Suaheli (Subject) / Business Concepts (Lesson)

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• Present your synthesis with Pyramid Principle [ WHAT ] RECOMMENDATION l HYPOTHESIS [ WHY ] REASONS [ HOW ] DO YOU SOLVE IT
• Example: Market entry How : Partnership with locals Analysis of governmental regulations Pilot study You can also mention that the next steps would need further analysis to determine the most attractive option
• Capabilities Capability Cost Structure Human Resources Brand Value Financial resources Furthermore we can decide if a company should rather make something by itself (organic) or buy the competencies from outside (inorganic - e.g., buying a new firm).
• Pricing Generally 3 different approaches are used to set the price of a product: Cost-Based Pricing Competitive Analysis Value-Based Pricing Performance-Based Pricing Supply-Demand Pricing
• Right data for comparison Manufacturing time, customer support time, delivery time etc. Various positions of cost Number of people in a department Features of products (e.g. price is the easiest one to compare) Quality Ideally figures differ because of a better process rather than because of external factors. comparing manufacturing costs of different plants might disguise the fact that labor cost in one plant is higher because of higher wages.
• Benchmarking => [ determine whether there is an improvement potential ] [ INTERNAL ] another department another site in the same production process ! No best-practice Example! [ EXTERNAL ] Competitors clients Custome Support Time Delivery Time Manufacturing time Costs Features of products (e.g. price is the easiest one to compare) Quality
• Cash Flow Cash flows are crucial to determine liquidity. Positive cash flows are a sign for at least short term solvency Cash flow emerges from operations, investing, and financing Operating cash flows result of the core business, generated by manufacturing or selling a product. necessary to keep the business operating Investment cash flows long-term investments into assets such as property or plants  result of activities such as issuance and repurchase of bonds, equity, and dividends necessary to assess the possibilities of future growth through investments Financing cash flows- are a result of activities such as issuance and repurchase of bonds, equity, and dividends
• Cash flow, balance sheet and financial statement are interdependent The income statement is used to derive the operating cash flow: In general, you start off with EBIT. All included positions that have no actual influence on cash-flows are subtracted. For example: to derive the earnings before interest and taxes (EBIT), depreciation is subtracted from the gross profit. Since depreciation is not actual cash flow, it has to be added again to get a true picture of a firm’s cash flow. Likewise, positions that are not included in EBIT, but result in changes in cash flow need to be added, e.g. taxes.The balance sheets from two consecutive years are used to derive the investment and financing cash flow: Determine the investment cash-flow over the asset side of the balance sheet: If assets increase due to investments over the past year, cash-outflows are necessary in order to acquire them. Likewise, if assets such as inventory decrease, they result in cash inflows from sales.Use the financing side of the balance sheet to derive the financing cash flow. If equity or liabilities increase a cash inflow must have happened. Of course, you can buy assets immediately through debts meaning that the cash from getting a credit is directly used for the asset. Consequently, cash flows possibly cancel each other out.The sum of all three cash flows (operating, investment and financing) is the final change in cash. You can find this change in the balance sheet as the difference in cash positions between the current and preceding year.
• Imperfect markets = concept of supply and demand Imperfect markets allow companies to make profits! availability of a product (supply) and its desire (demand) has a direct affect on the price. if the supply is low and demand is high, prices are high   for pricing or market entry decisions. Clients can either create market imperfections by setting certain industry standards market their brands for pricing reasons. Clients could also enter imperfect markets => Porter’s five forces can be used as a framework to evaluate the degree of market imperfection in an industry, in which the higher the degree of imperfection, the more the attractive an industry is.
