JWI 515 Managerial Economics, Week11 Wrap Up, 12/21/12
Great class. Helped me with a foundation in economics literacy.
(1) Which managerial economics topics have you mastered ?
None. There is a saying in India that what one knows the size of the
fist and what one does not know is the size of the world. This helps me
to keep a humble perspective - that humanity is always operating within
the field of ignorance. I do however feel much more aware and literate
in economics with the training received in this class.
(2) Which managerial economics topics do you now understand but may want to learn more about?
(i) Mathematical underpinnings of Profitability
(ii) Control costs before they control you: fixed, variable, total, average
(iii) Economy of scale
(iv) Regulation
(v) Risk & uncertainty
(vi) Factors of production
(vii) Supply & Demand & Market Equilibrium
(viii) Market structure - Perfect competition, Monopoly, Oligopoly
(ix) Measuring consumer and producer surpluses
(x) Utility maximization
(xi) How to mitigate dis-economy of scale
(xii) Price-output decision models: Cournot, Sweezy, Stackelberg, Bertrand
Cournot: a firm will make independent decisions to maximize its profit
Stackelberg: firm acts according to Cournot + first mover advantage
Bertrand: Homogeneous oligopolists; consumer goes after lowest price; price wars ensue to capture market share
Sweezy: firms will follow rivals' price decrease but ignore price increase
(xiii) Global market conditions
(xiv) Porter's 5 forces - Barriers to entry
(xv) SWOT - new entrant to market
(xvi) Corporate Social Responsibility
(xvii) Role of government in free markets - Externalities, Deregulation
society needs government
regulation and public policy to balance public and private interests and
promote economic growth. Government must also fund things that are in
society's best interest overall.
(xviii) Analyze 5 types of risks and mitigate with 14 options for risk take downs
(xix) Private goods vs Public goods
(xx) Market failure - when one or more perfect competition criteria are violated
(3) What questions do you still have about managerial economics?
(a) How does one arrive at the demand curve - price vs quantity function - in the first place ?
(b) Is it possible to scale firms to reach sizes never seen before ? eg.
can JWMI be scaled to enroll a million students at once?
(c) How to estimate dollar values of Positive and Negative
externalities? As true cost = economic cost + social cost +
environmental cost, knowing how to estimate externalities will help
attach real costs to products and services.
Dr DP
Friday, December 21, 2012
Connect Marketing to Business Strategy
JWI 518 Marketing in a Global Environment, Week 11 Wrap up, 12/21/12
This class gave a great foundation to the discipline of marketing and marketing strategy. This course is designed to help students connect business strategy to marketing, think like a CEO, create superior value for customers and build something new.
We began with product strategy and examined ways to understand the broader market through market surveys. Market segmentation techniques help to analyze markets and identify the most attractive segments. Finally, we learned to create a marketing plan, figuring out how to strategically market the product or service using brand positioning, brand equity, pricing, elements of marketing communication and state-of-art social media tools.
I now understand the role and importance of marketing - an art and a science - in the firm, and balance costs and benefits to customers.
Takeaways include:
(i) Role of marketing in a firm
Identify needs, wants, interests of target customers
satisfy more effectively and efficiently than competitors
while preserving or enhancing consumers' and society's long-term well-being
(ii) 4 key marketing dimensions - Performance (&quality), People, Planet, Price
While competing on product performance and price metrics, seek also to balance people (social cost) and planet (environmental cost) needs.
(iii) marketing begins with understanding the customer - research the market and offer superior customer value
(iv) marketing is an art and a science
(v) It is not just about parading the features in front of the customer. To persuade:
Know the firm's own market offering + next best alternative + how the offering delivers superior value to customers vs next best alternative
(vi) There are 4 ways to conduct a survey but beware the limitations. Don't just go by what people say but by what they do - check if they will put the money where their mouth is eg. GE green bulb fiasco
(vii) Know the buyer's motivations and understand how to motivate them (this is the foundation for any marketing strategy). People buy anticipated satisfactions, not just the products. The primary underlying thought in buyers’ minds is this: “What’s in it for me?” Remind buyers of some key satisfactions they want to achieve. Promise you can make it happen. Then Highlight the key features of the product or service
(viii) Generate demand through marketing - convey a compelling reason why people should buy a product or service from the firm
(ix) Segment the market - Broad segments typically are geographic, demographic, psychographic (Values, Attitudes, Lifestyles) and behavioral. Then decide firm's market focus: Niche within a segment, segment, multiple segments or mass market.
(x) Market positioning - create an image in the market that your product is the best and grab market share
(xi) Brand Equity is the added value a brand image gives to a product or service
(xii) To set prices effectively, follows these steps: (1) know the firm's strategic market objective, (2) determine demand, (3) estimate costs, (4) analyze competitor's costs, prices and offers, and (5) pick a compelling pricing strategy - including pricing method and final price.
(xiii) Lower perceived cost; Increase perceived value
(xiv) Bear in mind the Product's Life Cycle and Buyer Readiness & Adoption process
(xv) Integrated marketing communication: AIDA - Attention, Interest, Desire to own, Action to Buy
(xvi) Use Net Promoter Score (NPS) - 'how likely are you to recommend the brand to your friend?" - to drive growth
(xvii) Beware social media wild fires but experiment with them
(xvii) Optimize marketing mix for B2B and B2C
(xviii) Earn customer loyalty through transfer of intellectual capital that positions the customer to win
(xix) 5 Ms of advertising - Mission, Money, Media, Message, Measurement
(xx) Cause related marketing can help local firms differentiate their offering and win
Dr DP
This class gave a great foundation to the discipline of marketing and marketing strategy. This course is designed to help students connect business strategy to marketing, think like a CEO, create superior value for customers and build something new.
We began with product strategy and examined ways to understand the broader market through market surveys. Market segmentation techniques help to analyze markets and identify the most attractive segments. Finally, we learned to create a marketing plan, figuring out how to strategically market the product or service using brand positioning, brand equity, pricing, elements of marketing communication and state-of-art social media tools.
I now understand the role and importance of marketing - an art and a science - in the firm, and balance costs and benefits to customers.
Takeaways include:
(i) Role of marketing in a firm
Identify needs, wants, interests of target customers
satisfy more effectively and efficiently than competitors
while preserving or enhancing consumers' and society's long-term well-being
(ii) 4 key marketing dimensions - Performance (&quality), People, Planet, Price
While competing on product performance and price metrics, seek also to balance people (social cost) and planet (environmental cost) needs.
(iii) marketing begins with understanding the customer - research the market and offer superior customer value
(iv) marketing is an art and a science
(v) It is not just about parading the features in front of the customer. To persuade:
Know the firm's own market offering + next best alternative + how the offering delivers superior value to customers vs next best alternative
(vi) There are 4 ways to conduct a survey but beware the limitations. Don't just go by what people say but by what they do - check if they will put the money where their mouth is eg. GE green bulb fiasco
(vii) Know the buyer's motivations and understand how to motivate them (this is the foundation for any marketing strategy). People buy anticipated satisfactions, not just the products. The primary underlying thought in buyers’ minds is this: “What’s in it for me?” Remind buyers of some key satisfactions they want to achieve. Promise you can make it happen. Then Highlight the key features of the product or service
(viii) Generate demand through marketing - convey a compelling reason why people should buy a product or service from the firm
(ix) Segment the market - Broad segments typically are geographic, demographic, psychographic (Values, Attitudes, Lifestyles) and behavioral. Then decide firm's market focus: Niche within a segment, segment, multiple segments or mass market.
(x) Market positioning - create an image in the market that your product is the best and grab market share
(xi) Brand Equity is the added value a brand image gives to a product or service
(xii) To set prices effectively, follows these steps: (1) know the firm's strategic market objective, (2) determine demand, (3) estimate costs, (4) analyze competitor's costs, prices and offers, and (5) pick a compelling pricing strategy - including pricing method and final price.
(xiii) Lower perceived cost; Increase perceived value
(xiv) Bear in mind the Product's Life Cycle and Buyer Readiness & Adoption process
(xv) Integrated marketing communication: AIDA - Attention, Interest, Desire to own, Action to Buy
(xvi) Use Net Promoter Score (NPS) - 'how likely are you to recommend the brand to your friend?" - to drive growth
(xvii) Beware social media wild fires but experiment with them
(xvii) Optimize marketing mix for B2B and B2C
(xviii) Earn customer loyalty through transfer of intellectual capital that positions the customer to win
(xix) 5 Ms of advertising - Mission, Money, Media, Message, Measurement
(xx) Cause related marketing can help local firms differentiate their offering and win
Dr DP
Saturday, December 15, 2012
Role of Government in Market Economy
JWI 515 Managerial Economics, week10 summary, 12/15
The role of government in business and life became clearer to me from this week's learning. Due to externalities, society needs government regulation and public policy to balance public and private interests and promote economic growth. Government must also fund things that are in society's best interest overall.
Dr DP
JWI 515 Managerial Economics, Week10 Summary, 12/15
*******************************************************************
(1) Externalities - unintended effect on third party that is not directly involved in a transaction.
Positive externality: education => Pigovian subsidies or grants paid
Negative externality: Oil spill => Pigovian Sin Taxes used to correct it; encourage main actors to find less harmful ways to operate
Key question: How to measure the full social cost associated with an economic activity ?
Governments make externality a part of the decision making process.
(2) Private goods are exclusionary - when you use them, other people cannot eg. food, clothing
Public goods are non-exclusionary - everyone can use them whether or not they paid for them eg. national defense, police, fire protection, public TV & radio
Free rider problem - consumers avoid paying full share of cost of public good.
(3) If at least one person is better off and no one is worse off - such public projects are Pareto satisfactory.
When all such projects are done, it is Pareto optimal.
(4) Marginal social cost - cost of production + marginal external costs not directly borne by producers or consumers.
Marginal social benefits - sum of marginal private benefits + marginal external benefits.
Social benefits maximized when MSBs across all programs equals MSCs across all programs.
For production of public goods and services, Marginal social benefit must exceed Marginal social cost.
(5) Market failure - one or more criteria for perfect market is violated.
- Not enough buyers and sellers
- product heterogeniety
- entry and exit of market not free
- imperfect information sharing:cost, price, product quality information not known by all buyers and all sellers
- inadequate competition leading to deadweight loss
(6) Corporate Social Responsibility (CSR) is an alternative to government action that could also be profitable for firms.
The role of government in business and life became clearer to me from this week's learning. Due to externalities, society needs government regulation and public policy to balance public and private interests and promote economic growth. Government must also fund things that are in society's best interest overall.
Dr DP
JWI 515 Managerial Economics, Week10 Summary, 12/15
*******************************************************************
(1) Externalities - unintended effect on third party that is not directly involved in a transaction.
Positive externality: education => Pigovian subsidies or grants paid
Negative externality: Oil spill => Pigovian Sin Taxes used to correct it; encourage main actors to find less harmful ways to operate
Key question: How to measure the full social cost associated with an economic activity ?
Governments make externality a part of the decision making process.
(2) Private goods are exclusionary - when you use them, other people cannot eg. food, clothing
Public goods are non-exclusionary - everyone can use them whether or not they paid for them eg. national defense, police, fire protection, public TV & radio
Free rider problem - consumers avoid paying full share of cost of public good.
(3) If at least one person is better off and no one is worse off - such public projects are Pareto satisfactory.
When all such projects are done, it is Pareto optimal.
(4) Marginal social cost - cost of production + marginal external costs not directly borne by producers or consumers.
Marginal social benefits - sum of marginal private benefits + marginal external benefits.
Social benefits maximized when MSBs across all programs equals MSCs across all programs.
For production of public goods and services, Marginal social benefit must exceed Marginal social cost.
(5) Market failure - one or more criteria for perfect market is violated.
- Not enough buyers and sellers
- product heterogeniety
- entry and exit of market not free
- imperfect information sharing:cost, price, product quality information not known by all buyers and all sellers
- inadequate competition leading to deadweight loss
(6) Corporate Social Responsibility (CSR) is an alternative to government action that could also be profitable for firms.
Mass Communications with game changing Social Media
JWI 518 Marketing in a Global Environment, Week10 Summary, 12/15/12
We learned a lot this week beginning with the goal of mass communications which is to grow the business and create millions of satisfied customers (JWI 518, week10 Lecture1). With Jack Welch's urging in the videos, and with the DQ, we probed the use of game changing social media in achieving marketing objectives. It is all about making customers win. Customer loyalty can be earned by constantly delivering intellectual capital that positions the customer with a unique competitive advantage over the rivals. With 4Ps of marketing and 5Ms of advertising decision making, any product that we come across in our lives can be analyzed to understand target customers and how they are being persuaded to make the purchase.
this training transforms me to think in new ways
Dr DP
JWI 518 Marketing in a Global Environment, Week10 Summary
************************************************************
I. Mass communication (Kotler):
***********************************
Advertising - mission, money, message, media, measurement
Sales Promotion - short term incentive tools to stimulate demand, motivate sales reps
Events & Experiences - become a part of special and personal moments of customers in target market
PR & Publicity - public awareness of brand and image
II. Case study: Molson Canada Social Media Marketing, Qureshi
****************************************************************************
Social media marketing campaign of Molson beer company was path breaking but ran into trouble. Stakeholders had different views, raised diverse concerns and Molson faced bad publicity.
