Theproduct life cycle is an important concept in
marketing. It describes the stages a product goes through from when it
was first thought of until it finally is removed from the market. Not
all products reach this final stage. Some continue to grow and others
rise and fall.
The main stages of the product life cycle are:
Introduction – researching, developing and then launching the product
Growth – when sales are increasing at their fastest rate
Maturity – sales are near their highest, but the rate of growth is slowing down, e.g. new competitors in market or saturation
Decline – final stage of the cycle, when sales begin to fall
This can be illustrated by looking at the sales during the time period of the product.
A branded good can enjoy continuous growth, such as Microsoft,
because the product is being constantly improved and advertised, and
maintains a strong brand loyalty.
Extension strategies extend the life of the
product before it goes into decline. Again businesses use marketing
techniques to improve sales. Examples of the techniques are:
Advertising – try to gain a new audience or remind the current audience
Price reduction – more attractive to customers
Adding value – add new features to the current product, e.g. video messaging on mobile phones
Explore new markets – try selling abroad
New packaging – brightening up old packaging, or subtle
changes such as putting crisps in foil packets or Seventies music
compilations
Economic factors and how these affect businesses
Economic factor that affect business:
1. Income
2. Inflation
3. Recession
4. Interest Rate
5. Exchange Rate
There are four major elements that affect business environment . The elements are:
1. Economic growth 2. The business cycle 3. Employment and unemployment 4. Inflation
Investors need to know that there will be a functioning economy in the
future and that markets will react in reasonably predictable ways. Until that confidence is restored, many investors will sit on cash or cash out of stocks when they can. It is not the responsibility of the Federal Reserve Board, the
Securities and Exchange Commission, the Treasury Department or even
Congress and the President to make investors whole.
It is their job to ensure the economy is on sound footing and that there
is sufficient regulatory oversight of the markets to keep everyone
honest.
There was a lot of uncertainty right now about what tax rates on capital
gains will look like one, two, three, four, five years down the road.
President Obama and Governor
Romney obviously have very different plans with regard to the taxation
of capital gains. There was a lot of uncertainty about just how the
capital gains portion of returns on business investments will be
treated. And of course there was also quite a bit of uncertainty about
what tax rates are going to look like, especially for middle income and
higher income people.
There is uncertainty about how dividends are going to be treated by the
tax system going forward. There is quite a bit of uncertainty about the
corporate tax rates. Those are all things that affect the after-tax rate
of return to business investment or the ability of businesses to
attract funds from investors. Something like the capital gains tax
treatment may not affect a business directly, but indirectly through the
eagerness of others to invest in a business.
China's economy during the past 40
years has changed from a centrally planned system that was largely closed to
international trade to a more market-oriented economy that has a rapidly
growing private sector and is a major player in the global economy, in 2010
China became the world's largest exporter.
China joinedthe World Trade Organization (WTO), which
carried with it requirements for further economic liberalization and
deregulation. China's ongoing economic transformation has had a profound impact
not only on China but also on the world. The market-oriented reforms China has
implemented over the past two decades have unleashed individual initiative and entrepreneurship,
whilst retaining state domination of the economy. China’s most important
sectors of the economy have traditionally been agriculture
and industry,
which together employ more than 70 percent of the labor force
and produce more than 60 percent of GDP. The disparities between the two
sectors have combined to form an economic-cultural-social gap between the rural
and urban areas, which is a major division in Chinese society. China is
the world's largest producer of rice and is among the principal sources of wheat, corn, tobacco,
soybeans,
peanuts,
and cotton.
The country is one of the world's largest producers of a number of industrial
and mineral products, including cotton cloth,
tungsten,
and antimony.
Economic development has been more rapid in coastal provinces than in the
interior, and approximately 200 million rural laborers and their dependents
have relocated to urban areas to find work - in recent years many have returned
to their villages.
The Chinese government
reacted (to 2008 financial crisis)with confidence and determination to boost the national economy by
adjusting tax policies, easing credit-related regulations, cutting the interest
rate, and mobilizing state-owned enterprises in buying stocks of their listed
subsidiaries. Most significantly, the government adopted in early November 2008
a 4-trillion Yuan (approximately 586 billion U.S. dollars) stimulus plan as an
attempt to stop the crisis from hitting the world’s third biggest economy by
increasing domestic demand. The stimulus package would be spent over the two
years 2009 and 2010 to finance programs in ten major areas, including
low-income housing, rural infrastructure, water, electricity, transportation,
the environment, technological innovation and rebuilding from several
disasters.
