COMM 1800 Exam 2

Types of death

bankruptcy, merged/acquired, rebirth?

Bankrupty

don’t have enough money to pay off debts

two kinds: chapter 7 and chapter 11

Chapter 7 bankruptcy

liquidation → sell off all assets
e.g. Toys R Us

Chapter 11 bankruptcy

reorganization → reorganize debts by negotiating with creditors to pay off as much as possible or give them an equity share

Merged/acquired

Capture-and-kill → buying a competition and shutting them down to get rid of the competition

Result in a new combined organization (e.g. United bought Continental)

Integrate back office but still operate fairly independently (e.g. Amazon bought Zappos)

Rebirth?

recovering from the death spiral

someone who bought the brand name starts a similar business (e.g. Abercrombie & Fitch)

Business structure

How all the particular jobs in a business are connected with links telling you who’s doing what, where they’re doing it, how it’s getting done, and how it’s all connected

Historical connections of business structure

• follows from division of labor (Smith)

• results in a hierarchy (Weber)

• includes rules & regulations to control behavior (Weber)

• creates inherent tensions (Systems theory)

Sources of structure

by design → business chooses their structure driven by their mission and strategy
e.g. Zappos, Apple

contextual factor → environments (general and specific) pressure the organization to be structured in a particular way
e.g. United Airlines, Dominion Energy

Ways of assigning tasks

• differentiation/specialization

• centralization

• formalization

Differentiation/specialization

how big/differentiated/specialized each job is

dividing jobs can make the business more efficient

larger organizations tend to be more specialized

Ways to divide a business

• horizontally → one or two layers of management, lots of specialization and different jobs, wide

• vertically → lots of different levels from top to bottom, tall

• by sub-systems

Types of division based on sub-systems

• functional (what) → taking the jobs one person used to do and splitting them up

• divisional (how)

  • centralized → working things in one location

  • regionalized → dividing so each department can meet certain tastes and preferences

• geographic (where) → open branches in different places

• market (who) → who the customers are and what they want

Tension between differentiation vs. integration

less diversity makes it easier to control

Centralization

delegation of authority, who has the responsibility to make decisions

larger organizations tend to be more decentralized

Ways to centralize

line → the people doing the work; only works when the product can be flexible

staff → middle management category

team → action team, task force, figure out problems when situations arise

Responsibility vs accountability

responsibility → you have to do it

accountability → if something goes wrong, it’s your fault; if it goes well, you get credit for it

usually have both

Span of control

how many people a person is responsible for

decisions of individuals with a larger span of control will affect more people

Tension between centralization vs. decentralization

delegate authority to someone, but how do you know what they’re doing and what happens if something goes wrong?

situations can change before orders get passed down

Formalization

how formal the rules are that the business follows

more formal = rules are rigid, guidelines are strict

larger businesses tend to be less formal

Two types of formalization

de facto → informal, everyone knows the rules even though they’re not written down

de jure → formal, the rules are written out and can be easily found

Tension between formalization vs. flexibility

importance of standardization

if its important that everything is the same, having lots of rules is necessary

finding the appropriate levels helps the organizations to find what’s most efficient (no “optimal” amount of formalization)

Marketing

identifying, anticipating, and satisfying customers' needs and wants while meeting company goals

most important: the product brings value to the customers

driven by the exchange between the customer and the company

affected by environments

Element of relationship in marketing

short-term → need the product right here, right now, but never have an exchange again; short-term demands

long-term → want customers to keep coming back; easier and cheaper to have returning customers than finding new ones

Creating value

• Convenience, budget, quality, durability, and more depending on the individual and the industry

• Understand pool of customers (tend to have similar values)

• value = benefits/costs

Business to consumer (B2C)

business trying to deliver value propositions to the customer

Business to business (B2B)

business provides products to another business, market is aimed at other businesses

Utility

the benefits for the customers

• form → features customers want (e.g. color, style)

• time → when customers want it

• place → where customers want it (e.g. pick-up, delivery)

Segmentation

subgroups based on commonalities → find who is most likely to interact in an exchange with the business

who are the customers? how do customers view the business?

