Tag: Business

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Analysis

The Economics of “Black Friday”

Introduction

Black Friday is always on the Friday after American Thanksgiving and fell on the 26th of November this year. Originally, Black Friday was an American tradition that started with New York’s apartment store “Macy’s” in the early 1900s. More recently, however, Black Friday has spread across the world and is very popular due to its characteristic low prices. This leads one to question how it is possible for Black Friday to still be so profitable for retailers.

Loss Leader Marketing

Loss Leader Marketing is a marketing tool that businesses use to gain brand loyalty and to attract new customers, especially on Black Friday. The strategy behind loss leader marketing is that customers are incentivized to enter a store through the promotion of a special discounted item. This discounted item is placed toward the back of the store so that customers walk past many other products (these often aren’t discounted) in order to reach the product. Customers often end up buying more than just the discounted item, which means that the total sales of all the products make up for the loss the store incurs through the discounted item. Consumable items — items with higher margins that are repeatedly purchased — are often marketed using this loss leader marketing strategy. 

For example, the retail giant Costco has established a reputation as being a low-price distributor among consumers. Costco achieved this reputation by selling some discounts on items such as gasoline, food, and in-store items. This brand image means that consumers often first think of Costco when considering whether or not to make a purchase, which increases the total sales Costco makes.

Price Discrimination Strategies

Price discrimination is another marketing strategy that aims to make use of the various amounts consumers are willing and able to pay. In a retailer’s perfect world, every consumer would pay the maximum amount they are willing to pay for the product, meaning that producer surplus is maximised. This marketing strategy is also used on Black Friday by retailers to break into new markets and draw in new consumers. Companies may price discriminate by setting their products at different prices in different stores, depending on the income of people who are most likely to pass that store.

2021’s Black Friday

Early observations have revealed that there were most likely fewer people out physically shopping on Black Friday in 2021 than in previous years. Instead, more and more people seem to opt to shop online instead. The National Retail Federation predicted an increase in sales between 8.5% and 10.5% from 2020 while early data from Mastercard Spending Pulse revealed that Black Friday sales may have actually been up by 12.1% in the US.

Conclusion

Due to COVID-19, fewer and fewer consumers are shopping in physical stores and many have switched to online retailers instead. This is bad news for smaller firms who cannot compete with “super-retailers” like Amazon. As there is a shift towards online retail, shopping bots have also become more and more popular among consumers to ensure that they will be able to get a pair of those rare sneakers. Finally, there has also been a trend in recent years to not limit Black Friday Deals just to Black Friday. Increasingly, more and more retailers are offering Black Friday discounts much earlier, some as early as October.

Sources

Discussion Question: What is your experience with Black Friday discounts?

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Analysis

The importance of a “prototype” in the business world

Introduction

There are numerous directions a person can take in order to succeed. In many cases, an important factor that determines someone’s success is the techniques and skills a person has, such as dribble skills for soccer players and teaching skills for professors. However, in the business field, especially when you make new businesses/products, and promote them, one of the most important indicators of a success is a good prototype. By definition, a prototype is “the first example of something, such as a machine or other industrial product, from which all later forms are developed”. The word prototype is usually used for computer programming, cars, or trains to make sure that the products are safe enough to operate in the real world. To some it may seem as if prototypes are not related to the business field, but it is a vital component of a successful business.

When you start a new business, what you want to do is promote your startup by showing your brand’s strengths. While doing this, there are thousands of factors people should consider, starting from the business concept to more in-depth details. By developing some prototypes, a business is able to convince potential investors and customers of all the benefits their startup brings. A good prototype is like an insurance for business owners that mitigates the risk of their business failing. This is why making prototypes is crucial. At the same time, because the prototype is usually developed before a company starts to sell products, it should be done rapidly with minimum costs to prevent a large loss.

Methods of developing prototypes

Mainly, there are two ways to make prototypes: digital and physical

  1. Digital Prototyping

Digital prototypes are usually used when developers would like to check apps or homepages that people use on their device.

