserve Chair Game

Using the concepts you’ve been studying, describe how the game shows the use of monetary policy?

Based on the monetary policy, the authority controls the supply of money through targeting the interest rate to promote economic growth and stability. Having relatively low price level and less unemployment rate are the main goals. Therefore, this game also adjusts the federal interest rate in order to retain the lowest unemployment rate and improving the economic stability by maintaining low inflation rate that increase the economic stability. So, we can say that this game controls the monetary policy.

How can unforeseen circumstances effect the economy? Give examples.

If the supply of money is not controlled by the monetary authority, there would be some chances that would affect the economic stability such as high inflation rate and unemployment rate may cause the issue to the current financial need and finally cause the high risk to the country.

How does the Fed react to these circumstances? Did you get re-appointed? Why or why not?

To keep the inflation rate low and stable around 2 percent and unemployment rate account 5 percent are recommended. In this case, it is necessary to have fed rate around 4.5 and also it needs to be revised every 3 months for next four years. If the rate will increase by 7.5 percent, unemployment rate would be around 4.69 percent, inflation rate as 2.26 percent. Therefore, the inflation will be higher as well as the unemployment rate. No, I was dismissed from the high inflation rate because I cannot control the monetary polity even form two times opportunity

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Living and Dining Room Furniture 

Living and Dining Room Furniture Issues in the Market The vast majority of households struggle with storage issues. Furthermore, two fifths (42%) find it difficult to source the right size furniture for their home, while over a third (36%) struggle to store/display their possessions. This frustration with lack of space creates significant scope for new clever and flexible storage innovations in living/dining room furniture. Q: How does smaller housing stock affect demand for living/dining room furniture?

A: By 2017, the number of one- and two-person households is projected to increase by 850,000. Demand for space-efficient living/dining room furniture is therefore likely to intensify during the coming years. For example, in 2013, IKEA is launching its Uppleva modular range in the UK, which has integrated smart TV, video/Blu-ray and DVD players, wireless internet systems and the different components can be tailored to fit requirements and/or the space available. Mintel’s research for this report shows that the vast majority of households struggle with storage issues.

Furthermore, two fifths (42%) find it difficult to source the right size furniture for their home, while over a third (36%) struggle to store/display their possessions. This frustration with lack of space creates significant scope for new clever and flexible storage innovations. Q: How are companies leveraging the ‘stay at home’ trend? A: The living room has become a home entertainment hub with seating arrangements serving as part of the ‘movie’ experience, for example incorporating home comforts such as built-in fridges, cup holders and reclining seats.

There is increasing connectivity between furniture and mobile devices. In April 2012, La-Z-Boy’s Gizmo range includes Bluetooth music control and speakers. CSL’s Sound Sofa offers built-in docking facilities for iPods and music speakers while the DFS Audio Sofas feature an entertainment dock for iPod/iPhone/MP3, with built-in speakers and a sub-woofer. Neil Mason Head of Retail Research nmason@mintel. com Tel: +44 (0) 20 7606 4533  © 2013 Mintel Group Ltd. All rights reserved. Confidential to Mintel.

Neil manages the teams that produce the European Retail Reports. Neil joined Mintel in 1995 and previously worked as Head of Fashion/Beauty and Personal Care/Household, and Head of UK Retail. Before joining Mintel, he worked in the food and publishing industries. He has a BSc in Business Studies/Marketing. Living and Dining Room Furniture Issues in the Market Since home ownership won’t become a reality for many younger consumers, investing in a home digital system that can be moved (and built up over time) is an important consideration.

The internet has become an integral part of buying living/dining room furniture, with almost half of respondents browsing online before making a purchase. This compares to 30% who like to browse catalogues before buying. Q: How important is property churn to the living/dining room market? A: In Mintel’s research for this report, less than one in five respondents (18%) said that they bought living/dining room furniture when they last moved house/set up home. A similar proportion bought after redecorating/extending their living/dining room (19%) or just to get a new look/style (19%).

