IIBM Institute of Business Management

Examination Paper                                             MM.100

Hospitality and Tourism Marketing

Section A: Objective Type (30 marks)

This section consists of Multiple choices/Fill in the blanks/True-False and short notes type questions.

Answer all the questions.

Part One questions carry 1 mark each and Part two questions carry 5 marks each.

Part One:

Multiple Choices:

1.   In SMERF, ‘S’  stands for:

a.   Social b.   Service c.   Sale

d.   None of the above

2.   If the Question Mark businesses are successful then they become Stars.(T/F)

3.   Customers can be considered under:

a.   Micro environment forces b.   Macro environment forces c.   None of the above

d.   depending on the area of consideration any of the above

4.    Demography is the study of………………………………………………………………………

5.    Generation X consist of the people born between:

a.   1946 to 1964 b.   1965 to 1976 c.   1977 to 1994

d.   None of the above

6.   In ‘SMERF’ M stands for:

a.   Money b.   Model

c.   Military d.   Market

7.    Aural dimensions of environment are volume and pitch.(T/F)

8.    NAM stands for:

a.   National Account Management b.   National Accounting Market

c.   National Autonomous Market d.   Both (a) & (b)

9.   Fixed costs are also known as ‘Overheads’.(T/F)

10. Lobbying is dealing with legislators and government officials to promote or defeat legislation and regulation.(T/F)

Part Two:

1.   What do you understand by ‘Hospitality Marketing’?

2.   Write a note on ‘Servuction model’.

3.   What are ‘Cash Cows’?

4.   What do understand by ‘Vertical conflict’ in case channel behavior?

END OF SECTION A

Section B: Caselets (40 marks)

This section consists of Caselets. Answer all the questions.

Each Caselet carries 20 marks.

Detailed information should form the part of your answer (Word limit 150 to 200 words).

Caselet 1

International Travel Agency

The president of International Travel Agency was concerned about the performance of the sales force.

It was felt that members of the sales force did not really utilize their sales opportunities, but instead though only about selling a ticket to a customer from point A to point B. The sales force did not seem to have an interest in maximizing sales and profits by aggressively selling the entire product mix. In total, the agency had a sales force of eight. Three members of the sales force were referred to as executive sales consultants. These people called on commercial accounts and were expected to spend more of their time outside the office. The remaining five persons were referred to as travel counselors and worked entirely within the agency. None of the travel counselors who worked within the agency were assigned a quota. The executive sales consultants, who worked outside the office, were assigned a sales quota. Failure to meet a quota would be discussed with the salesperson, but no other action was  usually  taken  unless  this  failure  continued  for  several  months.  If  serious  and  persistent

deficiencies  existed,  the salesperson  could  be subject  to discharge.  The  agency provided  nine to twelve familiarization  (fam) trips for members of the sales force each year. This meant that each salesperson could experience at least one trip per year, as they were assigned on a rotating basis. These trips did not reduce time from the salesperson’s guaranteed number of days of annual vacation. The purpose of a fam trip was to acquaint travel agents with destination areas and the services of airlines, hotels, restaurants, and so on. The president felt that the agency could maximize profits by selling  more  travel  services  to clients  and that  the sales  force  was  concerned  only about  selling tickets. An analysis of the product mix of International Travel revealed that approximately 85 percent was accounted for by airline tickets. The remaining 15 percent consisted of allied travel services, including hotels, rental cars, and entertainment. Of these, the majority consisted of hotel reservations. Less than one percent was accounted for by the sale of traveler’s checks. One of the members of management offered the analogy of a businessman entering a clothing store. If a customer purchases a suit, the salesclerk asks if the customer might need a new shirt or tie to go with the suit. Travel agents are no different. They write a ticket from Chicago to Hong Kong or London for a client and never bother to ask if the client needs hotel accommodations, rental cars, travelers checks, or other services that an agency handles. The president of International Travel had tried to encourage the sales force to sell other services but felt that they seemed uninterested in taking the time and effort required. The president believed that maximizing sales of the complete product mix would lead to maximum profits and that something must be done to encourage cross-selling.

Questions:

1.   What can be done to encourage the sales force to engage in more cross-selling?

2.   Discuss what is needed in terms of sales incentives and sales controls to achieve the objectives of

International Travel Agency.

Caselet 2

TANGLEWOOD PARK: VANTAGE GOLF TOURNAMENT

Tangle wood Park has a budget of $4.8 million per year and golf is the primary moneymaker for the

park, but over the past four years, Tangle wood has steadily lost money on its golf greens. In 1994, golfers  paid  about  $1  million  to  play  on  the  championship  course  where  the  Vantage  is  held. However, the amount of maintenance needed to keep this course in top shape and the loss of revenue when the course is shut down for repairs have created an economic problem. The general public who pays county taxes has been restricted from the greens to ensure that the course will be in shape for the Vantage tournament. Revenue from the championship course was expected to be $428,000 less in