III. Kaplan et al: Social Media
*********************************
Mobile social media will drive the internet going forward.
Businesses should recognize this trend and not miss this train.
IV. Welch video - Toyota
*****************************
How did Toyota handle their marketing and PR during the crisis?
Toyota dropped the ball in PR aspect
- not forthright in comments - did not come clean
- not clear about what happened
- did a lousy job: lost some of the feeling of trust in brand
But after hearings, MEA Culpas, marketing of product around trust, response to consumers has been nothing but sensational. In March Toyota up 35% as a result of terrific candid consumer focused marketing building on the trust built over years
Lesson:
There are no secrets in business or anything.
Define yourself before other define you.
Put yourself out there; make the case - what happened, why it happened, what you are doing about it to fix it.
This is the role of every leader in a major corporation who gets into trouble
V. Welch video - Internet marketing
*****************************************
Facebook, Twitter etc - Try them; get wet in them; experiment in new technologies; don't get behind the 8 ball. Book tour; when advertised on twitter, friends came; people followed us. So succeeded in a very small marketing expt.
In corporations there are all kinds of new techniques to be tried. New technology has changed the marketing game - can't stay out of it. Test the new technologies - where they will work and where they won't. Stay fresh with the new technologies.
VI. Welch & Welch - Is customer loyalty dead?
*****************************************************
It is not dead but is hell of a lot different than in the old days. Winning through tickets to ball game, nice dinner, disney world tickets - those days are gone. Cost, quality and service needs are typical way of dealing with customer demand.
But these are a given in the internet transparent world and not sufficient with internet transparent pricing and global competition. Your job - make yourself intellectually indispensable; be a real partner driving his success. Deliver intellectual capital. It is all about making customers win. Improve productivity through-put, new product ideas, and
give constant intellectual stimulation.Think about the customers competitors and drive the customer constantly into winning position eg. a new idea, transfer sales people. Give competitive advantage to customers no one else can.
Think: How do I make them win ? Enter into a relationship with the customer.
VII. JWI 518 Week10 Lecture1 - Mass Communications
****************************************************************
Goal: Grow the business and create millions of satisfied customers
5Ms of advertising decision making
****************************************
(1) Mission
*************
What is the Goal of advertising campaign? What is the target market ? what stage is the product in the life cycle?
Introduce a new product ? Remind viewers of brand image? Reassure customers of great choice ? Support other marketing channels ? Just sell the product ?
(2) Money
*************
Marketing capital ie advertising budget; mix of media; ad frequency to result in successful sales.
(3) Media
************
Target market; budget per media; creative balance of needs and resources; deliver greatest impression for least amount of money. TV can deliver high impact emotional message. Internet reaches younger demographics better (although Tim's post suggests social network users are typically middle aged)
(4) Message
****************
- base it on specific logical and emotional satisfactions customers want
- people want hope; hope that they can change their lives for the better. You can get their attention by appealing to their hopes and dreams
- remind buyers of the satisfactions they want, promise to satisfy them, then use product features to prove you can deliver
- Sell the sizzle along with the steak
Don't just parade the product features.
Focus on "perceived value": more the customer will receive more is the perceived value eg: 2 for price of 1
Influence Perception of value through quantity, quality, price, additional value, guarantees, social value
- Repeat, Repeat, Repeat: Repetition is critical
- medium and message are interrelated
(5) Measurement
********************
Measure advertising effectiveness - frequency, reach, circulation, eyeballs.
Know where advertising budget is getting wasted.
Figure out where you have the greatest ability to measure success of ad.
VIII. DQ1: Toyota Social Media campaign - Facebook and Twitter analysis
*************************************************************************************
Toyota's social media presence allows it to get closer to customers, communicate brand image and be ready for rapid crisis communications.
IX. Assignment - Marketing Plan
**************************************
Great drill to bring all elements of marketing together
We learned a lot this week beginning with the goal of mass communications which is to grow the business and create millions of satisfied customers (JWI 518, week10 Lecture1). With Jack Welch's urging in the videos, and with the DQ, we probed the use of game changing social media in achieving marketing objectives. It is all about making customers win. Customer loyalty can be earned by constantly delivering intellectual capital that positions the customer with a unique competitive advantage over the rivals. With 4Ps of marketing and 5Ms of advertising decision making, any product that we come across in our lives can be analyzed to understand target customers and how they are being persuaded to make the purchase.
this training transforms me to think in new ways
Dr DP
JWI 518 Marketing in a Global Environment, Week10 Summary
************************************************************
I. Mass communication (Kotler):
***********************************
Advertising - mission, money, message, media, measurement
Sales Promotion - short term incentive tools to stimulate demand, motivate sales reps
Events & Experiences - become a part of special and personal moments of customers in target market
PR & Publicity - public awareness of brand and image
II. Case study: Molson Canada Social Media Marketing, Qureshi
****************************************************************************
Social media marketing campaign of Molson beer company was path breaking but ran into trouble. Stakeholders had different views, raised diverse concerns and Molson faced bad publicity.
III. Kaplan et al: Social Media
*********************************
Mobile social media will drive the internet going forward.
Businesses should recognize this trend and not miss this train.
IV. Welch video - Toyota
*****************************
How did Toyota handle their marketing and PR during the crisis?
Toyota dropped the ball in PR aspect
- not forthright in comments - did not come clean
- not clear about what happened
- did a lousy job: lost some of the feeling of trust in brand
But after hearings, MEA Culpas, marketing of product around trust, response to consumers has been nothing but sensational. In March Toyota up 35% as a result of terrific candid consumer focused marketing building on the trust built over years
Lesson:
There are no secrets in business or anything.
Define yourself before other define you.
Put yourself out there; make the case - what happened, why it happened, what you are doing about it to fix it.
This is the role of every leader in a major corporation who gets into trouble
V. Welch video - Internet marketing
*****************************************
Facebook, Twitter etc - Try them; get wet in them; experiment in new technologies; don't get behind the 8 ball. Book tour; when advertised on twitter, friends came; people followed us. So succeeded in a very small marketing expt.
In corporations there are all kinds of new techniques to be tried. New technology has changed the marketing game - can't stay out of it. Test the new technologies - where they will work and where they won't. Stay fresh with the new technologies.
VI. Welch & Welch - Is customer loyalty dead?
*****************************************************
It is not dead but is hell of a lot different than in the old days. Winning through tickets to ball game, nice dinner, disney world tickets - those days are gone. Cost, quality and service needs are typical way of dealing with customer demand.
But these are a given in the internet transparent world and not sufficient with internet transparent pricing and global competition. Your job - make yourself intellectually indispensable; be a real partner driving his success. Deliver intellectual capital. It is all about making customers win. Improve productivity through-put, new product ideas, and
give constant intellectual stimulation.Think about the customers competitors and drive the customer constantly into winning position eg. a new idea, transfer sales people. Give competitive advantage to customers no one else can.
Think: How do I make them win ? Enter into a relationship with the customer.
VII. JWI 518 Week10 Lecture1 - Mass Communications
****************************************************************
Goal: Grow the business and create millions of satisfied customers
5Ms of advertising decision making
****************************************
(1) Mission
*************
What is the Goal of advertising campaign? What is the target market ? what stage is the product in the life cycle?
Introduce a new product ? Remind viewers of brand image? Reassure customers of great choice ? Support other marketing channels ? Just sell the product ?
(2) Money
*************
Marketing capital ie advertising budget; mix of media; ad frequency to result in successful sales.
(3) Media
************
Target market; budget per media; creative balance of needs and resources; deliver greatest impression for least amount of money. TV can deliver high impact emotional message. Internet reaches younger demographics better (although Tim's post suggests social network users are typically middle aged)
(4) Message
****************
- base it on specific logical and emotional satisfactions customers want
- people want hope; hope that they can change their lives for the better. You can get their attention by appealing to their hopes and dreams
- remind buyers of the satisfactions they want, promise to satisfy them, then use product features to prove you can deliver
- Sell the sizzle along with the steak
Don't just parade the product features.
Focus on "perceived value": more the customer will receive more is the perceived value eg: 2 for price of 1
Influence Perception of value through quantity, quality, price, additional value, guarantees, social value
- Repeat, Repeat, Repeat: Repetition is critical
- medium and message are interrelated
(5) Measurement
********************
Measure advertising effectiveness - frequency, reach, circulation, eyeballs.
Know where advertising budget is getting wasted.
Figure out where you have the greatest ability to measure success of ad.
VIII. DQ1: Toyota Social Media campaign - Facebook and Twitter analysis
*************************************************************************************
Toyota's social media presence allows it to get closer to customers, communicate brand image and be ready for rapid crisis communications.
IX. Assignment - Marketing Plan
**************************************
Great drill to bring all elements of marketing together
Sunday, December 9, 2012
Use right Marketing Mix, drive growth with NPS, manage Social Media wildfires
JWI 518 Marketing in a Global Environment, Week9 Summary, 12/10/12
My own approach to dealing with social media wild fires:
(1) Social Media wildfire control
**********************************
This week's learning has changed my view on social media completely. I used to think that the value and impact of social media is overblown but now stand educated about how social media is a fundamental shift in the way business will be done going forward. Those firms that embrace this new phenomenon will see it as wind behind their backs while those that ignore it will see damage from wildfires. We learned the importance for firms of having a social media strategy along with a Chief Social Media Officer (CSMO) to continuously monitor social media, recognize positive comments posted by the community, react quickly to customer concerns and address fires before they become wild fires raging without control.
(2) Use NPS to drive growth
******************************
The rationale behind the effectiveness of Net promoter score (NPS) was revealing - promoters have less complaints and are more loyal; detractors complain more and, with less loyalty to the firm, are likely to defect when new opportunity arises.
(3) Optimize marketing mix for B2B & B2C
**********************************************
The lecture materials and Jack Welch video further explained the fundamental differences between B2B and B2C spaces and how to optimize the marketing mix for each. The bottom line is firms need to continually monitor where, when and how to influence those who have the power to make the purchasing decision.
I now understand why "Intel Inside" marketing campaign will work for Intel but not for IBM, though both make semiconductor products that are found everywhere. Intel is a B2C company primarily and so such a campaign matters. IBM on the other hand is focused on B2B and the campaign is rightly tuned to the few decision makers that truly decide the purchase behaviors.
this is great stuff
Dr DP
Social media platforms allow consumers to share their perspectives on brands. However, marketers may experience social media "wildfires" of inaccurate, false, or misleading information about their brand. What steps can marketers integrate to control these wildfires?
Great post by my class mate AJ:
Great post by my class mate AJ:
- Make the resolution apart of the social media strategy.
- Continue to monitor social media sites on a frequent basis.
- Be prepared for common points of view that may arise.
- Respond with correct information and manage conflict.
- Don't ignore negative feedback and answer immediately.
- Show the entire social media site and your customers that you care.
- Direct the complaining customer to an email address or phone contact.
- Find out if it is possible to remove any negative comments.
http://mashable.com/2010/02/21/deal-with-negative-feedback/
"The first step to dealing with negative feedback is determining what type of feedback you've received," straight problems, constructive criticism, merited attack, and trolling/spam. The next step is to determine the necessary response. "The number one rule when responding to all criticism, even the negative type, is to stay positive."
For straight problems, steps to be taken to fix it and customers should be notified of them. Even if there is not actually a problem, but a customer doesn't agree with something, you should explain why something is done the way it is. For constructive criticism, you will build loyalty and trust with consumers by responding with a positive and thankful message. For merited attacks, you should respond promptly and positively to assure the consumer that steps are being taken to correct their problem. Lastly, for trolling/spam, you should not respond and you should ignore this type of negative feedback.
My own approach to dealing with social media wild fires:
Learn from the truth to make the firm strong
***************************************************
First, I will look for elements of truth in the social media "wildfire" and learn from them to make the firm stronger. In JWI 510, Business Ethics & Communication class, we learned how to handle whistle blowers, deal with a crisis maturely and communicate a path to resolution effectively by leading from the front. The steps I learned are shown below. I would use these same steps to correct mis-steps, if any, by the firm.
