BU111 Study

Steps for breaking down individual/household type problems(ex size of cell phone market in Can)

1. Population(either individual or household)

2. Characteristics of the population = % of population x purchase frequency x purchase quantity x unit cost

Ex.

Canadian population = 40mil

Percentage of people using cell phones = 86% = 34.4m people

Purchase frequency(replacment) = 17.2m

Unit cost = 900

People with 2 cell phones(5%) = 0.86m

Total purchasers = 17.2 + 0.86 = 18.06m

Total MV = 18.06 × 900 = 16.25B

Revenue Breakdown

Revenue per day/store/customer → Number of days/stores/customers → multiply to get total revenue

Profitability Framework

Common Knowledge

Canadian Population: 40 Million

Average members per household: 2.5

Average life expectancy: 83 years

Median household income: $61,400

Smartphone penetration: 86%

Online shopping: 28.1 Million people

Cohort distributuion: 15 -(16%), 15-19(6%), 20-25(7%), 25-40(21%), 40-65(33%). 65+(17%)

Opportunities and Threats of Tech

Opportunities: Product innovation, product uniqueness, improved access and sharing

Threats: Imitation(information is costly to develop but cheap to share), disconnection between employees and customers, new tech and entrants in unfamiliar areas

Installed base

number of users

Lock in

The extent in which customers are committed to a product

Switching costs

Expenses that make it difficult for customers to switch from one product/service to another

Complementary goods

2 goods that are used/consumed together and boost each others’ value

Technology standard

enables the compatibility of complementary goods

Network effect

when an increase in user base causes the increase in value of a product/service(ex. social media)

Vicious/Virtuous cycle

Availability of complementary goods → Attractiveness to users → Number of users(installed base) → Attractiveness to producers of complementary goods(Note: like a circle with no beginning)

4 Innovation types and challenges(for large firms) they create

Sustaining: Improves existing products in expected ways and targets mainstream, high margin customers → little no knowledge or structural challenge

Disruptive: targets different performance attributes not valued by mainstream, starts in lower performance segments and improves rapidly then enters mainstream → significant structural and knowledge challenge

Modular: Keeping the same system but changing/improving specific aspects(new camera each year on iphone) → significant knowledge challenge

Architectural: taken existing parts/components and combining them into a new innovative product/service(ex. iphone connecting blackberry’s flip calling with music playback, and internet.) → significant structural challenge

Tactics for small companies to succeed

• Target Niche markets(use disruptive innovation, develop, then move up to mainstream to compete with incumbents)\

• Once they develop and take over mainstream they are at a high advantage as large firms do not have the structural flexibility to adapt quickly to changing trends in the market

Tech impact on industry profitability using Porter’s 5 forces

Rivalry among existing competitors:

Online price comparison with in person, comparisons with online purchasing(ex. fees, shipping),

Threat of new entrants:

Allows for innovation and differentiation among products/services making it hard for newcomers to replicate

Bargaining power of buyers:

Online price comparisons and reviews make it easier for buyers to compare choices

Bargaining power of suppliers:

Unique chip or IP can allow suppliers to demand more money from large companies who rely on them for their products

Threat of substitues:

Constantly creates new substitutes → streaming vs. cable, taxi vs. uber, newspaper vs. online news

Importance of understanding demographics to business

Powerful predictor of behavior/trends

Predicts supply demand

Cohort work and consumer implications(characterics)

Boomers(1946-1964): prefer in person transactions, long hours in office, 1 career

Gen x(1965-1979): research online → buy in person, brand loyal, flexible work, perfect career

Gen y(1980-1994): digitally savy, quality brand, want authenticity, seek work-life balance, want to have multiple careerss, access>ownership

Gen z: digitally savy, value uniqueness, want to “know” the brand, frugal/avoid debt, work-life balance, several careers

Factors that influence demographic characteristics

Economics, Tech, World events/news, Parenting

Demographic characteristics

values/priorities, lifestyle, habits(digital etc.), mindset

Implications of characteristics

How to attract, retain, motivate/What makes a product appealing/How much they spend and what categories they spend on