1997 than in 1994. “We’re trying to product our investment,” said Rich Schmidt, finance officer for the park.     The dilemma is that golfers who are viewed as “big-buck spenders” want to play where the pros play, said Francie Bray, director of marketing for the park. How much does the county get from  these  players  and  the  thousands  of visitors  who  attend  the  three-day  tournament?  Nobody knows! Officials with the Country Tourism and Development Authority don’t know and neither do officials of the tournament, but most are from Forsyth and surrounding counties. So its doubtful that these people add much revenue to the county. They don’t stay in hotels or make extra trips to the restaurant as a result of the tournament. Many observers feel that the only real spenders are the 500 people directly associated with the Vantage. That includes golfers, caddies, guest, and the media, said Richard Habeggar, tournament director. John Wise, general manager of the Adam’s Mark Hotel in nearby Winston-Salem, said he expects some of the 615 rooms to be filled with tournament guests, but when asked how much the tournament helped, he said, “That’s tough to say. If we didn’t have the

Vantage, we’d attract business from other events.” An official from the Ramada Inn said that the 147 rooms for the tournament period were booked, but some had been sold to people attending weddings. Despite a budget of $3 million by R.J. Reynolds to sponsor the Vantage, the company started the

1996 tournament with a $250,000 deficit. Tournament officials have noticed a slump in ticket sales

and cut expenditures by airing the event on the Golf Channel rather than ESPN, which broadcast the event for ten years. Pete Brunstetter said he wasn’t certain of the future for the tournament but said that the county couldn’t help to subsidize it. The lack of reliable statistics concerning the economic advantages of the tournament to the county and to the local visitor industry undoubtedly hurt. Elected officials responsible for the careful expenditure of tax money and professional managers of a county public park must support their decisions. The absence of reliable data makes it nearly impossible to mount a defense the public will accept.

Questions:

1.   The county commissioners need information to make a decision on the golf tournament. Using the marketing research process, develop a research plan that will provide the commissioners with the information they need.

2.   Explain why it is important on the economic contribution of social events, both before and after the event.

END OF SECTION B

Section C: Applied Theory (30 marks)

This section consists of Applied Theory Questions. Answer all the questions.

Each question carries 15 marks.

Detailed information should form the part of your answer (Word limit 200 to 250 words).

1.   A “hot” concept in fast-food marketing is home delivery of everything from pizza to hamburgers to fried chicken. Why do you think the demand for this service is growing? How can marketers gain a competitive advantage by satisfying the growing demand for increased services?

2.   Identify a restaurant or hotel market segment in your community that you feel would be a good market segment to target. Explain the marketing mix you would put together to go after this market segment.

 ]

Examination Paper of Sales Management

IIBM Institute of Business Management

Examination Paper

MM.100

Sales and Distribution Management

Section A: Objective Type & Short Questions (30 marks)

·         This section consists of Multiple Choices & Short Note type questions.

·         Answer all the questions.

·         Part one carries 1 mark each & Part Two carries 5 marks each.

Part One:

Multiple Choices:

1.      Which of the following comes under role of a salesman?

1. Territory Sales
2. Direct Sales

3. Technical Sales

4. All of the above

2.      This method is used by the trainers to present more information in a short time to a large number of participants________

1. Lecture

2. Demonstration

3. Group discussion

4. None of the above

3.      ________is an emerging form of distribution and promotion that combines elements of personal selling and advertising.

1. Direct Mail

2. Direct Marketing

3. Team selling

4. None of the above

4.      An exercise that is crucial for every company in the business of manufacturing and selling its products is called_______.

1. Retailer

2. Wholesaler
3. Customer

4. None of the above

5.      ________involves manufacturer marketing activities directed at channel intermediaries.

1. Pull Strategy
2. Push Strategy

3. Both (a) & (b)

4. None of the above

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Examination Paper of Sales Management

6.      They are the shopkeepers who set up shops in the market place to cater to the needs of hundreds of consumers

1. Distributors
2. Wholesalers

3. Agents
4. Retailers

7.      Which one of the following is the 2^nd stage of Product life cycle?

1. Maturity

2. Growth
3. Decline
4. Introduction

8.      MSA Stands for_______

9.      It refers to the number of selling activities that a salesman is expected to perform in his area over a period of time is known as________.

1. Sales volume quotas
2. Financial quotas

3. Activities quotas

4. All of the above

10.  Which of the following comes under financial incentives?

1. Higher Salary

2. Profit Sharing

3. More Commission

4. All of the above

Part Two

1. List the different types of forecasting methods?

2. Write a short note on “Training”?

3. Define the purpose of sales budget?

4. How would you explain the Distribution Strategy?

END OF SECTION A

Section B: Caselets (40 Marks)

·         This section consists of Caselets.

·         Answer all the questions.

·         Each Caselet carries 20 marks.

·         Detailed information should form the part of your answer (Word limit 150 to 200 words).

IIBM Institute of Business Management

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Examination Paper of Sales Management

Swish flow Ltd. - Hiring Salespeople

“Why two out of five salesperson have resigned within six months of joining the company/” asked marketing director to the sales manager, Sunil Kumar of Swish flow Ltd. “I think, there is something wrong with our staffing process, “responded Sunil Kumar, without knowing the real reasons for the turnover of salespeople.

