In accounting, sunk cost should not influence your decision. For example, I have ordered food which tastes so bad, and I need to decide whether or not I order other food. The cost of food is sunk cost. I can either suffer the rest of meal by continuing to eat it, or I could eat something else and enjoy it. According to sunk cost theory, I should stop eating and keep ordering because bad food cannot influence me.

However, I may continue to eat the bad food and never order new food. That is the truth, your decisions are tainted by the emotional investments you accumulate, and the more you invest something the harder it becomes to abandon it.

Another concept which can explain the behavior is that the differences between how people should make decisions and how people actually make decisions. The rational decision-making process is a six-step model: 1. define problems 2. identify the criteria 3. allocate weight to the criteria 4. develop alternatives 5. evaluate the alternatives 6. select the best alternatives. However, there are many limits for a rational decision-making. One judgement shortcut is confirmation bias. People seek out information that reaffirms our past choices, and discount information that contradicts them. As a result, even if individuals have made a wrong decision, but they  are likely to collect the views supporting the bad decision.

In the reality, we are not able to not to consider sunk cost.

You can learn a lot about dealing with a loss from a video game called Farmville. Actually, the lasting appeal of Farmville has little to do with fun. To understand why people commit to this game and what it can teach you about the addictive nature of investment, you must first understand how your fear of loss leads to the sunk cost fallacy.

references: http://mindyourdecisions.com/blog/2007/08/22/the-idea-of-sunk-costs/

http://youarenotsosmart.com/2011/03/25/the-sunk-cost-fallacy/

OB text book

http://www.braintrustgroup.com/2012/how-sunk-costs-can-be-minimized-with-agile/

I learnt an interesting theory in Organizational Behavior class, and this is attribution theory. The theory suggests that when we observe what seems like atypical behavior by an individual, we try to make sense of it. We consider whether the individual is responsible for the behavior( the cause is internal), or whether something outside the individual caused the behavior( the cause is external). People tend to blame someone makes the mistakes caused by internal factors, rather than external ones.

There are three rules to determine whether behavior is internally or externally caused: distinctiveness, consensus and consistency. For example, a student is silent in a comm101 class, she or he does not listen to the teachers and join the class. If the student is always  underperforming not only in comm101 class, but also in other classes, professor may think the student is unwilling to join the class, and the cause is internal. There can be a F on his or her grade. However, if the action is unusual, the professor judge it as externally caused. Maybe the student is sick.

Another rule is consensus. If in a comm101 class, all students are late. That means consensus is high. In this case, professors would be expected to give an external attribution perspective like the bus students take is broken, and professors would not blame students. But if other students who take the same route make it to class on time, professors would conclude the cause of lateness was internal for the student( wake up late or does not like the class). As a result, professors will be very angry.

The last rule is consistency. If a student always misses to submit assignments. He or she missed case1, 2  and 3 submissions, professors are likely to attribute the missing to external causes.

Organizational Behavior is really useful and the theories can be applied to many areas. In my opinion, the most magic part of Organizational Behavior is that it can explain some strange behaviors which people even do not notice in lives.

There is a integrated understanding about attribution theory on simply psychology website. The website also give us other famous theories which can be used to explain individuals’ behaviors. You may find it is quiet interesting to apply Organizational Behaviors to our daily lives.

references: OB text book

http://www.papermasters.com/attribution-theory.html

Many people may have the question about social entrepreneurs. Are they making money or looking for social good? A definition of social entrepreneurs is that social entrepreneurs are individuals with innovation solutions to society’s most pressing social problems, and they are ambitious and persistent, tackling major social issues and offering new ideas for wide-scale change. According to the definition, the major thing that social entrepreneurs do is solving social problems. However, making profit is vital for those social entrepreneurs. They are not doing charity.

There are several example of social entrepreneurs. TOMS is famous for its “one for one” policy. With every pair consumers purchase, TOMS will give a pair of new shoes to a child in need. When TOMS company benefits poor children, they get the profit from purchase of consumers. Some of them may be motivated by the social good to buy the shoes because what they pay for shoes will be used to help people in need.

Another example is that a woman called Zeritu Tadesse invested a large amount of money in opening stores to sell fresh milk. She is the only person who sell fresh milk in her place, and what she does benefits local people. Local people can get organic food in an affordable price. Because the fresh milk is gotten by local farmers who have about 2 to 3 cows, she helps country-side farmers to sell milk. Additionally, she expands her business while helping street vendors. As a result, Zeritu gets a lot of profit by creating social good.

