Ashford 7: – Week 6 – Discussion 1
Your initial discussion thread is due on Day 3 (Thursday) and you have until Day 7 (Monday) to respond to your classmates. Your grade will reflect both the quality of your initial post and the depth of your responses.
Game Theory and Strategic Behavior
Suppose that GE is trying to prevent Maytag from entering the market for high efficiency clothes dryers. Even though high efficiency dryers are more costly to produce, they are also more profitable as they command sufficiently higher prices from consumers. The following payoffs table shows the annual profits for GE and Maytag for the advertising spending and entry decisions that they are facing.
Advertising = $12m
Advertising = $0.7m
$1m , $20m
Based on this information, can GE successfully prevent Maytag from entering this market by increasing its advertising levels? What is the equilibrium outcome in this game?
Suppose that an analyst at GE is convinced that just a little bit more advertising by GE, say another $2m, would be sufficient to deter enough customers from buying Maytag, thus, yield less than $0 profits for Maytag in the event it enters. Suppose that spending an extra $2m on advertising by GE will reduce its expected profits by $1.5 m, regardless of whether Maytag enters or stays out. Would this additional spending on advertising achieve the effect of deterring Maytag from entering? Should GE pursue this option?
In 300 words or more, please, provide your response to the above discussion question. Please, show all your calculations and explain your responses. Respond substantively to at least two of your classmates’ postings. Substantive responses use theory, research, and experience or examples to support ideas and further the class knowledge on the discussion topic.
Ashford 7: – Week 6 – Discussion 2
Your initial discussion thread is due on Day 3 (Thursday) and you have until Day 7 (Monday) to respond to your classmates. Your grade will reflect both the quality of your initial post and the depth of your responses
Sustainable Competitive Advantage
Describe the circumstances under which a firm chooses a low-cost strategy to attain sustainable competitive advantage. What about the situations when a differentiation strategy is chosen? Provide specific real world examples.
In 300 words or more, please, provide your response to the above discussion question. You may research the current events websites listed in the recommended resources for ideas of real world examples. Respond substantively to at least two of your classmates’ postings. Substantive responses use theory, research, and experience or examples to support ideas and further the class knowledge on the discussion topic.
Michael Porter introduced the notion of sustainable competitive advantage, which is a continuing and superior rate of profitability compared to other firms in the same industry (Douglas, 2012). There are two approaches to strategies that help a firm to gain and maintain sustainable competitive advantage. “A firm following a low-cost strategy seeks economies sin administration, production and marketing, striving to be as lean as it can be without compromising the level of quality it chooses to produce and be known for” (Douglas, 2012). Firm A chooses this strategy when its competitor produces an essentially identical product. As a result, Firm A charges a lower cost because it gives them the advantage of a higher level of profit per each unit sold. Firm A elects to increase the number of units produced in bulk sizes and at the same time the number of sales are increased. Firm A is at an advantage and can focus on investing more money into marketing and doing things such as acquiring better positions on store shelves. The low cost strategy also allows Firm A to invest more of its resources into creating and developing a better quality product. The low cost strategy requires that Firm A has a full understanding of all costs pertaining to the business, its specific product and the market. Ikea, a retail furniture store, is an example of a business that employs a low cost strategy. Consumers can purchase less expensive furniture that is still appealing, attractive, and stylish. Ikea outsources manufacturing because of the low production costs which allows the firm to sell its products for low costs.
According Douglas 2012, the second approach is called the differentiation strategy which is when a firm tries to make a product or service that is of higher quality in the eyes of the target customer, such that the customer is willing to pay a higher price for it (Douglas, 20012). The situations that lead a firm to choose this strategy include creating products or services of high quality that the profits can be increased. Whole Foods is an example of a company that utilizes the differentiation strategy. They cater to their target audience and promote quality driven healthy products.
Douglas, E. (2012). Managerial Economics (1st ed.). San Diego, CA: Bridgepoint Education.
