Tim Martiniak's Blog

Andrew Hill on FinancialTimes.com wrote a blogpost about one of Apple’s newest products: a mini version of the hugely successful iPad. His blogpost states that because the iPad Mini is not a huge innovation, by setting the price too high, Apple takes on a substantial risk.

What Andrew Hill has done is roughly comparable to what Mahesh Nagarajan taught us in his guest lecture: demand forecasting – however, we are in this case not looking at the forecast from a supply chain management side (quantity) but rather from a sales side (product pricing).

The author of the blog points out the difference between the iPad Mini and, say, the iPhone or the initial Mac who

“were disruptive, breakthrough products, rather than derivatives of one.”

…and comes to the conclusion that since the iPad Mini is only a derivative of a previous product, demand for it will not be large if the price is set too high.

However, if I am to compare the launch to, say, the new MacBook Pro with Retina display, one can see that these are no more but derivatives of the old laptops. Yet, they were priced at a premium and were a huge success. Perhaps Apple did the right thing in keeping prices high because even though they took a risk, potential profit margins are much greater.

The blogs on FinancialTimes.com are all free for anyone to access and provide interesting and detailed information about current events – authors frequently analyse these from a financial aspect and the blog is thus a good source of information or inspiration for the business world.

In our class on October 12th, Joanna Buczkowksa highlighted the importance of social entrepreneurship and enterprises for today’s society. How can we then make this so-called ‘third sector’ more appealing to new entrepreneurs? How can we facilitate success for new projects and ventures? Jonathan Lewis, a UK businessman, suggests to create a ‘social investment bank’ that can provide flexible funds for new social enterprises.

I believe that current banking may well be unable to suit the specific needs of social entrepreneurs – visionaries that embark on ventures to benefit society – for example, the risk involved in starting such a project or even a larger social enterprise could be misjudged. If government were to provide funds to create a bank that addresses social entrepreneurs (for example with favorable credit conditions), it can accelerate and leverage growth in the third sector, a beneficial outcome for communities and society in general.

Hand-in-hand with such a financial institution goes a new opportunity for investment: if the social investment bank is large enough to attract funds from third party investors, investing one’s money in the third sector may well become an interesting way for long-term returns. To become such an attractive haven for funds, the bank should ideally have a brand image that is modern, dynamic, and reflecting the innovative approaches of today’s social entrepreneurs. I agree that the time has come to create such an institution and I am certain that if introduced, the idea will lead to increasing investment and growth in the third sector, which is highly desirable at this point.

Janice analysed and explained the benefits of TransLink’s new ticketing system Compass that is to be introduced in 2013 in her blogpost last month. Compass is a pay-as-you-go electronic card that can be charged and the fare is automatically deducted when checking in and out of the transit network.

TransLink thus made the decision to allocate a large budget towards building the infrastructure required for this new system with the hopes that it will pay off in the long run through a substantial reduction in fare evasion as well as additional benefits such as the ability to track exactly where and when people are boarding and getting off the transit services. The installation of fare gates is the topic of the video below:

Janice was only concerned with the reduction in loss of revenue through customers who do not pay for the services; however, a possibly just as important benefit of the new system is the improved gathering of statistical data of consumer behaviour. A recent financial audit found that TransLink (who are, as usual, in financial trouble) is able to save millions of dollars if, for example, the frequency of the SkyTrain were to be reduced when it is not used at full capacity. Essentially, if TransLink has access to this data, it can improve the utilized capacity of all its services, an imperative step in order to become more profitable.

If customers accept the Compass card as a new form of fare payment, it may prove to be just the right step for TransLink into a brighter future. Similar transit networks in London (OysterCard), Copenhagen (Rejsekort), Singapore (EZ-Link), Montreal (OPUS), etc. have proven to be a good investment for the transit authorities.

Barclays, one of Britain’s largest banks, was recently involved in one of the largest banking scandals in European history. They were fined over £290million because of manipulated interest rates that effectively made it more expensive for customers (this includes both households and large companies) to borrow money, thus increasing profits made through lending money.

What happens when employees deceive their customers to an extent at which they do it as a ‘favour’ to a third party?

“done… for you big boy!”

Barclays failed in its social responsibility to earn profits whilst at the same time following the law and basic ethical customs (Friedman). What went wrong? In the case of Barclays, management lost their bonuses for this year; in the overall picture, however, an ethical approach to leadership (which would make more sense for the long term as it creates a positive image that boosts profits) must start with an initiative taken by senior managers!

I personally believe that if managers take on responsibility for actually creating a positive ethical environment, i.e. setting clear goals, adhering to policies set out by the company or by managers themselves – thus, if they do what they are supposed to be doing as good managers, the foundation for an ethical business is already laid out.

