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Diageo is the world’s leading premium drinks company. Although you may not be familiar with the company name, you will certainly recognise its brands — it has

more brands in the top 100 premium spirits than any other firm, producing the world’s best-selling:

■ whisky (Johnnie Walker) ■ vodka (Smirnoff) ■ premium liqueur (Baileys)

It also produces a range of beers, including Guinness.Diageo operates in 180 markets worldwide and 40% of its

sales are now in developing countries, which it refers to as fast-growing markets. These fast-growing markets are a diverse group of countries including Brazil, Nigeria and Turkey.

Different marketsOperating in such a large number of different countries means responding to different market conditions. Alcohol markets vary enormously between different global regions:

■ In Africa the market is dominated by beer, which accounts for approximately 70% of all alcohol sales.

■ Whisky is the drink of choice in Latin America, making up 65% of the market.The markets are more diverse in more developed countries, with a greater range of drinks taking fairly equal shares of the sales.

Diageo has to respond to these conditions, and markets are constantly changing due to fluctuating trends and tastes. Marketing can also alter markets. For example, vodka is now the most popular alcoholic drink in North America, largely due to the growth in sales of Diageo’s Ciroc brand, which has Sean ‘Diddy’ Combs as its brand ambassador.

Market segmentationDiageo segments the market for each of its drinks categories by using price points. The categories it uses are:

case study

Doing business in emerging markets

Diageo

■ popular/value ■ premium ■ super premium ■ ultra premium

It aims to own the market-leading brands within each of these price points.

Segmenting the market in this way gives Diageo access to a wide range of consumers and allows it to charge different prices to different groups of customers according to the levels they are prepared to pay:

■ Ultra premium whisky can cost as much as £2,500 per bottle, but the volumes sold will be relatively low.

■ Prices are much lower in the popular/value segment but the volume of sales is higher and the segment can provide a platform for customers to step up to more expensive brands.

The appeal of emerging marketsBy 2015 Diageo expects that 50% of its net sales will come from developing markets. Table 1 and Figure 1 show the appeal of these markets. Although Europe accounts for 28% of Diageo’s sales, currently it is a difficult market. The most obvious reasons for this are the economic downturn and the financial crisis, which have dented consumer confidence and led to a fall in disposable incomes. The demand for leisure and entertainment tends to be income elastic, therefore sales of alcohol, particularly in bars and restaurants, have fallen dramatically.

Other external factors have also made trading conditions tough, such as the demographic shift to an ageing population. This is shrinking Diageo’s target market. The power of retailers, particularly supermarkets, is also increasing. This reduces the prices Diageo can sell its products for, which in turn puts a squeeze on the firm’s profit margins.

In contrast, the trends in emerging markets are positive for premium brands. The main factor is the rapidly growing GDP

With growth in Europe and North America still stuttering, Pete Imeson looks at how UK drinks giant Diageo is expanding into new markets

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6 Business Review

of many developing countries. This has led to large increases in income, especially for the emerging middle classes, who now have the spending power to purchase premium products. There are also important demographic and social factors: developing countries tend to have a younger age structure and have a trend towards female empowerment, which is opening up new markets.

MarketingDiageo puts large amounts of effort and finance into its marketing in order to be successful in developing markets and make the most of the growth opportunities that they present. Often this marketing needs to be tailored to the specific conditions of the emerging markets.

In many of these countries the average level of disposable income, even among the middle classes, is well below that of Western consumers. One method of responding to this is shown in Nigeria, where Diageo sells its spirits in smaller, 20 cl bottles. These contain four servings and cost the same as four beers. This makes the product affordable, and customers can aspire

33%

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12%

19%

13%

11%

28%

–1%

14%

8%

Total net sales split by regionNet sales growth

Figure 1 Diageo sales by region 2011–12

to purchase it. The smaller bottles also match the needs of bar owners, who would face cash flow problems if required to buy large quantities of expensive spirits.