Swish flow Ltd started manufacturing and marketing consumer durables like fans and water purifiers for household consumer‟s commercial firms in 1993. The sales and marketing office was located in Mumbai, the commercial capital of India. Swish flow was a newly established company and for its first year of operations, the company decided to recruit five salesperson to cover major metros and cities of Maharashtra. The staffing process included the sales manager deciding the job qualifications salespersons based on what he learnt in the MBA programme. The administration manger was asked to place the advertisement in the local newspapers. The resumes of applicants were forwarded to Sunil Kumar, who screened the same and sent interview calls to about ten applicants. The interviews were conducted by Sunil Kumar and the marketing director and the selected candidates were given the appointment letters. Some of the candidates had a problem of finding suitable residence, but the company policy did not provide any consideration for he3 same. Sunil Kumar conducted one-week training programme and generally guided the new salesperson, who reported to him directly. There was a delay in the receipt of the fans from the factory, located at Baroda in Gujarat. During this period of three months, Sunil Kumar was asked to conduct market surveys and look after advertising function of the entire group. He asked the salespersons to collect market information on various other products like water purifiers, power tillers, and so on in which the group was interested to diversify. During this period, two salespersons suddenly stopped coming to work, after collecting their salaries of the previous working month.

Questions:

1. What improvements do you suggest in the staffing process followed by the company?

2. Was Sunil Kumar right in getting market surveys done by the new salesperson?

Caselet 2

Snow White Paper Company is located in an agricultural belt about 300 kilometers from a metro city. The company is into writing and printing papers. Its primary raw material is wheat straw. Last year, the company had a turnover of Rs. 134 crore on a volume of 45,000 tons of paper. While preparing the business plan for the current year, the top management was concerned with the following distribution issue that they want you to help resolve:

PROBLEM: FINISHED GOODS DISTRIBUTION

The paper industry is dominated by selling agents who bring the manufacturer like Snow White and the buyer like printing/publishing companies, and note book makers, together. They make a commission of about 2 percent on all transactions. Some other points:

·         Snow White depends on about 110 agents to canvass business for it from the users.

·         The Company sells about 23 percent of its paper directly to some government organizations.

·         The agent arranges for the buyer to pay the company for its produce by a advance demand draft. It is expected that the agent provides the credit support to the buyer.

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Examination Paper of Sales Management

·         Agents are not exclusive for Snow White and work for other paper mills also and normally play the mills against each other. They have a grip on the business and are reluctant to put the mill directly in touch with the buyers.

·         There is always an uncertainty on the orders and the price, which would be obtained on the orders- the company cannot plan its profits properly nor offer the best service to end users so that they always ask for Snow white.

Question:

1.      How can you help Snow White become less dependent on the selling agents and plan its sales and profitability better? How can they plan their customer service efforts?

END OF SECTION B

Section C: Applied Theory (30 Marks)

·         This section consists of Applied Theory Questions.

·         Answer all the questions.

·         Each question carries 10 marks.

·         Detailed information should from the part of your answer (Word limit 200 to 150 words).

1. Define the personal selling? Also explain the process of personal selling?

2. What is Motivation? Explain the all theory of Motivation.

3. Define the following terms:

a)  Function of Retailers

b)  Function of Wholesaler

END OF SECTION C

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Examination Paper of Sales Management

IIBM Institute of Business Management

Examination Paper

MM.100

Management of a Sales Force

Section A: Objective Type & Short Questions (30 marks)

·         This section consists of Multiple Choices & Short Note type Questions.

·         Answer all the questions.

·         Part one carries 1 mark each & Part Two carries 5 marks each.

Part One:

Multiple Choices:

1. ____________ is the conscious, systematic process of making decisions about goods and activities that an individual, group, work unit or organization will pursue in the future.

a.       Controlling

b.      Planning

c.       Training

d.      Staffing

2. Which of the following comes under forecasting steps?

a.       Trends in sales

b.      Past Pattern

c.       Competitive factors

d.      All of the above

3. SMART Stand for_______

a.       Specific-Measure-Achievable-Realistic-Time-bound

b.      Smart-Measurable-Achievable-Realistic-Time-bound

c.       Specific-Measurable-Achievable-Realistic-Time-bound

d.      None of the above

4. Which of the following is not comes under relationship selling?

a.       Respond to customer needs

b.      Proactive

c.       Value-based offers

d.      Customer‟s customer

5. Establishing the resource needed to successful execute the operating plan by hiring, coaching and developing people is known as______

a.       Planning

b.      People Development

c.       Proactive Review

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Examination Paper of Sales Management

d.      All of the above

6. AIDA stands for_________

7. This study was conducted using the questionnaire technique among first line managers of Pharmaceutical companies is called______

a.       Results

b.      Methodology

c.       Both (a) & (b)

d.      None of the above

8. ______refers to a solely fixed financial reward provided at appropriate times, either weekly or monthly, depending on the pay period norm.

a.       Performance Bonus

b.      Straight Commission

c.       Straight Salary

d.      Salary plus Bonus

9. Which of the following comes under job Description?

a.         Duties

b.      The job title

c.       Responsibilities

d.      All of the above

10. _______is the process of weaning our the good from the bad from the large pool of applicant and choosing the right applicant for the job and the company.

a.       Recruiting

b.      Selecting

c.       Discrimination

d.      None of the above

Part Two:

1. Write a short note on „Territory Management‟.

2. Define the Assessment of Sales Training?

3. List the tips on making a good sales plan.

4. Explain the Types of Training?

END OF SECTION A

Section B: Caselets (40 Marks)

IIBM Institute of Business Management

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Examination Paper of Sales Management

·         This section consists of Caselets.