This blogpost comments on Ben Lee’s blogpost #3 that dealt with continuously increasing prices for basketball shoes.

an example for a LeBron sneaker, the top model of Nike’s sneakers, with this particular model priced at over $249.00

Ben identified Nike’s strong perceived brand value as its PoD allowing Nike to retain sales despite raising prices. He argues that the demand for specific Nike sneakers is relatively inelastic, allowing them to raise prices without affecting quantity demanded.

Taking our discussion a bit further and after more research, my conclusion is that Nike’s competitive advantage is shown through loyal customers and a hype for new sneaker releases (similar to lululemon’s strong customer base predicated on the yoga hype).

It is remarkable that Nike is able to retain such high profits with little effort – although they do claim that technical innovations give them an edge over competitors such as Adidas. On the bottom line, however, this year’s sneakers are not very different from last year’s, so it has to be the strong brand loyalty that keeps Nike at the top of the market. Despite this, to remain competitive, the company has to increase efficiency in its production processes – thereby cutting costs.

I personally would not buy shoes that are triple the price of substitute products. This reflects the possibly greatest challenge for the company that it will have to face in the future: finding ways of generating demand for a product that could be categorized as a ‘luxury good’ – the art of generating a need for it where no need is inherent.

All cases should be approached by following these three steps: (thanks Frankie for this info)

1. identifying the underlying issues that the business may face (these can be in the form of important decisions, or problems that managers have to solve),
2. analyzing the causes of the above-mentioned issues and attempting to reach a solution for the most important ones,
3. summarizing a recommendation or recommended strategy to cope with the issues.

In COMM101, the first step would be to skim through the case – the first and last page are usually good indicators for the key problems the case is focused on. They also provide a first look at the key decision in the case. Our first case (lululemon) had as its key decision a choice between expanding geographically and expanding the product line-up. Such a key decision is the main focus of the case and should also be the main focus of our answers.

A good strategy to get an overview over all issues is to list them all after a second read-through of the case. Subsequently, the issues can be ‘bucketed’ and overarching issues are to be identified. These can be further narrowed down to one large all-encompassing issue that is the focus of the case.

The actual analysis then consists of prioritizing the issues and finding arguments through pro/con comparisons, cause/effect diagrams, SWOT diagrams, financial analysis, etc. – remember, however, that you have to be selective and not everything should be included!

After this is done, a recommendation can be worded, in the form of advice and recalling the key decision that is to be made.

always remember – ‘my analysis shows…’ beats ‘I think…’

Everyone has heard it at least a thousand times – but there is a good reason for it to be reiterated over and over again: globalization and modernization are in the process of transforming the business environment. I attached an updated version of the famous ‘shift happens’ video to reflect how China and India surpass every other economy in the world in terms of growth and future prospects. Businesses with an interest in expanding globally focus their efforts on these and other emerging markets. There is a wealth of opportunities ahead, we just have to make sure not to be overwhelmed – or not to ignore them.

After doing some research into recent changes to said market, I have found an article describing how the Danish brewery Carlsberg, one of the three largest in the world, actively attempts to increase their market share in Asia. They are currently looking into a partnership with Singha, a popular brand in Thailand. Carlsberg’s CEO is reaching out for new opportunities to

“really accelerate our growth in the Thai market”

especially because traditional markets such as Europe or North America are struggling to keep up demand. Carlsberg’s decision to expand in Asia helps to compensate market share losses in said countries. Its future outlook will be determined by its ability to successfully establish their brand name in Asia, and preferably before other large international brewers, e.g. Anheuser-Busch (producing Budweiser), gain greater brand recognition.

The link to the article can be found here.

Glaxo Smith Kline – one of the biggest pharmaceutical companies in the world – has certainly no interest in projecting a negative image onto its activities and operations. It certainly has no interest in acting against the law. Yet, they have been fined over $3bn due to, in the largest sense, unethical, and in some cases illegal behaviour. GSK were encouraging the prescription of dangerous anti-depressants for minors, and failing to report safety issues with some of their drugs. The company was effectively bribing third parties with the overall goal of increasing profits, but at what price? The end does not always justify the means, but it seems as though Machiavellian behaviour is common for GSK managers.

As R. Edward Freeman explains, a business that does not comply with the rules of the community it is operating in, will eventually decline. Be it through through regulation or large fines, as was the case for GSK, or through a devastating loss of PR value as a result of these activities.

A second article identifies the GSK scandal as a result of a failure of culture: when “jollies came to seem normal”, the fundamental ethical values such a large corporation should be based on – especially in the pharmaceutical industry – are overruled. The scandal might thus not only incur vast costs as a direct consequence of the bribery, but also long-term costs in the form of a loss of customers as GSK lost its image as a company with the – now ironic – slogan: “Do more, feel better, live longer!”

More material on this matter can be found on The Guardian (guardian.co.uk) as follows:

• Link #1
• Link #2

and in the following youtube.com video: