BUSN20019 Assessment 3: Impact of Goodwill on Sales

Desklib provides solved assignments and past papers to help students succeed.

BUSN20019 Assessment 3
1

Executive Summary
Goodwill of the business is the factor that makes the business popular in the market. Customer
prefers to buy products and services of the business having higher goodwill in the market. Sales
in an organization are the picture representing its financial viability and financial position of the
company. Thus the report has found out the impact of goodwill on the sales of the business. By
the proper review of the secondary data and using suitable data analysis techniques, it has been
identified that the enhanced goodwill of the business has a positive impact on the sales of the
business. View and opinions of various authors are taken into consideration to arrive at the
desired results. The results presented in this study are reliable as the data for the study is
collected by using the authentic data from reliable sources.
The study presented that businesses must incorporate some strategies to enhance their goodwill
in the market so that they can attract more and more customers and have higher profit generation
by selling more products and services.
2

Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Aim and objectives/research questions............................................................................................5
Literature review..............................................................................................................................6
Impact of a firm’s goodwill on the sales revenues of the business.............................................6
Factors affecting the goodwill of the business............................................................................7
Ways to enhance the goodwill.....................................................................................................7
Hypothesis...................................................................................................................................9
Methodology..................................................................................................................................10
Collection of data.......................................................................................................................10
Data analysis..............................................................................................................................11
Financial analysis of Common wealth Bank.................................................................................12
Discussion......................................................................................................................................18
Conclusion.....................................................................................................................................19
Limitations of Research.................................................................................................................19
Recommendations..........................................................................................................................19
References......................................................................................................................................20
3

Introduction
In an organisation, there are various factors that have a direct impact on the sales and
profitability of the business. It is thus important to understand the relationship between one of the
major factors that are the goodwill of the firm and its net sales. In today’s business environment,
it is necessary that the firm has a good name in the market so that the customers have loyalty in
the company and they purchase the products and services from the company. Goodwill of the
firm has a connection with the sales of the business as the firm having higher goodwill has
increased sales and profitability (Mouritsen and Silvola, 2017). This report will lay emphasis on
the impact of the goodwill of a company on its net sales. The report will also focus attention on
the factors that have an impact on the goodwill of the business. There will be an expression of
the problem statement in the report, and the ways by which the problems can be solved in
Amazon will be discussed in the report.
Amazon is the online retailing firm dealing in all kind of consumer products. The company has
the largest chain of online retailing operating worldwide. The company has high goodwill in the
market, and all the customers have high trust and faith in the business (Jessica, 2010).
4

Problem statement
In the present business environment, building goodwill in the market is not an easy task. There
are various competitors in the market, which are in the race of making higher sales and generate
higher revenues (Giner and Francisca, 2015). Earlier it was easy for the firms to build goodwill
in the market as there were few companies selling the similar type of products. But now when
there are so many substitutes available in the market, it is very difficult for the business to gain
the trust of the customers. Customers are quality and price sensitive. They switch to other market
substitutes when they have better quality products at lower prices. In such situation, it is
important for the business to make sure that the company has the trust of the customers and they
buy the products and services from the business without considering the price (Anonymous,
2013). This is not an easy task. The problem statement in this the case is about the impact of the
goodwill of the firm on the sales revenues of the business.
The main problem statement in this research is that some authors are in favor of high goodwill of
the firm as they think that the goodwill has a direct link with the profits and sales of the business
(Cheng, et. al., 2017). On the other hand, there are some authors and researcher that have an
opposing view in this regard. They think that the high goodwill increases the unnecessary burden
on the company and at the end, it leads to decreased sales and profits of the business. This report
will present a clear relationship between both the variables (Garry, 2013). In this report, goodwill
is the independent variable, and the sales revenue is the dependent variable.
Aim and objectives/research questions
The main aim of this research is to analyze the impact of the goodwill of the company on its
sales and its revenues. The research will present the factors that can have an influence on the
goodwill of the business. The research is also conducted to draw a conclusion about the best
ways by which companies can enhance their goodwill. The major objectives of the research are
as follows:
 To evaluate the influence of goodwill of the business on the sales revenues of the
business.
 To identify the factors having an influence on the goodwill of the firm.
5