On December 18, 1978, Chinese leader Deng Xiaoping gave his answer. In a
Communist Party meeting in Beijing that day, the political elite
adopted Deng's pragmatic program and launched economic reforms. New
China was born.
Thirty years ago, there was little international trade. There were
few tourists and few cars, but there were millions of bicycles on the
streets. Now the streets are jammed with cars, and the air is polluted
with fumes, grit and noise.
Beijing's neighborhoods used to be
very quiet. Residents lived simple lives mostly in walled courtyards. A
seven- or eight-story building was considered unusually high. Now they
are dwarfed by skyscrapers which house fancy shopping malls and outlets
like McDonald's, KFC and Starbucks.
Fashion used to be just as
simple, and utilitarian Regulation attire was the so-called Mao jackets
in blue, green and gray and baggy pants of the same colors. The unisex
look was the norm. Now street fashion is varied and colorful, if not
always chic.
Virtually everyone had a job 30 years ago, but they
earned little money, and there was little to buy. Supplies of basic
commodities were so tight that residents were doled out ration coupons,
required to go with cash to buy cotton jackets and clothes, grain, and
cooking oil. No coupons, no transaction. Consumers in the late
seventies coveted the so-called "four big things" -- a radio, a bicycle,
a sewing machine and a wristwatch. And they were available only in
special shops, like the Friendship Store. Now the new "big things" would
include a Mercedes Benz, an apartment and a week-long vacation in Bali
or Hawaii.
BRIC is an acronym that refers to the economies of Brazil,
Russia, India, and China, which are seen as major developing economies
in the world. According to Forbes, "The general consensus is that the
term was first prominently used in a Goldman Sachs report from 2003,
which speculated that by 2050 these four economies would be wealthier
than most of the current major economic powers."
In March 2012, South Africa appeared to join BRIC, which thus became
BRICS. At that time, Brazil, Russia, India, China and South Africa met
in India to discuss the formation of a development bank to pool
resources. At that point, the BRIC countries were responsible for about
18% of the world's Gross Domestic Product and were home to 40% of the earth's population.
Foreign direct investment (FDI) is direct investment into
production in a country by a company located in another country, either
by buying a company in the target country or by expanding operations of
an existing business in that country.
Advantages
take advantage of cheaper wages in the country
special investment privileges such as tax exemptions offered by the country as an incentive to gain tariff-free access to the markets of the country or the region
helps in the economic development of the particular country where the investment is being made.
For host countries, inward FDI has the potential for job creation and employment, which is often followed by higher wages.
Resource transfer, in terms of capital and technical knowledge, is also a key motivator that encourages inward FDI.
FDI has been used more as a market entry strategy for investors, rather than an investment strategy. Despite
the decline in trade barriers, FDI growth has increased at a higher
rate than the level of world trade as businesses attempt to circumvent
protectionist measures through direct investments. With globalization,
the horizons and limits have been extended and companies now see the
world economy as their market.
for investors, FDI provides the benefits of reduced cost through the
realization of scale economies, and coordination advantages, especially
for integrated supply chains.
The preference for a direct investment approach rather than licensing
and franchising can also been viewed in terms of strategic control,
where management rights allows for technological know-how and
intellectual property to be kept in-house.
The Chinese economic reform refers to the program of economic reforms called "Socialism with Chinese characteristics" in the People's Republic of China (PRC) that were started in December 1978 by reformists within the Communist Party of China (CPC) led by Deng Xiaoping.
China had one of the world's largest and most advanced economies prior to the nineteenth century, while national product per capita remained average in global terms. The economy stagnated since the 16th century and even declined in absolute terms in the nineteenth and much of the twentieth century, with a brief recovery in the 1930s
Trade Agreements & Alliances
A set of agreements negotiated between either users or alliances that can do one of many things:
set fair trade ratios
give exclusive rights to trade
others as defined by individual users
An alliance is a pact or coalition between two or more parties, made in order to advance common goals and to secure common interests.
How do customers & producers benefit from international trade?