Products are also varied in different markets and for different customer groups. For example, whisky is extremely popular in India but most Indians cannot afford the varieties that Diageo produces, so the company has introduced a cheaper brand that helps to draw in customers.

Diageo has produced a number of products specifically targeted at women in order to respond to the trend of female empowerment in developing markets. These products include an apple-based drink in Africa as well as whipped cream and marshmallow-flavoured vodka.

Accessing emerging marketsDiageo has three different strategies for entering developing markets:

■ use existing brands ■ create a new brand specifically for

the new market ■ acquisition, i.e. buying local firms

It also has three criteria when looking to acquire new firms:

■ strong brand ■ route to market (i.e. a strong distri-

bution network) ■ growth

Country Average GDP growth 2007–12

Brazil 4.2%

China 10.5%

Ethiopia 9.6%

Vietnam 6.6%

Greece –2.18%

Spain 0.26%

United Kingdom 0.16%

Table 1 Economic growth of selected developed and developing countries

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10,762

9,936

9,780

2010 2011 2012

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Reported movement 8%Organic movement 6%

Figure 2 Diageo net sales 2010–12

3,198

2,884

2,751

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Reported movement 11%Organic movement 9%

2010 2011 2012

Figure 3 Diageo operating profit before exceptional items 2010–12

Source: Bloomberg

Figure 4 Diageo share price 2002–12

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Diageo share price movement (re-based to 100)

FTSE 100 movement (re-based to 100)

Pete Imeson is an experienced A-level economics teacher and examiner.

Mey Icki, Turkey’s leading spirits company, had 80% distribution in its country’s premium market. This made it an attractive proposition for Diageo, as it enabled it to reach a large segment of the target population quickly. Other Diageo acquisitions include:

■ spirits company Shujingfang in China (where international brands only make up 2% of the market)

■ Vodka Hanoi in Vietnam ■ Meta Abo beer in Ethiopia

Corporate social responsibilityDiageo’s corporate social responsibility focuses on four areas:

■ alcohol in society ■ effect on the environment ■ use of water ■ socioeconomic responsibility

As the world’s largest producer of spirits, it is important for Diageo’s brand image that it is seen to be promoting the responsible use of alcohol. It works closely with its customers (e.g. retailers, bars and restaurants) to ensure that they market Diageo products in a responsible way. It also funds over 300 responsible drinking programmes in 49 countries and has a code of practice for its adverts, e.g. only using actors who are over 26 years old.

Diageo has used a variety of schemes to help promote development in the countries where it operates, such as providing business training for smaller firms that distribute its products and linking distributors with banks. In 2012 it won the Financial Times Beyond Business Award, which identifies businesses that are working in Africa and do additional work to promote development.

Financial successThe success of Diageo’s strategies can be seen in its finances. Figures 2 and 3 show strong growth in sales and profit. Over the last 3 years net sales (i.e. after excise duty) grew by 6% when measured on an organic basis (i.e. excluding acquisitions), while operating profit has risen by 9%, reflecting that the company has not only been successful at selling more products but is also achieving higher profit margins from those sales. Figure 4 shows the company’s share performance compared to the FTSE 100, illustrating that investors are confident that the business can continue to grow in the future.

Diageo’s Johnnie Walker House, Beijing, has been dubbed an ‘embassy for luxury Scotch whisky’

8 Business Review

exam guide

There are four key functional areas of businesses that you need to focus on when answering Unit 2 exam questions:

■ marketing ■ operations ■ finance ■ people management

This ‘Exam guide’ shows you how to rise to the level required by the examiners, both in the concepts you use and the way that you use them. The target is simple: to get as close to full UMS marks as possible. To do this, I have devised 12 lessons that you should learn and stick to.

Lessons to learn1 Understand the scope of each business functionUnit 2 is primarily about each function in turn. It is vital to be able to put an answer on a marketing topic into a framework of marketing as a whole. It is much less important to put a topic such as promotion into the context of the whole business, or the context of separate functions such as finance and people management.