Deal quickly and firmly with slander
*******************************************
Second, with the help of the corporate Chief Social Media Officer (CSMO), as you had suggested, I will be on the lookout for wildfires to react quickly, round up the list of inaccurate, false or misleading statements, and have the CSMO ***quickly*** send the disgruntled individuals clarifications along with a thinly veiled warning that this kind of behavior needs to stop. If damage to the brand is imminent, I will define the problem statement and offer an explanation in the corporate website to communicate to stake holders the firm's position on the matter - in a thoughtful, researched, considered way. If the wildfire still does not stop, I will have the legal team send a "cease and desist" warning to those who are propagating them. If no choice is left, I will initiate legal action against the offending individuals to set an example for the future and preserve brand image and brand equity. Even in this scenario, the crisis management framework we learned in JWI 510 gives a list of actions that can be taken step by step to take control rather than be defined and controlled by those outside the firm.
1. Jack Welch's Five Principles of Crisis Management
****************************************************************
(i) Assume the problem is much bigger than first - get out up front; don't let others define you
(ii) Assume there are no secrets - don't hide and dribble information out
(iii) Media will portray the situation in worst possible flight - it's their job
(iv) There will be blood on the floor - leaders, employees will be hurt
(v) Company will be stronger than ever - think not just of this crisis, but think around the corner of other things that could go wrong; put safeguards in place now
2. Anticipate Potential issues (Leader's job is to anticipate change; JWI 510, Lecture1)
******************************************************************************************************
Anticipate & Plan for the unexpected (Jimmy Cagle, pg23)
Establish Crisis Management Team (Weiner, Rule5)
Issue Manual - critical issues; company's position on each; forecast consequences; detailed communication responses
****************************************************************
(i) Assume the problem is much bigger than first - get out up front; don't let others define you
(ii) Assume there are no secrets - don't hide and dribble information out
(iii) Media will portray the situation in worst possible flight - it's their job
(iv) There will be blood on the floor - leaders, employees will be hurt
(v) Company will be stronger than ever - think not just of this crisis, but think around the corner of other things that could go wrong; put safeguards in place now
2. Anticipate Potential issues (Leader's job is to anticipate change; JWI 510, Lecture1)
******************************************************************************************************
Anticipate & Plan for the unexpected (Jimmy Cagle, pg23)
Establish Crisis Management Team (Weiner, Rule5)
Issue Manual - critical issues; company's position on each; forecast consequences; detailed communication responses
Issue Audit - prioritize list of critical issues that make company vulnerable (Wiener, pg2)
Communication Audit - ensure communication plan is current; responsible people & contacts list; list criteria to make decisions
Communication Plan - standardized format; plan information flow; care for the team (Jimmy Cagle, pg 23)
Communication Audit - ensure communication plan is current; responsible people & contacts list; list criteria to make decisions
Communication Plan - standardized format; plan information flow; care for the team (Jimmy Cagle, pg 23)
Test the plan - simulate crisis
3. Define Problem Statement
3. Define Problem Statement
**********************************
Threat to organization's brand crediibility, reputation, finance, operations, ability to recruit talent.
Define the problem before others in media define it for you.
Go out in front of the crisis.
4. Understand nature, extent, root cause of the problem
******************************************************************
Go out in front of the crisis.
4. Understand nature, extent, root cause of the problem
******************************************************************
Assume it is bigger in magnitude than first reported (Jack Welch Crisis Communication Step 1)
Research - Find facts, check, analyze - beware of confirmation bias; take balanced unbiased view
Focus Team on finding root cause - no blame game
How did this crisis come about ?
Assume no secrets (Jack Welch Crisis Communication Step 2)
Research - Find facts, check, analyze - beware of confirmation bias; take balanced unbiased view
Focus Team on finding root cause - no blame game
How did this crisis come about ?
Assume no secrets (Jack Welch Crisis Communication Step 2)
- If there are multiple sides to the story, which facts to be made public ?
Open lines of communication 2-way communication channels to get feedback (Michael Epstein, pg30)
Be open to listening - Go beyond good intentions, announcements & action plans
Open lines of communication 2-way communication channels to get feedback (Michael Epstein, pg30)
Be open to listening - Go beyond good intentions, announcements & action plans
Develop sense of momentum & scale of the problem
5. React with an effective response & crisis communication plan
****************************************************************************
Communicate, Communicate, Communicate - to Internal employees, Affiliate stake holders, External Audience
*********************************************************************************************************************************
Dispel fear of unknown with clear, concise, calculated communication
*********************************************************************************
Crisp messaging
5. React with an effective response & crisis communication plan
****************************************************************************
Communicate, Communicate, Communicate - to Internal employees, Affiliate stake holders, External Audience
*********************************************************************************************************************************
Dispel fear of unknown with clear, concise, calculated communication
*********************************************************************************
Crisp messaging
- what you know? what are you doing ? why you are doing it? what is coming next; Get everyone on board (Jack Welch video)
- In First Response, Keep perspective (Weiner, pg3)
- Acknowledge what happened; "Yes I am aware of the problem; Here is our initial assessment; We are actively working on a remedy"
- In First Response, Keep perspective (Weiner, pg3)
- Acknowledge what happened; "Yes I am aware of the problem; Here is our initial assessment; We are actively working on a remedy"
- Take Swift and timely actions - give frequent hourly/daily/weekly updates as needed
- Use Multiple channels and all communication tools - create website, blogs, twitter, articles
- Repeat relentlessly
- Empathize & Take responsibility (Wiener, Rule3) - if appropriate, Acknowledge wrongdoing with legal counsel
Explain extenuating circumstances
Apologize & Express Remorse
Share the bad news with the good news (Michael Epstein, pg 32)
Express Resolve to protect those who rely on you & trust your brand
Expect to be portrayed by media in worst possible light (Jack Welch crisis communication, principle 3)
Make suitable/Dramatic changes in organization as needed (there will be changes- Jack Welch crisis communication principle 4)
Maintain regular communications throughout the recovery & turn around (Michael Espstein, pg 34)
6. Make your company stronger than ever (Jack Welch crisis communication principle 5)
*******************************************************************************************************
Become a better company through crisis - Prevention is best strategy; prevent recurrence
Importantly, Think around the corner about new crisis that could come (Jack Welch video)
Put safeguards in place to protect the company
Take every whistleblowers complaint seriously
Encourage a trusting and candid culture - allow employees to bring up right cases through right channels to clean up quickly
- Use Multiple channels and all communication tools - create website, blogs, twitter, articles
- Repeat relentlessly
- Empathize & Take responsibility (Wiener, Rule3) - if appropriate, Acknowledge wrongdoing with legal counsel
Explain extenuating circumstances
Apologize & Express Remorse
Share the bad news with the good news (Michael Epstein, pg 32)
Express Resolve to protect those who rely on you & trust your brand
Expect to be portrayed by media in worst possible light (Jack Welch crisis communication, principle 3)
Make suitable/Dramatic changes in organization as needed (there will be changes- Jack Welch crisis communication principle 4)
Maintain regular communications throughout the recovery & turn around (Michael Espstein, pg 34)
6. Make your company stronger than ever (Jack Welch crisis communication principle 5)
*******************************************************************************************************
Become a better company through crisis - Prevention is best strategy; prevent recurrence
Importantly, Think around the corner about new crisis that could come (Jack Welch video)
Put safeguards in place to protect the company
Take every whistleblowers complaint seriously
Encourage a trusting and candid culture - allow employees to bring up right cases through right channels to clean up quickly
Analyze and Mitigate Risks
JWI 515 Managerial Economics, Week9 Summary, 12/10/12
This week we learned about the many types of risks firms can face and what a CEO can do to prepare and come out on top. This is one of the most exciting weeks of learning for me as the insights are worth their weight in pure gold. The lessons learned here will help me guide my organization and firm to safe waters through careful research and considered judgment. I can apply these principles practically every day as I take high stakes decisions all the time in technology development. By going through the checklist below, I can immunize myself from making careless errors in risk evaluation and judgment.
Special thanks to Lemma for connecting risk analysis with the Art of War. This is brilliant !
The discussions with classmates have helped me grow and widen my mind set.
Dr DP
JWI 515 Managerial Economics, Week9 Summary, 12/10/12
Types of Risk
**************
(1) Economic Risk - chance of loss when all possible outcomes and their probabilities are not known
(2) Managerial Risk - chance of loss stemming from a managerial decision
(3) Market Risk - a portfolio of investments could lose money due to financial market swings, interest rate hike
(4) Inflation Risk - general rise of prices lower the value of investments
(5) Currency Risk - changes in domestic currency value of foreign profits
(6) Expropriation Risk - government abroad can seize firm's property
Risk Take Down options for a firm include:
*******************************************
(1) Anticipate change in marketplace and guide the firm to adapt - lower business risk
(2) Use decision tree with risk probabilities - lower economic risk
(3) Beware the mind-traps (HBR, 1998) in decision making, estimating, forecasting from anchoring, over confidence, confirming evidence, status quo, sunk cost, framing, prudence, recallability - lower business risk
(4) Beware in-built biases from the DiSC types of the CEO, the leadership and the organization - lower business risk
(5) Train employees with business conduct guidelines (BCG) - lower business risk
(6) Tighten internal controls and compliance - lower business risk
(7) Insurance - lower market risk, credit risk
(8) Diversification - lower market risk, liquidity risk
(9) Speed (Sense and respond to changing environment quickly) - lower market risk through agility
(10) Know the strengths and weaknesses of rivals and also the firm - lower business risk
(11) Beware of 6 sins of M&A (Welch, 2005) - lower cultural risk
(12) Keep up with national and global trends - lower inflation risk, currency risk, derivative risk
(13) Watch influential people and government policies closely - lower government risk, expropriation risk
(14) Learn from thought leaders such as Sun Tzu (Art of War)
Sunday, December 2, 2012
Develop an Integrated Marketing Strategy
JWI 518 Marketing in a Global Environment, week8 summary, 12/2/12
This was a challenging week with numerous core marketing concepts to learn and think about. We learned how to come up with a marketing strategy to target key customer segments, taking into account stages in a product life cycle and consumer adoption process. I recognize that the role of an integrated marketing communications plan, inclusive of social media tools, is to take key and consistent messages to customers such that their brand perception, preferences and purchase decisions can be influenced positively.
These principles work for me at multiple levels. I can apply them in my current role within my organization to market new ideas and influence adoption. As I take on broader leadership roles, I believe these principles will help me work with the marketing experts more effectively.
Dr DP
JWI 518 Marketing in a Global Environment, Week8, Summary, 12/2/12
(I) Kotler, Chapter 10: Setting Product Strategy and Marketing the Life Cycle
**************************************************************************************
When planning market offering, think through 5 levels of the product
core benefit, basic product, expected product, augmented product, potential product
(II) Kotler, Chapter 15: Designing and Managing Integrated Marketing Channels
********************************************************************************************
Effective marketing communications requires 8 steps:
*************************************************************
Identify target audience, Determine objectives, Design the communications, Select the communication channels, establish total communications budget, decide on communications mix, measure results, manage integrated marketing communications process
There are 5 Stages of buyer readiness
*********************************************
Awareness, Comprehension, Conviction, Order, Reorder
Tools to influence purchase decision are:
Advertising & publicity - decreases with time
Sales promotion; Personal selling - increase with time
(III) Chang, Obama and the Power of Social Media and Technology
*****************************************************************************
Technology is a transformative force. Get people engaged in the process on a large scale by focusing on:
Message, Mobile, Money; Respect, empower, inclusivity. Internet allows openness,inclusiveness, self-organizing, grassroots leadership.
(IV) Week 8 | Lecture 1: Product Strategy: Marketing Across the Adoption Process and Life Cycle
***************************************************************************************************************
Goal: Devise a product strategy for marketing across all the stages of a product lifetime
*****
Challenge: Marketing challenged by constant changes in product life cycle, customers, technologies
*********
Cost, tools, messages:
***************************
Balance cost vs expected results at every stage of the game
Select tools that offer best chance of reaching consumers
Select messages that will create the greatest persuasive impact
(i) Product Adoption Process:
**********************************
Awareness - that brand exists; word-of-mouth
Interest - find out more; offers a physical, mental, emotional satisfaction
Evaluation - features, benefits, costs vs alternatives
Trial - sample, test drive, store visit
Adoption - customer buys product; speed of adoption depends on relative advantage, much lower cost, cool, budget, public opinion
(ii) Customer innovativeness categories
**********************************************
Innovators (2.5%)
Early adopters (13.5%)
Emotion driven motivations & messages - desire to be first; exclusive
Logical motivations & messages - leg up from competitive advantage at cutting-edge
Early majority (34%)
Late majority (34%)
Laggards(16%)
(iii) Marketing messages must fit with the key motivators that drive someone to buy
***************************************
eg. Early adopters
Emotional messages - use TV & internet advertising with images of color, sound, music to arouse desire; laugh & look cool
Logical messages - explain product's advantages from features eg. business success & life success
Brand positioning -eg. Blackberry: indispensable tool that lets you live life with greatest flexibility; emblem of professional success; good value
(iv) Product Life Cycle
**************************
Bell Shaped: Introduction, Growth, Maturity, Decline, Withdrawal
Growth Slump Maturity eg. coffee makers
Cycle Recycle Pattern eg. drugs
Scalloped Return eg. baking soda
(V) Week 8 | Lecture 2: Integrated Marketing Communication: Optimizing the Marketing Mix
***********************************************************************
Know how, when and where to market products in order to make the greatest impact.
