Case – 2
In the mid 1990s piracy was endemic. So the game industry responded with “budget games” which were
priced at £1.99, making them hardly worth copying. However, this resulted in very thin operating margin
to the publishers.
Bruce Everises was in charge of marketing at a new publisher called Codemasters. The created a
brand with the consistent message that these were in fact full price games and that the only thing
“budget” about them was a price. This was largely true with the “simulator” series written by the Darling
brothers and the “Dizzy” series written by the Oliver twins being the most famous. The company sold
immense number of cassettes but it was not at all profitable at such a low price.
At that time the magazines added value by covermounting game cassettes. Bruce designed a
strategy and let covermount one of their games ‘Dizzy’, on the best selling Sinclair magazine which in
those days had a circulation of several hundred thousand. After the magazine came out the retail sales of
the game went up as the covermount had introduced the game to new people and they liked it so much
that they wanted a “proper’ version of the game and £1.99 was very affordable price.
Eventually Bruce and his team at Codemasters decided to try putting game price up but were
afraid of losing sales. So they crafted another strategy. One month they announced that the new titles
were going to retail at £2.99 from then on instead of prevailing £1.99 and simultaneously told the trade
customers that the trade price would remain the same for the first month. As expected, with an aim to
make a huge amount of profit they bought these titles like crazy. And the new, higher priced titles
dominated the top of the charts. Just before the end of the month Bruce again told trade customers that it
was their last chance at the old trade price and they filled their stocks again, so Codemasters’ titles
dominated the charts even more. After these stocks were sold the traders had no option but to re order
more stock at the new price as Codemasters’ games dominated the charts, The £2.99 price point was
established and Codemasters had increased market share on the price increase.
At this point Bruce implemented the second part of the strategy, he told trade customers that the
retail price on entire back catalogue was going up to the new price point of £2.99 from a certain date, but
these would be available at old trade price for a month after that date. Naturally the traders saw a second
opportunity to make a huge profit and placed massive orders just before the deadlines. And once again
they had no option but to keep on buying at the new trade price once they had sold this stock. Some of
these older games went on to make more profit for the company at the higher price than they had at a
lover price.
Codemasters became a lot more profitable. It had vastly increased sales, but more importantly, its
profit margin had multiplied several folds because cost remained the same. The company was less than a
year old at this stage and this move on price consolidated its position as one of the major British
publishers of video games.
However there is one important aspect of the whole story that the strategy was perhaps successful
because the prevailing price was very low, but when it is not so it may hit demand elasticity problems.
It appears that Game pricing is based on what the market will bear and probably prices are not
optimized for profitability.
Questions:-
1. Do you think games in this case present an exception to law of demand or not? Give logic in
support of your answer.
2. On basis of the case can it be concluded that demand for games was not elastic to price, rather
some other variables were important? If yes then identify the other variables.
3. The case presents an interesting dimension to consumes’ behaviour. Discuss.
Case- 4
The Industry
The automotive sector is one of the core industries of the Indian economy, whose prospect is reflective of
the economic resilience of the country. The automobile industry witnessed a growth of 19.35 percent in
April-July 2006 when compared to April-July 2005. As per Davos Report 2006, Indian is largest three
wheeler market in the world; 2nd
largest two wheeler market; 4th
largest tractor market; 5th
largest
commercial vehicle market and 11th
largest passenger car market in the world and expected to the
seventh largest by 2016. India is among few countries that are showing a growth rate of 30 per cent in
demand for passenger cars. The industry currently accounts for nearly 4% of the GNP and 17% of the
indirect tax revenue. The well developed India automotive industry produces a wide variety of vehicles
including passenger cars, light, medium and heavy commercial vehicles, multi-utility vehicles, scooters,
motorcycles, mopeds, three wheelers, tractors etc. Economic liberalization over the years made India as
one of the prime business destination for many global automotive players, including international giants
like Ford, Toyota, GM and Hyundai have also made their also made their presence with a mark.
As per another report, every commercial vehicle manufacture, create 13.31jobs, while every
passenger car creates 5.31 jobs, and every two-wheeler create 0.49 jobs, in the country. Beside, the
automobile industry has as output multiplier of 2.24, i.e., for every additional rupee of output in the auto
industry, the overall output of the India economy increases by Rs. 2.24.
The India automotive sector has a presence across all vehicle segments and key components. In
terms of volume, two wheelers dominate the sector, with nearly 80 percent share, followed by passenger
vehicles with 13 percent. At present, there are 12 manufactures of passenger cars, 5 manufactures of
multi utility vehicles (MUVs), 9 manufactures of commercial vehicles (CVs), 12 of two wheelers and 4 of
three wheelers, besides 5 manufactures of engines.
Table 1 Vehicle Segment-wise Market Share (2005-06)
Items Percent Share
Commercial Vehicles
Passenger Vehicles
Two Wheelers
Three Wheelers
Total
3.94
12.83
79.19
4.04
100.00
Source: Report of Society of Indian Automobile Manufactures (SIAM), 2006.
Although the automotive industry in India is nearly six decades old, until 1982, there were only three
manufactures – M/s. Hindustan Motors, M/s. Premier Automobiles and M/s. Standard Motors in the
motorcar sector. In 1982, Maruti Udyog Ltd. (MUL) came up as a government initiative in collaboration
with Suzuki of Japan to establish volume production of contemporary models.
The Company
Maruti Udyog Limited (MUL) has become Suzuki Motor Corporation’s R&D hub for Asia outside Japan.
Maruti introduced upgraded versions of the Esteem, Maruti 800 and Omni, completely designed and style
in house. This followed the up gradation of WagonR and Zen models, done in house only a year before.
Maruti engineer also worked with their counterparts in Suzuki Motor Corporation in the design and
development of its new model, Swift.
The company launched superior Bharat Stage III version of most of its models, well before the
Government deadline. Maruti also set up a Center for Excellence with a corpus of Rs. 100 million. This was
done in collaboration with suppliers, who contributed an additional Rs. 50 million. The Center provides
consultancy and training support to Maruti’s Suppliers and Sales Network to enable them to achieve
standards in Quality, Cost, Service and Technology Orientation.
Maruti has embarked upon this new project in collaboration with SMC for the manufacture of diesel
engines, petrol engines and transmission assemblies for four wheeled vehicles. The project is being
implemented in the existing Joint Venture Company viz. Suzuki Metal India Limited (renamed Suzuki
Power train India Limited).
Questions:-
1. Identify the most important factors of production in case of automobile industry. Also attempt to
explain the relative significance of each of these factors.
2. What more information would you like to obtain in order to draw a production function for Maruti
Udyog? Explain with logic.
3. Automobile industry is a good example of capital augmenting technical progress. Discuss.
No comments:
Post a Comment