A digital prototype can be made by using existing resources, such as Figma or Wix. By utilizing those, developers can check how the apps work on consumers’ devices step by step. That way, they can improve their business from the users’ perspectives. Because those resources are specialized for prototypes, it is less time-consuming, and they have many features that other prototypes do not have, such as a size controller for each type of smartphone and templates for apps and homepages. The disadvantage is that they have to pay extra fees to acquire better features. Also, it is sometimes too complicated to manage all the steps if there are many pages or buttons.

(Below is an example of a digital prototype on Figma)

The other way a digital prototype can be made is by using physical materials to test the online service. This is a more analog way to make prototypes for apps or homepages, but by utilising physical elements, people are able to edit them easily by erasing things, or adding graphs with a pencil, etc. It sounds like a simple way, but obviously, it is less expensive than using paid services. Usually, such a physical prototype is enough for the entrepreneurs to get an understanding of how consumers will experience their product once it is launched.

(Below is an example of a digital prototype made by paper)

2. Physical Prototyping

The other type of prototypes is called physical prototyping. Physical prototyping is used when people are trying to make a new physical product and not a digital product. A physical prototype can be “anything from a single handmade model to a fully operational model, representing how the conceptual design will correspond to real-world conditions”. For instance, the backpack shown below looks easy to be broken and made with papers and tapes. However, by making it and carrying it, the developers can realise detailed problems that they might not be able to notice without such a prototype, such as the position of pockets of the backpack, or simply the appearance of the product.

On the other hand, the prototype of a vacuum looks like a real one and is detail-oriented, but it is still a type of physical prototyping. Thanks to the invention of 3D printers, it has become easier for people to make more realistic physical prototypes with less time-consuming, and less money. Even if the entrepreneurs don’t have enough money to buy such an expensive 3D machine, people can still make physical prototypes by utilising things that are around them, such as stationery, furniture, or food.

Conclusion

Even though factors such as personal connections, good business strategies, and financing are important for the success of a new business, it is essential for new business to have a good prototype to make sure that their new product or service works well. Thanks to the development of new digital techniques, and resources becoming more readily available, it has become much easier for entrepreneurs to make prototypes than before. In summary, if you are looking into starting a new business in the future, I strongly urge you to not forget to make a prototype before you actually launch your business.

Sources

https://www.steveglaveski.com/blog/12-types-of-prototypes-to-test-your-idea

https://www.interaction-design.org/literature/article/prototyping-learn-eight-common-methods-and-best-practices https://waykenrm.com/blogs/physical-prototype/

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Analysis

Why did Netflix fail to conquer Russian online-cinema business?

Introduction

I will start with a phrase that may sound rather ridiculous to US citizens. Yes, in Russia only a very tiny fraction of people have a subscription to Netflix. In fact, many Russian people do not have a single subscription to an online-cinema. Due to some cultural backgrounds and ad technology in some distant parts of the country some people do not watch films online at all, and 93% of those who watch, use illegal resources. They are already a part of Russian culture; pretty talented people translate foreign films using jokes, irony and satire and make films only better! This is why many people hesitate to switch to official resources; they are adore foreign films that are modified a bit with Russian creativity.

But pirate websites is not the only problem Netflix faced when entering the Russian market. Low incomes, cultural backgrounds and heavy opposition joined forces.

Problems Netflix Faces

Firstly, on average, a standard Russian has an income of about 490 dollars a month. A subscription to an online video service costs anywhere from 3 to 10 dollars, an amount that is not negligible in this case when one has to consider all the other expenses people have to cover. With inflation hitting 6% a year, and salaries not growing by the same percentage, Russians are unwilling to spend money on content, which could be accessed for free through another source.

Secondly, not all Russian people adore the films that are suggested by Netflix: there is a very significant cultural difference between Russians and Americans. The times of the Soviet Union left a very large stain on Russian mentality. People do not want to see that some people lead a happy life somewhere in another part of Earth while they don’t. They want to see movies that reflect the problems they face. That is why genres such as arthouse are very popular in Russia. Netflix does not offer such films. Also, many Russian people, due to Soviet prejudices, are pretty intolerant, and they dislike the idea of seeing people of sexual minorities on their screens.