Marketing Communications (MarCom) campaign Goal: increase sales; drive brand awareness etc
**************************************************************
Deliver Marketing messages & Create brand image
**********************************************************
=> deliver through effective marketing campaign - different sources of integrated marketing communications
=> create the ideas and feelings customers have about a brand - brand image
Move buyers through four AIDA stages of decision making
*******************************************************************
=> Attention: Broad awareness with mass media like TV, radio, magazines, internet
=> Interest: features, benefits, endorsements, ratings, price eg. print, mail, personal contact with influencers
=> Desire to own: Transformational appeals to emphasize strong human emotions eg. love, pride, joy, humor, fear, coolness
=> Action to buy: Logical & emotional motivators; coupons, samples, personal selling, specials; time pressure; expiration dates, limited time offers
(VI) When to Market
*******************
Buyer Readiness:
***********************
StageI (Product introduction) - ramp up brand awareness through mass media eg. TV, internet, print
StageII (AIDA) - Additional information, emotional seduction eg. direct mail, personal sellings, sales promos, reminder advertising such as "got milk?"
Life Cycle of Product:
**************************
Introduction - Brand awareness
Growth - heavy advertising to build brand loyalty
Maturity - less advertising; more sales promos
Decline - advertising and promos decreased to low maintenance levels
Where to Market
********************
Advertising: TV, radio, magazines, newspapers, billboards, packaging, brochures, posters, fliers, inserts, online, search engines
Sales promos: contests, samples, exhibits, coupons, rebates, gifts, premiums, trade shows, demsos, special offers
Events: Sponsorships, entertainment and sports events, festivals, cause-related events, factory tours, trips.
Public Relations and Publicity: Press kits and releases, media stories or mentions, speeches, seminars, charitable donations, community events, lobbying, annual reports, in-house publications, articles in the media by company executives.
Direct and Interactive Marketing: Catalogs, direct mail, telemarketing, shopping channels and sites, online.
Word-of-Mouth Marketing: Person-to-person communications, chat rooms, consumer reviews, and recommendations.
Personal Selling: Sales presentations and meetings, in-store samples, contact from company representatives, fairs and tradeshows, door-to-door, online.
(VII) Integrated Marketing Mix example - Subway
********************************************************
Customer receives same basic message and brand promise - healthy, delicious sandwich vs less healthy McDonalds or KFC
Advertise: TV, radio, billboards, fliers to drive people to its website which features videos and health information
Sales promos: newspaper inserts with coupons & specials; in store promos and specials
Events: NASCAR racing sponsor, Little League baseball, AHA heart walk
PR: emphasize relative healthiness of sandwiches eg Jared ad
Word-of-Mouth marketing: Oprah, Larry King Live; online chat rooms, blogs
Narrower marketing mix - Chipotle
**********************************
Advertise: word of mouth primarily; online, print, billboards to promote contest
Sales Promos: $10K promo contest for customer with best idea for TV ad
(VIII) Net Promote Score (NPS)
**************************
The concept of NET promoter score (NPS) is insightful. The question "how likely are you to recommend this brand to your friend", and asking customers to rate on a scale of 1-10, is simple but insightful and brilliant. By looking at the difference between the fraction of "promoter" customers who are scoring favorably 9-10 and the "detractors" who score 0-6, the NPS is calculated. Progressive leaders should drive not only profits but also NPS score to ensure the profits are "good" and sustainable. "Bad profits" are those that come at the expense of bad NPS ratings and they can kill a firm in the long run.
This was a challenging week with numerous core marketing concepts to learn and think about. We learned how to come up with a marketing strategy to target key customer segments, taking into account stages in a product life cycle and consumer adoption process. I recognize that the role of an integrated marketing communications plan, inclusive of social media tools, is to take key and consistent messages to customers such that their brand perception, preferences and purchase decisions can be influenced positively.
These principles work for me at multiple levels. I can apply them in my current role within my organization to market new ideas and influence adoption. As I take on broader leadership roles, I believe these principles will help me work with the marketing experts more effectively.
Dr DP
JWI 518 Marketing in a Global Environment, Week8, Summary, 12/2/12
(I) Kotler, Chapter 10: Setting Product Strategy and Marketing the Life Cycle
**************************************************************************************
When planning market offering, think through 5 levels of the product
core benefit, basic product, expected product, augmented product, potential product
(II) Kotler, Chapter 15: Designing and Managing Integrated Marketing Channels
********************************************************************************************
Effective marketing communications requires 8 steps:
*************************************************************
Identify target audience, Determine objectives, Design the communications, Select the communication channels, establish total communications budget, decide on communications mix, measure results, manage integrated marketing communications process
There are 5 Stages of buyer readiness
*********************************************
Awareness, Comprehension, Conviction, Order, Reorder
Tools to influence purchase decision are:
Advertising & publicity - decreases with time
Sales promotion; Personal selling - increase with time
(III) Chang, Obama and the Power of Social Media and Technology
*****************************************************************************
Technology is a transformative force. Get people engaged in the process on a large scale by focusing on:
Message, Mobile, Money; Respect, empower, inclusivity. Internet allows openness,inclusiveness, self-organizing, grassroots leadership.
(IV) Week 8 | Lecture 1: Product Strategy: Marketing Across the Adoption Process and Life Cycle
***************************************************************************************************************
Goal: Devise a product strategy for marketing across all the stages of a product lifetime
*****
Challenge: Marketing challenged by constant changes in product life cycle, customers, technologies
*********
Cost, tools, messages:
***************************
Balance cost vs expected results at every stage of the game
Select tools that offer best chance of reaching consumers
Select messages that will create the greatest persuasive impact
(i) Product Adoption Process:
**********************************
Awareness - that brand exists; word-of-mouth
Interest - find out more; offers a physical, mental, emotional satisfaction
Evaluation - features, benefits, costs vs alternatives
Trial - sample, test drive, store visit
Adoption - customer buys product; speed of adoption depends on relative advantage, much lower cost, cool, budget, public opinion
(ii) Customer innovativeness categories
**********************************************
Innovators (2.5%)
Early adopters (13.5%)
Emotion driven motivations & messages - desire to be first; exclusive
Logical motivations & messages - leg up from competitive advantage at cutting-edge
Early majority (34%)
Late majority (34%)
Laggards(16%)
(iii) Marketing messages must fit with the key motivators that drive someone to buy
***************************************
eg. Early adopters
Emotional messages - use TV & internet advertising with images of color, sound, music to arouse desire; laugh & look cool
Logical messages - explain product's advantages from features eg. business success & life success
Brand positioning -eg. Blackberry: indispensable tool that lets you live life with greatest flexibility; emblem of professional success; good value
(iv) Product Life Cycle
**************************
Bell Shaped: Introduction, Growth, Maturity, Decline, Withdrawal
Growth Slump Maturity eg. coffee makers
Cycle Recycle Pattern eg. drugs
Scalloped Return eg. baking soda
(V) Week 8 | Lecture 2: Integrated Marketing Communication: Optimizing the Marketing Mix
***********************************************************************
Know how, when and where to market products in order to make the greatest impact.
Marketing Communications (MarCom) campaign Goal: increase sales; drive brand awareness etc
**************************************************************
Deliver Marketing messages & Create brand image
**********************************************************
=> deliver through effective marketing campaign - different sources of integrated marketing communications
=> create the ideas and feelings customers have about a brand - brand image
Move buyers through four AIDA stages of decision making
*******************************************************************
=> Attention: Broad awareness with mass media like TV, radio, magazines, internet
=> Interest: features, benefits, endorsements, ratings, price eg. print, mail, personal contact with influencers
=> Desire to own: Transformational appeals to emphasize strong human emotions eg. love, pride, joy, humor, fear, coolness
=> Action to buy: Logical & emotional motivators; coupons, samples, personal selling, specials; time pressure; expiration dates, limited time offers
(VI) When to Market
*******************
Buyer Readiness:
***********************
StageI (Product introduction) - ramp up brand awareness through mass media eg. TV, internet, print
StageII (AIDA) - Additional information, emotional seduction eg. direct mail, personal sellings, sales promos, reminder advertising such as "got milk?"
Life Cycle of Product:
**************************
Introduction - Brand awareness
Growth - heavy advertising to build brand loyalty
Maturity - less advertising; more sales promos
Decline - advertising and promos decreased to low maintenance levels
Where to Market
********************
Advertising: TV, radio, magazines, newspapers, billboards, packaging, brochures, posters, fliers, inserts, online, search engines
Sales promos: contests, samples, exhibits, coupons, rebates, gifts, premiums, trade shows, demsos, special offers
Events: Sponsorships, entertainment and sports events, festivals, cause-related events, factory tours, trips.
Public Relations and Publicity: Press kits and releases, media stories or mentions, speeches, seminars, charitable donations, community events, lobbying, annual reports, in-house publications, articles in the media by company executives.
Direct and Interactive Marketing: Catalogs, direct mail, telemarketing, shopping channels and sites, online.
Word-of-Mouth Marketing: Person-to-person communications, chat rooms, consumer reviews, and recommendations.
Personal Selling: Sales presentations and meetings, in-store samples, contact from company representatives, fairs and tradeshows, door-to-door, online.
(VII) Integrated Marketing Mix example - Subway
********************************************************
Customer receives same basic message and brand promise - healthy, delicious sandwich vs less healthy McDonalds or KFC
Advertise: TV, radio, billboards, fliers to drive people to its website which features videos and health information
Sales promos: newspaper inserts with coupons & specials; in store promos and specials
Events: NASCAR racing sponsor, Little League baseball, AHA heart walk
PR: emphasize relative healthiness of sandwiches eg Jared ad
Word-of-Mouth marketing: Oprah, Larry King Live; online chat rooms, blogs
Narrower marketing mix - Chipotle
**********************************
Advertise: word of mouth primarily; online, print, billboards to promote contest
Sales Promos: $10K promo contest for customer with best idea for TV ad
(VIII) Net Promote Score (NPS)
**************************
The concept of NET promoter score (NPS) is insightful. The question "how likely are you to recommend this brand to your friend", and asking customers to rate on a scale of 1-10, is simple but insightful and brilliant. By looking at the difference between the fraction of "promoter" customers who are scoring favorably 9-10 and the "detractors" who score 0-6, the NPS is calculated. Progressive leaders should drive not only profits but also NPS score to ensure the profits are "good" and sustainable. "Bad profits" are those that come at the expense of bad NPS ratings and they can kill a firm in the long run.
Win through service & pricing strategy
JWI 515 Managerial Economics Week8 Summary, 12/2/12
************************************************
This was one of the most important weeks of learning for me as I recognize that the financial impact of following these principles can be huge for the firm. I will apply these concepts gainfully especially as I move through broader leadership roles.
Key economic concepts and practices in pricing strategy were discussed this week. Through the Jack Welch videos we learned the down side of price regulation and the importance of competing on true value proposition. We also learned how small companies can survive price wars by differentiating through value added service. Mark up pricing and price discrimination scenarios to maximize profits were explored.
I learned how important it is to watch for and guard against stupid pricing and financial decisions. Through the training in this class, I understand what I can do to guide a firm to profits with right pricing models.
The way I fill gas will never be the same again for me. The DQ helped me understand the market structure and various factors affecting gas prices.
Dr DP
JWI 515 Managerial Economics Week8 Summary, 12/2/12
*************************************************
I. Price Regulation (Jack Welch video, week8)
***********************
Pricing controls on the down side are outrageously crazy. They do not give consumers or citizens the benefits of latest technology, goods at a value price. The idea of putting phony prices in place is plain wrong. It is not free market behavior. It stifles innovation.
It protects people. A price umbrella over a product for a sloppy provider charging too much with low productivity does not make sense. You don't want that to happen. You want people competing all the time on price to win your business. Get a value, a buy, exciting to get something that is a true value proposition - that is exactly what companies have to offer.
II. Price wars (Jack Welch video, week8)
****************
Price wars are something you don't like to be in business eg book business.There are Price wars in any market segments with new entrants, people that have fallen behind offer lower price to keep up with market share. The idea here is you have to find something else ***different*** to offer eg. Service !
Small independent drug stores can compete with big chains through innovative service. They hold on through innovative service - they are open 24x7, and know the customers intimately ! Independent book sellers work this way - when new releases come, the owners call customer base over phone, knowing what customers will like - they got an intimacy that is so different. You gotta offer a value added service that is ***different** than price tag at outside of the book or toothbrush. Small independents do this to stay alive.