2 The simpler the question, the more academic the answerExaminers want to see you prove your knowledge of the subject. If there is a question on ‘How to improve motivation at XYZ Co’, make sure your answer uses theory to assess XYZ — don’t allow your answer to stem from common sense.

Wrong approach

XYZ could improve motivation by paying higher wages or by giving more praise to staff.

Correct approach

Motivation, according to Herzberg, comes from within, i.e. people doing something because they want to. Herzberg says higher pay achieves movement, not motivation. So the company needs to organise work so that it provides satisfactions and challenges, and therefore motivates.

12 lessons for successWhichever exam specification you are studying, former chief examiner Ian Marcousé explains some important lessons for this summer’s Unit 2 exams

3 The more technical the question, the simpler the answer

If you are asked about how a business could lower its breakeven point, take your time and give a careful explanation. Don’t worry about treating the examiner as an idiot. You are simply analysing the situation.

Correct approach

As breakeven is fixed costs divided by contribution per unit, there are three variables: fixed costs, the selling price and the variable costs per unit. Squeezing the price up will boost contribution per unit and therefore lower the breakeven point, as will a cut in the unit variable costs; and a cut in fixed costs would inevitably cut breakeven, as long as the contribution per unit is unchanged.

4 Get your timing spot on

With 90 minutes for 80 marks in AQA BUSS2, this exam is tight. You have 5 minutes to read and think about each of the 2 articles, then 40 minutes for 40 marks. Be absolutely rigid with yourself. In the classroom your teacher is the boss; in the exam room your watch is the boss. A 6-mark question takes 6 minutes, not 7 and definitely not 8. Don’t expect to enjoy answering questions in this way: you’ll often feel that you could have said more.

In January 2012 you needed 53 marks out of 80 to get an A grade. Most A-grade candidates will not have written any great answers, they will have scored consistently, getting 7 out of 10 and 10 out of 15. The key is to score well on every question, which means having the time to answer each one. For those taking Edexcel or OCR Unit 2/2a exams, the same message is true: time is tight, so let your watch be the boss.

AS Unit 2

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5 Don’t rush reading

Despite lesson 4, beware of trying to shave a minute or two from the reading time for the data response text. Application marks are awarded when you show that you understand the key business features of the business case history. Examples include:

■ the importance of seasonality to a toy shop ■ the cash flow dangers of overreliance on one customer ■ the value of a highly trained, committed workforce ■ the risks involved in competing with a strong brand (note the

2013 withdrawal of the £100 million-a-year Huggies brand from the UK nappies market — it couldn’t operate profitably when up against Pampers)

So read thoughtfully, and make brief notes about what you’re reading.

6 Numbers in questions are only hard if you don’t understand the wordsVariance analysis is easy as long as you understand terms such as adverse variance and profit budget. Don’t try to memorise the stems in a calculation. Instead, learn and understand terms such as adverse variance, margin of safety and net cash flow, i.e. the terms that govern the calculations.

7 Master marketingMost answers on marketing questions are pretty waffly. Many candidates assume that common sense goes a long way. It doesn’t. Take care to use terminology as much as possible, e.g. product portfolio (and its component parts, e.g. rising star), price elastic/inelastic, marketing mix and so on. The examiner wants to make sure that you are using your classroom knowledge, not your general knowledge.

8 Fine with finance (but don’t overdo it)

Finance will yield 25% of the marks on this exam, no less and no more. Yes, it’s an especially important 25%, because marks are likely to be spread widely in a finance question (some candidates get 0, others get full marks). But it is only 25%, so make sure that your revision pays full attention to the other three functional areas.

9 Persist with peopleLike marketing, there is a risk that answers to people questions will seem rooted in streetwise common sense, not in textbook knowledge. Take care to master the distinctions between different terms that may seem similar, e.g. productivity and production, recruitment and selection, delegation and empowerment, induction and training (and many more). Most students give people a cursory glance during revision; actually it requires a lot of work.