And thirdly, Netflix has to battle with three very serious opponents: Kinopoisk, OKKO and IVI. For many years, Kinopoisk was just a website about films, where people could discuss their opinions  and put marks —  it was like IMDB – but then it partnered with Yandex, one of Russia’s largest non-governmental companies to open a service that could try to fight with Netflix for the audience. Having an abundance of money and a very talented management, Yandex straight away started buying copyrights for Russian distribution of some of the most famous films and series, such as “The God Father”, “How I Met Your Mother”, “John Wick”, etc. It even received exclusive rights to show Warner Brothers’ “Justice League: Snyder’s Cut” from the first days of its release. Tigran Hudoverdyan, Yandex’s deputy CEO, uses the same tactics as he used when he single-handedly concurred Russian Taxi Business – he attracts customers by setting very small rates at first, and then lifting them when the customers are already acquired. Yandex are basically buying rights to distribute an abundance of famous titles from the largest American film companies, and even Netflix. Many films that one can usually find on Netflix can be found on Kinopoisk in Russia instead. The only issue is that Yandex is spending too much money, even considering the fact that is is Russia’s largest IT company. The question is whether Yandex will manage to gain enough from this business to cover all of the expenses.

Competitors of Netflix in Russia

The other two large companies: IVI and OKKO are less dangerous. Even though OKKO is controlled by Russia’s second biggest company, Sberbank, it is, most definitely, not the service they consider the most important due to great revenues from its banking investment and other IT businesses. But, OKKO has a lot of rights to distribute different sportive events such as the matches of English Premier League or the fights from Bellator MMA. IVI does not have such finances as the other two companies but it has a passionate collective. Opened by a former financier, IVI became a project of his life, and he desires to fight until the end with the giants that oppose him. Even though he does not have the money that his rivals have, he invests reasonably into content that would be unique to the service (something that OKKO and Kinopoisk also do, but rely on less). Also, the management of the company has plans to have an IPO on Nasdaq to receive money for the future development of the business. In 2019, the company already had more than 100 millions of dollars of revenue a year, and this number grew by 50% a year. At that time, IVI was the most popular Russian online media service. All of these factors made IVI an interesting company to invest into, but its IPO was shattered by the COVID-19 outbreak.

Conclusion

To conclude, the most important factors of Netflix’s failure to win dominance in Russia were low incomes, the cultural background of Russian people and heavy opposition from local companies. In my own humble opinion, the last factor is the most significant one.

Sources

Categories
Analysis

How does the history of Japan and America cause the difference between their current business strategies?

Introduction

Each country has its own unique history and background, but while some countries have existed since the BC era, other countries became nations only a few years ago. This article will focus on Japan, one of the oldest nations in the world, and America, one of the youngest. Despite their difference in age, America and Japan are known as developed countries that lead the world economy and business world. According to the GDP (gross domestic product), which shows the economic power of each nation, the United States is the country and Japan is in third place.

RankingCountryUnit: $1000000
1USA20,932,750
2China14,722,840
3Japan5,048,690
4Germany3,803,010
5UK2,710,970

Even though the two countries look similar in numbers, they have had completely different histories, cultures, and backgrounds. Such differences have a great influence on their individual business strategies and decisions as a nation, even still today.

Differences between the U.S. and Japan

One of the biggest differences is the “flexibility of companies”. Flexibility here refers to how typical companies in each country respond to new ideas and how they make decisions. In America, companies tend to adopt novel ideas, and/or techniques by receiving input from people with diverse perspectives and backgrounds. Such a management style can be described as innovative. On the other hand, people in Japanese companies are homogeneous, meaning that there are only very narrow perspectives. This may explain why Japanese companies tend to respect their existing techniques and work with their resources and do not implement new ideas as often or as easily. In fact, a survey shows that 35% of people said that America is the most innovative country whereas only 12% of them said that it was Japan. But how are these difference explained by the histories of Japan and the U.S.? 