• High fixed cost businesses High fixed cost businesses are highly dependent on high volume sales to make profits (e.g., airline industry). For example, if you have an airline with high fixed costs and low consumer demand, you will likely suffer losses
• Low fixed Costs "are you the high or the low cost producer?" Not dependand on decreasing demand Limited growth opportunities Risk of significant cost increases with sudden increase in demand. Market Entry:  Incentive for competitiors to enter the market more easily => low barriers to entry
• High Fixed Cost Investment. Is this a good idea? Utilization is primarily driven by demand if a competitor also builds a new plant, the demand for your clients' products will decrease. structure => analyze the market, the competitors and the cost structure
• Occupancy Rate Rented or Used space/ Available space
• Capacity Utilization  (Potential Output - Actual Output)/(Potential Output)
• Pricing Strategies Cost-based pricing by itself is largely seen as insufficient Make sure to investigate what the customer is willing to pay before pricing the product (Price-based costing) C: Investigate the company P  Investigate the product PRICING strategy based on your investigation 1. Investigate the companyGet a feeling for the business of the company: What products does the company sell and where does the company stand in the market? Is the company a market leader? In terms of volume or quality or both? What is the company’s key objective? Profits? Market share? Growth? Brand positioning? Competitive response? Make sure to clarify the objective before starting the analysis 2. Investigate the product How does the clients’ product differ from competition? How does the production differ? What is its Unique Selling Point (USP)? What are the alternatives or substitute products? At what stage the product lies in its lifecycle? Are the supply and demand foreseeable? 3. Choose a pricing strategyThe choice of a strategy depends on the information gathered in the first two steps. There are three major pricing strategies: (1) Competitive analysis (benchmarking): In this strategy, the price based on the price our competition charges. Therefore, you want to investigate: Are there comparable products/services? How are they priced? Important: Keep in mind that competitors will likely change their prices once the client introduces its product (2) Cost-based pricing: This strategy bases the price on the cumulated costs per item (break-even) plus a profit margin. Therefore, you need to know the clients cost structure. (3) Price-based costing: This strategy is based on determining the "value" of client's product or the amount customers are willing to pay. This approach is similar to competitive analysis in that you can generally determine customers’ willingness to pay from prices of different substitutes. Keep in mind that different customer segments may have a different willingness to pay for client's products, implying that the client could charge different prices to different customers segments by changing the "value added" to justify the changes in prices
• “How much would you pay for….”  Discounted Cash Flow (DCF) method to valuate a firm based solely on its expected profits Use the industry multiple method to double check if the DCF valuation is reasonable. Sometimes other aspects need to be factored in like brand value, customer loyalty, liabilities etc.
• Product Development: R&D COSTS: Sunk Costs. Investment is profitable if TR cover TVC
• Margin margin = P-AVC/ P
• Markup Markup = (P- AVC) / AVC
• Elastic market ElasticEasily substituted for another product✓ Considered to be a commodity rather than differentiated✓ 
• Inelastic market Strongly supported by patents ✓Strongly branded ✓Written into specifications ✓Limited availability ✓Strongly supported by personal service ✓Price is one of the important means by which customers compare products and services with those of the
• Decision Problem? In a decision tree Net gain =Expected value - Initial cost of decision
• Market Size Market size volume is the quantity of goods and services produced in a particular market over a period of time usually one year . Market size value is the total sales revenue generated from selling all of thegoods and services produced in a particular market over a period of time usually one year .
• Labour productivity Labour productivity = Output per time period/ Number of employees
• Profit from Operations Operating profit = Sales Revenue - Cost of Sales - Operating Expenses
• Contribution Margin per unit P - AVC
• Break-even output Fixed costs/ Contribution per unit Break-even output =FC/ (P-AVC)
• Price elasticity of demand Price elasticity of demand = Percentage change in demand /Percentage change price Price inelastic demand has a coefficient in the range 0 to -1. Price elastic demand has a coefficient in the range -1 to -∞.
• No Synergies in New Market? Maybe Acquisition, Liscensing
• Drivers of Actual Output Capacity Utilizarion and Potential Output Capacity Utilizarion: Training, Error Management, Incentives Potential Output : Outsourcing, Eqiupment, Liscensing
• Drivers to Sell Division Buyer Available? Financial Impact? - Cost, Price, Regulatory
• Potential Revenue Market Entry Potential Revenue Market Entry = Average Price * Potential Customers * Market Share
• Conversion Rate Die Conversion Rate ist ein KPI aus dem Online Marketing, der das Verhältnis von Besuchern einer Internetseite zu den Conversions misst Conversion Rate * Besucher auf Marketingchannel = Käufe
• Increase Conversion Ratio in E-Commerce 1. Anzahl verlorener Kunden senken "Newsletter-Abmeldungen senken" Verbesserung der Benutzerfreundlichkeit, um die Abbruchrate zu reduzieren 2. Anzahl Neukunden steigern "Newsletter-Anmeldungen steigern" Einsatz von Online-Gütesiegeln, um das Vertrauen der (Neu)Kunden in den Shop zu erhöhen. Partnership mit Social Media Platformen 3. Vorhandene Kunden penetrieren Einsatz von Online-Produktberatern und Guided Selling-Systemen Verbesserung des Inhalts der Webseite Text, Bilder, Videos Produktsuch- und Produktberatungsprozess zu verbessern Reduktion von Elementen, die den Nutzer ablenken.