10 Over-revise operationsMake sure you know exactly what your exam board has put in the specification box entitled ‘Operations management’. Learn each part, but especially learn what all the parts are; then you’ll be in a great position to answer the examiner’s favourite question: ‘Discuss how well the XYZ Co has been managing its operations.’

11 Answer the questions your examiner is askingIt is easy to drift when answering exam questions. After all, you learned all that stuff last night and want to use it. But don’t allow your brain to drag you away from the precise questions. Top grades come from you trying to answer the difficult questions the examiner has set, not from you writing fluent but largely irrelevant paragraphs. I tell my students: for any question with 8 marks or more, at the end of each paragraph reread the question before continuing with your answer.

12 Revision should be top-down rather than bottom-upEven though your teacher probably used a bottom-up approach (covering small-scale topics in turn, such as a lesson on promotion followed by a lesson on place), revision should start from the top, e.g. effective marketing, effective marketing mix, integrated product, price, promotion, place. The tough exam questions will be those carrying 12–15 marks, and each one will ask a big, broad question. If you have thought about each business function as a whole you will be in a much better position to answer these longer questions.

ConclusionOf all the lessons, the most important are 4 and 5. So read thoughtfully, then be obsessive about sticking to a mark a minute when answering questions. I could wish you luck, but I don’t think you’ll need it.

Ingr

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Ian Marcousé is the founding editor of Business Review and teaches at London University’s Institute of Education.

10 Business Review

One of the major points that comes up time and again in examiner reports is that student responses are not doing enough to access the higher marks for the key skill of

analysis.Mark schemes now take the level response approach, where

students are expected to demonstrate ‘good’ application and analysis in order to achieve maximum marks. Most students produce responses in the ‘reasonable’ mark band. This ‘Upgrade’ will show you how to access those important analysis marks.

Defining analysisThe mark scheme definition of good analysis is:

Good analysis is shown when a candidate develops a chain of argument with a clear focus on the question.

So how do you demonstrate this on the exam paper? While the mark schemes have now moved away from

rewarding highly discrete marks for content, it is still a good idea to start with a definition, as your analysis can be developed from this. Don’t assume that the examiner knows what you mean. It might seem obvious from your point of view, but examiners cannot read your mind.

Far too many students make points that are relevant, but never explain them and never develop their points to build a sequential chain of argument that follows a step-by-step approach. Look to explain each and every point as if you are teaching someone about an area that they have never covered before.

Analysis is about forging a series of links that help an examiner follow the logic in your arguments. Examiners are looking for a series of developed points that are relevant to the business in the case study. You do not want the examiner to be thinking ‘why?’ or asking themselves ‘and then what?’. Too many students make a lot of simple points without taking them to the next level.

Blowing up a balloonTry and think of your argument in terms of blowing up a balloon: to get the balloon inflated you need a sustained amount of puffs to make it work. Each time you make a point, think how it can be developed further. Try not to be too assertive and definitive in your response — use connective phrases such as:

■ ‘this could lead to’

What is good analysis?Phil Waterhouse shows you how to get those key analysis marks

upgrade

■ ‘which may then result in’ ■ ‘which has the potential to then lead to’ ■ ‘which could then cause this’

This will help you to build a sustained argument and show a series of connected points. This is not easy to do in practice. You really need to train yourself to be analytical. In practice responses, after every sentence try and think how the next sentence can inflate the balloon (your argument) even further.

Putting it into practiceMy students are used to being challenged about a point they make, as I will ask them ‘what else might that result in?’. This is how you need to think in order to develop your analysis skills. I encourage my students to build up a bank of generic analysis examples that cover a number of the key topic areas, such as economies of scale or net profit margin.

