BUSSPP 020 1st Edition Exam 2 Study Guide Lectures 7 12 Lecture 7 I What is an Industry A Collection of firms in a very similar kind of business 1 Gut level if it looks like sounds like walks like a duck a Food SOME examples are these all in the same industry i Growing ii Distribution iii Manufacturing iv Preparation B Takeaways 1 Sense of industry a Gut feeling i Nesting ii Official code a In practice i Perception of the market is idiosyncratic from your perspective and experience ii Differs between buyers and sellers C Systems MANY 1 Porter 5 Forces Model a Empirical observation i some industries appear to be more profitable than others b Porter there has to be a reason why industry x makes MUCH more i 1980 publishes a book 2 Porter defines an industry by 5 forces a Competition among rivals b Customer power c Supplier power d Threat of new entrance e Threat of substitutes Lecture 8 I Competition among rivals A Who s selling what you re selling 1 Number and relative size you have total revenue a Market share estimated i Monopoly Oligopoly or Perfect Competition b aggregate demand i increasing price will go up ii Increased profitability c aggregate capacity i very difficult to estimate excess just right or scarce d Exit costs i low relatively inexpensive to leave ii High very expensive to leave B Customer power 1 assume customers are price sensitive a Offsetting branding switching costs affiliation C Supplier power 1 key inputs D Threats of New Entrance 1 more rivals address the same demand increased competition a build barriers to entry i economies of scale in general the larger you are the lower is your unit cost of production ii Strong brands iii Intellectual property E Threats of substitutes Lecture 9 I Diversification Corporate Office A Observation Some firms are in one business others more than one 1 Why 2 Many reasons a cyclicality b risk management i don t put all of your eggs in one basket ii More than one business less dependent on success of single business c Complementarities i being in one business may increase opportunities in another B Terminology 1 Focused firm that s in a single business 2 Diversified firm that s in more than one business a Related Yum KFC Pizza Hut Taco Bell i Similar kinds of customers ii Similar price points iii Similar products iv Knowledge of doing one contributes significantly to the other b Unrelated PPG paint glass i judgment call MAY have a connection but it s a stretch c Conglomerate HUGELY unrelated ITT 350 different businesses i very rare ii US GE iii Int Samsung C Performance 1 Successes and Non successes in all categories a being focused diversified is NOT a predictor of success 2 Rationale a risk management b most risky focused c Least risky conglomerate 3 Spreading Resources how are you doing it D Structure 1 Focused a one CEO is an expert 2 Diversified a Multiple management systems i Those in charge have unique knowledge regarding each business ii Responsible for the business portfolio in which business should we grow etc iii Allocation of corporate resources Diversified Firm CEO GM1 Responsibility of GMs grow YOUR profit GM2 GM3 Profit Center compensation Salary Performance bonus Cost Center compensation Salary Investment Centers b How much power resource should each of these GMs receive i operations between these divisions can be vastly different c What functions should be centralized decentralized i IT HR centralized ii Purchasing strong argument for both iii No one best way to allocate this Lecture 10 I Back to the Course Thesis A Escape avoidance of perfect selling competition 1 Differentiation a Develop product different from the generic b Requires risky investment 2 Process Enhancement 3 Changing business model B Basic concept of differentiation 1 Gut level new modified product a product offering i something provided to someone else b products goods services i tangible intangible some combination c modern approach many types not falling into goods services 2 More formal approach Utility a form utility i different characteristics b place utility i convenience c Time utility i available when you want to shop d transaction utility i is the purchase do able in the form you wish to do business 3 Utility any change in any and all of the above significant enough for a consumer to observe the change and find it important C Types of differentiation 1 Novel completely different alternative product 2 Modified tweak more typical a product refinement change in a product that replaces the original i long run does not cause product proliferation ii Overlap until the old inventory is used up iii Secondary market still selling old product b Product extension change in a product that is sold alongside the original i linear geometric growth ii Long term causes product proliferation c sku stock keeping unit i dramatically increased by product extention II Differentiation as an investment A Investment expenditure of some resource to get another resource time people 1 Money in 5 different forms a current revenue b retained earnings c sale of assets d debt e sale of stock B Investments are risky 1 Costs before benefits a benefits may never occur may be too little too late 2 Apply this to differentiation a if debt then probably constrained b how to allocate R D product devel Market Research Distribution Promotion make but lease problem C Criterion for differentiation 1 E B E C 2 Adjustments a time value of money b cost of capital c opportunity costs d tax Lecture 11 I Branding A Concept definition 1 Brand identifier product B There are different things that we can think of as identifiers 1 Brand name a name b Big Mac b This is linked to language and therefore could become a symbol to a place that doesn t speak the same language c Some may use an English brand in foreign countries i Target market is US ii May see English as more global d Example Sony i Eventually wanted to sell to US soldiers needed to be pronounceable by them e Could be for business product of a business or for the entire name i There can be multiple brand names within one firm f These are examples of protected intellectual property i Firm that develops the name has exclusive use of the name for a period of time ii That time is NOT infinite iii Has to be renewed on a regular basis iv If you do not go through federal listing you don t necessarily have exclusive use Example Yo yo escalator g People now brand their children with unique names and spellings i There are ways to