Tag Archives | product

Complementors (Sixth Force of Porter’s Five Forces)

See also:
Porter’s Five Forces of Competition
Threat of New Entrants
Supplier Power
Buyer Bargaining Power
Threat of Substitutes
Intensity of Rivalry

Porter’s Sixth Force Definition

Complementors, Porter’s sixth force, are companies or entities that sell or offer goods or services that are compatible with, or complementary to, the goods or services produced and sold in a given industry. Complementary goods offer more value to the consumer together than apart. When one product or service complements another there exists a condition called complementarity; a sort of commercial symbiosis. Complementors are often considered the sixth force of Porter’s industry analysis framework. The presence of Porter’s complementors can influence the competitive structure of an industry.

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Porter’s Complementors Analysis

Porter’s six forces provide a method for industry analysis. The presence of the sixth force of Porter, complementors, can benefit or hurt the firms competing in an industry, depending on the circumstances. If business is booming for the complementors, then this could positively affect the business of the firms in the given industry. On the other hand, if business is slow for the complementors, this could adversely affect the business of the firms in the given industry. So, complementors and complementary goods do not necessarily increase or decrease the competitiveness of an industry, they merely add another layer to the structural complexity of the competitive environment.

Sixth force of Porter’s- Example

According to Porter’s six forces, complementary goods offer more value to the consumer together than apart. When one product or service complements another, there exists a condition called complementarity. For illustrative purposes, please consider the following complement examples.

A very simple example of complementary goods, the sixth force of Porter’s framework, is the hotdog and the hotdog bun. A normal consumer prefers to eat a hotdog in a hotdog bun. Rarely would a consumer purchase hotdogs without also purchasing hotdog buns, and rarely would a consumer purchase hotdog buns without also purchasing hotdogs. Under the six forces model Porter coined, these two products are complementary.

In the six forces of competition, an example of complementary industries is the tourism industry and the airline industry. When a consumer heads to a tourist destination, he or she often gets there on an airplane. Similarly, whenever a consumer travels on an airplane, that consumer is most likely going to visit a destination which is a part of the tourism industry, such as a hotel or a rental car agency. These two industries are proved complementary by the six forces analysis.

Porters sixth force has become a central theory to in business management and is commonly discussed to this day. As you use Porter’s sixth force of competition to shape profit potential, it’s important to expand analysis by evaluating the entire external environment. Download the free External Analysis whitepaper to overcome obstacles and be prepared to react to external forces.

complementors

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9

Brand Equity

See Also:
Market Positioning
Market Dynamics
Marketing Mix (4 P’s of Marketing)
Porter’s Five Forces of Competition
Value Chain

Brand Equity Definition

The brand equity definition is the marketing effects that occur or gather over time in a product because of the brand name or company name associated with that product. At times, this brand equity can extend into other products if the name has been established with a good enough reputation. Best explain the brand equity definition as the reputation associated with a company name or product.

Brand Equity Meaning

Brand equity means that a company has established a brand or product that is associated with a certain product. There are forms of positive brand equity and negative brand equity. If a product is generally in good standing with consumers, then the company’s brand equity value is much higher. This of course is in comparison to a company who is responsible for an oil spill like the recent British Petroleum (BP) spill in the Gulf of Mexico. Brand equity marketing can at times be a fine art. In addition, brand equity valuation can be essential in determining how far a company can extend its brand equity to other products to boost sales in that area.

Brand Equity Example

Some Brand Equity examples are as follows:

Jack Daniels

The Jack Daniels brand name has been associated with Tennessee Whiskey for a number of years. However, the brand name extended into barbecue sauces and other condiments. The use of the name Jack Daniels is meant to boost sales in the area of the market. The company must be careful because every product that they extend the brand name to can result in brand equity dilution or an overuse of the name.

