Top 10 Factors That Determine The Profitability Of Firms

Writen by Richard Pettinger

The essence of profitability is a firms Revenue – Costs with revenue depending upon price and quantity of the good sold.

1. The degree of competition a firm faces is important if a firm has monopoly power then it has little competition, therefore demand will be more inelastic. This enables the firm to increase profits by increasing the price. (For A2 draw monopoly diagram) However govt regulation may prevent monopolies abusing their power e.g. the OFT can stop firms colluding (to increase price)Regulators like OFGEM can limit the prices of Gas and Electricity firm

2. If the market is very competitive then profit will be low. This is because consumers would only buy from the cheapest firms. Also important is the idea of contestability. This is how easy it is for new firms to enter the market. If entry is easy then firms will always face threat of competition, even if it is just "hit and run competition" This will reduce profits. Firms may seek to create barriers to entry. The most common is creating brand loyalty through advertising.

3. The strength of demand is very important. For example demand will be high if the product is fashionable, e.g. mobile phone companies have been very profitable. However in recent months profits for mobile phone companies have fallen because the high profit encouraged over supply. Products which have falling demand like Spam (tinned meat) will lead to low profit for the company

4. The State of the economy. If there is economic growth then there will be increased demand for most products especially luxury products with a high YED. For example manufacturers of luxury sports cars will benefit from economic growth but will suffer in times of recession.

5. A successful advertising campaign can increase demand and make the product more inelastic, however the increased revenue will need to cover the costs of the advertising. Sometimes the best methods are word of mouth. For example it was not necessary for YouTube to do much advertising.

6. Substitutes, if there are many substitutes or substitutes are expensive then demand for the product will be higher. Similarly complementary goods will be important for the profits of a company.

7. The other aspect of profitability is the degree of costs. An increase in costs will decrease profits, this could include labour costs, raw material costs and cost of rent. For example a devaluation of the exchange rate would increase cost of imports therefore companies who imported raw materials would face an increase in costs. Alternatively if the firm is able to increase productivity by improving technology then profits should increase. If a firm imports raw materials the exchange rate will be important. An depreciation making imports more expensive. However depreciation of the exchange rate is good for exporters who will become more competitive.

8. A firm with high fixed costs will need to produce a lot to benefit from economies of scale and produce on the minimum efficient scale, otherwise average costs will be too high. For example in the steel industry we have seen a lot of rationalisation where medium sized firms have lost their competitiveness and had to merger with others.

9. If a firm is not dynamically efficient then over time costs will increase. For example state monopolies often had little incentive to cut costs, e.g. get rid of surplus labour. Therefore before privatisation they made little profit, however with the workings of the market they became more efficient.

10. If the firm can price discriminate it will be more efficient. This involves charging different prices for the same good, so the firm can charge higher prices to those with inelastic demand. This is important for airline firms.

Richard is an economics teacher in Oxford and is a member of the Sri Chinmoy Centre Richard edits a site on economics called Economics Help This is a useful resource of economics essays and help

7 Reasons You Are Your Own Best Product Or Lessons From The 2004 Presidential Election

Writen by Kristin Johnson

The 2004 election is over--at least in the minds of the public--and analysis runs rampant as to why Senator John Kerry lost. From a business viewpoint, one could say that he simply didn't sell the product. Or more accurately, he didn't sell the American voters on himself, and by extension the Democratic Party, as the product. We all remember phrases such as "This is the wrong war in the wrong place at the wrong time" and "I voted for the invasion of Iraq before I voted against it."

Imagine if Bill Gates took to the airwaves and said, "We're against business. Our aim is to completely sandbag business [N.B.: some Microsoft foes may quip that he's succeeded.] But even though we're anti-business our software can do business better than our competitors' products. So buy Microsoft even though we're anti-business."

Even all of Bill Gates' millions couldn't stop stockholders from hauling him before a Wall Street firing squad. Die-hard Windows lovers, like true blue Democrats, would continue to support Gates nonetheless. They might even do it to spite Apple Computer, the way so many Kerry voters chose to support Kerry because he wasn't Bush. "The Uncola" slogan worked for 7-Up, but that's the exception. Most successful business enterprises win loyalty by telling customers who they are, rather than who they're not.

Consider the mundane example of juicers, specifically an online store front called LivingRight.com, one of a family of health appliance and lifestyle product Web sites operated by Arizona-based company Open Chute. There are literally hundreds of juicer Web sites, so what can Open Chute do to convince customers to buy from LivingRight.com? Except for saying, "We will meet or beat any of our competitors' prices," LivingRight doesn't waste much time reminding you of the competition. Consider the statement on their homepage:

"We supply commercial juice extractors and industrial juicers to businesses and also carry the best juicers for at-home juicing junkies. We have gift ideas for the health nut in your life, juicing recipes and tips on juicing for healthy living, as well as a Best Price Guarantee."

Let's look at what LivingRight has just told you about itself:

Fact: It cares about your health, and to prove it, there are pictures of spiffy-looking juicers surrounded by fresh fruit. Mm-mm. It even wants your friends and family to be healthy!

