Poor Economics: A Radical Rethinking Of The Way To Fight Global Poverty

Increasing Returns on Scale

Discuss about the Poor Economics for A Radical Rethinking of the Way to Fight Global Poverty.

1. Increasing return on scale can be defined as more increase in the output level in comparison to the increase in input level.  For example, Apple can have increasing returns to scale because of its brand loyalty, positive image among the customers, advanced technologies and innovation that influence the customers’ mindset positively. Due to its technical expertise and R&D capabilities, the firm will be able to increase outputs more than the inputs. Consequently, apple uses superior technology that increases its production efficiency and ability to have increasing return on scale (Walshaw, 2014). But at the same time, increasing cost of raw material and lack of effective technologies may cause decreeing return on scale. For example, OfficeMax is a USA retail based firm that would have decreasing returns of scale because OfficeMax invest large amount of money in retail production input but lacks with required technology and efficiency, which might be a reason for declining return on scale. OfficeMax merged with office depot for increasing the sale and demand through developing production efficiency, but it was not successful due to less market growth and innovation to meet customer needs.

2. Fixed cost is the cost that remains same at all level of activities and does not change with the change in the activity level in the organization. Proctor & Gamble is the firm that has a significant level of the fixed costs due to having large number of stores and management of shelves along with the wages and salaries of the retail staff.  It also uses different software to run its operations smoothly and to ensure the security of the data and for this, it pays fixed licensing and maintenance cost each year. The cost of software is also the sunk cost because it cannot be received in future (Banerjee and Duflo, 2012). The firm has paid the cost of buying the licenses of the different software that will be used over the years, but the cost cannot be recovered by the firm that makes it a sunk cost.

3. The invisible hand theory depicts no intervention of government and advocates a free market economy. According to this, government interventions may affect the market efficiency. For example, the government interventions in the health care industry of the USA caused an increased in the quality of care, but at the same time, it prevented the competition and caused the monopoly of some larger hospitals (Hausmann, et al, 2014). It caused an increase in the cost of treatment and low output in healthcare due to lack of effective R&D. But at the same time, government interventions are effective to improve the services and consequently the social welfare from the business practices. For example, government interventions in USA airline industry through the regulations forced the firm to improve the competition and to ensure betters services to the customers. The government provided indirect subsidies; bailout service and tax support to small airline firms for maintaining their service and provide reasonable fare service to its customers (Jaffe, 2016). It also facilitated a control over the prices and increased overall efficiency in the market.

Fixed Costs

4. Cairn India and Vedanta merger plan in June 2016 is a strategic behavior in action. It means merger will strengthen the resources of Vedanta as well benefit the shareholders. Consequently, it will create the value for the stakeholders. This strategic behavior of merger will help in developing core competence in the market (Benna, 2014). The major players in this strategic behavior are cairn India and Vedanta ltd as both are involved in the merger process. At their disposable both are using the negotiation strategy along with lobbying to gain better deal and benefits for their shareholders. These strategies are working for both the firms to improve their favor in the strategic behavior and to get the required benefits. In this strategic behavior, one firm will buy the shares of other firms at an agreed price and it will cause an increase in return and market share of the buyer firm. Overall, both the firms will get benefited from this strategic behavior.

5. The understanding of risk attitude of the customers can be significant for the firm because it would facilitate an opportunity for increasing the sales of the firm. It is because it will enable the firms to determine the behavior and attitude of the customers towards the new products and services of the firm and to change the organizational offerings accordingly. For example, a risk take customers will like to adopt the new products and services and their behavior understanding can enable the firm to bring continuous changes in its products and to sell them to the customers adequately (Hoffman, and Bateson, 2016). For the risk-averse customers, firms can use the direct selling method because through this method; firm facilitate a direct interaction with the customers that is effective to ensure them for the product and to increase the trust of them in the organization goods and services. Through the direct selling method, the firm can sell to the risk-averse customer better by eliminating all their issues and conflicts.

