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Respond to post # 1 Expected value is used by businesses to set a relative standard with regard to how to price products based on what the value of the product is from various perspectives. One situation where expected value is used a great deal is in the development of a new product for a market. This can include situations where the product is known but the particular market is unknown and in cases where the market is known well but a new product is being introduced to that market. One case that I think is very relevant and one I have researched for different reason before is the introduction of Walmart stores to the German market. Prior to 1997, Walmart had no presence on the German market, insomuch that they opened up their first ever German stores in that year. Entering that market is a massive undertaking that required a great deal of investment from the company to create this new market. This investment would have required a determined expected value having been placed on the entry into the German market. This expected value would have been crafted based on the analysis of the grocer market in Germany and a fundamental understanding of the profitability of that market. To that end, fixed costs such as real estate and supply chain development (warehouse purchases, vehicles purchases, etc) would be a critical consideration because many of these were also sunk costs that could not be recovered but were also critical in the initial establishment of the market. Taking these things into account there is also the ongoing expected values that would accrue based on the continued profitability for the stores. This would be based on the expected demand, competition, laws/ or regulations, and other areas that determine ongoing costs and impact continued profitability. In this particular example, Walmart was entering a market that had a network of supermarkets and were seeking to insert themselves as the preferred option. Doing so would require developing a brand that would have higher expected value in the eyes of consumers than the suppliers existing within the sector. Considering the value of a supermarket is driven by sales, that would mean accomplishing one of two things. Higher volumes than existing competitors at lower average product rates or lower to equal volumes at higher average product rates. Understanding the viability of these things would require gathering information on everything ranging from the market, consumers, suppliers, and competitors. Sales data, market demographics, and a host of other individual factors would require consideration. With this information they could reach decisions about whether to enter the German market based on the expected value the company would generate through the value perceived by the consumers. Discussion board # 1 Identify an example of a management scenario from current events involving adverse selection or moral hazard. Discuss some methods with your classmates for correcting the potential problems of the asymmetric information Discussion board # 2 Review the Marketing Spotlight: Best Buy case study in Chapter 16 of your textbook. Discuss why Best Buy has been so successful when so many other companies have failed. Name a company that has provided or will provide Best Buy with some level of competition. Include your rationale. Reading for discussion board # 2 Best Buy Consumer electronics retailer Best Buy dates back to 1966. The first store was an audio specialty store called Sound of Music, which primarily sold stereos and other music equipment. Sound of Music had expanded to seven locations by 1983, when the name was changed to Best Buy to reflect competitive prices and an increased product assortment that included home appliances, computer equipment, video games, and home theater systems. By the early 2010s, Best Buy was facing numerous business challenges. In particular, showrooming had become a trend that negatively affected electronics retailers. Customers would walk into stores to check out electronics and appliances—and then purchase the products for less money from other retailers such as Amazon. Best Buy had formerly attracted many customers for products such as CDs and DVDs. However, these products were becoming obsolete as music, movies, and video games moved to digital platforms. Competitors like RadioShack, Circuit City, and hhgregg had already shut down or filed for bankruptcy, and Best Buy was facing the grim prospect of meeting the same fate. Best Buy started to turn its business around when Hubert Joly joined as the new CEO in mid-2012. Joly, who had previously served as CEO for Carlson Wagonlit Travel, an American hotel and travel conglomerate, looked to reshape showrooming from a threatening issue into a successful business strategy. In addition, he sought to drastically improve the service aspect of Best Buy to retain customers and earn their loyalty. One of Joly’s most important changes was Best Buy’s price-match guarantee. Through price-comparison apps, customers saw that companies like Amazon nearly always offered the same product at a lower price. It seemed there was no reason to purchase products at Best Buy; customers were better off looking at products in store and ordering online. Although the guarantee was costly, price matching gave customers a reason to purchase their products at a Best Buy store instead of at a competitor’s. Best Buy took advantage of showrooming by partnering with many electronics companies (such as Apple, Samsung, and Microsoft) to feature their products in branded displays. Originally, Best Buy placed products from these companies next to one another in the areas that offered different types of electronic products. With its new partnerships in place, Best Buy now presents the products of each of these companies in dedicated kiosks. For example, Apple kiosks have the same minimalist design seen in Apple stores. Amazon booths showcase Alexa gadgets, and consumers can try out new consoles and video games in the Microsoft area. Employees stationed at these kiosks are well versed in their company products. Because many of Best Buy’s competitors had shut down, electronics companies could only turn to Best Buy to showcase their products. The partnerships have provided a lucrative revenue stream for Best Buy. Source: JSMimages/Alamy Stock Photo Best Buy also changed the way its products were shipped. Prior to the change, products ordered on the Best Buy website were shipped from a central warehouse. If the central warehouse did not have the product in stock, the customer had to either go to a Best Buy store or find a different retailer. Management realized that each of Best Buy’s stores could serve as a mini-warehouse from which products could be shipped. After minor changes, customers ordering from Best Buy’s website were able to have their item(s) delivered or sent for pick-up from the nearest location, either a Best Buy store in the neighborhood or the closest warehouse. This change both dramatically decreased shipping times and made the website useful even when warehouses were out of stock. Best Buy’s website became a more competitive choice for online shoppers. Another of Best Buy’s initiatives was improving its customer service to compete with companies like Amazon. Best Buy believed that a great in-person customer service experience would give the company an edge. Best Buy management retrained its employees in 2012, encouraging better consumer engagement and coaching them to become more knowledgeable about newer consumer electronics such as virtual reality headsets and smart home appliances. Best Buy also improved the Geek Squad, its in-house tech support service that provided repairs and installations to Best Buy customers. After the changes, the Geek Squad became available 24/7 to members and began offering less expensive plans for students. The Geek Squad also started a program that offered customers free in-home consultations about what products to buy and how they should best be installed. Best Buy has used data analytics to understand consumer behavior, forecast market demand, and increase in-store profits. In addition, it tracks consumer behavior in stores, using mobile application data and geotagging to show which booths customers go to, how much time they spend at each booth, and whether or not they make a purchase. Best Buy uses these data to optimize store layouts and send targeted advertisements to customers to increase sales. Best Buy’s strategy has cemented the company as one of the largest consumer electronics retailers in the world. With over a thousand brick-and-mortar locations in the United States, Best Buy has become a massive marketplace for electronics and home appliances. Customers choose Best Buy because of its in-store consultations, its customer service, and their ability to try out products before making a purchase. Best Buy has shown that in-store retail can still succeed, even with the growth of e-commerce.44
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