Fact: It supplies commercial juicers, and links to those products are right up there on the home page. But those juicers seem affordable for "at-home juicing junkies." Open Chute knows that if you're going to invest in a juicer you're going to get something that lasts. And hey, there's a Best Price Guarantee!

Fact: It is so sure that LivingRight will make a difference in your life that it offers recipes to go with the juicers, as well as tips on juicing for healthy living.

So in one short paragraph, LivingRight has sold itself as a caring consumer advocate and supplier of these nifty health appliances. After all, everyone wants to be healthy.

Contrast this with Kerry's message, delivered not in one paragraph but in hours of negative campaigning, debates, and speeches. For those of you who can't remember what it was, "I'm not Bush" comes pretty close. Although "We have better hair" also surfaced as a slogan. Reality check: People only vote for hair and make-up at the Oscars. Hillary Clinton herself denigrated the media fascination with her hair. Imagine that: Hillary's a better business leader than John Kerry. After all, she survived Whitewater, didn't she?

So what could the Democrats have done differently and what can you learn from them? For a start, you can realize and affirm the seven reasons why you are your own best product.

1) You are successful in what you do. LivingRight's Web site says, "More than 25,000 health appliances shipped!" "Shipped" communicates follow-through, as in a former McDonald's slogan "Over one billion served."

While going to war isn't a popular decision (as even Joan Rivers remarked at the 2002 Oscars, "Every idiot in the world wants peace"), President George W. Bush successfully prevented attacks on American soil by first going after al-Qa'eda, then in toppling Saddam Hussein from power.

2) You believe in your product, and by extension yourself and your vision, so much that you use it yourself. Those cheesy Hair Club For Men ads hit it right on the head, pun intended: "I'm not only the Hair Club president, I'm also a client." If John Kerry was so against the action in Iraq, why did he initially vote for it?

3) You are so compelling that you surround yourself with people who build up (not necessarily brown-nosers) rather than tear down your image. Bush has benefited from Colin Powell, Condoleeza Rice, Vice-President Dick Cheney, California Governor Arnold Schwarzenegger (another businessman successful at selling himself), Rudy Giuliani, Georgia Democratic Senator Zell Miller, and especially the legacy of former President Ronald Reagan. Now Bush has truly moved into bold territory by appointing his own father and former President Bill Clinton, one-time political rivals, to head the Asian tsunami relief.

I have to concede partial credit to Kerry and the Democrats for being associated with, or at least profiting from, a successful movie franchise--though let's not call "Fahrenheit 9/11" a documentary. Unfortunately, Michael Moore himself has proved to be less than stellar at being his own product. Although as of this writing he won the People's Choice Award for Best Film of the Year, he's also developed a reputation for lack of integrity, not to mention bashing the USA that has given him his career. Moore's whole image as "a man of the people" has been called into question many times. Although the marketing of Michael Moore is an Oscar-worthy production, 51 percent of Americans didn't find him credible.

Celebrity endorsements are only as good as the celebrities themselves, and many Americans found the Dixie Chicks, Barbra Streisand, Sean Penn, Martin Sheen, Jessica Lange, Ed Asner, Janeane Garofalo, Whoopi Goldberg, and many of the supposed elite to be less than convincing, particularly with the way Hollywood keeps selling crudeness, vulgarity, violence and intolerance for any point of view but its own. The multiple military backgrounds, Ph.D.s, and public service records the Bush team collectively holds puts in perspective the glamour of a few Academy Awards and hit TV shows, movies or albums.

4) You are confident enough in yourself not to deride people who opt for an alternate product. The British newspapers derided the majority of Americans who voted for Bush as being "dumb."

As my voice acting teacher, Samantha Paris, founder of Voicetrax San Francisco/Desert Cities says about casting for radio, narration, animation and TV commercial jobs, "It's selection, not rejection."

5) You thrive on competition, not taking it as a personal attack, and you don't turn the competition into personal attacks. Politics violates this rule too often, and the 2004 campaign was nastier than most.

Contrast that with Coke and Pepsi. The competing celebrity endorsements (Santa and the polar bears on the Coke side, Ray Charles and Faith hill on the Pepsi side) only prolong an ongoing competition that isn't likely to be resolved any time soon. The Pepsi Challenge shook Coke out of it's 1980s complacency, and Coke learned from its abysmal New Coke mistake. Although to be fair, Pepsi had its own klunker with Crystal Pepsi, although they rebounded with Pepsi Twist.

These days Coke has brought back Cherry Coke, Vanilla Coke, and even branched out into Coke with lime. Notice that Coke isn't telling investors how awful Pepsi is, and vice versa. It's just good old-fashioned competition in which you, the businessperson, puts your best foot forward.

6) You don't change who you are. People were never sure of who John Kerry was, whereas George W. Bush's swagger ("which in Texas is calls walking," he remarked in his acceptance speech at the Republican National Convention) doesn't hide itself. Bush has made no attempt to correct his oft-remarked-on slips of the tongue and even owns up to it ("People sometimes have a tendency to correct my English--I knew that I was in trouble when Arnold Schwarzenegger started doing it.") Bush's folksy ways make a statement that he is comfortable in his own skin. Likewise, Bill Clinton didn't switch to caviar from McDonald's (much to his regret later). Costco hasn't added high-end coffee bars and gourmet food stands, but the lines at the checkout are still as dauntingly long as ever.

