OPTIMA

SBL SEP/ DEC 2021 PAPER

SKELETON ANSWER BY SIR HASAN DOSSANI

WhatsApp: +971555245672

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(1A) Prepare briefing notes for the finance director which:

(i) Assess the value to Optima of undertaking customer segmentation analysis; and

(ii) Advise on the most appropriate ways that Optima could segment its customers in
order to target them more effectively.

BRIEFING NOTES
TO: Finance Director
FROM: Senior corporate business analyst
SUBJECT: Customer segmentation analysis
DATE: 6 Sep 2022

This briefing note assess the value to Optima of undertaking customer segmentation analysis and advise
on the most appropriate ways that Optima could segment its customers in order to target them more
effectively.

(A) Value of Customer segmentation analysis

Understanding customer needs

Industry research results suggested that over half of fitness and leisure club members say that
they stop using the club because the facilities or classes offered do not meet their specific needs or goals.

Doing customer segmentation will help us understand customer needs across all age groups, health
and fitness goals, and personal motivations keeps people interested.

Product Offerings
Optima is offering more than 5,000 exercise classes every week. Our facilities are unrivalled, with
over 500 top class tennis courts and 100 swimming pools.

Based on a better understanding of customer needs, we will be able to offer products and services which
addresses the customer needs and hence will improve customer satisfaction.

Better / Personalized Marketing

We rely on word of mouth, TV, radio and poster advertisements throughout Ceeland to market its
services. We currently have limited social media presence and do not have a mobile app.

Customer segmentation will help us designing focused and personalized marketing strategies for each
segment. This will help us target new customers and retain existing ones.

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Improved Pricing / Sales Promotion
Prices charged by budget gym providers tend to be much lower than the prices charged by mid to high
quality providers, such as Optima.

Customer segmentation will help us offer competitive pricing and attractive sales promotions to all
customer groups based on their needs and affordability.

Improved retention
The latest industry research report findings suggest that, on average, fitness and leisure clubs lose
around 50% of their members each year.

If we focus on targeting our offerings more directly to specific customer segments, this will improve our
customer retention % and hence our revenue and market share.

(B) Most Appropriate Ways of Segmentation

Age
Currently we are offering membership across all age groups such as children 6-18 years, adults and over
65s.

The needs of each age group is different. Doing customer segmentation based on age will help us
understand the needs of specific age groups so that we can design products and services accordingly.

Product / Services
Currently we have a wide variety of offerings, Whether customer want to get fit, be healthy, reach their
performance goals, learn a new skill or simply to have fun and socialise, we have products for each
objective.

Doing customer segmentation based on needs and objectives will help us design products and services
accordingly for each group so that it will increase customer satisfaction and retention.

Membership type
We have various types of memberships such as individual/couple/family/over 65s and 3-monthly or
annual contracts.

Doing customer segmentation based on membership types will help us design better pricing and options
so that we can appeal to larger number of customers.

Best regards
Senior corporate business analyst

3/13
.
(1B) Prepare TWO presentation slides, with accompanying notes, which explain why it
is of strategic importance to Optima to demonstrate a strong focus on CSR for:

(i) Its customers and staff; and

(ii) Its wider external stakeholders (investors, government and wider community)

Strategic Importance of CSR

Customers
- Customer prefers organizations with CSR initiatives

- Increase in number of customers and revenue

- Improved retention %

Staff
- Higher motivation and retention of existing staff

- Able to attract / recruit high quality talent

Speaker Notes

Customers
More and more consumers are prioritizing supporting socially responsible organizations. 87% of
Ceeland’s consumers say they would purchase a product because a company supported issues
they cared about.

Leenz Fitness has witnessed a huge growth in its member numbers and has also achieved a higher
rate of member retention

CSR initiatives will boost customer numbers, retention % and hence the revenue and market share of our
company.

Staff
We employ over 2,500 people. CSR can help boost trust and raise business profile. This will lead to better
retention and motivation of existing staff leading to better performance.

