Note for RCSC 216 with Professor Hessell at UA
Note for RCSC 216 with Professor Hessell at UA
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This 11 page Class Notes was uploaded by an elite notetaker on Friday February 6, 2015. The Class Notes belongs to a course at University of Arizona taught by a professor in Fall. Since its upload, it has received 23 views.
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Date Created: 02/06/15
Business Made Elements Business Medeli a framework for making money it is a set uf activities which a rm pertarms how it perrorms them arid when it perrarms them so as to alter its customers bene ts they went and to earn a pmfit lndustm Factors Why is it that rms in some industries are more profitable than firms in other industries in the industry ipg 4 t The stronger the competitive rdrces from rivals customers suppliers the less pro table the industry s rms are likely to be a Force exerted by rivals is high it there are many similar industry rms that sell identical products This can Farce down prices lowering pro tability Force industry firms to offer higher qualiy products at smaller price premiums Force them to advertise more than necessary Fol39ce exerted by suppliers is high if the suppliers have bargaining powerover industry rms Suppliers can extract high prices raising l39rrl39s costs s Suppliers can force luwerqual ity products Forte exerted by customers is high lf customers have bargaining power over rms Customers may be able to extract lowerprices Farce exerted by potential new entrants is high it barriers to entry are low Easier to enter the competitive space putting pressure on prices I Force exerted by complementors is high it they have bargaining power therefore the interests of the complementors are reflected in the industry39s actions I Substitute products can force rms to raise quality or products while keeping price constant between the firms and theirsuppllers customers rivals and potential new entrants s Suppliers can be allies to create better value for the end customer and earn higher profits cooperation with rivals can lower rirrns39 costs The inriuence of the overarching m on the industh i Regulations for entry interest rates exchange rates employment income productivity ems Efficiencies in an aspects of aperations decrease Casts regardless of strategy pursued Resources Tangibie and intangible assets that aiiow the rm ta pertarm its actnnties enectiueiy Positions Vaiue offered to customers Market segments serurted Source of revenues Posi ening reiatiueto etners Prices cnarged to customers Agtiv ies What are the impurtantfacters about activities a WHICH activities should the firm pErfDrm u e in Introduction ofa new product or service Expansion Into a new market Implementation of a new marketing strategy Launch of a new eCommerce Initiatlve l to One must understand key business pe ormance measures that drive decls ron maklng One may need to focus at stare district and corporate ievel What drives he bu iness39 ge ormance What are the direct drivers or the business7 0 Price orthe product orservice What are the indirectdnvers orthe business7 a Fashion trends How do changes in inputs uitimateiy impact Outputs 0 Importance ofanlicipaling changes in key inputs u Understanding logirai finant ial riow frum inputs to outputs quothow does a change in demographics in a market impact market share which aiters revenue F an a An y Return on Assests Prufitability Analysis Profit margin x total assets return on assets Inventory mrnover Fixed Assets Turnover other Assets Accounts Receivable Tumouer Advertising Spend Revenue Personnei Costs Cost of Merchandise WWW Value and Pnsitloning Low Cost products and Services Walmart Costco FDrEver 21 DIFFEI EnlIated products and services Apple whoieFouds Wm product Features Company can diiierentiate its products by the pure ieatures offered c important consrderation is prowding oeneiits through these teatures that Cusmmers value Features without desired and ciear bene ts have hmited vaiue Brand Name Reputation o A brand s inherent but intangible value can be a path to differentiatlun a Challenge with such option is building this value a will take years and signi cant investment Network Size 0 Building customer base may add value to individual customers creates a network effect a Question is whether the whole is greater than the sum of its individual parts o Network externalltles the greater the number of people who use the product the more valuable it becomes to users BBM Faceoookl Timing 0 Moving rst may have an advantage but only it done right a Many rst movers may only blaze a path for more successfully positioned products that follow Myspace gt Facebauk Location 0 Product avaHablllty Ease of access to customers Reputation or location I EX La Encantada IS El Con MaH Service u Wrapping a service aruund in frant or behind a product can dlfferentlate that company fIDm others Relurnremnd policy installation Afteresales tech support Product Mix a Many companies will oirrerentiate themselves by focusing on share of the customer I Onestop shopping o Developing oroad product or service mix encourages customers to buy all their pmductsl5ervites lrom the same company rather than spreading them out over many different ones Low gost Qgtigns pg 2amp the firm is able to charge a lower price