Marketing

1. Brand extension is a method of launching new product by the name of existing brand. I believe that brand extension is an important brand growth strategy because it helps to facilitate the new product and services through creating a positive mindset and trustworthy image among the customers. Brand extensions help the firms to ensure the acceptance of their new products and services in the market due to having the particular image among the target market for the brand (Wang, 2014).  For example, Samsung uses the same brand name for all its products due to its quality image and trust among the customers. Brand extension works on the basis of brand loyalty that helps us to increase the brand equity by developing a favorable positioning among the customers. Therefore, brand extension is the efficient way to enter in the new market because the original brand is already in the mind of customers. For example, Apple expands its market from computer to mobile phone quite easily and became the market leader due to its quality image and brand loyalty.

Government Interventions

2. For service organizations, it is difficult to manage their market share and customer base due to lack of tangibility. Services are intangible and it creates challenges to promote, control, quality, and set price by the service firms due to dependency on the efficiency of a firm (Hoffman, and Bateson, 2016). The service organizations also face issue in differentiating their services from the others in their marketing prices and to adopt an effective pricing strategy due to cost of each service comes differently. The effective promotional mean is another challenge for the service organizations due to intangibility that makes most of the promotional methods inappropriate and it affects the organizational ability to increase consumer awareness.  For these challenges, the service organizations need to follow unique marketing strategies by tangibles their services (Mason, and Evans, 2015). For example, the firms can compare their services with other firms’ services in terms of time, or other features that will make the services tangible and will increase the organizational marketing efforts.

3. ABT Electronic is USA based corporation, which is engaged in retailing business. It is a regional organization but it has higher sales equal to 400 million along with good demand. Due to this, it has opportunity of co-branding with Wal-Mart to increase its image and reach to market. ABT electronics will have various advantages of this co-branding due to developing the brand image, market reach, customer base, market expansion and consequently the revenue of the firm. It will increase the market share of the company and also increase the awareness regarding the company products (Kim and Mauborgne, 2015). It will also be effective to decline the competition and improving competitive position of the firm. But at the same time, it may affect the individual recognition of the firm due to brand impact of Wal-Mart and its cost leadership strategy that may affect the overall profitability of the firm.

4. McDonald is a fast food restaurant that offers food services through 3600 local restaurant and approximately 60 million people worldwide per day. Due to having youth customers as the target market, McDonald exercises the social media and web based marketing techniques for increasing market share and profitability. It is quite effective to increase its product awareness among the customers and consequently their responses positively. The continuous growth of McDonalds is the indicator of the success of its strategies (Watanabe, et al, 2015). The average annual earnings growth of McDonalds is 9.20%, which is effective to ensure the success of its marketing strategies. In US only, the compounded growth rate of McDonalds is 2.3% because of its web based marketing and social media strategies in the year 2015 due to convenience to the customer an increase in their awareness for the organizational products (Woolley, 2015).

References

Banerjee, A. and Duflo, E. (2012). Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. UK: PublicAffairs.

Benna, P.L. (2014). Mergers and Acquisitions: India under Globalisation. USA: Routledge.

Hausmann, R., Hidalgo, A. C., Bustos, S., Coscia, M. and Simoes, A. (2014).The Atlas of Economic Complexity: Mapping Paths to Prosperity. USA: MIT Press.

Hoffman, K.D. and Bateson, J.E.G. (2016). Services Marketing: Concepts, Strategies, & Cases (5^th ed.).USA: Cengage Learning.

Jaffe, S.D. (2016). Airspace Closure and Civil Aviation: A Strategic Resource for Airline Managers. USA: Routledge.

Kim, C. W. and Mauborgne, R. (2015). Blue Ocean Strategy, Expanded Edition: How to Create Uncontested Market Space and Make the Competition Irrelevant. USA: Harvard Business Review Press.

Mason, R. and Evans, B. (2015). The Lean Supply Chain: Managing the Challenge at Tesco. UK: Kogan Page Publishers.

Walshaw, T. (2014). Increasing Returns to Scale. USA: Lulu.com.

Wang, C.L. (2014). Brand Management in Emerging Markets: Theories and Practices: Theories and Practice. USA: IGI Global.

Watanabe, T., Uesugi, I. and Ono, A. (2015). The Economics of Inter firm Networks. USA: Springer.

Woolley, D. (2015). The Marketing Management Posts. USA: Fontaine Press Pty Ltd.