Learning how to develop a chain of analysis is useful, but I also give my students an exam health warning: just trotting out rehearsed lines of argument is not going to work in the exam hall. If you are to achieve good analysis, it is essential that the argument that you build is in the context of both the case study and the question set.

Price elasticity of demandQuestions on price elasticity of demand are almost always answered poorly, yet they provide a great opportunity to develop an argument, for example:1 Increased spending on advertising could lead to increased sales. 2 Increased spending on advertising would create increased interest and awareness, which could result in increased sales.3 Increased spending on advertising would create increased interest and awareness, which could result in increased sales, which given the highly competitive nature of the industry would differentiate the firm from rival competitors and not only give it a USP but also a more price inelastic demand.

The person in the street is not likely to be aware of what a term such as price elasticity of demand means, so it can add a lot to what would otherwise be a simplistic argument. For example, students will often write a throwaway judgement that lowering prices will lead to an increase in sales. This is a limited line of

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Organisational culture is often seen as ‘the way we do things round here’. A better definition is ‘the attitudes and behaviours that have become the norm in an

organisation’, i.e. it’s not just what people do, it’s also what they think. This ‘Killer concepts’ looks at the importance of culture in modern business.

Every school staffroom has a distinctive culture: sometimes deferential, sometimes rebellious, sometimes committed and caring, sometimes alienated. Every business organisation has its own culture too: perhaps entrepreneurial, often bureaucratic; perhaps moral, often amoral. It is important to appreciate that an organisation’s culture is rarely moulded deliberately; it simply grows like wild flowers or weeds.

Corrosive cultureIn November 2012 Paul Moore, former head of regulatory risk at HBOS bank (one of the UK’s top five banks before 2009), gave evidence to a parliamentary commission on banking standards. He referred to a ‘threatening’ culture at the bank prior to the 2009 crash. The bankers whose risk-taking generated huge bonuses ‘would be rude’, ‘they swore at us’. They made it clear that they were the people in power, not the regulators. In 2004 Moore was fired from HBOS after warning senior management that excessive

killer concepts

In this new regular column, Ian Marcousé tackles the concepts that separate the As from the A*s. Box 1 shows all of his ‘killer concepts’. If you are taking A2 exams this summer, it’s worth asking your teachers to go through them all

risks were being taken. HBOS was effectively bankrupt by 2009, bailed out by Lloyds bank. Moore was right, but the culture prevailed — supported by the bosses — until far, far too late.

Interestingly, both Moore and his immediate successor blamed much of the trouble on the ‘federal structure’ at HBOS, which granted a great deal of independence to business divisions. This democratic structure allowed currency risk management (i.e.

Culture

Box 1 A2 killer concepts

1 Culture

2 Business ethics

3 Aims and objectives

4 Opportunity cost

5 Data at the margin

6 Risk and reward

7 Business governance

8 Strategic vision and decisions

9 Competitiveness

10 Business/strategic models

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20 Business Review

foreign exchange speculators) to operate as a fiefdom. As long as the division made money, no-one from head office asked questions. A similar argument was put forward in court by the so-called ‘rogue trader’ Kweku Adoboli, whose £1.4 billion of trading losses threatened the future of UBS bank.

What does this prove? Simply that in a business such as investment banking, a corrosive culture can undermine morality and decency. It also makes an interesting point about the risks of delegating power from head office to operating divisions.

Court of the Sun KingAn autocratic, top-down structure also has its problems. Before and during the 2008–09 banking crisis, Mervyn King was the governor of the Bank of England. In 2012 the bank was forced to conduct three inquiries into its operations and culture.

On 2 November 2012 the Financial Times ran a front-page article titled ‘Damaging culture at the court of the Sun King’. The article explained that the dominance of the governor meant that internal debate was lacking. Sir John Gieve, deputy governor from 2006–09, said: ‘It’s a monarchy and always has been.’ Former Chancellor Alistair Darling was the one who said the governor was ‘some kind of Sun King around whom the court revolves’, and a former Bank of England economist recalled being ‘slapped down once or twice…so the basic incentives align people to tell [Sir Mervyn] what he wants to hear’.