Gucci

Companies like Gucci and other designer firms work hard to establish their brand equity as it is essential in their line of business. The idea here is exclusivity as these companies operate in a niche market. Here they reduce the amount of stores, and drive prices higher. The brand equity established is of a luxurious and exclusive brand only a few can afford to be apart of.

Toyota

The company in the past was known for high quality and low to mid-priced cars, but as of recent the company has had several hits on its brand equity. This has been due to the company’s braking problems in its cars. To restore brand equity and bring sales back to normal, the company has been forced to launch various ad campaigns. In addition, they have had to recall all of the faulty cars.

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Activity-based Costing (ABC) vs Traditional Costing

See Also:
Activity Based Costing
Standard Costing System
Cost Driver
Value Chain
Implementing Activity Based Costing
Absorption vs Variable Costing
Activity Based Management
Process Costing
Overhead
Job Costing

Activity Based Costing Costing vs Traditional Costing

In the field of accounting, activity-based costing and traditional costing are two different methods for allocating indirect (overhead) costs to products.

Both methods estimate overhead costs related to production and then assign these costs to products based on a cost-driver rate. The differences are in the accuracy and complexity of the two methods. Traditional costing is more simplistic and less accurate than ABC, and typically assigns overhead costs to products based on an arbitrary average rate. ABC is more complex and more accurate than traditional costing. This method first assigns indirect costs to activities and then assigns the costs to products based on the products’ usage of the activities.

Traditional Costing Method

Traditional costing systems apply indirect costs to products based on a predetermined overhead rate. Unlike ABC, traditional costing systems treat overhead costs as a single pool of indirect costs. Traditional costing is optimal when indirect costs are low compared to direct costs. There are several steps in the traditional costing process, including the following:

1. Identify indirect costs.

2. Estimate indirect costs for the appropriate period (month, quarter, year).

3. Choose a cost-driver with a causal link to the cost (labor hours, machine hours).

4. Estimate an amount for the cost-driver for the appropriate period (labor hours per quarter, etc.).

5. Compute the predetermined overhead rate (see below).

6. Apply overhead to products using the predetermined overhead rate.

Predetermined Overhead Rate Calculation

Use the following formula to calculate predetermined overhead rate:

Predetermined Overhead Rate = Estimated Overhead Costs / Estimated Cost-Driver Amount

For example:

$30/labor hr = $360,000 indirect costs / 12,000 hours of direct labor

Activity-Based Costing Benefits

Activity based costing systems are more accurate than traditional costing systems. This is because they provide a more precise breakdown of indirect costs. However, ABC systems are more complex and more costly to implement. The leap from traditional costing to activity based costing is difficult.

Traditional Costing Advantages and Disadvantages

Traditional costing systems are simpler and easier to implement than ABC systems. However, traditional costing systems are not as accurate as ABC systems. Traditional costing systems can also result in significant under-costing and over-costing.

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activity based costing vs traditional costing

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Recession Strategies for Business

Once you find yourself in a recession your first goal is to stabilize your operations. But having achieved that goal you need to look beyond the present and develop a longer term strategy. Our goal for this recession is to “come out of the recession better and stronger than we went in!”

Recession Strategies for Business

How do you do that? The answer is in improving your capabilities in the following areas. We immediately began improving our marketing efforts and results. While cutting expenses in other areas we increased our marketing efforts and budget dollars. We began to increase the frequency and improve the quality of our marketing techniques with the goal of being in a better position to compete when the economy came back.

The next area we invested in was improving and documenting our systems. We documented our best practices and began to institutionalized them throughout the organization. This exercise led to increase training of our employees. We took advantage of the resulting down time to train and develop new skills for our staff.

Finally, all of this combined effort led to the development of new products that could be sold to our customer base. We are now generating sales with less expensive products that are needed in the recession.

So what is your company doing to position themselves for the recovery? Are you going to come out of the recession leapfrogging your competition or playing catch up? When you find your business slow are you just taking time off instead of investing in yourself and your company? The success of tomorrow rests on the efforts of today!

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Recession Strategies

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