We will be able to attract / recruit better resources as compared to other gyms in the market, giving us
competitive edge

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 Strategic Importance of CSR

Investors
- Easy to raise capital / finances

- Reduce our cost of capital

Government
- Improved relationship with government

- Participation in B Fit program

Wider Community
- Healthier population

Speaker Notes

Investors
CSR can help boost trust and raise business profile. Due to this, investors will prefer investing in our
organization. This may lead to reduction in our cost of capital and make it easy for us to raise finances in
future.

Government
The government is supporting CSR activities. If we focus on CSR, it will improve our relationship with the
government.

Also we will be able to participate in the B-Fit program being offered by Department of Health if we are
seen as a CSR supporting organization

Wider community
The fitness and leisure industry promote and support a healthier population. This will lead to
improvement in health of the general population. Also it could lead for improvement of our brand and
image.

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(2a) Analyse the potential opportunities and threats which Optima must consider in
relation to undertaking a collaborative partnership with the Department of Health to
deliver the ‘B-Fit’ programme.

(2b) Explain what is meant by the ‘Value For Money’ obligation of the Department of
Health, as mentioned in its proposal, and evaluate the potential challenges this may
pose for Optima in delivery of the ‘B-Fit’ programme.

NOTE: Try to give 1-2 extra points here as Q2B is very vague and general with limited
information

REPORT
TO: Finance Director
FROM: Senior corporate business analyst
SUBJECT: Collaborative partnership & VFM
DATE: 6 Sep 2022

Introduction
This report analysis the potential opportunities and threats which Optima must consider in relation to
undertaking a collaborative partnership with the Department of Health to deliver the ‘B-Fit’ program AND
evaluate the potential challenges this may pose for Optima in delivery of the ‘B-Fit’ programme.

Opportunities
CSR
Department of Health guidelines recommend that children between the ages of 5 and 16 should aim for
an average of 60 minutes of physical activity a day to develop movement skills, muscles and bones. Their
research shows that, for children from low income backgrounds, only 24% achieve this aim,
compared to 79% of children from wealthier backgrounds. This lack of physical activity is having a serious
impact on their mental health.

If we partner with government in this project, it will improve the lives of poor children. It will be a big
contribution to the Society and will be seen as a CSR activity.

Enhanced Reputation and Image

If we partner with government on such a big project involving 20,000 children, it will enhance our
reputation and image in the fitness industry across the country.

Strong relationship
If we partner with Government and deliver successful program, it will create a strong relationship with
the Government which will be favourable for us in future and will give us advantage for future programs.

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Additional Revenue
Ceeland government will pay $10 million to the chosen partner for its participation in this trial program.
This will be an additional revenue for us. And if the program continues after the trial period, then this can
be a permanent source of additional revenue in future.

Threats

Resources
It is expected that our expert and qualified staff will develop exercise programmes for pupils and will
deliver these twice a week at each school taking part in the trial programme (approximately 100
schools).

We will need to analyze whether we have the expertise and as well as availability of resources to manage
this program. We may need to hire more staff because if we use existing resources, it may affect our
customers.

Short Program Period

The programme will be for a trial period of six months. We don’t know what is the plan after that. In case
we hire people and then the program is discontinued after six months, then we will have to let go of the
extra resources.

Logistics Issue
The trial will target children in schools located in areas where household incomes are the lowest across
the country. It may be possible that some of the schools are located in cities or villages where we done
have any branch. Then we will have to figure out how our staff will reach these schools twice a week.

Financial Feasibility
Although the revenue is $ 10m, we will need to analyze the costs we will have to incur on the program
and then see whether there is a net surplus or deficit from a financial contribution point of view.

Payment in Arrears
Regarding payment of $ 10m, 60% will be paid up-front and 40% on successful delivery of the programme.
This may cause some cash flow issues and we may have to manage the cash flows through our own
working capital.

Uncertainty of 40% payment

The remaining 40% is to be paid on “successful” delivery of the programme. However, the determining
whether the program was successful can be subjective. It includes satisfaction ratings from participants
(pupils and teachers) which is not in our control. Also the measurement KPIs by Department of Health is
not yet confirmed. Hence there is a risk that we lose some portion of the $ 4m.

Reputational Risk
In case we are not able to deliver the program successfully, this will lead to reputation risk and we may
lose existing customers and market share.

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 Value for Money (VFM)

VFM
As a publicly funded department, the Department of Heath have an obligation to deliver value for money
in all initiatives and partnerships which it undertakes.