So fluctuations in the housing market are significant but not the only driver of new purchases. The primary reason for buying living/dining room furniture is when items get worn out or broken (51% agree). It is competing for share of household goods spend and moving forward the emphasis should be on the pleasure derived from creating an inviting home environment. Women are in the driving seat when it comes to this type of furniture purchase rationalisation, with 79% saying the look/style of their living/dining room is important, compared to 64% of men.

We can therefore expect to see a greater focus on targeting women using emotive triggers such as family, status among peers, self-indulgence etc. Q: How important is multichannel retailing to living/dining room furniture? A: The internet has become an integral part of buying living/dining room furniture, with almost half of respondents browsing online before making a purchase. This compares to 30% who like to browse catalogues before buying. At the same time, bricks-and-mortar showrooms offer clear advantages to consumers who prefer to ‘try before they buy’ (54%) and to those who ppreciate helpful and knowledgeable staff, important to over two thirds of potential shoppers (69%). Modern retailers are harnessing the advantages of all channels, for example creating augmented reality mobile phone apps, launching mobileoptimised websites, increasing in-store theatre and modernising product catalogues. Greater focus on e-commerce is seeing many of the larger retailers rationalising their store portfolio and introducing smaller store formats, while relying more on digital channels to facilitate wider product ranges, style inspiration and achieve greater geographical reach.

Websites are becoming more content-rich, thus improving the online experience, similarly many retailers are investing in their stores, enhancing the physical shopper experience. Therefore the two channels are increasingly working in tandem with one another, creating more convenience and flexibility for the consumer. © 2013 Mintel Group Ltd. All rights reserved. Confidential to Mintel. Living and Dining Room Furniture Issues in the Market The year 2012 saw these trends pick up pace as the non-specialist retailers grew their market share.

Q: What are retailers doing to reduce consumer preoccupation with price? A: Promotional tactics risk becoming tired and ineffective as consumers become immune to the steady stream of promotional campaigns. Several retailers are using emotional triggers to inspire consumers to invest in their home by projecting aspirational lifestyles and communicating a different set of value benchmarks. Some 86% of respondents cite good quality as important to their choice of furniture retailer, whereas a wide choice of styles, quick/flexible delivery and promotions/discounts also gain the same level of response.

Retailers are adopting diverse and innovative tactics to detract from price-based promotions, ranging from greater online customisation of styles/colours/fabrics, highlighting softer attributes such as provenance, heritage and ethics eg Britishmade furniture, adding new exclusive brands to the mix such as Habitat (Homebase), French Connection (DFS), Jasper Conran (M&S) or introducing new own-brands which are less open to direct price comparison, or offering speedy delivery (eg CSL’s 72-hour express delivery service).

While price-based promotions remain vital to driving footfall in-store, industry trends reveal more multi-layered strategies taking shape such as express delivery times, greater scope for customisation of design and making different channels work in harmony rather than in competition with each other eg in-store vs online. Promotional tactics risk becoming tired and ineffective as consumers become immune to the steady stream of promotional campaigns. Several retailers are using emotional triggers to inspire consumers to invest in their home by projecting aspirational lifestyles and communicating a different set of value benchmarks.

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Capital Budget Recommendation: Guillermo Furniture

Capital Budget Recommendation: Guillermo Furniture ACC/543 Monday October 8, 2009 YouKnew Abstract Guillermo Navallez is the owner of a successful furniture and manufacturing company located in Sonora, Mexico. Navallez’s establishment is known for its quality pieces, crafting a variety of chairs and tables from the abundant supply of timber in the area. In the late 1990’s, Navallez competitors became a real threat to the ongoing success of Guillermo’s Furniture and Manufacturing Company, producing like quality furniture for a fraction of the cost.

What is more, the competitors were producing these pieces at an alarming rate, and using high-tech equipment and absolutely no labor costs. Over the years, Navallez noticed that his profit margins shirked as prices decreased and costs increased. Navallez decided to do his own research on some of his competitors and discovered that to keep up, many of the local competitors was either consolidating by merger or acquisition. Navallez, being proud of his accomplishments did not want to industrialize his company and contacted Wells Accounting firm to help him with alternatives to match the competitors.