Government influence over business

Taxation: income, corporate, sales, property

Laws and regulations: rules around competition, pollution, intellectual property(IP)

Business support: help small businesses through subsidies, funding, trade agreements

Service provider: provides essentially serves(ex. mail/shipping, education, healthcare)

Business influence over government

Lobbying: hired to represent company’s interest, small businesses/individuals join and lobby as an industry lobby group

Advertising: corporations influence voters

Collaboration/input: CRTC consults with industry memebers

Sole proprietorship

Unlimited liability, sole owner, easy and inexpensive to start, all control

Partnership

Unlimited liability, multiple owners, easy and inexpensive to start, less control

• General partner: tied liability with the business, decision power

• Limited partner: limited liability, no decision power(can only lose what they put into the business)

Joint vs. Several Liabilityy

Joint: shared liability

Several: one person may be liable for all

Social Enterprise

Tradition market: companies only goal is to generate profit for wealth

Social enterprises: Can help with areas that traditional market missed such as education, healthy, and poverty to do something good for society

Globalization(definition, driving forces)

Def: World becoming a single interdependent system(different countries rely on the resources of one another via trading)

Driving forces: Cost and market benefits, tech makes it easier, faster, and cheaper, competitive pressure

Factors to identify where to expand internationaly

larger population → bigger potential market

average income/spending

competition: less is better

customer reachability: is it something that people in that area are interested in

Foreign Entry strategies(How?)

In order from least to most risky: Indirect export, sales agent/distributor, licensing and franchising, joint venture, sales office, foreign subsidiary

Indirect export

Def: sell to third party export merchant in own country

Why: no additional cost, no required market knowledge, export experience, or new infrastructure needed

Sales agent/distributor

Def: hiring an agent/distributor from that area to sell our product using their local network and you manufacture and ship abroad

Why: no resources/knowledge to tap into the foreign market with the agent’s knowledge

Risks: subject to trade barriers(ie. tarrifs), limited marketing control

Licensing and Franchising

giving a local organization the right to use your intellectual property(brand, patent, copyright) in exchange for royalties

Why: faster and larger expansion with fewer financial resources, no need to overcome trade barriers

Risks: damage to intellectual property

Joint Venture

Def: partner with a local firm for mutual benefit; mutual distribution, sharing knowledge, investment

Risks: time, personnel, money, difficult to break up if partnership doesn’t work out

Sales office

Def: establish your own office but ship abroad while manufacturing in your own domestic market

Why: retain market control, insufficient volume to justify facility, don’t want to take any risks(yet)

Risks: trade barriers, no market knowledge

Foreign subsidiary

Def: manufacture and sell in a foreign market

Why: overcome trade barriers, control of intellectual property and marketing, highest risk comes with highest reward

Risks: cost of facility and establishments of operations, sometimes need permission of foreign government

Diamond E

Logic: Internal consistency = good execution/External alignment = right strategy for environment

Management Preferences: vision, mission, preferences and biases

Organization: culture - who are we, capabilities - what are we good at, structure - how do we divide work

Resources: human capital financial(do we have enough money)

Strategy: plan business uses to pursue operatives and avoid threats

Ansoff matrix models(from leas to most risky)

market penetration(same product same market), market development(same product different market), product development(same market different product, diversification(different market and product)

Market Penetration(pros, cons, tactics)

Pros: build on what you have knowledge and resources for(low risk)

Cons: doesn’t leave much room for growth especially for companies already doing well in their current market space

Tactics: cut prices, advertising, increase distribution channels, volume incentives, buying competitors

Market development(description, tactics)

→ Keep what you have and expand to more markets(ie. more geographic locations or age/gender cohorts)

Tactics: spread awareness to new markets, use international expansion knowledge to expand internationally

Product development(description, tactics)

Description: stay in the same market but either change your product our extend your product line

Tactics: extend product line, replace existing products, create bundles of existing products that add value to each other(complementary)

Diversification(description, tactics)

Description: chase new customers with new products, create new businesses

Tactics: acquire other business, use joint ventures, alliances and other forms of collaboration