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.
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