7) You focus on who you are for the present and future, rather than who you used to be. Senator Kerry's rehashing of the Vietnam conflict, and the Swift Boat controversy that cropped up to haunt him, illustrated how drawing on past glories (or controversies) only make people confused about who you are in the present. Imagine if Coke and Pepsi trotted out all their marketing missteps, and imagine if Pepsi tried to resurrect its ad campaign with the embattled Michael Jackson. Dated at best, controversial at worst.

People connect with who you are in the moment and who you will be in the future. When someone buys, say, a juicer, she envisions many mornings of fresh homemade nutritious juice and the well-being that she receives, well-being that she comes to associate with the company or store that makes and/or sells the juicer. A past track record is helpful, particularly in maintaining relationships with customers, but don't keep rehashing it. "You've always been there for me" sets up the expectation that, like State Farm, you will be there in the future. You can enjoy a restaurant twenty times, but have you ever noticed that one bad meal can make you think twice about going there?

A coda to this list: Fortunately, if you've made yourself your primary product, even the most critical of diners can forgive a slip-up, because they've already invested in you. So make sure you are an investment they'll want to hang on to, and in the Democratic Party's case, a future they believe in.

Kristin Johnson is co-author of the "highly recommended" Midwest Book Review pick, Christmas Cookies Are For Giving: Stories, Recipes and Tips for Making Heartwarming Gifts (ISBN: 0-9723473-9-9). A downloadable media kit is available at our Web site, http://www.christmascookiesareforgiving.com, or e-mail the publisher (info@tyrpublishing.com) to receive a printed media kit and sample copy of the book. More articles available at http://www.bakingchristmascookies.com

Voice Mail Barriers 7 Tips For Breaking Through

Writen by Rochelle Togo-Figa

So often when I'm speaking to groups or individuals, people ask me what I say in a voice mail message that gets the prospect or client to call me back. Many sales professionals and business owners are eager for the answer to that question. I have the answer for you and you may not like it: It doesn't much matter what you say, because your call probably will not be returned. I know you may not be too happy to hear this, but it's your job to call a prospect until you reach that prospect.

Of course there are prospects or clients with whom you have a relationship and who will call you back; however, assume that a new prospect will not call you back. Make your goal to reach a specific number of prospects rather than leaving messages. Be persistent, call at various times and on different days. When you do make your calls, have a prepared outline of what you want to say.

Here are 7 valuable tips to help you reach your prospects while avoiding voice mail.

1. Persistence pays off. Don't give up. Call at different times of the day and throughout the week. Eventually you will get through.
2. Call when the prospect will pick up the phone. The best times to call are early in the morning (before 8:30 A.M.), late in the day (after 5:30), or during lunch. If the prospect has an assistant, there's a better chance he or she will pick up the phone during the times when the assistant is not there.
3. Remember what works. You've been calling and calling the prospect, and get through. Write down that time, as it may be the best time to reach the prospect the next time you call.
4. Call the main number. An operator or receptionist will likely know if the prospect you're calling is in or out of the office. If the prospect's not in, they may know the best time to call back.
5. Call on Fridays. Friday is a day when many people tend to wind down from the week's work and are more likely to pick up the phone. The prospect may be more receptive to having a conversation with you on a slower day.
6. Call around the holidays. Many sales professionals stop calling prospects around the holidays. They think the prospect has taken time off so they don't bother. Actually, it's an opportune time to call. The prospect may be catching up on paperwork and is more likely to answer the phone, since there are fewer calls.
7. Find the person in charge. Call Human Resources and say, "Perhaps you can help me. Can you tell me who is in charge of…?" Saying these words can lead you to reaching the decision-maker. People will help you when you ask them.

If you feel that you must leave a message, make it brief. Don't leave your entire pitch or ask for an appointment. Let the person know why you are calling and that you will be calling back. Speak slowly, leave your name and company name, and say your phone number twice—just in case they are inclined to call you back!

ASSIGNMENT:

• Make a list of 5 prospects you've been trying to reach. Be persistent in making your calls and don't give up. Remember, it's a big part of your job to reach the prospect.
• Next to each name, write down a plan of action. Are you going to call them before 8:30 A.M., after 5:30 P.M., try the main number, or find the person in charge?
• When you reach the prospect, write down the time and day you reached them so you know the next time.

(c) All Rights Reserved.

If you would like to use this article on your website, or for your own ezine, not a problem; however, there's one thing you MUST include: Rochelle Togo-Figa, The Sales Breakthrough Expert, is the creator of the Sales Breakthrough System(TM), a proven step-by-step sales process that will help you close more sales, sign on more clients and make more money with ease and velocity. To sign up for her free sales articles and teleclasses on closing more sales, visit http://www.SalesBreakthroughs.com.