ECONOMIC STRATEGY FOR BUSINESS
Barnes & Noble created more demand for their books by not only giving discounts to the customers, they also created a website which was dedicated to informing the customers about the books that they had in store. They also previewed the books for the customer thus creating the urge in the customers to own the book that they were being offered. This led to an increase in the demand for the books. They also increased the demand for the books by the use of customer acquisitionprograms, cross-marketing and promotions in conjunction with other firms. This enabled them to reach the established book readers and thus a demand for the books was enhanced. Most readers also prefer to buy books where there consider the price a good bargain. This created the high demand for books from Barnes & Noble because of the high discounts that they offer. This significantly reduces the amount that the consumers spend hence encouraging repeat customers and customer loyalty (Modi, Durkin, Kass & Ulin, 2011).
Several changes of strategies and technology by other firms involved in the business of book selling has led to the decreasing fortunes or threats of bankruptcy of Barnes & Noble and Borders. First strategy is the increasing ease of buying books over the internet. Amazon which currently boasts of being the major book seller has created an internet site, Amazon.com, where even the people with the most basic of computing skills can buy books. The revolution of the customers experience has led to increased sales volume. Secondly, efficient operations as opposed to over reliance on assortment size as a competitive tool has led to the decline of sales from the traditional book stores. The internet retailing brought all the information the customer needed and thus increased efficiency. Customers abandon the traditional visits to the shop floors. Lastly, branding has also been a factor in driving up the sales of companies. Although Barnes & Noble have done considerable job in this sector, Borders have considerably lagged behind leading to little traffic to their business. Amazon still remains the major book seller through their strategies of discounts to all the customers. Bestsellers are discounted at the 40% while all the other books go for 10% less. This extra value drives the customers towards using Amazon (Modi, Durkin, Kass & Ulin, 2011).
Verticallyintegrated products are those products whose production involves the use of different raw materials so that the final product can be achieved while vertical integration in production refers to the one firm being involved in the different parts of the production process for instance the firm can be involved in the growing of the raw material, the actual assembly, all the logistics and finally the delivery to the consumers. Vertical integration in production can involve cases where the firm has control over the other firms that produce the raw materials for the final produce; where it has control over the channels of distribution while in some cases the firm can have the final control of the raw material to the final produce (Besanko; Dranove, Shanley & Schaefer, 2010). An example of vertical integration in production is the gasoline that is produced by Shell/BP. The company is involved in the surveys to ascertain where there are oil deposits, the exploration of the crude oil, the channels through which the oil travels to the refineries. After the crude oil has been refined, they again are involved in supply to the gas stations which are also owned by the company. An example of a vertically integrated product is a motor vehicle. The parts of the car are from different producers such as the rubber, steel and the glass. All this materials are used to achieve the final end product which is the automobile.
First, the benefit to a biotech firm will be that it will help them break into the retail market that previously they had no access to. Due to the established marketing structures that the pharmaceutical company has, the information about the new drug will be easier to disseminate. The firm will cut costs on the distribution work as this will be done by the pharmaceutical firm. Benefits of economies of scale brought about by the large scale manufacture of the pharmaceutical. Secondly, firm located at the end of a rail line will enjoy a significant reduction in costs of transport that otherwise would have been used in transferring the coal from the terminal to the store. This will have an overall impact in the final cost of operations of the firm. Thirdly, a manufacturer with a well established brand integrated with local market distributors are going to improve on their customer reach thus there will be an increase in sales.
Vertical productdifferentiation is where by the goods that are available in the market are different and can be prearranged for instance from the highest quality to the lowest quality thus there can be preference of all consumers of one over the other if they were sold at the same price. Horizontal product differentiation refers to goods that can not be prearranged from the highest quality to the lowest quality. Such goods are either differentiated by tastes or color and the consumer preferences are not common even with the same price. An example of vertical integration in the automobile production industry, although all the vehicles serve the same purpose of movement from one place to another, the vehicles can be prearranged from the most efficient to the least. Most people consider Mercedes Benz to be more stable than the Toyota cars while others view the Toyota as more fuel efficient than the Mercedes Benz. Mercedes Benz was created for the customer who valued speed and safety and worried lees on the costs as they are expensive vehicles to buy and maintain. The users of Toyota brand of cars are conscious of the costs of fueling. An example of horizontal differentiation is in the ice cream industry where the sugar content in the ice cream is what either makes a consumer to buy or not to. Consumers who like little sugar will not buy the one with a lot of sugar even if they were going for the same price (Machado, 2011)
The iTunes that are provided by Apple are free but the application runs on apple which must be bought first. They are also charges on advertisement that other firms putt up in the sites of apple. The benefits that Adobe enjoys when they give the free service are the external advertisement income that is generated from other organizations. The beverage companies during the launch of their product, they increase their customer base thus they will record increased sales. Facebook, MySpace and MiXit all get income that is generated from third party advertisements in their sites. Virus protection software is also free because partly the makers are in partnership with other firms where they are involved in cross-marketing. Most of their revenues are generated from these sources.