As B-Fit Program is a government initiative, the government has to demonstrate that it is spending tax
payers money in the best possible manner which brings improvement in the society and lives of people.

VFM can be measured as follows:

Effectiveness
Effectiveness means that the objectives of the program are achieved. If the objectives of the program is
not achieved, then the money spent on the program may be wasted.

I think Optima will face challenges in meeting this criteria. This is because the performance measuring
criteria involves both qualitative aspects and quantitative aspects. It is difficult to measure qualitative
criteria as they are subjective. Further, the Heath Department has not yet agreed on the performance
measures.

All this may cause issues for Optima to demonstrate that it has achieved the program objectives.

Efficiency
Efficiency means that maximum output is achieved with minimum input or resources. This is important as
government has limited funds and hence they have to spend it in most efficient manner in order to
achieve maximum number of outputs.

The B-Fit program is geographically spread in poor areas of the country. It has to target 100 schools with
20,000 students. Our staff have to visit each school twice a week for next 6 months.

As the scope of the program is quite wide, it will be challenging for Optima to demonstrate efficiency,

Economy
Economy means that the program has to be within the allowed budget. This is important to keep the
program on track as government has limited funds and may not be able to afford overrun.

We have not analyzed the cost of the program as yet. In a worst case scenario, our maximum spending
budget should be $10m. We will have to track all costs and monitor them very closely in order to ensure
that we do not overrun the budget.

Best regards
Senior corporate business analyst

8/13
(3) Prepare briefing notes for the finance director which:
(3a) Discuss the opportunities and threats to Optima of implementing big data analytics
to assist in improving engagement with its members.
(3b) Discuss the benefits for both Optima and its members of using mobile technology to
market and deliver its services

BRIEFING NOTES
TO: Finance Director
FROM: Senior corporate business analyst
SUBJECT: Big data analytics and mobile technology
DATE: 6 Sep 2022

This briefing note discuss the opportunities and threats to Optima of implementing big data analytics to
assist in improving engagement with its members AND the benefits for both Optima and its members of
using mobile technology

(A) Big Data Analytics

OPPORTUNITIES

Understanding member needs

Industry research results suggested that over half of fitness and leisure club members say that
they stop using the club because the facilities or classes offered do not meet their specific needs or goals.

Using data analytics technology will allow us to examine member data and better understand their
needs and trends.

Improved retention
Using data analytics technology could reduce membership cancellations by allowing us to examine
member data and better understand their needs.

I think big data analytics could play a particularly important part in member retention and
engagement hence leading to increase on our revenue and market share

Better use of Information

Currently we are gathering a lot of information through exit interviews and surveys / feedback. But
unfortunately we are not analyzing that information.

Big data analytics are specialized software which analyzes lots of information,. It will identify pattern and
trends which will help us understand customer behavior so that we can design products and marketing
campaigns accordingly.

If big data was not that useful, then why do you think a lot of our competitors are using it? definitely its
adding some value.

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THREATS
Data Security
Big data requires high level of security as it contains sensitive and personal information about members.
The risk of hacking is high. Hence we will have to make sure that data is secured by using strong password
management, access controls, firewalls, etc.

Expertise
Big data will require skills and expertise. I agree with HR director that our staff don’t have the skills to
carry out complex data analytics nor engage in social media marketing. However, I don’t think its a
show stopper.

We can recruit staff with required skills and experience in this area. Or we can engage with an IT specialist
firm or consultant who can do this task for us.

High Initial Investment

Big data involves high initial investment. However, it may be necessary to make this investment as it is a
long term thing and if we don’t invest now, we will be left behind as several competitors are already using
big data.

(B) Mobile Technologies

BENEFIT FOR OPTIMA

Better Engagement with younger generation

The app would allow us to better engage with members, using features such as mobile fitness
programmes and challenges, rewards programmes, community interest forums and push notifications.
The app would also provide an opportunity to have a two-way interaction with members, beyond
the times when they are physically in the club.

Regular communication and engagement with members will improve retention and customer satisfaction.

Improved marketing
App will provide us with an opportunity to change how we approach traditional marketing, by making use
of social media marketing such as facebook, twitter, Instagram, SEO, forums, etc. currently we are just
relying on word of mouth, TV, radio and poster advertisements which is not sufficient.