According the two examples, what social entrepreneurs do is making money by solving social issues. It is quiet hard to analyze which is more important for them. However, they manage to do two things at the same time.

Adrianne’s blog mentions Mr. Muruganatham. As Adrianne mentioned, he is someone who recognizes a social problem and uses entrepreneurial principles to organize and create a social change. Maybe we can learn something from social entrepreneurs, their spirits: ambitious and mission driven. As long as they find an opportunities, they have actions.

references: http://www.ashoka.org/social_entrepreneur

https://blogs.ubc.ca/benlee/2012/11/15/class-21-applied-social-enterprise/

http://www.toms.ca/

continue to the last one

Market Method:

The major factor leading to the success of Haagen-dazs in China is its marketing method. There are several things the company did:

1. choose a special position: the Haagen-dazs only open stores in the downtown area of big cities. This also make sure its brand position: fashion and luxury

2. decorate stores: Haagen-dazs company use a lot of luxurious elements to decorate its stores to attract consumers, especially young customers.

3. improve brand awareness: Haagen-dazs company spent a large amount of money to advertise products, and engage celebrities in its advertisement. What he company want to do is make people think the brand is worth that money.

In a conclusion, Haagen-dazs focus on one group of people to sell products.

Products: Why does Haagen-dazs use the strategy in other countries? The answer is simple. In other countries like USA and New Zealand, ice cream is cheap but taste well. However, in China, maybe Haagen-dazs has a much better taste than other cheap ice cream.

references: http://en.cbf.net.au/Item/2735.aspx

http://www.google.ca/imgres?q=haagen+dazs&um=1&hl=en&sa=N&biw=1366&bih=597&tbm=isch&tbnid=eFuPQ83DgKq7cM:&imgrefurl=http://sfbstech.com/8W-09/29478/Haagen%2520Dazs.html&docid=PBr5jDlsZy2a1M&imgurl=http://sfbstech.com/8W-09/29478/Haagen%252520Dazs/haagen-dazs-1.jpg&w=450&h=337&ei=0euiUJaoFOPtiQLsuoDYCw&zoom=1&iact=hc&vpx=114&vpy=168&dur=61&hovh=194&hovw=260&tx=115&ty=121&sig=100619080821770163967&page=3&tbnh=137&tbnw=168&start=46&ndsp=26&ved=1t:429,r:39,s:20,i:316

This is the prices of Haagen-dazs in different countries.

Haagen-dazs is a US ice cream brand established by Polish immigrants Reuben and Rose Mattus in 1961, after forty years development, it continues to be an ordinary ice cream brand in the US with its products being available in supermarkets and auto selling machine.

However, the US brand ice cream gained unmatched success in China. It turns into a high-end brand and stands for luxury in the world’s most populated country.

There are several aspects we can analyze: Brand Position, Marketing and Products.

Brand position: before the company entering into China, Haggen-dazs made a complete survey of mindset of consumers, especially young ones. In order to make consumers pay for its high-price ice cream, Haagen-dazs established itself as the representative luxury and fashion. Thanks to the survey, people believe that  eating Haagen-dazs is fashionable.

in the next post, I will analyze Marketing and Products.

Strategies are vital to develop a business. I have learnt another interesting business model from Claudia Pisarek’s Blog.  EcoATM is an interesting and innovative idea. The company has identified the current market of cell phones increasing and wondered the question: what happens to the old phone or mp3 players(since most smartphones currently contain one)? Obviously, this company has a unique view towards and is leading a new market.

preferences: http://en.cbf.net.au/Item/2735.aspx

http://www.ce.cn/cysc/sp/info/201211/12/t20121112_21281512.shtml

Models of pricing

cost-plus pricing: ( the cost of producing the product+profit )

Forever 21 cut down the cost by hiring cheap labor and applying cheap design. Many workers in Forever 21 stores are minimum-wage high-school workers. Meanwhile, Forever 21 moves its production to Asia to pay less to workers. Forever 21 has faced more than 50 copyright lawsuit for stealing work of designers, ranging from Anna Sui to smaller independent designers like Trovata. Forever 21 does not spend a lot of employing designers.