When the three firms offering television, radio and newspaper services merge, there will be a reduction in costs in a number of ways. First, the administrative costs will be lowered for instance; the three systems that were previously different will now be run as one single system. The people who were previously overseeing the operations can now be deployed to other areas or be relieved of their duties all together. Costs will also be cut in the news gathering process as only one group of field news workers will be needed with the information got serving all the three media. Also the storing cost of redundant information is eliminated. There will be no need for independent databases for the radio, television and the newspapers (Camden Associates, 2004).
Cross promotion can ensure that the integrated firms enjoy some benefits which can be equated to zero costs. The companies that have merged save costs since the resources that would have been spent by the individual firms are now shared between the three firms. The partners combine so that they can reach their respective markets. Basically, each of the firms would spend about a third of the amount they would have spent if they did not merge. The costs are however reduced further since the firms can now reach more customers than they were previously doing. The profitability brought about by the increased customer numbers would definitely work towards wiping the costs thus it is safe to say that cross-promotion results into zero costs to the firms. An example of cross-promotion is that between Coca Cola and Orion Food systems. The company, Orion Food in its quest to build brand equity opted to enter into a promotional partnership with Coca Cola. Coke contributed to the partnership by designing the kiosks and signage for Orion. The two firms ended up promoting both cokes sodas and the pizza that was being offered by Orion. With every purchase of a pizza, a customer was given a free coke. This increased the sales for coca cola while at the same time giving Orion the brand recognition that they desperately needed. Orion also learnt from coke how they could market their brand better (Mattson, 1998).
The changes in technology and globalization have caused many challenges to the world business organizations and firms. However, there is a growing recognition that mergers can help create a competitive advantage for the firm thus increasing the value to the investors. To begin with, there will be an increased financial strength of the two companies if they agree to merge. There would be an increased capital base and assets at their disposal than if each firm faced the business individually. There are also benefits of economies of scale; when the two firms merge, they improve their purchasing power and thus can be able to buy larger quantity of goods at a bargain. This the firm could not achieve when they were trading differently. Third, there is an increased visibility and market reach. Each of the firms can now reach customers which they could not reach when trading alone. Mergers also reduce the competition in the industry as the firms competitive advantages are combined. The arguments against mergers such as diseconomies of scale when the firm grows too big, the potential clashes in culture of the two organizations and losses of jobs can be dealt with if the merger is undertaken in a professional way. The two firms in the merger should all have similar benefits so that such problems can be minimized (Morschett, Schramm-Klein & Zentes, 2010).
Besanko, D.; Dranove, D.; Shanley, M. & Schaefer S. (2010). Economics of strategy. Hoboken, NJ: John Wiley & Sons.
Camden Associates (2004). Business Benefits of Integration. Retrieved from on 19/08/2011 from http://www.attachmate.com/nr/rdonlyres/7cfac49d-8218-4784-9cfa-73ad8ca721c5/0/literature_bbintegrate.pdf
Mattson, B. (1998). “Collaborative efforts save money, reach new audiences” Minneapolis /St. Paul Business Journal. Retrieved on 19/08/2011 from http://www.bizjournals.com/twincities/stories/1998/09/14/focus2.html
Machado, M. (2011). Product differentiation. Retrieved on 19/08/2011 from http://www.eco.uc3m.es/~mmachado/Teaching/OI-I-MEI/slides/4.1.Product_differentiation.pdf.
Modi, T.; Durkin, N.; Kass, C. & Ulin, M. (2011). Strategic Audit: Barnes & Noble. Retrieved on 19/08/2011 from http://teknirvana.com/documents/BarnesAndNoble.pdf
Morschett, D.; Schramm-Klein, H. & Zentes, J. (2010). Strategic International Management: Text and Cases. Wiesbaden Gabler.