• Drivers of price Price elasticity Differentiation or Commodity Positioning  Substitutes Regulatory Cost Market Share / Innovation AN WEN VERKAUFEN WIR? WIE VIEL POWER HAT DER KÄUFER?
• Drivers Units Sold 1. SEGMENT units sold product / product line distribution channel customer 2.) Market Share: Changes in Market Share Market Size: Changes in Overall Market Growth ROOT: Changes in customer demand SOLUTI0N? New markets
• Drivers of Fixed Costs 1. SEGMENT: (or by value chain) Overheads: Administrative, Sales, Marketing Machinery: Plant, Equipment Interest Depreciation Rent  2. COMPARE TO HISTORICAL 3. COMPARE TO COMPETITOR
• Sources of Synergies customers products expertise overlapping cost structures resources distribution intangibles access to markets access to financial
• Drivers Variable Costs Raw Materials + Packaging Energy Inputs Direct Labor Transportation 1.SEGMENT INTO COMPONENT PARTS => Raw Materials => Manufacturing => Distribution => Customers 2.) Compare to HISTORICAL 3.) COMPARE TO INDUSTRY
• Segmentation Criteria Revenues: by product, channel, customer type, region total revenues vs revenues per unit Costs: by fixed vs variable => costs within each segment of value chain  total costs vs cost per unit Customers: demographics, needs, channels, purchasing patterns, price point)Competitors: channel, region, product, customer segment
• Market Share Change Client's Sales Revenues / Total Market Size = Market Share Causes: Internal External => Verdrängung:Competitor gets our clients, New Entrants, Total Market Size,
• Marktforschungsdaten quantitative Marktfoschung: Zahlenmäßige Verschiebungen der Käufergruppen, Demographische veränderung qualitative Marktforschung: Kunden im Detail befragen, Fokusgruppen, Kundenzufriedenheit, Neukundenzuwach bei Konkurrenten => COMPARE TO COMPETITOR, COMPARE TO HISTORY
• What is the motivation behind the pricing? Interest in profits = usually priced higher => Differentiation Interest in market-share = usually priced lower => Cost Leadership This can often be the deciding factor when picking a price. However, when solving a pricing problem, you need to look at all four of these strategies and see where,
• Profit Margin Profit Margin = Profit / Total Revenue "He keeps every 20 cents for each dollar of revenue" A company’s individual numbers (like revenue or expenditures) never indicate much about the company’s profitability, Increased earnings are good, but an increase does not mean that the profit margin of a company is improving. In the same way, an increase or decrease in a company’s expenditures does not necessarily indicate that the company’s profit margin is improving or worsening  Suppose that Company B’s revenue and expenditures in one year are $2 million and $1.5 million, respectively, making its profit margin 25%. The following year the company does some restructuring, reducing its expenditures by eliminating a product line, thereby reducing total revenue as well. If Company B’s revenue and expenditures in the second year are now $1.5 million and $1.2 million, respectively, then its profit margin is now 20%. Even though Company B was able to substantially cut its costs, its profit margin suffered because its revenue decreased more quickly than its expenditures did.
• Market Share market share = Company's sales / Industry's Sales - gaining market share is easier in a growing market = ready to buy - gaining market share in a mature market is expensive = change purchasing habits - A company that is growing its market share will be growing its revenues faster than its competitors. - Strategy: expansion of stores, distributors, marketing
• Way to enter a market Start from scratch (Starting a New Business). Acquire an existing player within the desired industry (when fragmented) Form a joint venture/strategic alliance with another player with similar interests.
• Profit margins by industry Highest Car Rental Industry Residential Real Estate Oil and Gas Accounting, Taxes 20% Automotive Equipment Industrial, Machinery Equipment Legal services Physicians Dentist Outpatient care Centers Storage Consulting Services 10% Least Air transportation Food & Beverages Stores Social Care Hospitals Securities Amusement Nursing Grocery stores have a very thin profit margin  Drug companies traditionally have a large profit margin.
• Barriers to entry Fixed costs differentiated products Brand names Access to distribution channels Access to suppliers product technology Government policy.
• Objectives to conduct an acquisition? increase market access. diversify pre-empt the competition. gain tax advantages. synergies: marketing, financial, operations. shareholder value.
• Objectives to merge Synergy: Increased revenue or market share: Cross-selling: . Economy of scale: Taxation: A profitable company can buy a loss maker to use the target's loss as their advantage by reducing their tax liability. Diversification: Resource transfer: the interaction of target and acquiring firm resources can create value through either overcoming information asymmetry or by combining scarce resources Vertical integration: occurs when an upstream and downstream firm merge (or one acquires the other

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