First, we will take a look at how history affects the diversity of the two countries. For America, as widely known, Columbus found an American continent where native Americans had already settled. After his finding of the continent, many Europeans began migrating to the American continent and ultimately colonized the continent. This means that since its discovery, America has been a very diverse country, which it still is today. This in turn means that companies in America consist of a diverse community of people. As opposed to the history of America, Japan has developed with only a single race: Japanese. Because Japan is a small island country, not many countries have tried to invade Japan in its history. In addition, from 1639 to 1854, Japan was a closed country, which means that no one was able to come to Japan and there was no trade with other countries. Such conditions caused  Japan to become an even more homogeneous nation.

The second main difference is the ability of companies to adopt new ideas and approaches. In Japan, because the Japanese culture has been able to flourish for more than 2000 years without being confronted by other cutlures, there are many traditional ideas that people still respect, such as the existence of the natural state. One example of this is that some Japanese words that were first “invented” 1300 years ago to represent body parts and nature are pronounced exactly the same — examples of this are nose and flower as well as tooth and leaf. Because the idea of living “with nature” still penetrates widely in Japan, and there is a belief that long-lasting traditions should not be abolished, people tend to make more conservative decisions. Conversely, Americans have more realistic ideas of nature. For instance, Newton (even though he was from Europe) who found the existence of gravity considered the tree with an apple as an experiment objective, not something to see and enjoy the phase of the tree as the Japanese did. Also, because there are not many long-lasting histories in America because of the late independence, there would be less pressure for people to decide to adopt new, what could sometimes be seen as a bit risky ideas and/or techniques.

Conclusion

In this article, by unraveling the history of the United States and Japan, the huge role that the relevant history of the two countries plays in the business sector was discussed. History has greatly influenced each country’s business greatly, thus explaining the vast differences between the two countries. Based on this article, my suggestion is that businesses should be open to adopting new ideas and techniques, but at the same time, I do think that is important to follow some respected traditions at the same time and not abolish them. Generally, it is always interesting to see the connection between the history of the country and the current situation of the country and explore how the traditions have impacted such developments.

Sources

https://www.globalnote.jp/post-1409.html

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Weekly Summaries

9th of August – 15th of August

The Taliban take over Kabul

On Sunday, the Taliban took over Kabul, Afghanistan’s capital city. The U.S. has had a heavy military presence in Afghanistan for twenty years, which now came to an abrupt ending. The collapse of Kabul comes a lot faster than even many experts had expected, meaning that most Afghans now have no way of getting out. President Ashraf Ghani fled the country to Uzbekistan after the finance minister already fled last week. Since then a council of Afghan officials has opened negotiations with the Taliban to discuss the takeover, according to the New York Times. Troops from the U.S. and other Western countries, which had been stationed in Afghanistan, started withdrawing in May. Around that time the Taliban started their offensive to take over Afghanistan. What the future of Afghanistan and the people who live there will look like remains uncertain, but prospects point to the worst.

Other News

  • Michael Calvey, an American businessman, was sentenced to a suspended sentence “for embezzlement charges” for 5 and a half years, according to the New York Times
  • After facing accusations of sexually assaulting 11 women, New York’s Governor Andrew Cuomo has resigned
  • The cost of coffee beans is up by almost 44% in 2021 compared to 2020, according to the New York Times

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Weekly Summaries

17th of August – 23rd of August

Apple is worth $2 trillion

On Wednesday the 19th of August, Apple became the first U.S. company that is estimated to be worth $2 trillion. The value of shares increased by 1.4% during midday trading.

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Books

The Finance Curse

The Finance Curse, which was written by Nicholas Shaxson, was absolutely mind-blowing. This book explains how different places have set up their whole tax system to be more appealing to companies who set up their headquarters in these countries. Although Shaxson focuses mainly on the case of London and tax havens such as Luxembourg, the book is nonetheless a must-read. Personally, I did not find the book too hard to understand even though I had no previous knowledge in the finance field when I started reading the book. In “The Finance Curse,” Shaxson explains how money flows from the customer to tax havens and how small companies may actually be owned by huge companies based in tax havens.