Business Economics Revisions: Key Concepts PDF

REVISIONS BUSINESS ECO : I. Notions in general Core themes: Business eco = makes the link between eco theory and practical decision-making in business Ø Emphasizes eEiciency: use of limited resources in a productive way Ø Profit maximization: to achieve the highest possible return...

REVISIONS BUSINESS ECO : I. Notions in general Core themes: Business eco = makes the link between eco theory and practical decision-making in business Ø Emphasizes eEiciency: use of limited resources in a productive way Ø Profit maximization: to achieve the highest possible return Ø Strategic allocation: by making informed choices on how and where to use them Ø Scarcity: limited resources for unlimited wants and needs Foundational concepts: Opportunity costs = choosing one thing means giving up another Marginalism = look at the extra benefit or cost of doing a little more or less (100 or 101 shirts?) Incremental analysis = focused on small diEerences between two business choices (2 marketing campaigns) Risk and uncertainty = we don’t always know how the customers will react or what will happen Demand and Market behavior: Price Elasticity = measures how responsive something is to change – usually how much demand changes when price or income changes (elastic if big reaction) Search goods = know quality before buying Experience goods = learn value after trying Credence goods = can’t evaluate even after buying Market structures and implications: Perfect competition = low pricing power, focus on cost leadership Monopoly = high entry barriers, pricing control, need for regulation Monopolistic competition = importance of branding, diEerentiation, non-price competition Oligopoly = interdependence in pricing, potential for collusion, or price leadership Entry barriers = not directly labeled but discussed within monopoly and oligopoly Ø Includes Economies of scale Ø Legal protections (patents, licenses) Ø Brand loyalty Ø Capital requirements Ø Technology or know how DiEerenciation = Ø Vertical: based on quality/price Ø Horizontal: based on style/taste Sunk costs = costs you can’t recover once spent – important in risky markets Creative Industry Specifics: Immaterial value = what people pay for isn’t the fabric it’s the symbolism, the story “Nobody knows” = cultural product success is unpredictable Gatekeepers = critics, awards, influencers shape what gains traction Information cascades = people copy others choices – especially in fashion A-P-C = analysis Ø Age eEect: change sin behavior as people age Ø Period eEect: time events (like COVID) impact everyone Ø Cohort eEect: generational diEerences based on shared experience Firm-level strategies: Theory of the firm : - Why companies exist: to reduce market transaction costs - Make or Buy: produce in-house or outsourced - Resource-based view: firms succeed because of unique internal assets (skills, culture, brand, IP) Economies of Scale and Scope: - Scale: cost per unit drops as production increases - Scope: use the same resources to diversify Performance Metrics: KPIs: Ø Traditional = turnover (shows the scale of the company’s operations), margin (indicates business success and sustainability), profit (measures eEiciency and pricing power) Ø B2B = sell through rate (tracks how quickly products are moving), brand margin (key for comparing performance across product lines), reorder rate (indicates demand and buyer confidence) Ø B2C/Digital = conversion rate (crucial for optimizing online stores), average basket (helps plan pricing and marketing), Customer Lifetime Value (long-term profitability per customer) Sector-level indicators: Ø Creation (high = low barriers to entry, low = high concentration) and failure rates (high = risky sector) Ø Profitability (helps compare sectors for investments attractiveness) Ø Turnover per employee (eEiciency metric, revenue generated per worker) Ø Exportation rate (shows global competitiveness) Ø Market concentration (CR4 or CR8 means the market shares are held by top 4 or 8 firms) Business models in fashion & luxury: Canvas Model: analyzes identity, segments, key activities, value prop, cost structure RCOV model: focuses on profit structure and resource configuration Premium vs Luxury: - Luxury = creativity driven, identity-rich, global scale - A'ordable luxury = mix of style and price, inspired by luxury, mass-market eEiciency Direct-to-consumer DTC: higher margins, better data, no intermediaries Virtuous circle of retailing: - Front-oEice = control, communication, brand value - Back-oEice = insights, pricing, margin control Complete control of the supply chain: - Control the sourcing of raw materials - Protection of skills and specific know-how - Dialogue between creation and craftsmanship 4 main reasons why creative brands fail: 1. Product/market fit = sometimes people won’t like a storytelling and won’t buy your product 2. InsuEiency margins 3. Stocks = we need to make sure the pieces are sold but if they’re not we have too many stocks  4. Cashflow = DiEerence between the moment you cash out (promotions, advertisement, etc.) and the moment you cash in (earning money); in addition, fashion is a never-ending cycle so even before having the cash you have to create something (before having been paid for the first one). What are the solutions for this? à In France we have a huge cinema industry; shooting a film is like delivering a fashion collections, you don’t have a clue if it’s going to work or not, you have to finance it beforehand. Because of the cinema industry we have tools, IFCIC (institute de financement pour le cinema et industries creatives). We support Balenciaga, Chanel et LV. 3 major mutations in the French landscapes: - 1980s first French chains - 1990s emergence of fast fashion – took over French national leaders - 2000s emergence of aEordable luxury Mass market retailers started to be bored when proposed same products in the meantime luxury brands were targeting wealthy people. In the crisis of 2009, a lot of people could not aEord buying these brands anymore/these clients were in search of proposals that were more limited than mass market but more aEordable than luxury - 2010s digital centric brands Started online then opened stores Analyzing business sectors: S-P-C model = Structure Conduct Performance Ø Explain how the structure of a market aEects the behavior of companies which then aEects their performances. Ø But also, the reverse, performances can aEect the market Ø Structure = market setup Ø Conduct = company strategy Ø Performance = company success Market concentration = in which measure a market is dominated by its enterprise Notion of business models: Articulation between strategy and business model: idea that your strategy and your business model have to be coherent and complementary. Ø We have to: - Identify the elements you want to improve - Link these elements to you diEerentiation strategy - These elements reinforced your position on the market - You develop a certain know-how Ø Strategy gives you a direction, business model tells you how you’re going to create and captivate the value and the articulation of both will help you to adapt yourself, diEerentiate yourself and last. E-commerce and digital: Impact of digital on eco models: Ø 2 new models = curators and platforms Ø They allow to construct global community, integrate new brands easily, give visibility to niche concepts E commerce: Ø Advantages: more risks, more margin, and no problem of stocks not sold Ø Inconvenient: client customer service poor and shipping fee 3 fashion e-commerce models: 1. Mass market: more and more criticized Before it was a solution to democratize fashion Now it’s losing its value due to digital Market less dynamic, higher production costs, less demand but higher price Model declining 2. Redesign Merchandising Before the prices were accessible Now the production is planned in advance, bad anticipation of trends, lots of stocks, bad performances 3. Emerging model: Fashion is becoming less and less previsible The new objective is to produce in the present so less engagement before the season, wait for the first demand signals and a reduction of waste It’s actually trendy, regional model, positive impact on the environment