·         Answer all the questions.

·         Each Caselet carries 20 marks.

·         Detailed information should form the part of your answer (Word limit 150 to 200 words).

Caselet 1

MAJESTIC PLASTICS COMPANY

Reps Selling Too Many Low-Profit Products

Over the past several days the top executives in the Majestic Plastic Company had been conducting their annual performance review of the company‟s operations. The company president, Boyd Russell, sat in on most of these sessions and periodically became quite involved in some of the departmental reviews. The sales department was the one currently under discussion, and Clyde Brion, the general sales manager, was the focus of attention. Overall, the sales and profit results were satisfactory, but the executives noted what they thought was a problem in two Louise Shannon was the rep, and the other was in Chicago, which was

Henry Sadowski‟s territory.

In each of these territories, the sales reps total sales volume was satisfactory. The problem was that the bulk of their sales volume was in low profit products- that is, products whose gross margin was well below the company‟s desired average. Then the chief financial officer, Oliver Twombly, recalled that this same situation had been brought up at last year‟s performance review. Clyde Brion realized he was on the spot with his fellow executives, including the president.

Top management really did not want to change the basic compensation plan because, oer the company as a whole, it apparently had been working okay. And Brion concurred in this decision. He pointed out that Shannon ad Sadowski consistently met their total sales quotas and that each had won a sales contest designed to stimulate total sales. But their performance was not balanced. They went way over quota on low-margin goods. They were not selling a desirable mix of products, nor were they generating their share of new accounts. Basically they were getting large repeat orders from a few established accounts. And Shannon and Sadowski generally were neglecting the newer products that were the foundation of the company‟s future growth.

Brion had been aware of this situation for some time, but he had never given it the attention it deserved, partly because the two reps total sales volume was satisfactory and partly because he had other brushfires to put out. Now he was convinced that he had better do something-and do it quickly.

Question:

1. What should Clyde Brion do to remedy the imbalanced sales performance of Louise Shannon and Henry Sadowski?

Caselet 2

SUNRISE CLEANERS

To Train or Not to Train

Sunrise Cleaner Company‟s sales have been expanding rapidly in the past several years and are expected to continue increasing throughout the next decade. In order to meet this demand, Mickie Parsons, Sunrise‟s sales manager, has hired a number of sales representatives and expects to hire 6 to 10

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Examination Paper of Sales Management

salespeople in the coming year and more the following year. In the past, Sunrise hired only experienced reps, but lately the company has been hiring recent marketing graduates. While the new grades don‟t have experience, they often are a high level of motivation and a good understanding of overall marketing planning. However, the less experience reps need more training-both on company policies and sales procedures-before they are effective in making sales calls. Parson is trying to design a training program that will provide the necessary training at the lowest possible cost.

Currently, Sunrise does not have a training program. Te new hires just spend a week in a territory with an experienced rep, and ten they are given their own territory. While tis system was satisfactory with experienced people, it is not adequate for the inexperienced people the company is now hiring.

Mickie Parsons has suggested the president of Sunrise, Keat Markley, that the company institute a one-or two-week training program at company headquarters. Parsons has suggested two options. The first option is to hire a staff recruiter/ trainer who would spend half of his or her time on recruiting and the other half on training. The new staff specialist would be paid a salary of about $60,000 a year- so the added cost with respect to the training responsibilities would be $30,000 a year. The second option is to contract with an outside company that specializes les force training. That company would provide a specialist to set up and conduct a training program at a cost of approximately $20, 0000 per week.

Parsons was just concluding her presentation to Keat Markley. “I feel that a training program would increase the average annual sales per rep a minimum of 5 percent- to $1,050, 000 per rep.”

Markley replied, “I am not convinced that the training would improve performance enough to justify the costs. You know it isn‟t just the cost of the trainer. We would also have to bring these reps into headquarters and pay their expenses while they are here. There would be some equipment and materials involved…. All for a 5 percent increase in sales! I want to be sure that the 5 percent would more than cover these costs. What about using computer training software to train the new reps? Eng I read says that all of the top companies are using online programs to do a lot of their training and that they are saving bundles in the process.”

