MGTA01 MIDTERM -- GROUP 1: Foundations of Business & Product Strategy (Lectures 1 & 2)

Covers business vs. organizations, the profit motive (Marx vs. Smith), Canada's startup climate, goods vs. services, product value, product classifications, and the Product Life Cycle (PLC) with real cases like BlackBerry, Netflix vs. Blockbuster, and Amazon.

Core difference between an organization and a business

An organization is a group working toward common goals, but a business specifically operates with the explicit intent to generate a profit.

Why UofT is classified as a Not-For-Profit rather than a business

Tuition and government funds cover expenses without creating an owner profit; any surplus is reinvested into operations.

Karl Marx's view on the profit motive

He argued that owners exploit labourers by paying them a fraction of the economic value they produce (e.g., $10/hr vs $40/hr value).

Adam Smith's defense of the profit motive in 'The Wealth of Nations'

Profit is a fair reward for risk, and owners need surplus revenue to maintain equipment, market goods, and create jobs.

Canada's global ranking for ease of starting a business

Ranked 2nd in the world by the World Bank, though keeping a business operational long-term is difficult.

Four primary characteristics of physical Goods

Tangible, invariable (standardized), separable/non-perishable (can be stored), and produced via manufacturing.

Four primary characteristics of Services

Intangible, variable (customized), inseparable/perishable (immediate consumption), and performed with customer involvement.

Components of a product's 'Value Package'

Value is created through the combined bundle of Function, Features, and Benefits offered to buyers.

Definition of Convenience Products

Inexpensive consumer goods purchased frequently with minimal time and effort (e.g., milk, chocolate).

Definition of Shopping Products

Moderately expensive goods purchased infrequently after consumers compare features, quality, and price.

Definition of Specialty Products

Important, high-value purchases for which buyers spend significant time and effort to find the exact brand/item.

Primary cause of negative profits during the Introduction stage of the PLC

Upfront R&D and heavy initial marketing costs far exceed small initial sales volume.

Concept of 'Infant Mortality Failure' in product launches

New products face their highest failure rate right at launch (around 80%), with survival probability increasing over time.

Characteristics of the Growth stage of the Product Life Cycle

Sales expand rapidly due to trial/accessibility, unit costs drop via economies of scale, and the company begins making a profit.

Characteristics of the Maturity stage of the Product Life Cycle

Sales peak due to market saturation, brand awareness is high, marketing spend decreases, and profit reaches its highest point.

Definition of a 'Product Line Extension'

Re-packaging, re-launching, or updating a mature product to avoid decline and prolong its life cycle.

Primary cause of the Decline stage in a product's life cycle

Outdated consumer needs and tastes shifting toward newer, superior substitute technologies or products.

Sector accounting for over 75% of Canadian employment

The service sector.

Definition of Economies of Scale

A decrease in the cost to produce an individual item as total production volume increases.

B2B vs B2C business models

B2C sells products to the end user for personal use; B2B sells parts, ingredients, or services from one business to another.

Case Study: Reason for Blockbuster's bankruptcy compared to Netflix

Blockbuster failed to pivot into digital streaming, whereas Netflix innovated past physical video rentals.

Case Study: Amazon's financial strategy during its first 8 years

Amazon lost $3 billion over 8 years, prioritizing long-term growth and capital reinvestment over immediate profits.

Case Study: Primary reason for BlackBerry's market share collapse post-2011

BlackBerry failed to transition to touchscreens and app ecosystems fast enough when consumer demand shifted.

Application: What happens to surplus funds in a Not-For-Profit organization?

Surplus funds are carried over into future operating years or donated, but never distributed to private owners.

Application: Example of a High-Contact vs Low-Contact service

A haircut or nursing home is high-contact; automated online banking or cable TV is low-contact.

Application: Difference between product Function and Benefit

Function is what the product physically does; Benefit is the personal advantage derived by the buyer.

Application: Why Canadian entrepreneurs face high business churn

While starting a business is easy, maintaining it is difficult due to fierce competition, risk, and unpredictable human behavior.

Application: Formula for calculating Profit or Loss

Profit equals Revenues minus Expenses; if Expenses exceed Revenues, the result is a Loss.

Application: Role of R&D intensity in tech and pharmaceutical firms

High R&D intensity (spending a high percentage of revenue on R&D) is required to continuously innovate next-generation products.

Application: Why marketing costs decrease during the PLC Maturity stage

Consumers are already widely aware of the established product, so education costs drop significantly.