3. FINANCIAL RATIO ANALYSIS 3.1. PROFITABILITY (Ho, 2013) mentioned that the gross profit ratio assesses the gross profit generated per dollar sales. A drop in this ratio can signify more competition in the market, lowering selling prices or a higher cost of purchases. A rise in this ratio can signify that the firm has a competitive edge in the market and so it is able to charge higher prices for its products, or the firm is able to obtain its supplies at a lower cost.
Consumers seek novelty or try to use new goods is the following strong influence factor after price due to genuine is too expensive (Wang et al., 2005). There are many factors affecting buying behaviour of consumers, in particular to trend or change, consumers quickly forget the product and want novelty for fashion products, (Yoo & Lee, 2009). Consumers always look for the latest and products follow fashion trends, from which they tend to choose and buy counterfeit goods at more reasonable prices (Nordin, 2009). For updated fashion consumers, the more they like new trend, the higher they support to counterfeit goods (Amran Harun, 2012). Hidayat and Diwasasri (2013) found a positive relationship between the new favourite of consumers and their attitudes toward pro fakes.
This allows you to profitably out compete your competitors on pricing. Alternatively, you can sell at the same prices but with a substantially larger margin. However, investing money in inventory is risky if you're unsure of its profitability. A poor selling product will leave you stuck with inventory that you can't get rid of without suffering a loss. If you have no experience selling a product, then it makes sense to test it by using dropshipping.
This conflicts with Sony as it will create the impression that their items are costlier (Pride and Ferrell, 2011). Another type of risk for Sony is the ascent in underground market (Goektuerk, 2007). Electrical items that are snuck or duplicated are on the ascent in 2010. The number should twofold sooner rather than later. Albeit made with less quality, these merchandises speak to purchasers since they are less expensive.
It is depends on the existing firms and the “height” of barriers to entry that attributes of an industry’s structure. The threat of new entrants will affect by: Firstly, the economics of scale as “high” barriers to entry into the industry that can make the industry more attractive because of the existing firms can earn expect above normal profits. Secondly, the product differentiations that the existing firms have their own brand identification and customer loyalty that will lead to new entrants use more costs to start other industry and then reduce their potential return. Thirdly, cost advantages independent of scale mean that the existing firms have a whole range of cost advantages. There are proprietary technology, managerial know-how, favorable access to raw materials, and learning-curve cost advantages.
If their demand is high or concern with the upper standards so the price elasticity is to be totally different. Whatever customer demand just based on the elasticity of price. PROFIT IN PRICE DISCRIMINATION Price is maximized when the marginal revenue is equal to the marginal cost because demand is more and it will become more inelastic. MR=MC ADVANTAGES AND DISADVANTAGES Price discrimination has so many advantages. It may help the companies to increase their profits and revenue when companies get the benefits from this strategy they may be have some disadvantages like that the some costumers are not pay a high price it may be the cause in consumer surplus.
The purchasing cost (D ∗ C) becomes large, when the order size is large. The ordering cost represents the fixed charge incurred when an order is placed. Thus, frequent smaller orders will result in a higher ordering cost than less frequent larger orders. The holding cost, which represents the costs of carrying inventory in stock (eg., interest on invested capital, storage, handling, depreciation, and maintenance), normally increases with the level of inventory. Shortage of an item leads to two situations; either it shall be a lost business or a back order,when the order is accepted with a promise to deliver at the next time period.
Additionally, efficient distribution channels, optimal outsourcing and vertical integration, bargaining power to negotiate the lowest price for production inputs as well as high buying capacity all participate in making cost leadership a go-to strategy for high return on investment and profitability. The possible downsides of this strategy can vary from low workers remunerations to exploitation of unskilled workers. The advantages of cost leadership are often threaten by external business environment threats such as higher minimum wages laws. Examples of successful cost leadership organisations: WAL-MART.INC (ASDA), Costco, MCDONALD 'S, IKEA. Cost advantages stem from the fact that a company can quickly reap higher profit margins despite selling products or services at competitors price due to lower production costs.
The powerful firms use lower prices, deals, packaging, coupons, free testing and advertisements to promote their product so that the firm’s products can compete in the market. This is a win-win situation. This can let the firms to gain profit and consumer also gain the benefit to try the something new. For example, when there is buys 2 free 1 promotion, the consumer buy the product that is promoted and they think in opposite way that
Another advantage for Zara is that it produces its products in low quantities which give the customer of wearing unique cloth. Second thing there are number of disadvantages too. Zara do experience several disadvantages regarding to its “fast fashion” distribution system practice . However, these disadvantages are offset by the advantages . The disadvantages that would likely to occur is that Zara rely heavily on the high capital intensive investment .