because it performs lts valueeadding activities at lower cost than competitors do and it can pass Savmgs to customers six primary determinants of a firms pel39 unit costs Economies of Scale o In many cases the larger the one gets the lower the cost to operate and then subsequently lower costs to customers o Such economies can come on the floor or in the back office Volume savings distribution warehousing Factor Costs u Lowering factor costs an drive down cost tn Custumer a such factors may include location labor and other back office functions Industryspeci c cost drivers Innovation o Operational know huw can reduce costs to the customer a These may include tioht management of inventory store layout and others Economies of learning 0 Companies that perform the same function repeatedly over time can reduce costs from sheer repetition and nding efficiencies Agency cosls a Costs that a rm incurs because employees slack off and do not perform their duties Differemiatian vs an Cast Finding the right balance between the two extremes most companies focus on one and rarely bothi Bur Value 8 25 09 Afirms bargaining power among the value chain dictates its business model39s overall profitability Benefits that customers value If 5 firms product stem from the combined efforts of the firm and its suppliers complementors and customers Bulid value with Others Customers Complementa s Suppliers Rivals Dael Pa gr Five Fnrges Anaiy s Provides a process lor understanding wiiat factors outside or the rm can positively or negatively impact a Company39s profitability His initial research was complemented with a sixth torce that rurther re nes this work 1 Suppliers a Large number or suppliers o Undifferentiated products from suppliers c No credible threat that supplier will integrate forward d Purchased product represents a small traction orpverall cost e Signilicant lniormation on supplier39s products Including quality data f Little impact on quality of final product or service sold by rm 2 Buyers a Large number of buyers in Ditlerentiated products sold by rms into marketplace c Little threat of buyers backward integrating a Very high pro ts and product sold represents very small lraction oi tntal as e Quality of buyer39sflrlal product is highly dependent on rm39s products 3 Rivalry a Larger firm in marketplace with signi cant numberuf competitors Growing rather than stagnant or declining industry Highly dinerentiateo product with high switching costs Low exit parrlers allow prontless companies to dlsbarld rather than severely lower prices e High varlaole rather than fixed costs lowers the urgency to get revenue particularly perishable Droducts h c d 4 Threat of Entry a b c d e Very high entry costs dissuades new competitors Highly differentiated products whose bene ts are not easily replicated High capital requirements to enter market Very costly access to critical inputs Reasonable fear ul retaliation 5 Substitutes a b 5 ds Few reasonable substitutes Customers are generally not willing to change products Benefits from substitutes are not eas y quanti ed Price elastlclty is relatively low which reduced likelihood to explore other alternatives 6 Cnmplementurs a b Great number of l llgi l quality complementors in an industry Value to end user of complenlentors products andor services is relatively low Little increase in and user purchases based on decrease of cumplementurs39 prices heater 3 Fri rig to 09 II1ZE Revenues M31109 Reservation Pricing the maximum price that any one individual is willing to pay for a specific product or service get maximum price per customer out very costly to obtalni Menu Price A price set by the retailerand is largely fixed from one customer to the nextwith little to no bargaining much less costly to manage out will likely give up profits Demand Function of Pricing external market effects test function or Pricing internal contribution Margin the quantity PO e Vc Q or revenues minus variable costs This represents the amount over variatile cost that is contriputed to recovering fixed costs Cost Based Pricing Price based on set markup based ul l Cost Return on sales based on desired gross return over costs Returnoninvestment markupi based on planned return over initial investment costs Peicentage market on selling pricecost standard margin based on either the selling price or cost of the merchandise Value Based Pricing Price based on identified customer value Valuebased fixed pricing price set to met market demands fecugnlzes benefits competitor products and pricing and overall firm pricing strategy Reservation price pricing pricing set to meet individual perceived benefits difficulty is finding appropriate pricing and practicality of the effpit 9209 Reservation price is the maximum price a customer is willing to spend yet menu pricing which is the most prevalent way of pricing inherently loses potential profits So how can one capture some of that lost profit Without incurring significant expenses in the process Group customers and charge them differently i Segment pricing different customer groups are being charged different prices you an add Services make them available online or in store Bundling things together People who are willing to spend more you can capture more of what they want i Volume pased pricing
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