This will lead to more revenues as we can target more customers with personalized marketing.

BENEFIT FOR MEMBERS

Convenience
Some customers prefers fitness classes delivered directly into their homes through smart devices, such as
mobile phones or tablets. This causes convenience to customers. Also it will increase the geographical
reach for us as a company.

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More interaction
The younger generation prefers using smart phone apps. They link to track their progress through fitness
apps and gadgets. Hence app will help the members achieve their targets and remain satisfied.

Older Members
While younger people might embrace mobile technology, adjusting to mobile marketing and
engagement may be harder to sell to older members. Many of our older members come to play
tennis and socialise and don’t engage with technology in the same way as younger people.

While I do agree that older people might not prefer apps, it does not mean we ignore the younger
generation. The use of app is optional. Whoever wants to use it can use it. It is not necessary for the older
people to use the app. They can continue their activities without the app.

11/13
(4) Prepare a report for presentation at the next board meeting which evaluates the
potential impact of the weaknesses which have been identified in Optima’s internal
control activities and recommends actions to address these weaknesses.

REPORT
TO: Board of Directors
FROM: Senior corporate business analyst
SUBJECT: Internal Control Weaknesses
DATE: 6 Sep 2022

This report evaluates the potential impact of the weaknesses which have been identified in internal
control activities and recommends actions to address these weaknesses:

Weakness Implications Recommendations

About 20% of club managers
are not reviewing regularly, or
at all, the monthly performance
reports sent out by head office.
Some were not aware that they
should in fact review these
reports, nor had they any idea
what the reports contained
- Club managers will not be
aware of the monthly
performance of their branch
- They will not know if they
are achieving the targets or
not
- Issues will not be addressed
in a timely manner
- All this will result in inferior
performance of the branch
leading to loss of customers,
revenue and profitability
- Proper training to be
provided to all club
managers
- Performance meeting should
be conducted each month
- Minutes and action points
should be documented so
that issues are addressed

There are at least 150 fitness
instructors employed in our
gyms across Ceeland without
the relevant qualifications or
without having undergone the
correct induction and training
required by company policy
- Unqualified instructors will
lead to injuries or accident to
members
- Reputational risk
- Legal cases and fines lodged
by customers
- Regulatory penalties
- Loss of customers, revenue
and market share
- Recruitment policy and
processes needs to be
tightened up
- Induction training at the
time of joining should be
mandatory
- HR to ensure that no
unqualified instructors are
hired
- Qualifications and
experience should be
verified

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 Weakness
On at least 300 occasions in the
last three months, customers
without the correct access
requirements have been
allowed to enter club premises
without customer passes/access
codes being checked.
Security access systems in at
least eight of our clubs are
currently faulty. Despite all of
the affected clubs’ management
being aware of the problems,
no work to repair faulty access
systems has yet been actioned
in two of these clubs.
One club manager organised
the refurbishment of their
indoor swimming pool, at a
significant cost to their club.
The club manager authorised
the work without following
Optima’s tender process. The
company who carried out the
refurbishment work was
owned by the husband of the
club manager and no
authorisation from head office
for this refurbishment was
obtained before work
commenced
Implications
- This shows lack of security
leading to unauthorized
entry
- There is a risk that a person
who is not a member can
also enter and use the club
- This can pose safety threat
to members, employees and
assets
- revenue leakage as
customers and outsiders can
use any facility without any
checking of their
membership entitlements
- Unauthorized work can lead
to unauthorized expenditure
which can be of significant
amount
- Misuse of company funds
leading to financial loss to
the company
- Lack of transparency
- Chances of fraud, collusion
or conflict of interest
Recommendations
- Security access system
should be implemented
strictly
- Random checking of
membership cards
- Faulty security systems
should be fixed on high
priority
- Use of security guards or
biometric techniques can be
considered
- All refurbishment above a
ertain amount to be
approved by management
before it is executed
- Tender process should be
followed
- Company to make sure there
is no conflict of interest
- Branch should not have huge
funds with them.
- All payments to be
controlled centrally
- Strict warning or disciplinary
action to be taken against
mangers who violate
company policies
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