Ways to segment

Geographic → neighborhoods, cities, states, countries; where are the customers

Demographic → gender, age, income, education; characteristics of customers that affect their interaction with businesses (most common)

Psychographic → lifestyles, interests, opinions; what the customers are like or what they like to think they are like

Behavior → holiday, bulk, splurge; how the customers purchase, consumer behaviors

Segmentation leads to…

finding the business’s target market (who is most likely to engage in that exchange)

Value proposition

communicate to customers why to buy from them versus other businesses

not buying, solving a problem → builds longer-term relationship by giving customers something above and beyond what the competition can do

Four P’s of Market Mix

1. product

2. price

3. place

4. promotion

Four P’s: Product

creating value

goods, services, and ideas that satisfy demand

Four P’s: Price

capturing value

how much the customer pays for it, not how much it costs

customers evaluate the utility and assess if the exchange (cost) is reasonable

Four P’s: Place

creating convenience and comfort in the exchange

the exchange is where and how the customer wants it to be

availability and supply chain

Four P’s: Promotion

communicating value

• design → the product looks the way the customers want it

• advertising → communicate value to customers

• sales

• public relations (PR) → letting customers know who the business is and what they do

Two factors affecting the Four P’s

marketing research and consumer behavior

Marketing research

• where the target market is located → collect data on customers, income, demographics

• product reviews and who leaves them

Consumer behavior

• individual loyalty → buying behaviors, shopping cookies

• lifestyle → hobbies, personality characteristics, activities, likes, etc.

• brand loyalty → loyalty to retailer vs to product

• social/cultural factors: support for specific products or events, trend, progressiveness

Developing a marketing strategy

1. identify segment → choose target

2. positioning → how the brand is perceived, the exchange

3. the marketing mix, the four P’s

Types of segments/targets

• total/undifferentiated → big population, basically everyone likes the product

• segmented/differentiated → more specific, won’t appeal to everyone

• niche/concentrated → very specific, needs more research to determine the demand and find the market

• micro/customized → very, very specialized, not a lot a choices, most likely to buy, most expensive

Marketing strategy: positioning

• Companies have to think about the customers perception of them so the exchange lines up

• Businesses can have problems when they aren't being perceived the way they wanted

• Names give off different vibes and attract different customers

  • if the customer sees the company how the company wants, the exchange will line up

Marketing strategy: the marketing mix

(Walmart and Wegmans)

• product → relatively similar products

• price → both affordable but sell different experiences (different positioning)

• place → everywhere versus exclusive area

• promotion → exclusivity lends for a different marketing strategy

Other marketing issues

• product lifecycle/dynamism

  • low dynamism → brand loyalty is more influential

  • high dynamism → customers want what’s new, improvements

• distribution/logistics

• setting process: “fixed” vs. dynamic

  • fixed prices → prices based on competition, market sets the price

  • dynamic → more complicated pricing models, adjust prices daily, supply-and-demand

Ethics and marketing

• promotion → companies don’t share everything with customers who buy product with false expectations

• pricing → hidden fees, bait and switch pricing

• predatory marketing, redlining

Bait and switch pricing

advertise something at a particular price to get the customer in the store, but then once they arrive, the product is "sold"

Predatory marketing

marketing product or service to a specific audience that is not valuable to them

Redlining

illegal practice where lower income neighborhoods are charged higher interest rate on home mortgages than more wealthy areas

Accounting

recording, classifying, summarizing, and interpreting financial transactions and events to provide accurate information about an organization's financial status and performance