It is a tougher game to stay alive. Some people ignore the service. When done correctly, small independents can own the customer by treasuring the customer relationships; they won't give it up to the big bullies with the price wars.
III. Pricing Practices, Week8 Lecture1
*******************************************
(1) Profit maximization:
***************************
Competitive markets: P = MR = MC
Imperfect markets: Downward facing demand curve; P>MR; Maximum profit achieved at Price Pmax = MC/(1+1/Ep)
(2) Markup pricing done to achieve profit maximization
***********************
(3a) Price discrimination
*****************************
Price discrimination occurs when consumers who purchase and consume the product under different circumstances pay different prices (Dhewar, 2000). Different customers are charged different markups for the same product with the objective to capture consumer surplus for the seller.
(3b) For successful price discrimination to be successful
****************************************************************
(i) company must be able to segment the market
(ii) different segments must have different price elasticities
(iii) markets must be kept separate by time, distance or nature of use
(iv) there must be no leakage between two markets - consumers cannot resell at a higher price
(v) then assign markups to each segment
(vi) not violate antitrust laws (http://www.ftc.gov/bc/antitrust/price_discrimination.shtm)
(3c) First degree price discrimination: seller's market
*************************************************************
charge highest price buyers are willing to pay; seller attempts to capture all consumer surplus
(3d) Second degree price discrimination: quantity discounts
***********************************************
(3e)Third degree price discrimination: charge different prices for different groups of consumers
*******************************************
(3f) Various products are differentiated by their
********************************************
- physical, functional or performance characteristics
- place and/or time of purchase, duration between purchase and consumption, quantity purchased, restrictions on consumption
(4) Ways to charge different prices
****************************************
(4a) depending on store
****************************
Super market vs mom & pop:
Costs: Qty discount from suppliers;lower unit variable costs; efficient operations; lower spoilage; inventory-carrying costs; overheads;cheaper land
Convenience: Location; Time savings; lower risk from shorter travel
(4b) depending on location
*******************************
Spatial price discrimination: Charge a different price depending on Location
Business Environment factors: exchange rates, transportation costs, rents, qty discounts, overhead costs, competition
Demand variation: consumers in different geo markets have different preferences, needs, incomes, budgets, willingness to pay
(4c) Bundling
****************
series ticket concerts,sports,theater,suits vs pair of trousers and a jacket,airfare + hotel travel packages,fully loaded cars,fully applianced kitchens
special deals for camera with lenses, computer with monitor and software
(4d) Vary price over time - skimming
******************************************
experience curve - Price drops with Higher cum volume
competitive pressures
some will wait while some will pay premium for immediate consumption
(4e) Peak load pricing
**************************
customer segments - residential, commercial, industrial
somewhat elastic, inelastic, elastic
charge more for peak demand
Demand curves are different
Demand is higher during peak times; higher number of consumers with willingness to pay
(4f)Two part pricing - charge upfront + the charge usage fee
***********************
(4g) Bundle pricing - get customer to buy more with added value offerings
***********************
(5) Price based on Quantity consumed
*********************************************
Change charges based on total number of customers serviced; Volume of product consumed
************************************************
This was one of the most important weeks of learning for me as I recognize that the financial impact of following these principles can be huge for the firm. I will apply these concepts gainfully especially as I move through broader leadership roles.
Key economic concepts and practices in pricing strategy were discussed this week. Through the Jack Welch videos we learned the down side of price regulation and the importance of competing on true value proposition. We also learned how small companies can survive price wars by differentiating through value added service. Mark up pricing and price discrimination scenarios to maximize profits were explored.
I learned how important it is to watch for and guard against stupid pricing and financial decisions. Through the training in this class, I understand what I can do to guide a firm to profits with right pricing models.
The way I fill gas will never be the same again for me. The DQ helped me understand the market structure and various factors affecting gas prices.
Dr DP
JWI 515 Managerial Economics Week8 Summary, 12/2/12
*************************************************
I. Price Regulation (Jack Welch video, week8)
***********************
Pricing controls on the down side are outrageously crazy. They do not give consumers or citizens the benefits of latest technology, goods at a value price. The idea of putting phony prices in place is plain wrong. It is not free market behavior. It stifles innovation.
It protects people. A price umbrella over a product for a sloppy provider charging too much with low productivity does not make sense. You don't want that to happen. You want people competing all the time on price to win your business. Get a value, a buy, exciting to get something that is a true value proposition - that is exactly what companies have to offer.
II. Price wars (Jack Welch video, week8)
****************
Price wars are something you don't like to be in business eg book business.There are Price wars in any market segments with new entrants, people that have fallen behind offer lower price to keep up with market share. The idea here is you have to find something else ***different*** to offer eg. Service !
Small independent drug stores can compete with big chains through innovative service. They hold on through innovative service - they are open 24x7, and know the customers intimately ! Independent book sellers work this way - when new releases come, the owners call customer base over phone, knowing what customers will like - they got an intimacy that is so different. You gotta offer a value added service that is ***different** than price tag at outside of the book or toothbrush. Small independents do this to stay alive.
It is a tougher game to stay alive. Some people ignore the service. When done correctly, small independents can own the customer by treasuring the customer relationships; they won't give it up to the big bullies with the price wars.
III. Pricing Practices, Week8 Lecture1
*******************************************
(1) Profit maximization:
***************************
Competitive markets: P = MR = MC
Imperfect markets: Downward facing demand curve; P>MR; Maximum profit achieved at Price Pmax = MC/(1+1/Ep)
(2) Markup pricing done to achieve profit maximization
***********************
(3a) Price discrimination
*****************************
Price discrimination occurs when consumers who purchase and consume the product under different circumstances pay different prices (Dhewar, 2000). Different customers are charged different markups for the same product with the objective to capture consumer surplus for the seller.
(3b) For successful price discrimination to be successful
****************************************************************
(i) company must be able to segment the market
(ii) different segments must have different price elasticities
(iii) markets must be kept separate by time, distance or nature of use
(iv) there must be no leakage between two markets - consumers cannot resell at a higher price
(v) then assign markups to each segment
(vi) not violate antitrust laws (http://www.ftc.gov/bc/antitrust/price_discrimination.shtm)
(3c) First degree price discrimination: seller's market
*************************************************************
charge highest price buyers are willing to pay; seller attempts to capture all consumer surplus
(3d) Second degree price discrimination: quantity discounts
***********************************************
(3e)Third degree price discrimination: charge different prices for different groups of consumers
*******************************************
(3f) Various products are differentiated by their
********************************************
- physical, functional or performance characteristics
- place and/or time of purchase, duration between purchase and consumption, quantity purchased, restrictions on consumption
(4) Ways to charge different prices
****************************************
(4a) depending on store
****************************
Super market vs mom & pop:
Costs: Qty discount from suppliers;lower unit variable costs; efficient operations; lower spoilage; inventory-carrying costs; overheads;cheaper land
Convenience: Location; Time savings; lower risk from shorter travel
(4b) depending on location
*******************************
Spatial price discrimination: Charge a different price depending on Location
Business Environment factors: exchange rates, transportation costs, rents, qty discounts, overhead costs, competition
Demand variation: consumers in different geo markets have different preferences, needs, incomes, budgets, willingness to pay
(4c) Bundling
****************
series ticket concerts,sports,theater,suits vs pair of trousers and a jacket,airfare + hotel travel packages,fully loaded cars,fully applianced kitchens
special deals for camera with lenses, computer with monitor and software
(4d) Vary price over time - skimming
******************************************
experience curve - Price drops with Higher cum volume
competitive pressures
some will wait while some will pay premium for immediate consumption
(4e) Peak load pricing
**************************
customer segments - residential, commercial, industrial
somewhat elastic, inelastic, elastic
charge more for peak demand
Demand curves are different
Demand is higher during peak times; higher number of consumers with willingness to pay
(4f)Two part pricing - charge upfront + the charge usage fee
***********************
(4g) Bundle pricing - get customer to buy more with added value offerings
***********************
(5) Price based on Quantity consumed
*********************************************
Change charges based on total number of customers serviced; Volume of product consumed
Sunday, November 25, 2012
Role of Government in free markets
JWI 515 Managerial Economics, Week7 Summary, 11/25/12
This week we learned principles of social welfare economics, perfect competition, the role of government and pros and cons of deregulation in an industry.
Social welfare = Consumer and producer surpluses
***********************************************************
Consumer surplus is the difference between the maximum amount consumers are willing to pay for a product and what they actually pay. Producer surplus is the difference between the minimum amount producers are willing to receive for a product and what they actually receive.
Role of Government in markets
*************************************
- Balance consumer sovereignty and social fairness by stepping in to mitigate externalities, the unforeseen consequences in a free market.
- set price floors and price ceilings as part of public policy
Perfect Competition
************************
Markets are said to be perfectly competitive when they
- feature a large number of buyers or sellers that each have a non-controlling market share and
- when they are filled with homogeneous products that can easily be substituted for one another.
- Free entry and exit also exist, meaning no legal barriers of regulation exist that potential firms must satisfy to be members of an industry.
- Meanwhile, everyone in the industry has wide access to cost information, so companies are price takers.
- Finally, companies have the ability to earn a normal profit over the long run.
NYSE has several deviations from perfect competition as we discussed in DQ1.
Deregulation
****************
The process of simplifying or eliminating government rules that hinder businesses and thereby spur competition, attract investment.
The pros and cons of deregulation in several industries such as telecom, airlines and trucking were examined.
Dr DP
This week we learned principles of social welfare economics, perfect competition, the role of government and pros and cons of deregulation in an industry.
Social welfare = Consumer and producer surpluses
***********************************************************
Consumer surplus is the difference between the maximum amount consumers are willing to pay for a product and what they actually pay. Producer surplus is the difference between the minimum amount producers are willing to receive for a product and what they actually receive.
Role of Government in markets
*************************************
- Balance consumer sovereignty and social fairness by stepping in to mitigate externalities, the unforeseen consequences in a free market.
- set price floors and price ceilings as part of public policy
Perfect Competition
************************
Markets are said to be perfectly competitive when they
- feature a large number of buyers or sellers that each have a non-controlling market share and
- when they are filled with homogeneous products that can easily be substituted for one another.
- Free entry and exit also exist, meaning no legal barriers of regulation exist that potential firms must satisfy to be members of an industry.
- Meanwhile, everyone in the industry has wide access to cost information, so companies are price takers.
- Finally, companies have the ability to earn a normal profit over the long run.
NYSE has several deviations from perfect competition as we discussed in DQ1.
Deregulation
****************
The process of simplifying or eliminating government rules that hinder businesses and thereby spur competition, attract investment.
The pros and cons of deregulation in several industries such as telecom, airlines and trucking were examined.
Dr DP
Make Smart Choices in Pricing Options
JWI 518, Marketing in a Global Environment, Week7 Summary, 11/25/12
This week we learned the importance of making smart choices in pricing and how to develop sound pricing strategies to support the firm's overarching objectives.
5 steps to setting prices effectively
****************************
To set prices effectively, a company follows these steps: (1) know the firm's strategic market objective, (2) determine demand, (3) estimate costs, (4) analyze competitor's costs, prices and offers, and (5) pick a compelling pricing strategy - including pricing method and final price.
Pricing Options
*************
Pricing options include target return pricing (build profit margin into price; also known as cost-plus pricing), going-rate pricing (match competitors offer), perceived value pricing (consumer perception focused), value-in-use pricing (guarantee value and participate in up side or down side of the firm). To adapt pricing, companies also use discounts & allowances, offsets, special financing, customer segment pricing, channel pricing, product-line pricing, optional-feature pricing, two-part pricing, product-bundling pricing, geographical pricing, promotional pricing and differentiated pricing.
Lower Perceived Cost, Increase Perceived Value
***************************************
As price is perceived by consumers as an indicator of quality, managing customer perception is key when a firm raises or lowers its prices. Instead of engaging in cost-cutting and price wars, it is smarter to create the right image, reduce perceived cost and increase perceived value to support the right image that supports the price you want to charge. Reaction from competitors or even the government must be anticipated.
Dr DP
This week we learned the importance of making smart choices in pricing and how to develop sound pricing strategies to support the firm's overarching objectives.
5 steps to setting prices effectively
****************************
To set prices effectively, a company follows these steps: (1) know the firm's strategic market objective, (2) determine demand, (3) estimate costs, (4) analyze competitor's costs, prices and offers, and (5) pick a compelling pricing strategy - including pricing method and final price.
Pricing Options
*************
Pricing options include target return pricing (build profit margin into price; also known as cost-plus pricing), going-rate pricing (match competitors offer), perceived value pricing (consumer perception focused), value-in-use pricing (guarantee value and participate in up side or down side of the firm). To adapt pricing, companies also use discounts & allowances, offsets, special financing, customer segment pricing, channel pricing, product-line pricing, optional-feature pricing, two-part pricing, product-bundling pricing, geographical pricing, promotional pricing and differentiated pricing.
