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.

The 7 Habits Of Highly Effective Dialogue Applying Coveys Habits To Difficult Conversations

Writen by Tammy Lenski, Ed.D

Stephen Covey's seven habits of highly effective people have become classic pieces of leadership and management wisdom. The habits are applicable to having successful conflict conversations, both at home and at work. Here's how to use them next time you find yourself in a tense situation or conflict:

Habit 1: Be Proactive

Covey said that proactive people take initiative and "work on the things they can do something about." In conflict, too many people mistakenly assume that they have no real hope of changing the relationship they have with the other person, whether that's a co-worker, neighbor, ex-spouse, or former friend. When you make that assumption, you postpone or avoid the important conversation that could change matters.

When you act proactively in a conflict situation, you step up to the difficult conversation rather than avoiding it. Avoidance of important conversation usually allows frustration to fester and the divide to widen. Proactive people engage the important conversations in their lives.

Habit 2: Begin with the End in Mind

Beginning with the end in mind means having clarity about your destination before you proceed. In difficult conversations, you want to have a "big picture" image of success before you start the conversation. It's worth advance thought before simply plunging in.

The end you want to visualize shouldn't be one in which the other person "sees the light," changes their opinion, or does things your way. Worthwhile ends include preserving the relationship, minimizing the debris of ongoing conflict, preventing loss of morale in the workplace, encouraging workplace dialogue, and the like.

Habit 3: Put First Things First

Putting first things first means attending to your priorities before you attend to lesser matters. In difficult conversations, you want to focus on the most important topics and avoid getting side-tracked by less important matters, pet peeves, and minor annoyances. Get clear on the heart of the matter for you both and keep that front and center in your conversation.

Habit 4: Think Win/Win

This is basic conflict management 101. If you enter your most important conversations with the intent to win at the other person's expense, then you risk prolonged and entrenched conflict and greater harm to the relationship. The win/win approach invites you to consider the conversation as a joint exploration into what could work for both of you. While this kind of conversation takes longer to accomplish, you'll usually save emotional energy and time in the long run.

Habit 5: Seek First to Understand, Then to Be Understood

In difficult conversations, you may be tempted to spend your energy telling. Telling the other person what they did wrong, what the impact was on you, what you'd like them to do differently. While some of this may be important for them to hear in order to understand the impact of the situation on you, it is a mistake to begin there. And it's a costly mistake if both of you try to begin there, since the resulting "telling tug of war" will make the conversation messier than it need be.

Instead, try entering your difficult conversations with genuine curiosity. Make it your first priority to understand the other person's perspective, even if you don't agree to it. Real attention to understanding is likely to yield new information that can help you resolve the problem.

Habit 6: Synergize

Synergy is the interaction of individuals for greater combined effect than any one person would have on their own. Truly effective conflict management is all about synergy. Different values, opinions, and perspectives, when viewed as opportunity instead of a problem, allow families and organizations to build on their joint strengths and minimize the individual weaknesses.

In difficult conversations, valuing synergy means that you no longer ask, "How can I make that person different or better," and instead ask, "How can the two of us bring our best to this problem?"

Habit 7: Sharpen the Saw

For Covey, this is the habit that makes all the other habits possible. Sharpening the saw is the act of self-renewal, learning, and personal growth. In dialogue terms, sharpening the saw means practicing your habits in low-stakes situations so that they're more accessible to you when you need them most. It means learning how to manage yourself well in difficult moments, whether you learn this by attending trainings, working with a coach, or reading on your own. When you stretch yourself and practice when the stakes are low, you help your mind respond better in those trying moments.

Copyright © 2006 by Tammy Lenski. All rights reserved.

Dr. Tammy Lenski is the author of I Can't Say That!, a popular blog read by women all over the world. A professional mediator, conflict management coach and educator, Tammy works personally with select women who want to keep their balance in conflict and step up to the conversations that matter most at home and work. Are you a woman who avoids difficult conversations, afraid to say what's on your mind because it might make things worse? Or who charges into conflict with a rough edge that leaves debris you'd like to prevent? Visit http://lenski.com and sign up to receive Tammy's wisdom and humor regularly by email. Or sign up for free tele-chats with Tammy at http://lenski.com/index.php/chats/ and get entered into a bi-monthly drawing for a free hour of coaching or consulting.