Before and during the banking crisis Mervyn King was operating as an autocrat within a culture that favoured agreeing with, rather than challenging, the governor’s views. This helps to explain why the Bank of England responded so slowly to the unfolding banking crisis in 2007 and 2008.

Culture and leadershipWhy is this relevant to your studies? There are many implications, but perhaps none is more striking than the impact on leadership.

Leaders come and go, but often the culture of the organisation lives on. Consequently there are two types of successful leader.

Steady as she goesThe first type of leader is one who fits into the culture, encouraging the business to move ahead steadily. This will prove successful as long as the external environment is stable. In this steady-as-she-goes model, the impor-tance of the leader may be little more than external PR.

With the benefit of hindsight, this may have been true of former Tesco boss Terry Leahy. He inherited a strong UK market position from his predecessor (Ian MacLaurin) and kept Tesco focused on growth. Only when other UK retailers upped their game in 2010–12 did it become clear that Tesco had real problems.

Shaking things upThe other type of leader is the one who has sufficient backing from the owners/shareholders to go through the highly disruptive process of challenging the culture. This is what Andreas Villas-Boas

BA has modified its corporate culture to help make it more competitive in the modern business environment

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Ian Marcousé is the founding editor of Business Review and lectures at the Institute of Education, University of London.

expected when he was appointed Chelsea FC manager in 2011. Halfway through the season it became clear that he didn’t have the degree of support he needed from Chelsea’s owner.

In 2012 Apple hired former Dixons chief executive John Browett as head of Apple Retail. Browett immediately decided to change the sales culture at Apple stores, using commission to promote aggressive sales techniques. Within 6 months Apple boss Tim Cook decided Browett had been too radical and fired him. The softly-softly sales culture lives on at Apple — Browett does not.

In complete contrast is Willie Walsh at British Airways (BA). Walsh has implemented waves of redundancies at overstaffed BA and faced down a series of major strikes. Today BA has a slimmed-down management and a less bureaucratic approach to deci-sion making. Walsh made some mistakes along the way, but was always backed by the board and the shareholders. Change was needed and Walsh was the one with the steely determination to achieve that.

Culture and riskUltimately, all big decisions in business are about the appetite for risk, i.e. how accepting the business is of the risks involved. Some risks are trivial, such as the risk to Cadbury of launching a new chocolate bar. The total investment in development and marketing may amount to £20 million, but any Cadbury product will get quite high product trial, so the net loss from a flop is perhaps £15 million. This is of little significance, either for Cadbury’s annual profit or for the executives involved. It would be rare for staff to get sacked for a new product flop. This is understandable when the flop is bad luck, but even if research

shows that customers were unimpressed with the product itself — and hated the advertising — redundancies rarely follow.

Part of the reason why failure is not punished is the impact of culture on organisational structure. In many large organisations there are so many overlapping responsibilities that it is not clear who is to blame. This can be a weakness in using cross-functional teams, i.e. a selected group that run a project together: democratic, yes, but who’s to blame if things go wrong? Sometimes people who have been associated with several flops are promoted above others, perhaps because their ‘face fits’ even though their decision making can be questioned.

Few smaller organisations would take this approach, as a new product flop might wipe out a year’s profit, or worse. In these businesses one person will be responsible for the new product (quite possibly the boss/owner). The risk of failure will have been considered and the impact of failure weighed up.

If the culture is risk averse, such a strategy may be rejected. The owner may prefer to keep the profits rather than risk a year’s shortfall. But a business that embraces risk may decide to launch the product, the performance of which will be closely monitored. There is as much to be learnt from a flop as from a success, and a thoughtful, learning organisation will want to make sure that lessons are learnt.