Lower Perceived Cost, Increase Perceived Value
***************************************
As price is perceived by consumers as an indicator of quality, managing customer perception is key when a firm raises or lowers its prices. Instead of engaging in cost-cutting and price wars, it is smarter to create the right image, reduce perceived cost and increase perceived value to support the right image that supports the price you want to charge. Reaction from competitors or even the government must be anticipated.
Dr DP
Sunday, November 18, 2012
Market Positioning & Brand Equity
JWI 518 Marketing in a Global Environment, week6 summary, 11/18/12
**********************************************************
This was an exciting week of learning core marketing concepts such as techniques for successful positioning and creating brand equity that I knew practically nothing about. I have gathered numerous take ways as shown below that I can apply in my current and future jobs at many levels.
The DQs made me think about brand positioning and the use of social media to take marketing to the next level. I also learned the difficulties inherent in measuring the effectiveness of the techniques. But as one of my class mates pointed out, a van with cup cakes, with just tweets to advertise, was successful in generating awareness and so I am beginning to believe in social media.
Keller's "Maintaining a strong brand means striking the right balance between continuity and change" resonates with me.
Dr DP
JWI 518 Marketing in a Global Environment, Week6 Summary
I. Marketing Strategy at GE (Jack Welch video, Week6)
********************************
Marketing strategy was not around formulaic 4Ps and 5Cs.
It was about meeting consumer needs.
Tell consumers and business customers what we had to meet the needs.
The goal was to build a great brand, do lots of brand advertising.
Come out with new products, advertise the hell out of them to go right at what the features that we brought out.
Gain share, gain reputation as innovator and build the brand all the time
II. Marketing Products vs. Marketing Services (Jack Welch, video Week6)
***************************************************
Marketing services is tougher than marketing products
Products: easy to show the absolute Aha, what they bring to consumer eg. Apple's iPod; GE's jet engines at forefront of technology.
Service contracts not easy to advertise eg. selling a strong service organization's ability to maintain the engine for 20 years.
Services are more often sold as a follow on to a product offering.
In product sale, have a relationship with customer, build a long term services contract.
eg. Home Protection business - product sales person establishes relationship with consumer, signs multi-year product
III. Market Positioning (week6, Lecture1)
**************************
Goal: Create a customer perception that your product is the best and grab market share
*****************************************************************************************************
(1) Recognize that Customers have a ladder of preference.
Brands that occupy one or two top positions on a ladder have tremendous advantage.
(2) Positioning is based on attributes, benefits, uses, quality, hipness, ease of use, customized experience, relative to competitor
(3) Seven steps to differentiate your product from competition and grab market share
*************************************************************************************************
(i) Analyze competitor's product for back door vulnerability
(ii) List all potential problems of your competitor's product.
(iii) Create ads messages that emphasize competitor's problem.
Use humor. Never attack directly. Focus on one disadvantage of a rival and one advantage of the firm.
(iv) Show how your product does everything you competitor's does but without the problems
(v) Move up a new ladder in the consumer's mind.
(vi) Keep at it - repeat constantly over time until sales figures show you have moved up the ladder; research
(vii) Look at your own product - where are you vulnerable ? where can a competitor out-position you ?
IV. Brand Equity (week6, lecture2)
*****************************************
Goal: Create a strong brand to earn customer's enduring devotion and profits
*****************************************************************************************
To charge more, create loyal customers, fend off competitors
To navigate through changes and shifts in marketplace and product life cycles
(i) Brand Equity is the added value a brand image gives to a product or service
******************************************************************************************
- It influences company's sales, market share, profits, stock price, pricing.
- To differentiate among choices, people use brands' perception, image of quality & performance, loyalty; the way brands make them feel, think and act
- Brand equity is composed of assets and liabilities
- Elements of brand equity: brand loyalty, name awareness, perceived loyalty, brand associations, other brand assets eg. patents & trademarks
- Brand equity is built through marketing choices and each element of product's message:
Brand's name, logo, tag line, symbols
Characters, spokespersons, celebrity endorsers
Advertising themes, packaging, signage
Customer service
- brand image leads to brand promise which generates brand equity
(ii) Brand audit
******************
- done to understand the most current image buyers have of the brand
surveys, focus groups, internet visits, sales data
(iii) Brand portfolio
**********************
Line extension - derivative products
Flanker brand - low cost version of core brand
low end entry level brand - attract new buyers; create satisfaction; trade up
Cash cows - high profit margins; support less profitable brands & new products
Prestige brands - create positive halo around the firm; high performance high price; nice market
(iv) Integrated marketing strategy
***************************************
- Define target group of customers
- understand consumers' perceptions about the brand
- understand promises buyers want the brand to make
- create messages to create and reinforce a core image: Design every marketing message (through TV, print, internet, PR) to make the same promise & create same image of the brand
- image leads to brand promise which generates brand equity
V. Brand Report Card (Keller, HBR 2000)
***********************************************
Top 10 attributes of a strong brand are:
(i) Delivers benefits customers desire: creates engaging customer experience eg Starbucks
(ii) Stays relevant: brand elements modified to fit constantly eg Gillette
(iii) Priced based on consumer perception of brand value: premium vs staple eg. Procter & Gamble "everyday low pricing"
(iv) Is properly positioned: clearly communicates similarities & differences eg Visa
(v) Is consistent: marketing communications dont sent conflicting messages eg. Michelob beer
(vi) Fits sensibly into brand portfolio: brands work logically together eg. High end Banana Republic; Basics - Gap ; Old Navy - mass market
(vii) Has integrated marketing strategy: all marketing activities and channels communicate same message about brand & strengthen brand identify eg. Coke - originality, classic refreshment
(viii) Has meanings managers understand: Managers know consumers' different perceptions of brand eg. Gillette manual razors & Braun electric razors
(ix) Receives sustained support: companies consistently invest in building and maintaining brand awareness
(x) Is constantly monitored: Formal brand-equity-management system eg. Disney over exposure of characters
Maintaining a strong brand means striking the right balance between continuity and change.
**********************************************************
This was an exciting week of learning core marketing concepts such as techniques for successful positioning and creating brand equity that I knew practically nothing about. I have gathered numerous take ways as shown below that I can apply in my current and future jobs at many levels.
The DQs made me think about brand positioning and the use of social media to take marketing to the next level. I also learned the difficulties inherent in measuring the effectiveness of the techniques. But as one of my class mates pointed out, a van with cup cakes, with just tweets to advertise, was successful in generating awareness and so I am beginning to believe in social media.
Keller's "Maintaining a strong brand means striking the right balance between continuity and change" resonates with me.
Dr DP
JWI 518 Marketing in a Global Environment, Week6 Summary
I. Marketing Strategy at GE (Jack Welch video, Week6)
********************************
Marketing strategy was not around formulaic 4Ps and 5Cs.
It was about meeting consumer needs.
Tell consumers and business customers what we had to meet the needs.
The goal was to build a great brand, do lots of brand advertising.
Come out with new products, advertise the hell out of them to go right at what the features that we brought out.
Gain share, gain reputation as innovator and build the brand all the time
II. Marketing Products vs. Marketing Services (Jack Welch, video Week6)
***************************************************
Marketing services is tougher than marketing products
Products: easy to show the absolute Aha, what they bring to consumer eg. Apple's iPod; GE's jet engines at forefront of technology.
Service contracts not easy to advertise eg. selling a strong service organization's ability to maintain the engine for 20 years.
Services are more often sold as a follow on to a product offering.
In product sale, have a relationship with customer, build a long term services contract.
eg. Home Protection business - product sales person establishes relationship with consumer, signs multi-year product
III. Market Positioning (week6, Lecture1)
**************************
Goal: Create a customer perception that your product is the best and grab market share
*****************************************************************************************************
(1) Recognize that Customers have a ladder of preference.
Brands that occupy one or two top positions on a ladder have tremendous advantage.
(2) Positioning is based on attributes, benefits, uses, quality, hipness, ease of use, customized experience, relative to competitor
(3) Seven steps to differentiate your product from competition and grab market share
*************************************************************************************************
(i) Analyze competitor's product for back door vulnerability
(ii) List all potential problems of your competitor's product.
(iii) Create ads messages that emphasize competitor's problem.
Use humor. Never attack directly. Focus on one disadvantage of a rival and one advantage of the firm.
(iv) Show how your product does everything you competitor's does but without the problems
(v) Move up a new ladder in the consumer's mind.
(vi) Keep at it - repeat constantly over time until sales figures show you have moved up the ladder; research
(vii) Look at your own product - where are you vulnerable ? where can a competitor out-position you ?
IV. Brand Equity (week6, lecture2)
*****************************************
Goal: Create a strong brand to earn customer's enduring devotion and profits
*****************************************************************************************
To charge more, create loyal customers, fend off competitors
To navigate through changes and shifts in marketplace and product life cycles
(i) Brand Equity is the added value a brand image gives to a product or service
******************************************************************************************
- It influences company's sales, market share, profits, stock price, pricing.
- To differentiate among choices, people use brands' perception, image of quality & performance, loyalty; the way brands make them feel, think and act
- Brand equity is composed of assets and liabilities
- Elements of brand equity: brand loyalty, name awareness, perceived loyalty, brand associations, other brand assets eg. patents & trademarks
- Brand equity is built through marketing choices and each element of product's message:
Brand's name, logo, tag line, symbols
Characters, spokespersons, celebrity endorsers
Advertising themes, packaging, signage
Customer service
- brand image leads to brand promise which generates brand equity
(ii) Brand audit
******************
- done to understand the most current image buyers have of the brand
surveys, focus groups, internet visits, sales data
(iii) Brand portfolio
**********************
Line extension - derivative products
Flanker brand - low cost version of core brand
low end entry level brand - attract new buyers; create satisfaction; trade up
Cash cows - high profit margins; support less profitable brands & new products
Prestige brands - create positive halo around the firm; high performance high price; nice market
(iv) Integrated marketing strategy
***************************************
- Define target group of customers
- understand consumers' perceptions about the brand
- understand promises buyers want the brand to make
- create messages to create and reinforce a core image: Design every marketing message (through TV, print, internet, PR) to make the same promise & create same image of the brand
- image leads to brand promise which generates brand equity
V. Brand Report Card (Keller, HBR 2000)
***********************************************
Top 10 attributes of a strong brand are:
(i) Delivers benefits customers desire: creates engaging customer experience eg Starbucks
(ii) Stays relevant: brand elements modified to fit constantly eg Gillette
(iii) Priced based on consumer perception of brand value: premium vs staple eg. Procter & Gamble "everyday low pricing"
(iv) Is properly positioned: clearly communicates similarities & differences eg Visa
(v) Is consistent: marketing communications dont sent conflicting messages eg. Michelob beer
(vi) Fits sensibly into brand portfolio: brands work logically together eg. High end Banana Republic; Basics - Gap ; Old Navy - mass market
(vii) Has integrated marketing strategy: all marketing activities and channels communicate same message about brand & strengthen brand identify eg. Coke - originality, classic refreshment
(viii) Has meanings managers understand: Managers know consumers' different perceptions of brand eg. Gillette manual razors & Braun electric razors
(ix) Receives sustained support: companies consistently invest in building and maintaining brand awareness
(x) Is constantly monitored: Formal brand-equity-management system eg. Disney over exposure of characters
Maintaining a strong brand means striking the right balance between continuity and change.
Maximize Profits with Smart Price-Output Decisions
JWI 515 Managerial Economics, Week6 Summary, 11/18/12
Very interesting week with many important take aways. As the technology industry evolves rapidly, this training prepares me to confidently face a variety of business situations.
(i) Maximizing profits with smart price-output decisions is the goal.
(ii) Recognition of imperfect competition and appreciation of market structure within which a firm operates are key to make good managerial decisions.
(iii) Competition types: Perfect competition, Oligopoly, Monopolistic competition, Monopoly
Monopoly - A pure monopolist is the sole provider of a product or service with no close substitutes, is often a price maker and maximizes profit when MR=MC.The marginal revenue curve is below the demand curve. Monopolies can cause a dead weight loss to society but are not necessarily always harmful. With strong economies of scale, natural monopolies can offer lower prices than if several small companies competed. Antitrust laws keep monopolies in check.
Monopolistic competition - each firm produces a small percentage of the total market share and cannot control prices; product differentiation key. Monopolistically competitive firms should focus on product differentiation.
Oligopolists must focus on price, output and reactions of rivals.
Cartels & Collusions - group of competitors formally or informally agreeing to fix prices and output
(iv) Price-Output decisions Models
Cournot: a firm will make independent decisions to maximize its profit
Stackelberg: firm acts according to Cournot + first mover advantage
Bertrand: Homogeneous oligopolists; consumer goes after lowest price; price wars ensue to capture market share
Sweezy: firms will follow rivals' price decrease but ignore price increase
Dr DP
Very interesting week with many important take aways. As the technology industry evolves rapidly, this training prepares me to confidently face a variety of business situations.
