Please answer the following questions.
Format would need to be Times New Roman font and 10 in. I’m attaching additional resources that help with answering the questions as well.
Assume the following facts about the video rental industry in the 1980s:
The industry was comprised of many small firms that all stocked the same videocassettes. The initial business model was to ask customers to join the store-sponsored movie “club” to gain the ability to rent movies. Club memberships generally cost anywhere from $50-$100 and then about $10-$15 per month was charged to maintain that membership. Customers could then rent as many movies as they wished at a cost of $5-$6 per movie, per night.
The store owner was generally able to purchase all of the more popular older movies at reasonable prices. Only the “new releases” were the most costly, and the operators of the video rental stores generally charged a premium (around $7/night) to customers for renting these titles in order to recoup their higher costs. Taken together, a fully-functioning video rental operation with a good location could be started for a few thousand dollars.
Store owners were usually required to sign a multi-year lease for their stores. Alternatively, for around $1000 one could purchase a video rental vending machine filled with the most widely sought after titles. In this case, the owner of the vending machine would seek out high traffic locations (such as a convenience store) and enter into a revenue sharing agreement with the convenience store owner.
In general, all of the video rental stores carried the titles that were in most demand from customers.
During this period, demand for premium, subscription-only movie channels like HBO and Cinemax was increasing. These channels, like videocassettes, also showcased feature films. However, it generally took about 3 months after the film’s release on videocassette to make it to these channels. At the time, the cost of the premium movie channels was around $20 per month.
Overall demand for videocassette rentals soared during this time but profitability, while very high for a year or so, quickly plunged. Customers at one point were enjoying rock-bottom prices for video rentals ($1 per night was not uncommon).
Using relevant concepts from Porter’s 5 forces model, discuss why, despite soaring demand, prices plummeted, and profitability was so low during this time period.
Question 2
15 Points
Consider the following information about the Dover Corporation.
The Dover Corporation is:
* …a multi-billion dollar, global producer of innovative equipment, specialty systems and value-added services for the industrial products, fluid management, engineered systems and electronic technology markets.
* …a decentralized corporation that supports autonomous operating companies focused on meeting the demands of their customers and served markets.
* …a corporation that believes PERFORMANCE COUNTS and encourages its companies to exceed world-class operating metrics.
Dover management’s explanation for how the company creates more value for the firm’s businesses than those would be able to create when operating as stand-alone companies:
· “Dover companies benefit from exposure to a wide variety of internal governance ‘best practices’ whereby the continuous improvements of its companies are measured against our world-class metrics of the PERFORMANCECOUNTS program including:
· 10% or greater annual earnings growth
· 15% or greater operating margins
· 25% or greater after-tax return on investment
· Dover has a long history as a successful acquirer of companies. We buy “GOOD” companies and make them “GREAT” by funding their internal growth initiatives and exposing them to our superior governance (including measuring their success against our PERFORMANCECOUNTS metrics).”
What corporate-level strategy (concentration, outsourcing, vertical integration, related diversification, or unrelated diversification) does Dover seem to be pursuing? Why do you believe this? Describe how this corporate strategy can dissipate, rather than create, value.
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Question 5
10 Points
You work for a small company that has a leading position in an embryonic market. Your boss believes that the company’s future is ensured because it has a 60% share of the market, the lowest cost structure in the industry, and the most reliable and highest-valued product. Write a memo to your boss outlining why his confidence in your company’s future might be premature.
Question 7
10 Points
Are the following global standardization industries, or industries where localization is more important: bulk chemicals, pharmaceuticals, branded food products, moviemaking, television manufacture, personal computers, airline travel, and fashion retailing? Justify your answer for each.
Question 13
10 Points
Assume that the Kiker Corporation mass produces a single, standardized, 40” HD television set and prices this product much lower than other TVs on the market so as to attract the broadest possible consumer base (i.e., everyone).
a. Of the three market segmentation strategies we discussed in class, which is the Kiker Corporation most likely pursuing?
_____________________________
b. Name the generic business-level strategy that the Kiker Corporation is pursuing:
______________________________
c. List at least three unique disadvantages of pursuing this strategy that we discussed in class.
13.
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