Ashford 6: - Week 5 - Discussion 1
Your initial discussion thread is due on Day 3 (Thursday) and you have until Day 7 (Monday) to respond to your classmates. Your grade will reflect both the quality of your initial post and the depth of your responses.
| |
Good Will in Price Bidding |
Sometimes, a bidder on a work contract may bid lower than what would maximize his/her profit from the contract and the reason for that is to create goodwill (to increase expected future business from the buyer). How would you value the goodwill that is obtained in this way?
Guided Response:
Think about an example that pertains to you. If there is expected goodwill would you be prepared to bid lower to get a contract? Explain your reasons. In 300 words or more, please, provide your response to the above discussion question. Respond substantively to at least two of your classmates’ postings. Substantive responses use theory, research, and experience or examples to support ideas and further the class knowledge on the discussion topic.
Carefully review the Discussion Forum Grading Rubric for the criteria that will be used to evaluate this Discussion Thread.
Here are students to respond to
|
| | For the sake of goodwill, would I choose to bid lower on a contract resulting in less profit versus bidding higher which would maximize my profit? Some might ask, what is goodwill? “Goodwill is a type of intangible business asset.” (http://www.inc.com/encyclopedia/goodwill.html) If the overall goal for my business is to create goodwill, build a business relationship, build a good reputation, and increase my opportunity for future business with an organization, yes, I would bid lower on a contract. However, there are risk factors that must be considered prior to making that decision. “If the firm needs income soon to avoid running out of cash, not winning this particular contract would put the firm at extreme risk of insolvency” (Douglas, 2012). First, I would calculate my bid by including the incremental costs of the contract, which are all the costs for completing the contract. Next, I would calculate the sunk costs which are previously paid for purchases of assets including land, buildings, plant and equipment, and depreciation expenses based on these (Douglas, 2012). Finally, I would calculate the unavoidable costs. After deducting all costs from the profit margin, I would make the final decision. This is important because most businesses cannot afford to lose money. I would bid lower in hopes of winning the bid. I don’t have a specific example that pertains to me but a close friend owns a cleaning business so I told her about this discussion question and asked if she would be willing to discuss her experience with me. In order to make extra money my friend started cleaning houses. During the early years of her business, she began cleaning houses for some of the young male law enforcement officers in the office where she works as a secretary. (The only reason I mentioned the aforementioned sentence is because my friend identified a need in an untapped market that was at her fingertips). Initially, she charged lower prices than competitors (local cleaning businesses) because she wanted to build a good rapport , strong relationships and grow her business. She also knew that “word of mouth” would be her greatest reward. Within a few months, her business grew and the guys from the office recommended her to other people. Some of those individuals were also connected with the local government. The business relationships and the good work that she performed, ultimately grew her business and she now has three significantly large contracts with a local government office and two corporate offices. Of course, this did not happen overnight. My friend has owned her cleaning business for ten years and at year four, she won her first big contract cleaning a corporate office. References Douglas, E. (2012). Managerial Economics. San Diego, CA: Bridgepoint Education Www.Inc.com. (2016). Goodwill. Retrieved from http://www.inc.com/encyclopedia/goodwill.html. |
|
|
| | Douglas (2012), states goodwill is when a firm may wish to set their quoted price (lower if seller/higher if buyer) to recognize and/or promote the friendship with the firm on the opposite end of the deal. This could be done for many reasons such as aesthetic, political, or risk considerations.
I would value the goodwill that is obtained this way in an overall context compared to just this one deal or point in time. For example, a deal today that I lowered from my normal purchase price of $1,000,000 to $900,000 that will normally cost me $800,000 I have extended goodwill of $100,000 towards the other firm. I am now out $100,000 in potential profit. However, if I didn’t lower my price, a competitor who charges $950,000 would likely won that deal 70% of the time. Now that I am in business with this firm, I will additionally receive five subsequent deals based on our contract giving me an overall profit of $600,000 for this one overarching deal. The opportunity cost of is increasing my likelihood for not only profit today, but profits going forward, compared to a lower chance of receiving profit today and going forward. Essentially, I would value the goodwill at what the overall dollar amount can be gained and if it is or is not worth the risk.
An example of goodwill is when I first started my career after college. Most companies hire individuals who already have their Series 7 and would rather not take the chance of the individual failing. Most of the time, the individual studies at work in which lost productivity occurs and usually for 1-3 months. The employer extended an offer to me slightly below the typical going rate for that position because the goodwill was worth it to them salary wise. It more of a political (self-serving) behavior because I knew I needed to be sponsored to take that license and ultimately move on to other positions later in my career.
I would be prepared to lower my bid if the expected goodwill was overall worth it to me.
Reference
Douglas, E. (2012). Managerial Economics (1st ed.). San Diego, CA: Bridgepoint Education. |
|
Ashford 6: - Week 5 - Discussion 2
Your initial discussion thread is due on Day 3 (Thursday) and you have until Day 7 (Monday) to respond to your classmates. Your grade will reflect both the quality of your initial post and the depth of your responses.
| |
New Production Introduction |
Bayer Schering Pharma AG, Germany owns Alka-Seltzer, which was launched in 1931 and was meant for relief of minor aches, pains, inflammation, fever, headache, heartburn, sour stomach, indigestion, and hangovers. Alka-Seltzer Plus was a spin-off of the original medicine, meant to relieve colds and flu.
The company has recently introduced a new and improved Alka-Seltzer Plus, as described in this TV ad.
The ad shows that Alka-Seltzer Plus can fight congestion, unlike NyQuil.
Explain how Alka-Seltzer Plus has been quality and price-positioned in an existing market. In your opinion, has Bayer positioned their product appropriately in the market for cold and flu symptoms relief products? Would you advise Bayer to use a skimming or a penetration pricing strategy? Explain your reasoning.
How do you think Proctor and Gamble, the company who produces Vicks NyQuil, would respond to the ad?
Guided Response:
In 300 words or more, please, provide your response to the above discussion question. If Bayer is currently making normal profits on most of the products in its product line, but is making pure profits on its new Alka-Seltzer Plus with decongestant, what should Bayer do to increase its profits? Respond substantively to at least two of your classmates’ postings. Substantive responses use theory, research, and experience or examples to support ideas and further the class knowledge on the discussion topic.
Carefully review the Discussion Forum Grading Rubric for the criteria that will be used to evaluate this Discussion Thread.
Here are students to respond to
|
| | With regards to the quality positioning of Alka Seltzer Plus, Bayer ensure there was a relevant range of quality in comparison to what the Nyquil product includes. Douglas 2012 states that the relevant range of quality is when a competing product offers mostly the same core product attributes with each product potentially offering more or less of each of these attributes and additionally offering one or more quality attributes that rivals do not offer. In the TV ad, it explained that Nyquil doesn’t treata a cold with a runny nose. The ad further offered that Alka Seltzer Plus contains a fast acting antihistamine to reliever the runny nose. “Price positioning is the selection of price within the relevant range of prices for rival products such that the chosen price offers a competitive value proposition to prospective customers” (Douglas, 2012). My opinion is that Bayer has appropriately positioned Alka Seltzer Plus in the market for cold and flu symptom relief products because it listed the symptoms treated by its product as well as the symptoms that differentiate it from other products in the market (I.e. Nyquil). A google search for the prices of Alka Seltzer Plus and Nyquil resulted in Alka Seltzer Plus being approximately 35 cents more than Nyquil, which is price positioned well in my opinion. I feel that consumers should be willing to pay a tad bit more for the extra attribute in a product, so it falls within the relevant range of prices. I would advise Bayer to use penetration pricing, which is “the practice of setting a relatively low price to induce greater adoption by consumers and, thus, gain greater market share” (Douglas, 2012). Bayer already has brand recognition and has been in business since the 1930s; therefore, I don’t see the need for Bayer to price skim and set prices high to make more profit in the short term. Bayer is an established pre-existing company and the price penetration strategy will allow the firm to produce more Alka Seltzer Plus at lower costs which will allow the product to get in the hands of more consumers. Over the long term, Bayer will maximize its profits. Bayer should focus on marketing Alka Seltzer Plus in order to increase the profits higher than pure profits. I think Proctor and Gamble will respond to this ad by marketing a new product that is competitive with Alka Seltzer Plus. References Douglas, E. (2012). Managerial Economics (1st ed.). San Diego, CA: Bridgepoint Education. FeelVibe10. (2014, May 14). Alka Seltzer Plus cold and cough TV commercial, ‘library’ [Video file]. Retrieved from https://www.youtube.com/watch?v=93X633vIBPU |
|
|
| | Background “Bayer Schering Pharma AG, Germany owns Alka-Seltzer, which was launched in 1931 and was meant for relief of minor aches, pains, inflammation, fever, headache, heartburn, sour stomach, indigestion, and hangovers. Alka-Seltzer Plus was a spin-off of the original medicine, meant to relieve colds and flu.”. “Price positioning is the selection of price within the relevant range of prices for rival products such that the chosen price offers a competitive value to prospective customers” (Douglas, 2012).I feel the strategy Alka-Seltzer has used for quality and price-positioning in an existing market is using a multidimensional approach of product and quality. An example of this is done in the TV Ad where shows how Alka-Seltzer Plus can fight congestion unlike NyQuil. This puts Alka-Seltzer Plus on a superior positioning in terms of price and quality to NyQuil.
I feel this is a good positioning for Bayer. The reason behind this they’re a well-known product that is enter a different aspect within their field against another known competitor. Positioning themselves as a higher value play against NyQuil gives the perception of a bargain to the consumer. Since they’re deemed a high quality product, I feel price skimming would be more ideal than price penetration. They offer more which allows them to charge higher along with there is a closely relatable product (NyQuil) that allows reliable estimates to achieve profit maximization.
Proctor and Gamble would probably take the relevant range of quality route and offer mostly the same core product, potentially with more attributes to rival Bayer (Douglas, 2012).
If Bayer is currently making normal profits on most of the products in its product line, but is making pure profits on its new Alka-Seltzer Plus with decongestant, what should Bayer do to increase its profits? Reference Douglas, E. (2012). Managerial Economics (1st ed.). San Diego, CA: Bridgepoint Education. |
|
Ashford 6: - Week 5 - Assignment
Price Quotes and Pricing Decisions Applied Problems
Please complete the following two applied problems:
Problem 1:
Jessica Alba, a famous actress, starts the baby and family products business, The Honest Company, with Christopher Gavigan. Alba and Gavigan set up their site so families can choose what kinds of non-toxic, all-natural products they'd like to use and get them in a bundle. Families can choose all kinds of products from food to hygiene necessities and cleaning supplies. Suppose they are thinking of expanding their business into five domestic markets: Phoenix, Dallas, Chicago, New York, and Atlanta. Assume their primary goal of business is to maximize economic profits, although they want to do business honestly.
Show all your calculations and process. Describe your answer for each question in three- to five-complete sentences.
- You are a business adviser for Alba and Gavigan. Describe a skimming price and a penetration price, and advise them whether they should charge a skimming price or a penetration price, with supportive reasoning for and against each pricing alternative.
- Are they likely to make economic profits initially? Can they continue to make economic profits in the long term? Why or why not? Discuss.
- What advice would you give to Alba and Gavigan to help them make more profit in the long term?
Problem 2:
You operate your own small building company and have decided to bid on a government contract to build a pedestrian walkway in a national park during the coming winter. The walkway is to be of standard government design and should involve no unexpected costs. Your present capacity utilization rate is moderate and allows sufficient scope to understand this contract, if you win it. You calculate your incremental costs to be $268,000 and your fully allocated costs to be $440,000. Your usual practice is to add between 60% and 80% to your incremental costs, depending on capacity utilization rate and other factors. You expect three other firms to also bid on this contract, and you have assembled the following competitor intelligence about those companies.
Issue | Rival A | Rival B | Rival C |
Capacity Utilization | At full capacity | Moderate | Very low |
Goodwill Considerations | Very concerned | Moderately concerned | Not concerned |
Production Facilities | Small and inefficient plant | Medium sized and efficient plant | Large and very efficient plant |
Previous Bidding Pattern | Incremental cost plus 35-50% | Full cost plus 8-12% | Full cost plus 10-15% |
Cost Structure | Incremental costs exceed yours by about 10% | Similar cost structure to yours | Incremental costs 20% lower but full costs are similar to yours |
Aesthetic Factors | Does not like winter jobs or dirty jobs | Does not like messy or inconvenient jobs | Likes projects where it can show its creativity |
Political Factors | Decision maker is a relative of the buyer | Decision maker is seeking a new job | Decision maker is looking for a promotion |
Show all of your calculations and processes. Describe your answers in three- to five-complete sentences.
- What price would you bid if you must win the project?
- What price would you bid if you want to maximize the expected value of the contribution from this contract?
- Defend your answers with discussion, making any assumptions you feel are reasonable and/or are supported by the information provided.
Carefully review the Grading Rubric for the criteria that will be used to evaluate your assignment.