Advantages
Consumers have lower prices, more choice, and opportunities for work throughout the EU
Businesses have more consumers and are able to exploit economies of scale Disadvantages
In reality worker mobility is not as great as hoped
Many businesses still see barriers
Monopolies may be formed – these are an example of market failure
Factors affecting businesses moving into international market
size
economic growth
wealth
price
transport links
laws & legislation
culture
labour
barriers of entry & exit
rate of interest
economic state
gov involvment
Impact of globalisation on consumers
better quality products
products cheaper due to high competition
bonus of customer loyalty
more variety
better availability
products more suited to need
consistently developed products
Advantages & disadvantages of business that trade across international borders
Advantages
larger target market
economies of scale
international supplies better
brand awarness
customer increase
increased communication
spreads risk
gov incentives to export
Disadvantages
more competition
globalisation
laws&legilsation
barriers entry and exit
vulnerable to global financial crisis
copyright issues
taxation
protectionism (tariffs/ quotas)
limits
Mergers & Takeovers (with examples)
Mergers and takeover both combine two previously separate firms into a
single legal entity. Significant operational advantages can be obtained when
two firms are combined and, in fact, the goal of most mergers and acquisitions
is to improve company performance and shareholder value over the long-term. A
merger involves the mutual decision of two companies to combine and become one
entity; it can be seen as a decision made by two "equals". In a
merger of two corporations, the shareholders usually have their shares in the
old company exchanged for an equal number of shares in the merged entity.
Whereas a takeover or acquisition is characterized by the purchase of a smaller
company by a much larger one and therefore is forced. This combination of
"unequals" can produce the same benefits as a merger, but it does not
necessarily have to be a mutual decision. A larger company can initiate a
hostile takeover of a smaller firm, which essentially amounts to buying the
company in the face of resistance from the smaller company's management. The
underlying motive for most mergers and takeovers is to achieve synergy.
This is often called the "2+2=5 Effect", since the end result will hopefully be more than what the two
firms put in to the venture. Both are similar in the way that they give the
businesses opportunities for expansion.
Google and Motorola, in this case Google took over Motorola but this
benefited both firms greatly for several reasons. Most people have access to
social sites via mobile and therefore by combining both it means they can both
aim for a larger target market. Also ‘Google wallet’ was made a mobile payment
system which enhances Motorola as a mobile as E-commerce is on the rise and it
is deemed to be better than Paypal thus overtaking another firm which otherwise
would be impossible. Every internet company needs a smartphone ally for example
Twitter has Apple, Facebook has Microsoft so this takeover was a smart move
from both sides. Also previously Motorola had been struggling to keep up with
Samsung and HTC in Android handset innovation. The company enjoyed fine
Motorola Droid and Droid X launches, but had lost some lustre after the
Motorola Xoom didn't sell well and saw its 4G model delayed. The Droid Bionic
4G smartphone was also delayed. Getting Google to pay that price for patents
and phones is a magical feat. Thus both also benefit financially, a benefit
mentioned previously. Additionally, Google will also gain the respect and power
that comes with being a completely integrated stack player with the leading
mobile OS. At last, Google will have its own hardware on which to put Google
TV, which needs a boost from someone, thus benefiting from technical economies
of scale.
Kraft and Cadbury, this too
was a takeover. BBC NEWS said that Kraft found the deal to be beneficial as it
would create a "global confectionery leader". It will benefit the Cadbury shareholders and
also by working with the Kraft Foods' management it will ensure the continued
success and growth of the business. This will greatly benefit Kraft, as they
shall broaden their range of products, by joining Cadbury this will bring
greater publicity, benefiting in marketing economies of scale. Cadbury has a
very strong, long-standing presence as a brand in the chocolate industry which
is a good place for Kraft to develop. Apart from that, Cadbury growth of 20%
and profits growing 30% in a competitive market, it is no surprise that now one
quarter of Kraft’s $50 billion in sales is coming from Cadbury. Another factor
Kraft is though to have benefited from is Cadbury’s distribution in India, Brazil
and Mexico.
Vertical & Horizontal integration
vertical- where firms are at different stages of production merge horizontal- where firms in the same industry merge
The different economies of scale that apply to businesses as they expand
Technical economies- large scale business can afford to invest in expensive & specialist capital machinery
Specialisation of the workforce- larger businesses split complex production processes into separate tasks to boost productivity- able to produce more output at same time
Marketing economies- a large firm can spread its advertising & market budget over a large output & it can purchase its inputs in bulk at negotiated discounted prices if it has sufficient negotiation power
Financial economies- larger firms are usually rated by the financial markets to be more 'credit worthy' and have access to credit facilities with favourable rates of borrowing, businesses quoted on the stock market can normally raise fresh money more cheaply through the issue of shares also likely to pay lower rate of interest on new company bonds issued through the capital markets
Managerial economies- large firms can employ specialist workers to complete tasks & can spread the cost
Commercial economies- purchase of stocks (and the selling of the products) using large scale approach
Research & development economies- a larger firm have a R&D development, since running such a department can reduce average costs by developing more efficient methods of production & raise total revenue by developing new products
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