“I‟ve have checked into that option,” Parsons said, “but I don‟t think that a basic off-the –shelf program would be very effective for training inexperienced graduates and the initial cost of developing a customized program would be excessive- a minimum of $3,00,000 with each additional week module costing $50,000. Besides, I think an online program works best for refresher training or for introducing new product information, not for teaching basic selling skills- that should be face-to-face training.” “OK,” said Markley, “you put together an analysis that considers all the costs of these training options, and ten make a recommendation to me. Be sure that you look at the increase in sales that will be necessary to cover these additional costs.”

Parsons left the meeting already calculating the costs in her head. She knew that bringing a rep into headquarters would cost $250 per rep for travel and $750 per rep per week for lodging and meals. Materials for any of the programs would likely add an extra $100 per rep and the audiovisual equipment for the face-to-face training would be headed for her office, where she could put all of these costs together in order to make a reasoned recommendation to Markley as soon as possible.

Question:

What type of training program should Mickie Parsons recommend to Keat Markley? What‟s your reasoning for your recommendation?

END OF SECTION B

Section C: Applied Theory (30 Marks)

IIBM Institute of Business Management

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Examination Paper of Sales Management

·         This section consists of Long Questions.

·         Answer all the questions.

·         Each question carries 10 marks.

·         Detailed information should from the part of your answer (Word limit 200 to 150 words).

1. Elaborate the Role of Area Sales Manager?

2. Define the term selection? How would you explain the selection process?

3. What is Incentive? Define the types of Incentives?

 Semester 1 Examination paper

IIBM Institute of Business Management

Semester-1                        Examination Paper                                         MM.100

Financial Management

Section A: Objective Type (30 marks)

•        This section consists of Multiple Choice questions & Short Notes.

•        Answer all the questions.

•        Part One question carries 1 mark each & Part two carry 4 marks each.

Part one:

Multiple choices:

1.      Capital turnover ratio is calculated as

a)      Sales *Capital employed

b)      Sales / Capital employed

c)      Sales /Total Assets

d)     Total assets / Owners fund

2.       In ABC analysis C class consist of ________.

a)      a very large number of items which are less important

b)      a very less number of items which are important

c)      quaintly if items which take place after a long time

d)     that quantity which is fixed in such a way that the total variable cost of managing the inventory can be minimized

3.      The real owners of the company are

a)      Equity shareholders

b)      Dividend holders

c)      Preference shareholders

d)     Stakeholders

4.       The Proprietary concern is owned by

a)      Three persons

b)      Only one person

c)      any one but s persons must

d)     None of the above

5.      Assets and liabilities in the Balance Sheet are shown at ________ prices

a)     Latest

b)     Current

c)       Nominal

d)      Historical

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Semester 1 Examination paper

6.      Financing consists of the raising, providing, managing of all the money, capital or funds of any kind to be used in connection with the business' is defined by

a)      Ronald Burns

b)      Orichad d. maningous

c)      Bonneville and Dewey

d)     Kenneth Midgley

7.  Shareholders of a joint stock company appoint their representative in the form of ________ to carry on the day-to-day affairs of the company

a)      Directors

b)      Stakeholders

c)      Partners

d)     owner

8.      The cost which remains constant irrespective of changes in the sales revenue is termed as

a)      Fixed cost

b)      Variable cost

c)      Runtime cost

d)     Normal cost

9.  The comparison of the ratios of one organisation with that of the other organisation is termed as

________ comparison

a)      Inter-firm

b)      out-side firm

c)      Other firm

d)     All the above

10.  A systematic record of the events of the business leading to a presentation of a complete financial picture is known as

a)      Financial statement

b)      Balance Sheet

c)      Trading account

d)     Accounting

10.     Retained earnings is a source of ________ finance

a)      Internal

b)      External

c)      Quick

d)     Liquid

Part Two:

1.         What is Annuity kind of cash flow?

2.         What do understand by ‘Portfolio risk ?

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Semester 1 Examination paper

3.         What do you understand by yield to maturity (YTM)?

4.         Elaborate ‘Central limit theorem’.

5.         What is the Difference Between NPV and IRR?

END OF SECTION A

Section B: Caselets (40 marks)

•        This section consists of Caselets.

•        Answer all the questions.

•        Each caselet carries 20 marks.

•        Detailed information should form the part of your answer (Word limit 200 to 250 words).

Caselet 1

Introduction

Patel Housing finance Corporation (PHFC), the first private sector housing finance company of India is the brainchild of D.H. Patel who was doyen of financial world. The company began operations on July 18, 1978. In its earlier years, Patel was able to mobilize funds and get support from diverse sources namely IEIEI, of which Patel was Chairman at that time, IFC, his Royal Highness, Rashid Oberoi and most importantly the Indian Government. D.H. Patel was a man ahead of his times; though he was a product of the system, yet he had a different philosophy. He was a man who constantly thought out of the box. A man who never asked the question: Why? But rather, why not? For many years he nurtured the idea of enabling households in India to access housing earlier in their life cycle rather than at the end when lumpsum payments were received. The first five years of this company were spent in “Learning by Doing”, a philosophy which had been imbibed by the organization. From its inception, PHCF had been a pioneer in the activities they had undertaken. For example, they began to accept mortgages on deposit of title basis rather than a registered “English Mortgage”, thus saving considerable stamp duty for the borrower. They also introduced resource-raising products like “Certificate of Deposit”. Their efforts got a boost when the government decided to give income tax exemptions under Section 80L to their deposit.