Customers can buy goods at a low price in Forever 21, because Forever 21 cut down its cost by applying two methods: cheap labor and cheap design.

Market-oriented pricing: ( if competitors are pricing products at a lower price, Forever 21 should should price its products at a lower price)

The main competitor of Forever 21 is H&M, they both provide affordable prices and latest styles to customers. When H&M manages to provide a lower price to customers, Forever 21 should take some measures to win customers. For instance, Forever 21 can cut down price as well, and provides some deals.

Psychological pricing: ( price designed to have a positive psychological impact ）

Forever 21 often sells its products at $29.95 or $29.99, rather than $30.

references:http://articles.businessinsider.com/2012-02-27/strategy/31103150_1_cheap-labor-child-labor-factories http://en.wikipedia.org/wiki/Pricing_strategies  http://checkwin.com/?place=forever-21

Decide inc is a customer-price research firm that gathers and analyzed the data of price changing, they tracks the prices of products ranging from flat-screen television to Barbie dolls each day for at least two years across a number of retailers and e-commerce websites. However, Decide do not track in-store prices, which differ from market to market. As a result, its finding do not reflect the “door buster” specials offered during Black Friday on limited items  found only in stores.

Obviously, the data offered by Decide can give us some information about price change throughout a year, and maybe we can know why Black Friday is not the best day  to shop for price deals.

Decide tells us that prices for some gift items are lowest before holiday and will be increasing with the coming of holiday. For example, the best time to buy UGG is September or October, at this time, the prices are lower than that in December. The average price of  a Samsung 46-inch “Professional” LCD television is around $1159 in October, but $1355 on Black Friday Day.

There are many reasons causing the situations above. The core one is called pricing strategy. Retailers may get a fifth or more sales of a whole year if they can have a good pricing strategy.

reference: http://online.wsj.com/article/SB10000872396390443615804578042700772445448.html

Before I came to Canada, my parents bought Guaranteed Investment Certificates (GICs) in Royal Bank of Canada. It is a secure investment that guarantee to preserve your principal, and investors can earn some interest, at either fixed or variable rate, or based on a predetermined formula. This depends on which type of GICs you buy.

My parents bought redeemable-GICs. This type offers investors a fixed rate of return for a specific term, with both principal and interest guaranteed. As I know, RBC will return a part of money once a month. It seems that if people buy GICs, they can easily earn some money by getting the interest. For example, if individuals invest $1000, and the interest rate is 10%, after one year, they can get $1100. However, it is impossible that the interest rates are that high. This is the data about the interest rates RBC provides for GICs investors. Some interest rates are even lower than the inflation rate in BC.

Everyone can be attracted by the giant MitcDonald’s cup which was located in the downtown Vancouver. At the time, McDonald’s was giving away free small cups of its brew for a two- week period, in an effort to attract new breakfast customers.\

Obviously, McDonald’s is good at advertising. Unlike traditional advertisement, this way can be more attractive and impressive. Meanwhile, McDonald’s can save a lot of costs because the fee is lower. However, I am not sure if this behavior need the permission of the government. Maybe, McDonald’s is expected to submit its marketing plan.

I prefer this way to advertise because customers can enjoy the advertisement. Under the overloaded information environment, in my opinion, what firms are supposed to do is not just let individuals remember their products, they should pay more attention to what kind of impressions customers may have on them, and whether customers are willing to buy their products. Another McDonald’s latest commercial called “He loves me” also brings a great fun.

This is about marketing strategies. For example, when people are attracted by the interesting advertisement of McDonald’s, they may think that it is also interesting to have meals in their restaurants. So, people can have a great impression on this restaurant and more likely to have meals there, and even trust their food easily. This is the real purpose of   advertising.

reference: http://www.ibelieveinadv.com/2009/09/mcdonalds-free-coffee-pole/

Walmart became the world’s largest retailer by offering “everyday low prices” around the globe. Apparently, though, Walmart was offering something else too. The company has been plunged into a major scandal since a New York Times investigation revealed that Walmart’s Mexico subsidiary paid $24 million in bribes to local officials to sidestep regulations and obtain construction permits for new stores. The worst part: the story alleges that then the CEO and other top executives knew exactly what was going on and tried to hush it up.

This case is definitely a violation of business ethics!

Read more: http://www.time.com/time/magazine/article/0,9171,2113176,00.html#ixzz26JxA1ivl