 To know about the methods by which the company can enhance its goodwill.
Literature review
Impact of a firm’s goodwill on the sales revenues of the business.
As per the words of the authors Satt and Chetioui, (2017), goodwill of the firm has a direct
association with the sales of the business. The author suggests that the firms having higher
goodwill in the market have the higher trust of the customers, which is a good sign for the
company. Most of the customers prefer to buy the products and services of the firm that has a
good name in the market. It is because the value of the company in the market is increased by
the enhance goodwill of the business in the market (Satt and Chetioui, 2017).
Another authors Brown, et. al., (2016), suggests that when the goodwill of the firm in the market
is increased, it leads to increased customer loyalty. The reason behind this argument is that when
the customers have high customer’s loyalty with the brand, they do not buy product and services
of another business because they are committed towards the business because of the high
goodwill and name in the market. This gives rise to the increased sales of the products and
services of the business and thus, higher revenue generation in the business (Brown, et. al.,
2016). There are some customers in the market who take it as their status symbol when having
the products and services of companies having high goodwill and a big brand name in the
market. This encourages them to buy the products and services so that they can show it to others.
This is also a reason that firms want to increase their goodwill in the market as this has a direct
impact on the sales of the business. The customers make repurchases from the business, and this
increases the revenue generations of the business.
In the views of the authors André and Zaccour, (2011), goodwill also has some negative impact
on the business, and the sales revenues of the business are decreased. The author explains that
the negative effects of the goodwill of the firm have a negative impact on the profitability of the
business. When a business has high goodwill in the market, the customers have a strong belief
that the quality of the products and services would always be well provided by the company, but
if there are some flaws in the goods and services of the business, the customers lose trust and
loyalty in the company. It is very important for the business, then always to be the best to have
continuous customer loyalty and trust (André and Zaccour, 2011).
6

Another author, Vellequette, (2013), explains that the goodwill has an adverse effect on the
profits of the business. The sales of the business go down because of the adverse influence of the
increasing goodwill in the market. It is because when the company has high goodwill in the
market, it lays the burden of unnecessary expectations of the customers on the business. The
expectations of the customers increases and it is not at all good for the business because of the
business fails to meet the high expectations of the customers, the sales of the business go down,
and the profitability of the firm also decreased (Vellequette, 2013).
Factors affecting the goodwill of the business
The authors Kane and Zappulla, (2016), explains that there are some factors which have a direct
impact on the goodwill of the business. As per the study of the author, the locational factor is the
main factor that has a direct influence on the goodwill of the firm. If the firm is centrally located
the goodwill of the firm increases resulting in a high turnover rate of the business. The author
also explains that time is a factor that leads to influence on the goodwill of the business. The
firms that are in existence from a long period have relatively higher goodwill and is known well
by the target market (Kane and Zappulla, 2016).
As per the words of the authors Nicolas and Safari, (2014), the nature of business is another
aspect that has a direct impact on the goodwill of the business. Nature of business includes the
type of goods produced and sold by the firm, a monopoly in the market and the risk involved in
the business. It is important that the firms take care of all these aspects as they can change the
goodwill of the business. After the thorough analysis of the concept of goodwill, the authors also
say that the goodwill of the business is also impacted by the profit trend of the business. The
firms having higher profits have higher goodwill in the market than the firms having lower sales
and profits (Nicolas and Safari, 2014).
Ways to enhance the goodwill
As suggested by the authors Christi, (2011), there are several ways by which a firm can enhance
its goodwill in the market; the first way to do so is to analyze the mark jet very well. It is
important for the business to analyze the market in an effective manner so that the goods and
services can be produced as per the needs and desires of the target customers. The customers are
attracted towards the business that lays emphasis on the needs and wants of the customers. This
way, the goodwill of the business can be increased. As per the authors, being consistent is
7

another tactic that can be used by the businesses to have higher goodwill in the market. When the
businesses are consistent in their dealings and services, the customer have a never-ending trust in
the business (Christi, 2011).
The researcher Schadewald, (2013), says that the corporate social responsibility is another
technique that the business can use effectively to enhance the goodwill of the business.
Customers prefer to buy products and services from the business who are socially responsible
and give back something to society as they take all the resources from the society only. The
authors also say that building good relationships with the customers is the strategy that can be
very beneficial for the business to have the enhance goodwill in the market (Schadewald, 2013).
8

