Canny pricing in a slowdown

There is a super feature on pricing strategies from Adam Jones’s management blog on the Financial Times web site - available here

Canny businesses are willing and able to adjust their pricing strategies to suit ever changing business consumers. The key seems to be in having good market intelligence about which consumers have a demand that is sensitive to price and those who spending on goods and services is affected more by changes in real take-home income. Deep discounting is often observed in an economic slowdown or outright recession as businesses look to shift unsold stock, maintain sales volumes and generate extra cash to tide them through the tough times. But as the FT blog points out, offering discounts to consumers can risk unleashing an unwelcome price war (which damages profit margins) and overly-aggressive discounting can ultimately damage the brand.

There is a bit more on pricing do’s and don’ts in a recession here

A cluster of profit warnings

Rarely a day goes by without one or more household names in the world of business, finance and commerce releasing a profit warning to the city. Listed companies are required to do so - releasing information that might materially affect the market value of their business - but the rash of profit warnings from different sectors of the economy is a reflection of the demand and cost pressures facing private sector companies. The squeeze is on and it will be interesting to see how corporate Britain reacts and responds to these challenging times.

Parcel problems ruffle Rentokil

Starbucks reports falling profits

Bovis sets out new profits warning

Downturn sparks Electrolux loss

Revision: The Shut Down Point

This revision note is for Unit 5 (A2 micro) and looks at when businesses might decide to close down production or take products out of a market in the short and the long run.

Revision note file
Revision_Shut_Down_Price.pdf

Goodbye to White Goods?

Cast an eye round your kitchen appliances - how many of them are white? For years I have been teaching about the white goods industries - those that manufacture dishwashers, freezers, washers and driers - students have taken the mick and accused me of teaching a spoof lesson (I try to do this once a term!). Well perhaps they are right for there seems to be a distinct change in the demand for appliances of different colours if the USA household goods market is any guide.

Revision: Moving away from profit maximisation

Textbook theories still tend towards working assumption that private sector businesses are maximising organisations – looking to achieve the highest commercial rate of return – profit maximisation. This revision note questions this assumption – the real world is more complex than a textbook – there are many reasons why narrow profit maximisation is unlikely in most time periods and markets.

Revision note:
Revision_Departing_from_Profit_Max.pdf

Mindmap
Alternatives_Profit_Maximisation.mmap

Revision: Growth of Businesses

The growth of businesses is related to several other topics at A2 level – including:

Economies of scale and scope
Development of monopoly power in markets
Different objectives of businesses e.g. growth max rather than pure profit max
The role of profit in allocating scarce resources
Competition policy and economic welfare – market power issues

This 3 page revision note looks at why firms grow and how they grow with lots of recent examples to supplement your notes. There are no analysis diagrams in this revision note - but do think about which diagrams you might be able to use.

Revision note:
Business_Growth.pdf

Dividing the spoils in the milk industry

Many of us use the supermarkets as an example of monopsony power in markets - using their bargaining power to drive hard deals with their suppliers. New research presented at the March 2008 RES Conference provides evidence on how profits from each litre of milk sold are divided up among market participants. It is not good news for milk farmers struggling to make an economic profit and justify staying in the industry.

Bear Stearns - The Tip of an Iceberg?

A couple of days ago one of my colleagues on the teaching staff came up to me and said that he was surprised to find so few people as worried as he was about the financial crises known as the credit crunch. He was spot on. Barely a day goes by without the Financial Times or the Wall Street Journal headlining news of the latest hedge fund collapse, bad debt write-off, profit warning from the real economy or rumours of a deeper and much broader contagion of disease ridden debt floating around the financial system. I was hinting to my economics class last week that things are likely to get worse - perhaps much worse - than the markets are predicting. Financial bubbles do not, as a general rule, deflate gently. Bubbles burst, and sometimes with frightening rapidity and force once euphoria has given way to doubt and panic. The massive injections of liquidity by the main central banks and the deep cuts in nominal interest rates are testimony to the seriousness of the credit crunch. They may not be enough.

Ten weeks extra pay for John Lewis partners

I was shopping at Waitrose this evening, an enjoyable Thursday evening stroll choosing the fresh foods and wine for the weekend ahead. Was there a noticeable buzz in the air? Were the staff at my favourite Waitrose store in downtown Windsor walking with an added jauntiness to their step?  The answer is probably yes.