(i) Maximizing profits with smart price-output decisions is the goal.
(ii) Recognition of imperfect competition and appreciation of market structure within which a firm operates are key to make good managerial decisions.
(iii) Competition types: Perfect competition, Oligopoly, Monopolistic competition, Monopoly
Monopoly - A pure monopolist is the sole provider of a product or service with no close substitutes, is often a price maker and maximizes profit when MR=MC.The marginal revenue curve is below the demand curve. Monopolies can cause a dead weight loss to society but are not necessarily always harmful. With strong economies of scale, natural monopolies can offer lower prices than if several small companies competed. Antitrust laws keep monopolies in check.
Monopolistic competition - each firm produces a small percentage of the total market share and cannot control prices; product differentiation key. Monopolistically competitive firms should focus on product differentiation.
Oligopolists must focus on price, output and reactions of rivals.
Cartels & Collusions - group of competitors formally or informally agreeing to fix prices and output
(iv) Price-Output decisions Models
Cournot: a firm will make independent decisions to maximize its profit
Stackelberg: firm acts according to Cournot + first mover advantage
Bertrand: Homogeneous oligopolists; consumer goes after lowest price; price wars ensue to capture market share
Sweezy: firms will follow rivals' price decrease but ignore price increase
Dr DP
Sunday, November 11, 2012
Control costs before they control you
JWI 515, Managerial Economics, Week5 Summary, 11/11/12
This was a challenging week with many key economic concepts to think about and grasp. We learned the importance of cost function and the necessity to control costs before they control us. The nature of competitive markets, techniques to map out the market structure and the use of Porter's 5 forces model to arrive at competitive economic strategy were explored.
"control costs before they control you" is a principle that carries profound insight with applications every day in business and in life.
Dr DP
I. Hirschey, Chapter 8: Cost Analysis and Estimation; Week5 Lecture1
**********************************************************************************
Successful managers control costs effectively (Hirschey, 2009)
Control costs or they will control you (Week5, lecture1)
Different types of costs are
*******************************
fixed cost - does not vary with output; buildings, machinery
variable cost - fluctuates with output; utility, wages, rent, office supplies raw materials
historical cost - what was paid in the past
current cost - the current value
replacement cost - cost of duplicating productive capability with existing technology
opportunity cost - foregone value associated with current use of asset rather than going with next best alternative
economic cost = explicit cost + non cash implicit cost
incremental cost - change in cost caused by a managerial decision
marginal cost - change in cost from a one-unit change in output
sunk cost - expense made in the past that cannot be recovered in future
Cost Function
**************
Cost function: Cost-Output relation
Short run cost function: used for day to day operation; determines plant capacity; fixed costs will not change in short run eg buildings, machinery
Long run cost function: used for long range planning; determine minimum cost of output for a given plant size & technology in current operating environment
Economy of Scale & Scope
********************************
Economy of scale - long run average cost (LRAC) declines with firm's size
Minimum efficient scale - ouput level at which LRAC is minimized
Maximum efficient scale - optimum output level with least cost per unit beyond which average cost will rise and diseconomy of scale will set in
Diseconomy of scale - LRAC increases with firm's size
Economy of scope - cost of joint production of outputs is less than cost of producing multiple outputs separately
Breakeven - when Cost equals Revenue
II. Hirschey, Chapter 10: Competitive Markets; week5 lecture2
***********************************************************************
To win in the market place, these key concepts should be noted:
Companies and markets are not static - they change and evolve from one market structure to another
Competitive market concepts help make sound economic decisions.
Map countours of market, understand market structure and maximize profit
Understanding demand, production and costs.
Market - all firms and individuals, current and potential, willing and able to buy or sell a product
*******
Market structure - competititve environment in which exchange of goods or services occur
*******************************************
# - number and size of buyers, sellers and potential entrants
cost info - access & availability of product price and cost information; price takers vs price makers
product differentiation - degree of real/perceived product differentiation; what sets the product apart in quality, advertising, promos, customer service
scale - production characteristics; minimum efficient scale
entry - ease of entry into the marketplace; barriers - patents, licenses, economy of scale, lawsuit restrictions, regulations
other - shipping distance of perishable items
Potential entrant - poses credible threat to price-output decisions of incumbent firms
Product differentiation - real or perceived differences in quality of goods and services;
caused by physical differences, superior R&D; effective advertising & promotion
Price competition - most vigorous in markets with homogeneous products with few perceived differences
Barrier to entry - industry characteristic that creates advantage for incumbents over new arrivals; legal rights - patents & licenses
Barrier to mobility - creates advantage for large leading firms over smaller nonleading rivals
eg. economies of scale or scope, large capital or skilled labor requirements, ties of customer loyalty
Barrier to exit - restricts incumbents to redloy assets to another industry
Types of competition
***************************
Perfect competition - large # of buyers and sellers of the same product; each participant is a price taker, too small to influence prices
Monopoly - one firm dominates the entire market
Monopolistic competition - multiple firms with similar products that are not substitutable, price makers offering high prices
Oligopoly - a few firms dominate the market
Marginal analysis
*********************
Total profit maximized when marginal revenue equals marginal cost
Productive efficiency - production of goods in least cost way
Allocative efficiency - appropriate allocation of resources among firms to yield correct mix of goods and services demanded
III. Welch, What’s Right about Wal-Mart
**********************************************
Helps consumers and employees win and grow.
Improves lives for customers by holding down low prices, doing more to households than any social or govt program.
Business model threatens rivals. Purchasing power frightens suppliers - forces them to look inside businesses to lower costs. Huge market share gives it enormous leverage.
Employee wealth sharing, salaries, life insurance, benefits, development through training and opportunity (international growth) & upward mobility.
Ethical, fair, tough.
IV. Week 5 DQ1 - How to mitigate diseconomy of scale
***************************************************************
For large companies to mitigate the effects of increased per unit costs when diseconomies of scale are operative, focus on:
Coordination - ensure business units grow together
Communication - counter effect of lengthening hiearchy
Motivation - pay for performance; give performance incentive to employees
Technical - manage complexity
V. Week 5 DQ 2: How WalMart wins in the Competitive Market place
*********************************************************************************
Wal-Mart is the most profitable discount retailer in one of the most viciously competitive markets imaginable.
Wal-Mart is able to achieve such a high level of success through both upturns and downturns in the economy because of:
Low cost leadership focus, economy of scale, purchase power that dictates price to suppliers, diversification of products and geography
This was a challenging week with many key economic concepts to think about and grasp. We learned the importance of cost function and the necessity to control costs before they control us. The nature of competitive markets, techniques to map out the market structure and the use of Porter's 5 forces model to arrive at competitive economic strategy were explored.
"control costs before they control you" is a principle that carries profound insight with applications every day in business and in life.
Dr DP
I. Hirschey, Chapter 8: Cost Analysis and Estimation; Week5 Lecture1
**********************************************************************************
Successful managers control costs effectively (Hirschey, 2009)
Control costs or they will control you (Week5, lecture1)
Different types of costs are
*******************************
fixed cost - does not vary with output; buildings, machinery
variable cost - fluctuates with output; utility, wages, rent, office supplies raw materials
historical cost - what was paid in the past
current cost - the current value
replacement cost - cost of duplicating productive capability with existing technology
opportunity cost - foregone value associated with current use of asset rather than going with next best alternative
economic cost = explicit cost + non cash implicit cost
incremental cost - change in cost caused by a managerial decision
marginal cost - change in cost from a one-unit change in output
sunk cost - expense made in the past that cannot be recovered in future
Cost Function
**************
Cost function: Cost-Output relation
Short run cost function: used for day to day operation; determines plant capacity; fixed costs will not change in short run eg buildings, machinery
Long run cost function: used for long range planning; determine minimum cost of output for a given plant size & technology in current operating environment
Economy of Scale & Scope
********************************
Economy of scale - long run average cost (LRAC) declines with firm's size
Minimum efficient scale - ouput level at which LRAC is minimized
Maximum efficient scale - optimum output level with least cost per unit beyond which average cost will rise and diseconomy of scale will set in
Diseconomy of scale - LRAC increases with firm's size
Economy of scope - cost of joint production of outputs is less than cost of producing multiple outputs separately
Breakeven - when Cost equals Revenue
II. Hirschey, Chapter 10: Competitive Markets; week5 lecture2
***********************************************************************
To win in the market place, these key concepts should be noted:
Companies and markets are not static - they change and evolve from one market structure to another
Competitive market concepts help make sound economic decisions.
Map countours of market, understand market structure and maximize profit
Understanding demand, production and costs.
Market - all firms and individuals, current and potential, willing and able to buy or sell a product
*******
Market structure - competititve environment in which exchange of goods or services occur
*******************************************
# - number and size of buyers, sellers and potential entrants
cost info - access & availability of product price and cost information; price takers vs price makers
product differentiation - degree of real/perceived product differentiation; what sets the product apart in quality, advertising, promos, customer service
scale - production characteristics; minimum efficient scale
entry - ease of entry into the marketplace; barriers - patents, licenses, economy of scale, lawsuit restrictions, regulations
other - shipping distance of perishable items
Potential entrant - poses credible threat to price-output decisions of incumbent firms
Product differentiation - real or perceived differences in quality of goods and services;
caused by physical differences, superior R&D; effective advertising & promotion
Price competition - most vigorous in markets with homogeneous products with few perceived differences
Barrier to entry - industry characteristic that creates advantage for incumbents over new arrivals; legal rights - patents & licenses
Barrier to mobility - creates advantage for large leading firms over smaller nonleading rivals
eg. economies of scale or scope, large capital or skilled labor requirements, ties of customer loyalty
Barrier to exit - restricts incumbents to redloy assets to another industry
Types of competition
***************************
Perfect competition - large # of buyers and sellers of the same product; each participant is a price taker, too small to influence prices
Monopoly - one firm dominates the entire market
Monopolistic competition - multiple firms with similar products that are not substitutable, price makers offering high prices
Oligopoly - a few firms dominate the market
Marginal analysis
*********************
Total profit maximized when marginal revenue equals marginal cost
Productive efficiency - production of goods in least cost way
Allocative efficiency - appropriate allocation of resources among firms to yield correct mix of goods and services demanded
III. Welch, What’s Right about Wal-Mart
**********************************************
Helps consumers and employees win and grow.
Improves lives for customers by holding down low prices, doing more to households than any social or govt program.
Business model threatens rivals. Purchasing power frightens suppliers - forces them to look inside businesses to lower costs. Huge market share gives it enormous leverage.
Employee wealth sharing, salaries, life insurance, benefits, development through training and opportunity (international growth) & upward mobility.
Ethical, fair, tough.
IV. Week 5 DQ1 - How to mitigate diseconomy of scale
***************************************************************
For large companies to mitigate the effects of increased per unit costs when diseconomies of scale are operative, focus on:
Coordination - ensure business units grow together
Communication - counter effect of lengthening hiearchy
Motivation - pay for performance; give performance incentive to employees
Technical - manage complexity
V. Week 5 DQ 2: How WalMart wins in the Competitive Market place
*********************************************************************************
Wal-Mart is the most profitable discount retailer in one of the most viciously competitive markets imaginable.
Wal-Mart is able to achieve such a high level of success through both upturns and downturns in the economy because of:
Low cost leadership focus, economy of scale, purchase power that dictates price to suppliers, diversification of products and geography
Saturday, November 10, 2012
Focus with Market Segmentation
JWI 518, Marketing in a Global Environment, Week5 Summary, 11/9/12
This week we learned the value of segmenting markets and also the pitfalls to avoid with segmentation. Market segmentation is a strategy marketers use to identify and profile distinct groups of buyers who differ in their needs, wants, desires and fear. Segmentation allows marketers to focus the firm's resources by tailoring specific messages to target groups instead of relying on a one-size-fits-all mass marketing approach which could be ineffective. Broad segments typically are geographic, demographic, psychographic (Values, Attitudes, Lifestyles) and behavioral.
Segmentation to be useful must result in segments that pass five key criteria: they must be measurable, substantial, accessible, differentiable and actionable. Cost of time and resources, accuracy, too narrow a focus, not recognizing shifts in market and consumer behavior after the segmentation are among the traps to avoid.
Based on the insights from segmentation, a firm can decide its zone of market focus: Niche within a segment, segment, multiple segments or mass market.
Dr DP
Sunday, November 4, 2012
Drive Productivity through Knowledge & Innovation
JWI 515, Managerial Economics, Week4 Summary, 11/4/12
This week we learned to recognize key economic indicators and apply economic concepts to analyze optimum production strategies and controls. The concepts we learned this week further clarify and refine my understanding of the underlying economic principles and help take my production management skills to the next level.