Characteristics of accounting

• point in time

• subject to interpretation

• part of the broader system

External stakeholders and financial accounting

• investors, government agencies, actual customers, competitors

• designed to allow for comparisons

• rigid and are reported quarterly & annually

Characteristics of financial accounting

• historical perspective/looks at the past

• precision/verifiability to protect

• standard rules and procedures: GAAP, SEC/IASB

Internal stakeholders and managerial accounting

• managers, owners/investors

• formats can vary, flexible

• used for planning

• could be a daily process depending on the business

Accounting equation

Assets = Liabilities + Owner’s Equity

Assets

all the resources owned/owed to the firm

e.g. land, buildings, machinery/equipment, trademarks and patents (intellectual property), inventory, money in the bank

Liabilities

all obligations owed

taxes, debts, wages

Owner’s equity

assets claimable by the owners/what’s left after the liabilities

personal investments, accumulated profits, stock held in other companies

Double-entry bookkeeping

everything gets recorded twice because every transaction affects at least 2/3 of the equation components

Balance sheet

accounting equation

measures profitability, liquidity, solvency, efficiency, and leverage

Balance sheet: profitability

gross and net profit margins from operations

Balance sheet: liquidity

capability to cover short-term operations

liquid = assets in cash
illiquid = assets not in cash form

Balance sheet: solvency

ability to cover long-term operations

insolvent = don’t have enough money even if everything is sold off

Balance sheet: efficiency

how much revenue is produced by production process (systems theory)

increased efficiency = reduced cost of production

Balance sheet: leverage

how much that could be taken on to finance operations

over leveraged = no room to take on additional debt

Income statement

Narrower, more specific report about how much money was made

reports gross profit margin and net income

reported in SEC 10Q

Gross profit margin

Gross Profit Margin = Revenues - Cost of Revenues

Percentage depends on industry

For every $1 of revenue, $0.xx of gross profit

Net income

Revenues - Cost of Revenues - Taxes

how much money can be taken home

For every $1 of revenue, $0.xx of net income

objective and subjective

Statement of Cash Flows

• required by the SEC

• operating activities (core) → buy/sell goods and services

• investing activities (non-core) → buy/sell investments, property, equipment

• financing activities → borrowing money, selling stock, issuing debt

Limitations of financial statements

• do not capture non-financial factors (i.e. positioning, brand equity, customer satisfaction)

• many estimates (e.g. depreciation)

• “creative accounting” possible

• industry, country limit comparability

Accounting fraud & ethics

• future sales in current quarter (e.g. xerox)

• keep debts/obligations off balance sheet (e.g. Enron)

• faked invoices to inflate revenue (e.g. AOL)

• misleading accounting (e.g. Kmart, Sears)

Money

• medium for exchange, portable and divisible

• stores value, durable and stable (mostly)

• measures worth, allows for comparisons

The Federal Reserve Bank

guardhouse of the American financial system

manages money flow in the United States

12 regions

Four responsibilities of the Fed

1. monetary policy

2. regulate banking institutions

3. check clearing

4. FDIC

The Fed: monetary policy

• buy and sell T-bills

• set federal reserve regulations → tell a bank how much they need to have on hand to give to customers

• set discount rate → interest rate, how much does it cost a bank to lend out money

• enact credit rules

The Fed: regulate banking institutions

• set up and institute the rules and policies banks have to follow

• approve mergers

The Fed: check clearing

manage relationship between payer, payer’s bank, middle man, payee’s bank, and payee

The Fed: FDIC

Federal Deposit Insurance Corporation

insures deposits at banks for up to $250,000

banks pay a premium to be protected

Treasury bills

• short-term (< 1 year) investments

• pay interest at maturity

• sold at a discount

get interest all at once plus original value

Treasury notes

• mid-range (2-10 years)

• pay interest every 6 months

• usually sold at face value

collect interest biannually and collect original value at maturity

Treasury bonds

• long maturities (20-30 years)

• pay interest every 6 months

• usually sold at face value

collect interest biannually and collect original value at maturity