Business Case Studies - Road Hogs

Road Hogs is a partnership of two car enthusiasts who got together 10 years ago to produce sports cars. Their cars are at the luxury end of the market and range in price from £30,000 to £75,000. They are principally made by skilled craftsmen and can be customised to the customers requirements. Last year they had a turnover of £450,000.

Here is a more detailed company profile:

General information
Product:	A highly individual and distinctive range of sports cars. There are only three different models, but these can be made with a range of luxury options. Price ranging from £30k to £75k.
Market:	Really a niche market. There is significant competition, but the company has a reasonable waiting list for the product. All production goes to UK buyers. There are no exports.
Ownership:	The firm is a partnership between the two founders. They share responsibility and profits evenly.
Financial Information
Turnover:	£450,000
Profit:	£75,500
Ratios:
Profit margin:	16.8%
Gearing (level of debt):	10%
Acid Test Ratio:	0.9
Return on Capital Employed (ROCE):	41%
Cost structure:	The factory is a relatively small operation with only a few cars being built at once. Most costs are therefore direct costs. A large proportion of the costs are labour costs as all cars are built by hand.
Marketing
Marketing strategy:	Most marketing is done by word of mouth and reputation. Some advertising is done in the key car magazines.
Average market growth over last 5 years:	The market has on average grown by 3% per year over the last 5 years, though there was quite a slump in the last recession.
Market prospects:	Increased competition is likely in the future as many of the major producers have begun to include sports cars in their standard range. These are much cheaper as they can benefit from economies of scale.
Main types of Marketing:	Few! The owners have not really needed to work at marketing as most is done by word of mouth and a good reputation. However, increasingly they are starting to advertise in the key car magazines.
Product
Characteristics:	A highly individual product, mostly bought by enthusiasts.
Price elasticity of demand:	Relatively price-inelastic as the quality and nature of the product are more important than the price.
Income elasticity of demand:	Quite income-elastic. Demand will often drop significantly during downturns as buyers become increasingly nervous.