I. Readings
Hirschey, Chapter 7: Production Analysis and Compensation Policy
************************************************************************
Fortune500 CEOs make a minimum of 5M$ a year and above.
CEOs must be made to earn their pay and not just preside over a firm that is in trouble
Some CEOs do earn their pay - what they do and the returns they achieve for shareholders justify their high compensation in terms of salary, bonus, stock options, stocks
II. Week 4, Lecture 1: The Productivity Imperative
*********************************************************
1. Productivity
***************
Productivity - a real economic measure that managers use to make their plant, office, or company more effective and efficient.
Productivity growth - rate the output increases per unit of input is a fundamental economic indicator
Rising productivity - from smart use of labor & capital, product innovation, capital funding - improves economic and social well-being of an economy.
When productivity grows everybody makes more money.
2. Production Process
*************************
Create something of exchange value by using optimal combination of input components together with technology and labor.
Managers should correlate Inputs vs Revenue, Cost, Output, other resources
3. Production function
**************************
Used to assess maximum output from a given level of input.
Goal is to ensure production function is changed as needed to achieve maximum production and profit potential.
Discrete production function - has a set combination of inputs that lead to a specific output.
Continuous production function - inputs varied in an unbroken fashion.
4. Production Scaling - up or down
*****************************************
(a) Return to scale: All inputs proportionally changed and output is assessed
(b) Increasing return to scale: more is produced with less; target zone; proportional increase in output is greater than proportional increase in input
(c) Constant return to scale: same proportional change in outputs and inputs
(d) Decreasing return to scale: output increasing at a slower rate than proportional change in inputs
(e) Return to factor: One input is changed and output is assessed
5. Total Product = Total amount of output produced
*******************
Average Product = Total product/# input units used
Marginal Product = change in output from a one-unit increase or decrease in input
6. Marginal product curve
******************************
Increasing returns: output increases with more labor
Diminishing returns: at one point, adding more workers causes efficiency to fall (but total product can still increase)
Negative returns: output decreases with more inputs
7. Marginal product vs Total Product
******************************************
So long as Marginal product is positive, Total product will increase with each added input unit
8. Isoquant & Isocost curves
********************************
Isoquant- constant level of output quantity vs various combos of inputs
Isocost - constant level of Total cost vs various combos of inputs ; to be technically efficient, use lowest cost combinations of inputs
Overlay Isoquant with Isocost => pick inputs; figure out path for production expansion or contraction
9. Production Cost control
*******************************
Marginal rate of technical substitution (MRTS) - How much of one input can be substituted for a constant output
eg. substitute machinery; change fuels
10. Marginal Revenue Product (MRP) & Marginal Resource Cost (MRC)
***********************************************************************************
MRP - Revenue generated from one additional unit of input
MRC - Cost of adding one additional unit of input
11. Production Manager's job
***********************************
Determine Product function
Determine right combination of inputs with lowest cost
eg. Straw berry season
Inputs - Labor
Output - pints of strawberries
Increase labor to get berries, increase marginal product
Crowded field of workers begin to step on each other's feet
Farmer has to optimize labor input to maximize output of berries
=> figure out the production function (ie the yield model)
III. Week 4 DQ1: The Productivity Imperative
******************************************************
Bureau of Labor Statistics website (http://www.bls.gov/) - learn more about labor productivity and costs.
Determined the current productivity results for the non-farming business sector and the manufacturing sector.
Discussed recent productivity and cost trends to make predictions for the future.
IV. Week4 Assignment: US Economy
*******************************************
Key Point:
Knowledge & innovation have major impact on economic growth and are the basis of increasing international competition.
Changing economic forces and underpinnings of US adaptability
**************************************************************************
(i) Low wage competition: from foreign countries; Mexico & China intensified it
*************************
(ii) Technology acceleration: starting 1960s
********************************
- new high tech industries grew; located in cities with skilled workforce & university research
- Technological capability is key to competitiveness in open & integrated world
(iii) Continual pervasive pursuit of material success
**********************************************************
- key driver of economic system
(iv) US financial system
*************************
- essential element in business startups
(v) Triple helix
*****************
universities, governments & businesses
Universities: sources of knowledge & education + industrially valuable technical skills, innovation, entrepreneurship
Businesses: they follow open innovation system; actively pursue innovations outside immediate industrial context
Governments: Taxes, Regulations & Public policy
(vi) Knowledge & innovation
*********************************
- University industry linkage (UIL) depends on the Innovation system
- extent and nature of knowledge economy differs among nations
(vii) Financial system
*************************
Very important element in firm's success in knowledge economy
Startup and growth of a firm based in knowledge economy depends on a financial system that can provide it adequate funding
Traditional firms:
******************
Firm borrows with fixed assets as security for a loan
Firm's book value guides stock valuation
Traditional Banking system - borrow from depositors, charge interest rates, lend to borrowers
Knowledge economy firms:
*********************************
Firm borrows against knowledge assets - Difficult to value
Traditional Banking system (borrow from depositors, charge interest rates, lend to borrowers) severely limited
Supplementary financial activities
**************************************
Disintermediation - firm obtains funding directly from investors & new financial intermediaries
VCs, angel investors, investment bankers, PE funds, bought deals, IPOs
Gap in availability of such funding is a key contributor to relative productivity growth among nations
(viii) 2007-2009 Financial & Economic Crisis
(A) Causes:
(i) Lack of adequate government regulation
***************************************
- allowed mortgage bankers to arrange house financing geared tp skyrocketing real estate prices
(ii) Subprime mortgages
*******************
- enabled households to borrow more than they could afford to repay
- institutions combined these mortgages to create collateralized debt obligations (CDOs); securitization process distributed the tainted assets worldwide
- CDOs insured through credit default swaps
(iii) Real estate prices started to fall
***********************************
- financing process stopped
- many banks held CDOs worth much less than their face value
- insurance companies did not have adequate funding to meet their commitments
(B) President Obama's Actions & Reforms
********************************
- Assisted financial institutions through loans, purchase of shares, debt guarantees, purchase of non-performing loans
- Monetary policy: lower interest rates; expand money supply
- Fiscal policy: tax cuts; huge increases in expenditures; deficit > 10% GDP
- Assisted Housing & Automobile sectors financially
(C) Open issue - Current Recession
***************************
How long would it last ? What does it impact? What results will come from govt policies ? eg. Rapid inflation could occur.
Dr DP
This week we learned to recognize key economic indicators and apply economic concepts to analyze optimum production strategies and controls. The concepts we learned this week further clarify and refine my understanding of the underlying economic principles and help take my production management skills to the next level.
I. Readings
Hirschey, Chapter 7: Production Analysis and Compensation Policy
************************************************************************
Fortune500 CEOs make a minimum of 5M$ a year and above.
CEOs must be made to earn their pay and not just preside over a firm that is in trouble
Some CEOs do earn their pay - what they do and the returns they achieve for shareholders justify their high compensation in terms of salary, bonus, stock options, stocks
II. Week 4, Lecture 1: The Productivity Imperative
*********************************************************
1. Productivity
***************
Productivity - a real economic measure that managers use to make their plant, office, or company more effective and efficient.
Productivity growth - rate the output increases per unit of input is a fundamental economic indicator
Rising productivity - from smart use of labor & capital, product innovation, capital funding - improves economic and social well-being of an economy.
When productivity grows everybody makes more money.
2. Production Process
*************************
Create something of exchange value by using optimal combination of input components together with technology and labor.
Managers should correlate Inputs vs Revenue, Cost, Output, other resources
3. Production function
**************************
Used to assess maximum output from a given level of input.
Goal is to ensure production function is changed as needed to achieve maximum production and profit potential.
Discrete production function - has a set combination of inputs that lead to a specific output.
Continuous production function - inputs varied in an unbroken fashion.
4. Production Scaling - up or down
*****************************************
(a) Return to scale: All inputs proportionally changed and output is assessed
(b) Increasing return to scale: more is produced with less; target zone; proportional increase in output is greater than proportional increase in input
(c) Constant return to scale: same proportional change in outputs and inputs
(d) Decreasing return to scale: output increasing at a slower rate than proportional change in inputs
(e) Return to factor: One input is changed and output is assessed
5. Total Product = Total amount of output produced
*******************
Average Product = Total product/# input units used
Marginal Product = change in output from a one-unit increase or decrease in input
6. Marginal product curve
******************************
Increasing returns: output increases with more labor
Diminishing returns: at one point, adding more workers causes efficiency to fall (but total product can still increase)
Negative returns: output decreases with more inputs
7. Marginal product vs Total Product
******************************************
So long as Marginal product is positive, Total product will increase with each added input unit
8. Isoquant & Isocost curves
********************************
Isoquant- constant level of output quantity vs various combos of inputs
Isocost - constant level of Total cost vs various combos of inputs ; to be technically efficient, use lowest cost combinations of inputs
Overlay Isoquant with Isocost => pick inputs; figure out path for production expansion or contraction
9. Production Cost control
*******************************
Marginal rate of technical substitution (MRTS) - How much of one input can be substituted for a constant output
eg. substitute machinery; change fuels
10. Marginal Revenue Product (MRP) & Marginal Resource Cost (MRC)
***********************************************************************************
MRP - Revenue generated from one additional unit of input
MRC - Cost of adding one additional unit of input
11. Production Manager's job
***********************************
Determine Product function
Determine right combination of inputs with lowest cost
eg. Straw berry season
Inputs - Labor
Output - pints of strawberries
Increase labor to get berries, increase marginal product
Crowded field of workers begin to step on each other's feet
Farmer has to optimize labor input to maximize output of berries
=> figure out the production function (ie the yield model)
III. Week 4 DQ1: The Productivity Imperative
******************************************************
Bureau of Labor Statistics website (http://www.bls.gov/) - learn more about labor productivity and costs.
Determined the current productivity results for the non-farming business sector and the manufacturing sector.
Discussed recent productivity and cost trends to make predictions for the future.
IV. Week4 Assignment: US Economy
*******************************************
Key Point:
Knowledge & innovation have major impact on economic growth and are the basis of increasing international competition.
Changing economic forces and underpinnings of US adaptability
**************************************************************************
(i) Low wage competition: from foreign countries; Mexico & China intensified it
*************************
(ii) Technology acceleration: starting 1960s
********************************
- new high tech industries grew; located in cities with skilled workforce & university research
- Technological capability is key to competitiveness in open & integrated world
(iii) Continual pervasive pursuit of material success
**********************************************************
- key driver of economic system
(iv) US financial system
*************************
- essential element in business startups
(v) Triple helix
*****************
universities, governments & businesses
Universities: sources of knowledge & education + industrially valuable technical skills, innovation, entrepreneurship
Businesses: they follow open innovation system; actively pursue innovations outside immediate industrial context
Governments: Taxes, Regulations & Public policy
(vi) Knowledge & innovation
*********************************
- University industry linkage (UIL) depends on the Innovation system
- extent and nature of knowledge economy differs among nations
(vii) Financial system
*************************
Very important element in firm's success in knowledge economy
Startup and growth of a firm based in knowledge economy depends on a financial system that can provide it adequate funding
Traditional firms:
******************
Firm borrows with fixed assets as security for a loan
Firm's book value guides stock valuation
Traditional Banking system - borrow from depositors, charge interest rates, lend to borrowers
Knowledge economy firms:
*********************************
Firm borrows against knowledge assets - Difficult to value
Traditional Banking system (borrow from depositors, charge interest rates, lend to borrowers) severely limited
Supplementary financial activities
**************************************
Disintermediation - firm obtains funding directly from investors & new financial intermediaries
VCs, angel investors, investment bankers, PE funds, bought deals, IPOs
Gap in availability of such funding is a key contributor to relative productivity growth among nations
(viii) 2007-2009 Financial & Economic Crisis
(A) Causes:
(i) Lack of adequate government regulation
***************************************
- allowed mortgage bankers to arrange house financing geared tp skyrocketing real estate prices
(ii) Subprime mortgages
*******************
- enabled households to borrow more than they could afford to repay
- institutions combined these mortgages to create collateralized debt obligations (CDOs); securitization process distributed the tainted assets worldwide
- CDOs insured through credit default swaps
(iii) Real estate prices started to fall
***********************************
- financing process stopped
- many banks held CDOs worth much less than their face value
- insurance companies did not have adequate funding to meet their commitments
(B) President Obama's Actions & Reforms
********************************
- Assisted financial institutions through loans, purchase of shares, debt guarantees, purchase of non-performing loans
- Monetary policy: lower interest rates; expand money supply
- Fiscal policy: tax cuts; huge increases in expenditures; deficit > 10% GDP
- Assisted Housing & Automobile sectors financially
(C) Open issue - Current Recession
***************************
How long would it last ? What does it impact? What results will come from govt policies ? eg. Rapid inflation could occur.
Dr DP
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