The ideal situation for a business is that it will grow, and the more they produce the less it cost to make that product. This situation is called economies of scale, and it is a common outcome of expansion (Openstax, 2016). This is often why large companies can afford to sell items at a lower price than small businesses. While economies of scale is common, there is still another possible outcome. Unfortunately this one is less appealing but one that depends largely on the marginal cost of a business’ product.
2. Threat of new entrants – Moderate or relatively low. Requires high investment and capital. In addition, Apple’s ability to continuously differentiate its products from other companies makes it hard to copy their success. Apple also produces at relatively low cost due to economies of scale of wide-spread
3. There are a number of advantages in the franchising business in comparison to other means of growth, while numbers aren’t so big for disadvantages, at least in this case. Preparing for the franchise is the tedious part of this business plan, where situation doesn’t allow any necessary losses, considering financial structure of the job being very sensible. Biggest advantage of franchise is profit, gained from the basic streams of franchising and representing additional support for the stores that are already in function and direct ownership. Company also receives strength through size, even though it isn’t directly owned, it will most surely allow them to expand even more.
Normally, only big companies feel confident enough to implement this strategy since they are able to acquire the desired products with cheap prices easily through economies of scale (bargaining power of suppliers). The products that have been cheaply bought are then will be sell again to buyers while adding minimal markup in order to maintain the lower prices (bargaining power of customers). These actions were undertaken to make sure that they offer the cheapest price of goods or services among the other companies (rivalry among the existing firms). This makes it more difficult and inconvenient for the competitors to compete with the company. This strategy also insists on a company to always reduce their costs consistently.
In the long run positive financial results will ensure future growth through either equity- or debt-driven expansion. Industry rivalry is increased due to exit barriers being high, with production being very focused and requiring very specific and expensive assets, to produce in a concentrated market (i.e. asset resale is limited). Combined with the cyclical nature of the commodities market, companies ‘hang on’ even when there is a major squeeze on margins, due to increasing costs. This has negative implications for profit in the short term, but positive implications for profit in the long term for companies that can produce through the
As such, it is an ideal goal to aim for and will work best for businesses operating in industries where competition is scarce. 14. Loss Leader: Loss leadership involves selling a product at a low or even loss-making price. Although there might not be a profit on selling that product or service, but the clients could be attracted to buy other more profitable options because of the reputation of being on the lower side of the pricing. This strategy can usually backfire and we can end up making big
Due to the nature of consumerism and materialism another social implication will be the pressure put onto locals by other locals to buy from Costco, as they do not want to be seen as ‘worse’ than somebody else. Because Costco is an extremely large franchise there will be substantial jobs created including but limited to managers, checkout employees and truck drivers. Materialism and consumerism are two large social implications that work in favour of Costco; this is because they offer high quality products at cheaper prices, as they are a wholesale company. This means that families are able to afford their high quality products even if they do not need them. Another benefit of a Costco in this area is that members of the local community will no longer have to travel upwards of 20 minutes to a shopping centre and will have a Costco quite close that will have everything to suit their
The adoption of new technologies and trends is being facilitated in the industry for the competition and the customer’s overall experience. Many suppliers that are having similar strategies face a strong competition. The barriers for exiting the markets are high. Products and services of are undifferentiated leading the customer to focus on the prices offered. Low market growth, so it can be increased only by taking another firm’s market share.
The industry is very profitable, more so for the concentrate producers than the bottler’s. This is surprising considering the fact that the product sold is a commodity which can even be produced easily. There are several reasons for this, using the five forces analysis we can clearly demonstrate how each force contributes to the profitability of the industry. 1. Threat of new entrants • To enter into the bottling section, one would require substantial capital investment, which would in turn deter the entry.
Assessment of alternative market entry strategies: 1- Exporting: means goods produced in one country and shipped to another for future sale or trade. Advantage: it is good in general because it helps in increasing sales and profits by expanding into new market. It is the best strategy when the manufacturing firm wants to improve its profit. Disadvantage: extra high transport costs and tariffs are likely to be realized and since it requires transportation time, exporting is only for manufacturing firms so it is not a good choice or strategy for the restaurant that offers food. 2- Licensing: means to give permission for a specified time period, and in return, receives a royalty fee.