During the initial years, PHFC was supported by large loans from USAID which stands testimony to the fact that even in their infancy, their credibility as an institution was accepted internationally, which led to a strong growth in their initial years. By the end of their fifth year, they had a disbursement of Rs.109 crores and the profit after tax was Rs.4.33 crores. The first five years formed the solid foundation for the epic journey of this institution. The institution was being exposed to the international management practices courtesy USAID. PHFC was in the process of establishing itself as a company, which was flexible in its interaction with customers and at the same time responsive to their stated and unstated needs. By the end of the last century, PHFC had created a network of institutions providing services in banking, real estate, mutual funds, IT enabled services, stock market, credit rating and in Insurance (both life and general). Till mid -1990s PHFC was the biggest name in the Housing Finance industry having no real competition. The second largest

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Semester 1 Examination paper

operator was in the public sector domain and was no real competition to them. PHFC had demonstrated that simple products, well executed can catch the imagination of the people. PHFC, from its very first day of operations, had built a principle-centered organization, an organization that has been built on the basis of fairness, kindness, efficiency and effectiveness. It gradually built trust between people, strengthening communications and a participative management style. Trust was the very cement for meaningful relationships and an open and creative management style.

Services in PHFC is not the icing on the cake – it is the ingredient that the cake!! This emphasis on service epitomized the culture at the company, but somehow the sheer size of the organization and its early domination had made the staff and the management complacent. With liberalization, nationalized banks were forced by market conditions to enter the retail loan sector which saw PHFC (the Elephant) being attacked from all sides by the new entrants who took pot shots at the leader who because of its size was too big to miss and it could not retaliate. Salt was rubbed into wounds when IEIEI, the promoter of PHFC, entered the housing finance industry, and in a short of five years, reached the top position.

Product Profile

Since liberalization commenced in 1991, PHFC had substantially with an average rate of 30% per annum in terms of housing loans disbursed. During the earlier years of its operations, PHFC had a monopoly in the housing finance market in India, providing plain vanilla products to people who opted for housing finance. The main thrust was on processing applications, which arrived at its doorsteps. The proliberalisation policies of the government saw a large number of players entering the market along with an increased demand for home loans. Thus, to meet increased demand and to compete with the increased supply, PHFC took up the challenge through product innovation as well as improved marketing focus. Product innovation, carried out at its New Delhi office, involved a changeover in terms of providing flexibility in repayment of loans.

Till 1997, PHFC was a single product company but later on adopting a proactive strategy, the company began offering products, which suited the customer-specific requirements. Flexible repayment options like step-up repayment facility (surf), flexible loan installment plan (flip), balloon payment, and structured repayment plan were introduced. These flexible repayment options gave the customers the freedom to structure the repayment schedule to suit them. Till 1999, fixed rate loans were provided on annual rest basis. Later, the flexible interest rate regime began along with monthly rest calculations only in November 2001. The company offered specially designed life insurance cover at attractive price from PHFC standards life, home / accident insurance products from PHFC Chabra General Insurance Company Ltd., automatic repayment of PHFC bank savings account with the low average quarterly balance, free PHFC bank international credit card and lower interest for other loans availed from PHFC bank.

Earlier, salaried class employees formed a major segment of the customer because the income proof was easily documented. In the case of self-employed persons, although cash rich, the lack of supporting documents for income proved to be a hindrance. Later, to compete with the market forces, the Gwalior office of the company devised strategies to exploit the self-employed group of customers by offering collateralized loans. Due to lack of documented income, loan was provided on the basis of various liquid securities such as NSC and fixed deposits which were kept as mortgage with the company. This segment now contributed up to 6-7% of the customers in value terms at the Indore branch (the national average being 5% only). The interest rates on loans were subjected to negotiations from customer to customer depending upon the loan amount and profile of the customers. The deal was negotiated considering the risk profile, creditworthiness of the customer, his past track record with respect to loan repayment as well as his present financial and social status. As part of its policy, the company charged 2% of the balance principle amount as prepayment charges in a fixed interest rate loans. However, this was not applicable for flexible interest rate loans. The

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company also provided refinance facility to housing loan customers of other institutions as well as rental discounting for reputed and creditworthy builders and contractors.