The low-cost strategy focuses on economies in administration, production and marketing, striving to be as lean as it can without diminishing the overall level of quality it chooses to produce and be known for in the market. A low-cost firm strives to minimize the cost of their products, which results in increasing their contribution margin, by reducing the costs per product unit. A strategy that organizations use is focusing on increasing higher production rates and sales volumes (Douglas, 2012). Differentiation strategy focuses on obtaining high profits by producing a product or service that is different from those that are supplied by their competitors. The plan of a differentiation strategy is to make a product or service that is higher quality from a consumer’s perspective. This normally means that the customer would be willing to pay more for a specific product. Companies spend more on their product quality to allow their products to be different from their rivals, resulting in obtaining a higher price point in the market (Douglas, 2012).
I have purchased quite a few Dell computers. They are one organization that comes to mind that utilizes the low-cost strategy. Studies show that Dell was at its lowest level of operating expenses at 10.2% of revenues, compared to Compaq with 18.3% and HP with 20.6%. Dell’s focus is on high volume production rate of innovative product design (Daniel, 2002). Apple is an organization that uses differentiation strategy. Apple is all about trying to develop new innovative products that are unique to the market. Apple have created the iPhones, iMac, iPods, and iPads. Apple is a very strong and competitive company in the market right now.
Daniel, C. (2002, Apr 02). Dell Seeks New Routes for its Lean Machine: The Company’s Low-Cost, Direct Sales Strategy has seen it Emerge Victorious from the PC Wars. But with Growth in the IT Industry Slowing, It Will Have to Find Other Markets If It is to Maintain Its Momentum. Financial Times. Retrieved from http://search.proquest.com/docview/249357789?accountid=32521
Douglas, E. (2012). Managerial Economics (1st ed.). San Diego, CA: Bridgepoint Education
Ashford 7: – Week 6 – Final Paper
Managerial Decision Making Research and Analysis
Focus of the Final Paper
Research a specific company of your choice and identify some of the managerial decisions that were made over time and in response to changes in its market or competitive environment. Use the Ashford University Library and web-based sources for your research. At least three external scholarly sources must be used in addition to the textbook.
Address all of the following areas:
- Describe the company and provide a brief history of its operations. Find or use graphs to illustrate its financial performance over the years.
- Describe any sources of risk or uncertainty in its operations. Do the financial reports indicate risky or uncertain activities or changes to the economic environment that ultimately appear to have affected the company’s financial outcomes? Be specific.
- Are there any government regulations that have affected this company’s operations domestically or abroad? Explain.
- Describe the inputs that are used in this company’s production function and identify any challenges to securing these inputs.
- Determine if the company has introduced new products in existing markets or created new markets over time. What is the impact on its finances?
- Determine if the price of its products increased or declined over time and analyze the reasons for price fluctuations. Study the demand elasticity for its products and discuss the availability of close substitutes for its products. How does that affect pricing decisions?
- Analyze the company’s profitability. Identify the economy or industry influences on its costs, operations, and profitability.
- Describe the competitive environment in which the firm operates, the distribution of market power, and the strategic behavior of the firm and its competitors. Apply your knowledge of the theory of this company’s market structure. How does the company make pricing and production decisions? Is your observation supported by the theoretical models? Refer to the financial reports for illustration.
Describe any non-price competitive strategies that the company might be engaging in. Provide specific examples.
- Evaluate if the company made any mistakes in its decisions over time, and recommend any changes or improvements for future operations. Refer to the financial reports when making specific observations or recommendations..
Use economic language and demonstrate your understanding of the concepts and theories of this course.
Writing the Final Paper
The Final Paper:
- Must be 8 to 10 double-spaced pages in length (excluding including the title and reference pages), and formatted according to APA style as outlined in the Ashford Writing Center.
- Must include a title page with the following:
- Title of paper
- Student’s name
- Course name and number
- Instructor’s name
- Date submitted
- Must begin with an introductory paragraph that has a succinct thesis statement which identifies the focus of the paper.
- Must address the topic of the paper with critical thought.
- Must end with a conclusion that reaffirms your thesis.
- Must use at least three scholarly sources, in addition to the text.
- Must document all sources in APA style, as outlined in the Ashford Writing Center.
- Must include a separate reference page, formatted according to APA style as outlined in the Ashford Writing Center.