An economic analysis of a pawn broking store by Matthew Coppola
The following is an economic analysis performed on a Pawn broking store (CCMidland). Throughout the past five weeks I have been working here, I have assessed how the store operates and have experienced an important learning curve. Out of my own initiative I have performed an economic analysis looking at most aspects of the shop including staff issues, how products are displayed, buy and loan section and the pricing of products.High staff turnover
Performance based measures tend to be ineffective and counterproductive. Promotion type based pay from increased effort I recommend to pursue.
Buys and Loans section is overpaying for goods
Goods are being paid too much for, resulting in fewer profits for the store.
Products need to be displayed to reach full customer attention Products need to be rearranged around the store to be easily accessible and visible.
Faulty products are being brought out on to the shop floor
It deters customers when the product does not work. The products price will have to be further reduced beyond what the customer was originally willing to pay.
Ineffectively selling to the target market
A higher proportion of the goods to be sold should be low income products and a smaller proportion of goods being sold should be high income products.
Employees are not being discerning when dealing with customers The customers want a bargain when they go to a cash converters should and thus should not be deterred just because the sales person wont drop $5 for instance in agreeing on a price.
You can compete and cooperate with a nearby Pawn broking store Two pawn broking stores next to each other create a market for second hand goods.
High staff turnover
CCMidland experiences high staff turnover this results in high costs of recruiting, training and other administration costs.
For CCMidland staff, pay consists of a salary plus a sales based commission. Performance based measures tend to be imperfect and counterproductive for a number of reasons. One reason is that the sales figures could be affected by factors outside of the salespersons control, such as sick days and computer malfunctions. The recent financial crises are causing a spike in unemployment and this may be a major factor affecting sales figures.
Another reason why CCMidlands performance measure is counterproductive is that it may fail to reward activities that CCMidland wants the employees to pursue. Employees may be unmotivated to share product knowledge with other employees when dealing with customers. They may find that time spent sharing and communicating knowledge with other employees could be better used in focusing on selling to customers.
These incentive schemes are enforced by reputation. If CCMidland fails to follow through on its promises, it will lose its reputation by employees and thus CCMidland staff will not respond to future incentives.
Promotion tournaments are a type of subjective based assessment in which promotions involve increases in wages. There must be an understanding between CCMidland and its staff to what types of activities will lead to promotion. Thus employees can compete to win a promotion. Promotions are especially useful to CCMidland as they tend to work best on employees whose performance in lower level jobs is especially good.
In applying it CCMidland, assume there are two salespersons but one will be promoted to supervisor. If supervisor duties are similar to those of salespersons, it would be sensible of CCMidland to promote the salesperson who turns in the best performance for that job.
1. Buys and Loans section is overpaying for goods
CCMidland is paying too much for goods, as bad estimates are being made due to a lack of knowledge of the products true value in the second hand market, as unrealistic values are being placed on the goods.
Eg. 5 was paid for a CD rack it is worth at most $2. This is likely to result in lower profitability for the store.
2. Products need to be displayed to reach full customer attention
Products are not being displayed properly, with the price tag not correctly shown, even hidden. The goods need to be rearranged and displayed to reach full customer attention
For example, the most interesting and popular products should be displayed at eye level on the middle shelf in the cabinets. From my experience of the majority of customers buying patterns, the most popular and sought after products for CCMidland are:
-Jewellery -Games & game consoles -Mobile Phones -DVD Movies - TVs, DVD Players and Speakers
These products should be rearranged around the store to be easy to access and visible. The worst products which hardly sell are the trade tools such as drills, saws, sanders, drill bits and the like. These products are priced lower and are new at Bunnings.
Over pricing products results in more discounts and less sales occurring, for example the prices of trade tools are so low at Bunnings and other hardware stores. CCMidland also underprices goods, being mainly specific/exclusive goods to which the individual who priced the product for sale, has very little knowledge of the products true market value, due to its exclusivity.
To resolve this issue I recommend that those who are authorised to price products to buy and sell are to learn the prices of goods and conduct research for instance going on a field trip to Bunnings or BIG W and taking note of how much products are worth.
3. Faulty products are being brought out on to the shop floor.
Goods are being brought out on to the shop floor not having been tested properly. For instance one video camera is for sale which has a faulty button. This affects the whole video cameras functionality. These are bad selling points.
It deters customers when the product does not work. It makes the salesmans job difficult. The products price will have to be further reduced beyond what the customer was originally willing to pay.
4. Ineffectively selling to the target market
Midland is characterised by many individuals who are socio economically poor. These individuals are attracted to Cash converters because the products are cheap and it is a quick way to make money by selling unwanted goods. The store should therefore sell a majority of low income products.
However, I have found that there are a few moderate to high income individuals who come into the store. Thus I suggest a small proportion of high income goods LCD Tvs, exquisite jewellery, but a larger proportion of low income goods dvds, games, cheap homewares and cheap entertainment goods.
The Linder model of overlapping demand is an appropriate model to use in showing how CCMidland can meet demand for both high income and low income goods.
Both low income and high income Individuals come into the store seeking both low income and high income products. Thus an overlapping of demand occurs because high income individuals also seek low income products and low income individuals may even seek high income products as well.
Relatively expensive and exclusive items such as professional racing bikes and professional guitars should be avoided to a certain extent. Customers are most likely to go to a specialised store for these goods, than pay top dollar for a second hand specialised item.
If an individual does go into cash converters looking for specialised items such as SLR Camera lenses, they are most likely looking for a bargain specialised items will not sell if they are priced too high or close to retail value.
5. Employees are not being discerning when dealing with customers
The majority of CCMidland customers are simply browsing the store and most likely looking for a bargain, with many asking for a discount. I have noticed that the CCMidland sales staff in agreeing on price will not drop the price by a mere $5 to sell an item that has stayed on the shelf for a long period of duration. The customer ends up leaving the store and a sale is not made.
6. You can compete and cooperate with another Pawn broking store
Another Pawnbroking store next door to CCMidland should be viewed as an opportunity. Two pawn broking stores next to each other create a market for second hand goods. Customers can easily compare product prices and do not have to make a trade off between either going to Pawnbroker2 or CCMidland if they happened to be much further away from each other. Thus both stores are able to share the same customer base.
Both stores could cooperate yet still compete by performing the following activities:
-Each store concentrates on a number of different specific goods
Pawnbroker2 concentrates on entertainment, CCMidland does not sell entertainment goods but concentrates on trade tools to which CG does not sell.
-Referring customers to the other store if they do not sell what the customer is after.
I have noticed employees from Pawnbroker2 coming over to CC Midland browsing around. They are most likely taking note of the prices of the goods so they can match it or offer a better price.