· What are the basic economics of the industry? How do companies make money? What are their costs?
Researching in the Journal of Retailing, I was reading that companies in the retail industry make money by being innovative, effective and efficient. Innovation attracts customers, for example, technological advances can make products easier to reach and more efficient for costumers, therefore improving the costumer experience and costumer loyalty. For example, Redbox makes its product much more reachable to every buyer by using the kiosk technology to allow costumers to engage in a self-service purchasing process. This not only is an advantage for costumers but it also gives benefits to the company, by reducing the cost for employees. Companies make money by being effective, for example, Zara increases revenue by matching product assortment with demand and implementing flexible prices, which involve different types of buyers in the market. To make money in the retail industry, companies must be efficient by reducing cost. For example, Netflix made an efficient advancement by introducing an “industry-standard bar-code sorting machine to handle the odd-shaped envelopes used to mail out DVD’s, increasing the number of envelopes processed to 5,000 envelopes and hour”, this increases productivity. Some of the cost retail industry companies faces are employee wages, obtaining products from manufactures, and paying for advertisement. By being innovative, effective and efficient, businesses can reduce these costs. Finally, what really makes money for a business is improving the costumer’s experience. Redbox’s revenue “grew by 99% in 2009 as it installed over 8,700 new kiosk”, improving the costumer satisfaction because it was a simpler and faster purchasing process for costumers. Making money for retailers is more than just selling products, retailers need to make sure costumers are satisfied with their products and services because this creates loyal costumers for companies. Loyalty assures long-term profits for companies because buyers will continue buying if satisfied. “Profits from retail business model innovation (improving costumer experience) can exceed the profits that can be extracted from product or process innovations (which often mainly influence short-term gains)”.
We should focus on a company or companies that have this elements to make our investment suggestion much more valid.
It is interesting that the retail industry has a primary way in making money. The way to make money is by attracting customers of course because customers spend their money on goods and this money helps these companies make profits. Technology is an innovative idea and is only growing in today's rising technologically advanced world and society. Today, we have websites like Facebook to connect and promote innovative ideas of retailers and sellers.
ReplyDeleteCosts play a huge role as well in the economics of the industry. Jenna introduced the ideas of supply and demand which explain economics as well of the retail industry but to take it a step further, the way that retailers price their goods is based on costs. Costs are input costs such as fixed costs (costs that producers must always pay) and variable costs (costs that can change like labor, wage, etc). The costs play a factor in how to price goods. If the good is $4.00 to make, you would not sell this good for anything less than $4.01 because you at least want to make some sort of profit. Clearly you would want a higher profit but this is just one example to justify my point. Ergo, Carlos really does here give a great explanation in the way in which retailers really have to focus on the economics of the business.
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