Marketing

The marketing efforts of PHFC centered around its customers. Its major strength was its vast database and experienced personnel. In addition to providing housing finance, quality services were rendered to customers through additional services such as loan counseling, property identification, technical and legal advice, and other property related solutions. In order to cater to the needs of the customers, PHFC had a wide network of 173 offices across the country. It conducted outreach programs at over 90 locations. The company had a tie up with a number of blue chip companies whereby, the employees of the company were provided with easy home loans and the blue chip company automatically deducted EMI payments from employee salaries. This arrangement benefited the blue chip companies as they were able to show it as a staff welfare activity and at the same time, in case of employee default, PHFC did not hold the company liable. As on March 2004, the company had a number of subsidiary companies like PHFC Developers Ltd., PHFC Investments Ltd., PHFC Holding Ltd., PHFC Asset Management Company Ltd., PHFC Standards Life Insurance Company limited to name a few. It was able to cross-sell and offers customers a wide range of customer products and services under the PHFC brand. The company had a three-pronged approach to target customers. First, it had a call centre, where loan queries from existing and potential customers were attended. Secondly, the referral channel where existing customers referred potential customers and thirdly, a subsidiary called Patel Housing Finance Services India Limited, the employees of which were called “feet on street”. The customers identified by any of the three methods were directly contacted and negotiated by PHFC personal, ensuring that at all times service quality was maintained. In case of a high level lead i.e., a commercially important customer or where loan amount was high, or customer enjoying a high stature in society, the customer was directly handled by the operation’s head. The company did not believe in a brand ambassador nor did it advertise in electronic media. It believed that its existing customers were its best brand ambassadors. This was contrast to its immediate rival IEIEI Bank, which used celebrity endorsement for product promotion. Customers, especially non-resident Indians could use the services of PHFC through a website www.PHFC.com which proved to be a good marketing tool. The company also participated in property fairs and exhibition fairs in different parts of the country.

PHFC was known for its service quality and the speed of loan disbursement which was a minimum of two hours and a maximum of five days. The bank had the advantage of a wide network and as an employee put it, “ at PHFC a customer can take a loan from Indore buy a property in Manipur take a disbursement in Hyderabad and service his loan from Nagpur “. The company accepted Cheques from anywhere without any clearing charges. PHFC used various promotional tools to attract customers like its Diwali Bonanza where the loans were available at lower rates of interest. These programs proved to be very successful. The company was a member of the Credit Information Bureau Ltd (CIBIL). The Bureau traced the payments record of customers and collated individual credit information. The customers who had defaulted on previous loans and credit card payments with other banks were recorded by CIBIL and this record was shared with member banks. This ensured quality credit appraisal of customers and allowed PHFC to offer more attractive rates to customers. The bank adopted a humane approach in collecting its receivables, which was also a unique feature highly appreciated by its customers. PHFC had the lowest NPA of 1.10% in the industry.

Human Resource

Human resources were PHFC’s most valuable assets. The efficiency of PHFC’ staff was evident from the fact that the number of offices Increased from 41 in 1998 to 173 as on 2004 as against the number of employees, which increased from 806-1,230 during the same period. Total assets per

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employees as on March 31,2004 stood at Rs 26.08 crores as compared to Rs 22.85 crores in the previous year. The net profit per employee as on March 31,2004 was Rs 69 lakhs as compared to Rs 60 lakhs in the previous year. The biggest challenge faced by the company was employee retention. The new players in the market found PHFC an attractive target for employee recruitment as the company had a comprehensive training program, which helped to develop human skills. PHFC has a training centre at Shimla, near Delhi. Training took place at all levels in mixed groups. So a young recruit could attend the training program with vice-president of the company. The training programmes consisted of attitudinal change workshops, international skill to name a few. Each branch nominated employees across all levels for a minimum of 2-3 workshops a year.

PHFC was extremely people-focused and ensured a healthy work environment. Branch offices had their own in-house pantry, gymnasium, and library, to serve their employees. The work culture was westernized with an open door policy and employees at all levels were on first name basis. Top-level executives enquired about personal problems of lower level employees and met personal needs for recognition and concern. Financial needs were also fulfilled, as the salary was at par with the best in the industry. Employee’s stock options were also provided as incentives to employees. At the employee put it “monetary incentives tend to get spent but stock options provided a security for the future “.The performance appraisal followed by PHFC was unique. 80% of it was quantifiable and 20% was based on superior on superior review. The company had hired one of the HR consultants in the country who had devised a unique system of appraisal for the company. Key result areas of each level were identified and quantified. Thus, even an accounts officer was evaluated on the number of times accounting reports had reached the head office on time. This reduced personal bias to a great extent. Due to these practice, the company had the lowest employee turnover in industry.

Financial

PHFC has improved financial performance over the years. The loan approvals increased to Rs 15,216 crores in 2003-04 from Rs 1,494 crores in 1994-95. Whereas disbursements were Rs 1,212 crores in 1994-95, increasing to Rs 12,697 crores in 2003-04. Its gross income increased from Rs 780 crores (in 1994-95) to Rs 2976 crores (in 2003-04). Profit after tax has also registered growth from Rs 146 crores (in 1994-95) to 852 crores (in 203-04) The share price of PHFC has also increased from Rs 102.50 (on 01-04-1995) to Rs 645 (1-04-2004).

