Managerial Economics
-New Balance
經濟四 100208052 張嘉純
經濟四 100208053 陳建誠
經濟三 101208034 趙柏綸
地政三 101207415 嚴翊豪
Outline
•
•
•
•
•
•
•
•
•
Introduction
Motivation
Internal Environment Analysis
External Environment Analysis
Industry Analysis
Competitor Analysis
SWOT Analysis
SPT
Economic Analysis
Introduction
• New Balance began as a Boston-based arch
support company in the early 1900's,
developed into a specialized shoe
manufacturer in the 1970's, and has grown to
become a leading global athletic products
company. Today New Balance is a family of
brands including New Balance, Dunham, PF
Flyers, Aravon, Warrior and Brine.
Motivation
• Running event becomes much more popular
in Taiwan.
• More and more people like to go jogging.
• New Balance’s jogging shoes are becoming
popular in recent years.
Gyms in Taipei
Da’an district
Internal Environment Analysis
•
•
•
•
•
Design and patent
Its own manufactory
Innovative working environment
Focus on satisfaction of customers
Do not focus on promotion
External Environmen Analysis
•
•
•
•
•
Economic recession
Plenty of competitors
Pursuing higher standard of exercise quality
Information bombing
Awareness of environmental protection
Industry analysis
• According to Global Industry Analysts, market
size of shoes in 2015 is approximately 196
billion dollars.
• According to Transparency Market Research,
products with innovative design, style and
famous brand representative can attract much
more youth generation and make sales
volume grow faster.
Competitor Analysis
SWOT Analysis
Strengths
1. Good corporate image
2. High standard of
quality
3. Exclusive patent
Opportunities
1. exercise becomes
popular
2. Pursuing higher
standard of exercise
quality
Weaknesses
1. Few advertisement and
marketing
2. More and more
competitors
Threats
1. market becomes
saturated
2. many competitors
3. many faked goods
STP
STP
• S(market segmentation)
1. Consumer’s willingness to pay
2. Profit maximization
3. Brand loyalty
STP
• T(targeting)
1. Consumers whose willingness to pay is high
2. Younger generation pursuing fashion
3. New Balance’s lovers
STP
• P(positioning)
1. Shoes which have cool exterior can be
different from others
2. High quality
3. Professional ergonomics
ECONOMIC ANALYSIS
Elasticity
• Definition:elasticity is the measurement of
how responsive an economic variable is to
a change in another.
• Elasticity of
𝜕𝑄𝑑 𝑃
demand:e=
.
𝜕𝑃 𝑄
• Elasticity of
𝜕𝑄𝑠 𝑃
supply:e= .
𝜕𝑃 𝑄
Advertising elasticity
• Definition:percentage change in quantity
demanded resulting from 1% increase in
advertising expenditure.
•
𝜕𝑄𝑑 𝐴
E=
.
𝜕𝐴 𝑄
• Direct effect:raise demand
• Indirect effect:makes demand less sensitive to
price.
• In contrast to other competitors,New Balance
has few advertisement.
• So,we may conclude that its advertising
elasticity is relatively small.
Game theory
• Situation:
• There are only two firms in the market,New
Balance&Nike.
• Both firms set their own price to make the
maximum profit.
• Their pricing strategy may influence each
other’s profit.
• Strategies
Raise price
Lower price
Raise price
(5,5)
(6,1)
Lower price
(1,6)
(2,2)
• equilibrium will be at(5,5),that means both firms
should raise their prices to maximize profit.
Complete price discrimination
•
•
•
•
Perfect price discrimination
Price each unit at buyer’s benefit.
and sell quantity where MB=MC
Buyer’s surplus=0
Direct segment discrimination
•
•
•
•
Price by segment
Uniform price within each segment
Restriction:no re-sale(avoid arbitrage)
Ex:segmentation→gender
Indirect segment discrimination
• Structure choice to earn different
incremental margins from each segment
• Sellers controls some variables to which
segments are differentially sensitive.
• Buyers can’t circumvent the variable.
• For New Balance to make good profit,we
suggest that it take the direct segment
discrimination pricing strategy.
• Segment#1:students
• Because students do not have much
money,they are more sensitive to price.
• So,charge them a lower price.
• P↓,Q↑,total effect:revenue↑
• Segment#2:people who have salaries
• Because they are able to earn money,their
elasticity of demand is relatively small.
• So,charge them a little bit higher price is
fine.
• P↑,Q↓,total effect:revenue↑
Perfectly Competitive Market
•
•
•
•
•
•
•
Homogeneous products
Many small buyers
Many small sellers
Price takers
Free entry and exit
P=MC
Symmetric information
P
S
P*
D
Q*
Q
Monopoly
• Single seller
• No close substitutes
• Market power
• unique resources
• intellectual property
P
• economies of scale/scope
P*
• product differentiation
• government regulation
• MR=MC
MC
MR
Q*
D
Q
Oligopoly
•
•
•
•
•
•
Homogeneous or differentiated products
Few sellers (their action can affect each other)
Interdependence
Price setters
Barriers to entry are high
Non price competition
P
MC
P*
MR
Q*
D=AR
Q
Monopolistic Competition
•
•
•
•
•
•
Product differentiation
Many firms
No entry and exit cost
Independent decision making
Some degree of market power
Imperfect information
• In the above, we can conclude that the market
pattern of New Balance is Monopolistic
Competition for the following reason.
• Products are similar, but differentiated.
• Some firms have some degree of market power
to raise price according to price elasticity.
• Products are substitute.
• There are non price competition such as
advertising and brand uniqueness.
Moral Hazard
• Definition：when the party with more
information about its actions or intentions has
a tendency or incentive to behave
inappropriately from the perspective of the
party with less information.
• Solution?
• Signaling
• Definition：better informed party
communicates characteristic signal
• New Balance guaranties that the products can
be returned if their quality are defective.
• New Balance guaranties that the customers
have to pay only after the delivery.
• In conclusion, New Balance not only protects
our rights but also convinces that the quality
of their products are good.
Adverse Selection
• Definition：It refers to a market process in
which undesired results occur when buyers
and sellers have asymmetric information. The
"bad" customers are more likely to apply for
the service, so the “good” customers won’t
buy the products.
• Solution one*
• Screening
• Definition：less informed party indirectly
elicits other party’s characteristic through
structured choice.
• Customers will prefer more comfortable
sneakers, so only firms of genuine brand can
satisfy such preference.
• Solution two*
• Appraisal
• Definition：characteristic is objectively
verifiable and there are potential gain
covering appraisal costs.
• Customers will check the place of production,
authorized brand name, design, or quality to
recognize which is genuine.
Thank you!