ConclusionCulture is often the force that keeps the ship steered in the same direction, even if the captain has left, or a new captain has changed course. It’s an unconscious force that keeps staff doing things ‘the M&S way’ or ‘the Argos way’ — even if the Argos ship is heading for the rocks. Therefore, most essay titles on ‘change’ or ‘leadership’ have culture at their heart.

In the long run, culture can be changed if the boss sends out the right signals. These might include promoting people who would not expect to be promoted, perhaps because they are known for their independent views. Or making a gesture that is unmistakable: in the HBOS case mentioned above, all the boss needed to do was to back the head of compliance and demote a bullying trader. Actions, not words, are critical to success. There is no point sending out memos setting out a new vision if promotion decisions keep favouring the same old gang.

Broadly, any boss who can change organisational culture for the better is a great leader. There aren’t many about.

Is there an ‘M&S way’?

22 Business Review

Charlotte Nicol and Richard Purchon had shared a passion for culture and the arts ever since they met at Greenhead Sixth Form College in Huddersfield. When they left

school, neither of them wanted to work for other people forever. They were keen to start their own business.

Going on tourPurchon had worked as a tour guide in various cities around the world and thought there was potential in the idea of a travel company based on the arts. The initial concept was to offer UK-wide tours for foreign visitors around places such as Edinburgh, Stratford-upon-Avon and the Yorkshire Sculpture Park. However, this would require them to charge a fairly high price at a time of economic downturn, so they decided to simplify the business plan.

Now based in London, Nicol and Purchon started providing walking tours around the capital’s artistic and cultural sights. Using their own savings to start the business, they commissioned a website where customers from all around the world could book tours in advance.

After talking to Business Link, Nicol and Purchon were made aware of a charity that paid experienced business owners to act as mentors for young entrepreneurs. Their mentor helped them develop their USP, telling them they needed a more unique concept than rival companies such as London Walks. He advised them to conduct market research by going on tours with rival companies to see what they were up against.

Poetry, pubs and passionThe name Most Curious Tours summarises the unique experience offered by the company:

■ The literature tour is led by a published poet, who reads from her poetry during the tour.

■ The opera tour includes the guide singing to the customers. ■ There is also a classical music tour and a historical pub walk.

The tours were initially offered for free, which enabled Nicol and Purchon to gather market research on what could be improved. They discovered that 2 hours was about the right

entrepreneurs

length for a tour and that group bookings were to be an important source of revenue.

Starting with no charges enabled Most Curious to build up reviews on the TripAdvisor and Time Out websites, which was crucial if it was going to appeal to an educated, youthful and technologically savvy target market. The company’s Twitter and Facebook sites also attract customers and help build relationships with them. For example, if the Royal Opera House retweets one of Most Curious Tours’ tweets then there is a noticeable increase in bookings for the opera tours.

The reasons for starting Most Curious Tours were not necessarily financial. The firm was founded on Nicol and Purchon’s desire to:

■ be their own boss and make their own decisions ■ follow their passion for the arts and base a business around this

passion ■ target a gap in the travel market

They are now considering expanding to other European cities, with Paris firmly on the radar.

Staffing and seasonalityThe Most Curious Tours business plan was updated in August 2012, when the company started charging £10 per tour. The business plan helped Most Curious win the Shell Livewire award and get a nomination for Young Entrepreneurs of the Year. The plan makes it clear that breakeven is easily attainable: needing just 3 people per tour to cover the guide’s expenses.

With Nicol and Purchon having so many friends in the arts, finding staff was not a problem, and they receive at least 60 applicants for each tour guide position advertised. Guides are paid per tour, with a performance bonus for every 5-star review on TripAdvisor. Guides work the tours around their opera or literary careers, which helps keep costs down. Not having an office (just a website) also reduces overheads and helps Most Curious break even sooner.

Mark Mitchell asks what it takes to set up a successful tour company at a time of economic uncertainty

MOSTCURIOUS