Wells Accounting Firm plan of action is to assist Navallez by helping him understand the difference between the various capital budget techniques, and then providing Navallez a recommendation on the best-fit project to bring Guillermo’s Furniture and Manufacturing Company back to excellent financial health. Capital Budget Recommendation: Guillermo Furniture Wells accounting firm was contacted by Guillermo Navallez, business owner after realizing that his company faced considerable profit loss with the onset of competitors producing like quality pieces for a fraction of the cost.

Wells accounting firm was challenged to help Guillermo Navallez understand the various capital budgeting techniques and to present a recommendation to restore Guillermo’s Furniture and Manufacturing Company to excellent financial health. Wells accounting firm immediately went to work, employing various budgeting techniques such as the payback technique, break even analysis, and net present value, internal rate of return, and cash flow expected based on a variety of alternatives. Each technique provides essential information for Guillermo Navallez, and helps the firm best determine how to move forward.

To best determine which approach would be most beneficial, the firm must first determine Navallez Company’s current financial position. The figures below represent Guillermo’s Furniture and Manufacturing Company current financial position for previous and current year, respectively. TOTAL ASSETS $1,350,627 USD $1,356,534 USD According to Guillermo Navallez, his company produces two grades of products to service a wide-range of customer: Mid-Grade, and High-End. Navallez believes that his prices are reasonable.

The first capital budgeting technique, the payback technique, or the cash payback technique is used to identify time periods needed to recover the cost of capital investments from the net annual cash flow produced by the investment. For example if Navallez decides to purchase equipment and continue manufacturing High-End products at faster rates, employing less human capital also deciding to purchase as opposed to leasing the new equipment, we will calculate his payback as following: Payback Technique

Initial Investment1,200,000. 00 Estimated Useful Life10Years Estimated Salvage0 Estimated Annual Cash flows Cash Inflow from Customer $ 217,630. 33 Cash outflow for Operating $ 77,298. 28 Net Annual Cash Flow $ 140,332. 05 Cash Payback Period $ 8. 55 The payback period is associated with the useful life of the equipment (asset). In this case the payback period is unacceptable seeing that the period is longer than 60% of the life of the equipment (asset), yielding 86%.

Another technique is the break even analysis. This technique helps the firm understand the lower ranges of profit where margins are concerned. The firm will be able to determine when Guillermo’s Furniture and Manufacturing Company will begin to make a profit after all expenses are considered. For example, at current Guillermo’s Furniture and Manufacturing Company produces the following: Break even analysis makes the following assumptions: 1. Fixed costs are constant 2.

Quantity of goods are constant per output 3. Variable cost are constant per output unit Because Break even is a variation of payback technique, the firm is able to further determine the monthly current or projected sales before Guillermo’s Furniture and Manufacturing Company yields a profit. Net present value is another technique taken into consideration. This technique uses time value of money, and determines the difference between costs and market values of projects. NPV :

Investment (150% of book value of assets) $(2,023,244. 07) Year 1 after tax cash flow $ 362,496. 81 Year 2 after tax cash flow $ 362,496. 81 Year 3 after tax cash flow $ 362,496. 81 Year 4 after tax cash flow $ 362,496. 81 Year 5 after tax cash flow $ 362,496. 81 When the net present value of the Guillermo’s Furniture and Manufacturing Company net present value is a positive number, the general rule is to approve the project because this means that the project will add value to the company.

The intent of reviewing these techniques is to determine which project will yield positive profits for the company and how much profit can be expected. Similar to net present value is the internal rate of return, which is used to measure an acceptable investment opportunity. The internal rate of return is equivalent to the net present value rate of zero for an investment. When looking at a variety of alternatives, the firm determined that Guillermo’s Furniture and Manufacturing Company could be profitable using a variety of alternatives, thus the recommendation.

Wells Accounting Firm determined that Guillermo’s Furniture and Manufacturing Company should market and push the flame retardant product, while also coordinating the company’s existing distributor network and essentially becoming a representative for the other manufacturer. Reference(s): Edmonds, T. P. et al. (2007). Fundamental financial & managerial accounting concepts. New York: McGraw-Hill. Retrieved from the University of Phoenix eBook Collection. Fast4Cast. (2007). Retrieved from http://fast4cast. com/break-even-calculator. aspx

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