Future Ahead

Although PHFC had tried to change itself from initially a monopoly regime to a market competition scenario, the company faced a number of issues. IEIEI, the current market leader in home loan disbursements was able to undercut interest rates. Being the original player, competitors targeted PHFC customers for refinance facility, trying to get the customer to switch banks and offering them attractive schemes in the bargain. Secondly, PHFC had a low employee turnover and therefore had to teach its old employees new tricks. Nationalized banks which have so far not been very aggressive in the home loan market have a distinct advantage as far as cost of funds is concerned, customer base and distribution network. It is a matter of time before they aggressively expand operations. Foreign banks are already operating in the market using high quality of services as their USP. In this scenario, the top management wonders whether the elephant can dance.

1.      Evaluate the strategies used by the management in the changed scenario.

2.      Which strategies the company adopt for the future?

3.        Evaluate the performance of the company financially, using financial ratios and figures.

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4.  Analyze the case using SWOT analysis.

Caselet 2

Telecommunications is one of the fastest growing service industries in the world. The accent of growth is on the value added services, such as e-mail, cellular phones, etc. This sector plays a crucial role in spurring growth, especially industrial services, in the Indian economy. Multinational companies are investing in India because of huge latent demand .Telecommunications in India has been a state initiated and controlled sector. The last two decades have witnessed a restructuring of the entire sector due to Liberalization, Privatization and Globalization. This has triggered an influx of foreign capital and technology. India’s 21.59 million-line telephone networks is one of the largest in the world and the third largest among emerging economies (after China and Republic of Korea). Given the low telephone penetration rate 2.2 per 100 people of population, which is much below the global average, India offers vast scope for growth. It is therefore, not surprising that India has on of the fastest growing telecommunication systems in the world with system size (total connections) growing at an average of more than 20% over the last 4 years. The industry is considered as having the highest potential for investment in India. The growth in demand for telecom services is not limited to basic telephone services but has witnessed rapid growth in cellular, radio paging, value-added services, Internet and global mobile communication by satellite (GMPCS) services. This demand is expected to soar in the next few years.

The Telestar Company Ltd (TCL) was formed in 1985 as a public sector undertaking. Till 1986, it was the only telecom service provider in India. It played a role beyond that of a service provider by acting as a policy maker, planner, developer as well as an implementation body. In spite of being profitable, its non-corporate entity status ensured that it did not have to pay taxes. In 1998, the company having a total asset value of Rs 630 billion turned corporate u/s 619 of Companies Act 1956. Although, the company still continued to have a 100% government owned equity, it planned to disinvest this in the next 5 years. As on date, the company enjoyed a sales of Rs. 1,160 billion and had an authorized capital base of Rs 1,000 billion Telestar being a government department was initially laden with several social obligations, which burdened it with several financially unviable connections. The company therefore, faced a number of shortcomings due to its bureaucratic setup. It was used to a monopolistic environment, which resulted in hardened attitudes, limited skills resistance to change, lack of flexibility in decision-making, low level of motivation of its employees and a total lack of cost benefit accounting system. Telestar had its operations in all the states in India with a large network of 25 circles. The company therefore, enjoyed the benefits of economies of scale. It was in a sector, which required a large amount of infrastructure facilities. Fixed costs therefore, formed the major cost component. The approximate cost of landline was twenty seven thousand for a new rural connection and eighteen thousand for a connection in an urban area. The Uttar Pradesh Circle had 43 Basic Administrative Units .In U.P. the company faced competition from two major players namely, Telenet and Express Net Pvt. Ltd. These companies had recently entered the telecom industry with a wide range of services and were highly price competitive.

These companies were providing competition to Telestar and seeking market penetration by price-cutting with technologically superior products. Telestar initially offered landline services and wireless service in U.P. However, due to the increased competition in the recent years it had introduced a number of value added services, like voice mail services, intelligent networking services, advanced roaming services and others .Although, the company’s Lucknow unit had been recording profits for the year ending 2001 ,it did not have a systematic costing system. For example, the investment decisions of the company were made by comparing the estimated revenue generated with the estimated cost of the project. The estimated revenue was calculated on the basis of revenue generated in the neighbouring circle. TSL had been following a traditional method of accounting and

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practically no costing system existed. V.K. Gupta, General Manager Finance, Lucknow Unit was thinking of revamping the accounting system. He was trying to devise an online, real time, vibrant accounting system that would enable him to generate information required for decision-making. He hoped to have an accounting system which would provide data in the area of costing, pricing, investment decisions, tax planning and controllable and non controllable costs.

1.      Evaluate the company’s ability to sustain its performance in the present scenario.

2.      Suggest the possible costing techniques which can help V.K. Gupta its decision-making (Illustrate using examples).

3.      Conduct a financial analysis of the company of the company and comment its financial performance?

4.      Suggest the various funding patterns that may be adopted by the company in light of the company’s capital structure.

END OF SECTION B

Section C: Applied Theory (30 marks)

•        This section consists of Long Questions.

•        Answer all the questions.

•        Each question carries 10 mark each.

1.      Explain the norms suggested by Tondon Committee for providing bank credit? How did the recommendations of Chore Committee bring modifications?

2.      A population is made up of groups that have wide variations within the groups and less variations from group to group. Which is the appropriate type of sampling method?

3.      Over capitalization and undercapitalization are both unhealthy signs for a firm “Discuss”? Can they be remedied?

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