Hypothesis
Given below are the hypothesis formulated to carry out the research successfully and have the
desired conclusions.
H1: Increased goodwill leads to increases sales revenues of the business.
H0: Increased goodwill leads to decreased sales revenues of the business.
9

Methodology
Collection of data
The primary objective of this research is to find out about the association of increased goodwill
on the business and the profits and sales of the company. It is crucial that all the data collected
for the research is authentic and reliable (Swiger and Dheeraj, 2017). To vary out this study
work, secondary data collection methods have been used. Two variables are taken into
consideration for this study work. The first variable is the goodwill of the firm, which is an
independent variable, and the second variable is the net sales of the business, which is the
dependent variable (Trinh, 2018).
To have the authentic and reliable data for the investigation purpose, journals, articles,
newspaper readings and books are taken into account. Website of Amazon has been used to find
out the annual reports of the company to know about the net sales and the exact value of the
goodwill of the business.
The link from where all the financial data of Amazon has been found out is given below:
http://www.annualreports.com/Company/amazoncom-inc
10

Data analysis
The only collection of data is not enough to arrive at the conclusions. Data analysis is important
to find out the results of the investigation (Xaquín, 2017). Effective data analysis methods must
be used by the researcher to make the raw data presentable so that all the stakeholders can have
useful information from the data. As secondary data is collected in this research, quantitative
data is analyzed to have insights about the impact of goodwill on the sales revenues of the
business. By using the application of MS excel, Anova test, correlation analysis and
Descriptive analysis has been carried out to have the correct and reliable results of the study
(Louise and Seaman, 2013).
By making effective use of the data and information collected by the secondary sources and
analysis by using various tests, it has been found out that there is an evident relationship and
impacts pf goodwill on the sales of the business (Dave, 2012). Any change in the goodwill of the
firm has an influence on the revenue generation of the firm.
11

Financial analysis of Common wealth Bank
Goodwill of Amazon
Goodwil
l ($)
year Link Pag
e
num
ber
14,548 2018 https://ir.aboutamazon.com/static-files/0f9e36b1-7e1e-4b52-be17-
145dc9d8b5ec
39
13,350 2017 http://www.annualreports.com/HostedData/AnnualReportArchive/a/
NASDAQ_AMZN_2017.PDF
40
3,784 2016 http://www.annualreports.com/HostedData/AnnualReportArchive/a/
NASDAQ_AMZN_2016.pdf
39
3,759 2015 http://www.annualreports.com/HostedData/AnnualReportArchive/a/
NASDAQ_AMZN_2015.pdf
41
3,319 2014 http://www.annualreports.com/HostedData/AnnualReportArchive/a/
NASDAQ_AMZN_2014.pdf
41
2,655 2013 http://www.annualreports.com/HostedData/AnnualReportArchive/a/
NASDAQ_AMZN_2013.pdf
38
2,552 2012 http://www.annualreports.com/HostedData/AnnualReportArchive/a/
NASDAQ_AMZN_2012.PDF
40
1,955 2011 http://www.annualreports.com/HostedData/AnnualReportArchive/a/
NASDAQ_AMZN_2011.pdf
38
1,349 2010 http://www.annualreports.com/HostedData/AnnualReportArchive/a/
NASDAQ_AMZN_2010.pdf
39
1,234 2009 http://www.annualreports.com/HostedData/AnnualReportArchive/a/
NASDAQ_AMZN_2009.pdf
40
438 2008 http://www.annualreports.com/HostedData/AnnualReportArchive/a/
NASDAQ_AMZN_2008.pdf
46
The table above shows the value of goodwill of Amazon for the past nine years. The data is
presented in the order of time. Goodwill is the independent variable in the study.
12