7 Key Tactics For The Small Business Owner

Writen by Allyn Cutts

For most folks, owning your own business is a dream come true. The freedom of being your own boss and succeeding to the best of your ability are facts of life for the small business owner. Sure, there's more stress than what you probably imagined when you were creating your grand plans, but with a little strategy and planning you can overcome any tough spot you get in. There are 7 tactics developed by successful marketers that are sure to make your business as successful as theirs.

1. Create A One of a Kind Selling Point If you want to stand out from the crowd, create a unique selling proposition that stresses the benefits the customers will receive from doing business with you. Will they get faster service? Go ahead and dramatize it, but keep the customer at the focus..."Get free overnight delivery!" Hey, it tells the customer...you get quick service and a discount on shipping. Two definite benefits in one statement.

Why should someone buy from you and not your competitor? I hate to deal a blow to your ego, but it really has nothing to do with you , your product, or your service. Yeah, its a little self-centered, but customers are attracted by offers that point out the things that benefit THEM.

Don't go out on a limb to create new products and services to get attention. Just, add a special benefit to the ones you already have... maybe it's quicker service. The most effective things to emphasize are benefits that your competition cannot or is not willing to give.

2. Use Testimonials Hey, we all know that business owners think their product or services are the best thing going, but it's what the current customers think about it that really matters to your prospective customers. They're the ones who see things from their point of view... what they have to say about the business has an impact.

Testimonials play an important part in advertising - especially for small businesses. Yeah, big businesses with well-known names don't have to worry about it, but small companies can use testimonials as marketing tools to build credibility.

Think about it...how else can we gain credibility than by creating a group of satisfied customers and shouting what they have to say? Let's look at some ways we can make testimonials an effective part of our marketing campaigns.

3. Upsell Upselling is one of the most successful marketing trends today. Everywhere you go, someone is trying to get you to buy more. From McDonalds with its supersize options to clothing stores that try to sell you shoes to match your outfit, everyone's jumping on the band wagon. Why? It works!

Your customers already know that you have great products and provide satisfactory service. They trust you to come through for them. Think about it... it's much easier to make sales to someone you already have a relationship with.

Use every opportunity to increase your sales volume within the customer audience you already have. Do you have a product that goes with the one they are purchasing? Offer it to them at the register. It's a proven and effective method for increasing sales. You may be shocked at the additional sales you can generate from those who are already buying from you.

4. Make Your Price Seem Smaller Divide and conquer... The old war tactic works in marketing too! When the price seems too steep, break it down into "buyable" size bites. An $120 item is only 12 low monthly payments of $10. A $365 purchase would only cost $1 per day. Now that sounds affordable!

5. Paint The Benefits Pretty Customers buy because they want to enjoy the benefits of the purchase. A lady might buy a dress because she wants to feel sexy, or a man will buy a book because he finds pleasure in reading. Emotions are the key element that drives purchases.

Use word pictures to stir up the emotions that will instigate the sale. Let them "feel" the benefits, and they'll be more apt to head for the cash register. Put them where you want them.

6. Create Attention Getting Headlines Are you ready to capture your reader's attention with great copy? The headline is the place to start. How often do you scan the newspaper's headlines before you decide whether or not to read the article? Yeah, that's where we lose or gain the reader's interest, so it's a pretty important part of the advertisement.

A good headline should telegraph its message in twelve words or less. Double check those headlines. Do they make a promise of a positive benefit, or ask a provocative question? Don't settle for less than attention grabbing statements.

7. Provide An Offer They Can't Resist Is your deal too good to pass up? If not, you need to improve it. Hey, I'm not talking about cutting prices even more...you've still got to make a profit. You can make the deal sweeter just by increasing the readers knowledge of the value of the product, or adding bonuses that are perceived as valuable, but cost you little.

Motivate buyers with expirations. Yeah, an open ended offer encourages procrastination...which leads ...yep, nowhere. When the customer knows he has until Saturday to purchase an item he'll pay more for on Sunday, he'll make it a priority to head for your shop.

Copyright 2005 Cutts Group, llc

Who is Allyn Cutts, and why should you care? Allyn has spent over 24 years helping businesses like yours find new customers and increase sales to current customers. Allyn is a marketing and sales fanatic, providing measurable marketing solutions that drive huge results for small-to mid-size business clients. Allyn works personally with clients to design and deliver off-line and on-line direct marketing strategies that focus on metrics and measurable results. You can learn more about Allyn Cutts at http://www.AllynCutts.com and you can call 610.437.4106 between 10 AM and 4 PM Eastern Time Tuesdays and Thursdays.