What pricing strategy was followed by Kingfisher to complete in the aviation industry Was it competition or cost-based strategy
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Managerial Economics
Case Study 1: Economic Analysis of Organization ABC
Organization ABC was one of
the leading organizations in manufacturing soaps. After a certain point of
time, the organization found that there was an increase in its cost and
reduction in profits. However, the economy of the nation was at boom. Apart
from this, the manufacturing industry was also enjoying high profits.
Therefore, Chief Executive Officer (CEO) of the organization decided to take
suggestions from economists regarding the deteriorating condition of the
organization. The economists first analyzed the problem and collected relevant
data. They found that the price of the organization’s product was quite high as
compared to the market price. Moreover, substitute products were easily
available in the market. Therefore, consumers were not willing to purchase
ABC’s product due to the availability of similar products at cheap prices. To
overcome the problem, economists suggested the organization to lower down its
prices and observe the effect on demand. In addition, economists recommended
the organization to organize promotional campaigns. Based on suggestions, the
organization reduced the prices by 5% and organized various promotional
campaigns, As a result, the demand for the organization’s product increased by
3%. This helped the organization to come back to its previous position.
Questions:
Q1. Which economic theory is used to solve the problem in the case
study?
Q2. Which economics concept is used in this case study?
Case Study 2: Kingfisher Airlines Pricing Strategies
Kingfisher Airlines (KFA),
India-based airline group, is a wholly owned subsidiary of United Breweries
(UB) Group. The parent organization is India’s largest producer of beer and
established its operations in India in 2005. KFA is positioned as a budget
airline rather than a low cost carrier airline. The reason is that the low cost
carrier airline is treated as low quality and delayed flight service provider.
The passengers of KFA are treated as honored guests and the flight is not
referred as a journey but an experience of a lifetime. During the launch, Vijay
Mallya, chairman and Chief Executive Officer (CEO) of KFA, said “Kingfisher
Airlines will have a ‘Fly the Good Times’ approach and this will reflect in the
experience what we will offer to passengers. With costs lower than economy
class travel on full service airlines and marginally more than the bus services
type low cost competition, Kingfisher Airlines offers a far better value
proposition. The aircraft and service will reflect the Kingfisher lifeline
imagery and credibility that has been built over the years.” KFA’s strategy is
to differentiate itself from other airlines by providing value-added air travel
services at reasonable fares. KFA offers three kinds of services for different
types of customers namely Kingfisher First for business-class customers,
Kingfisher Class for upper-class customers, and Kingfisher Red for middle-class
and lower-class customers. It provides a fun-filled experience with in–flight
entertainment systems and well-designed interiors. KFA provides quality
services, screens and headphones, specialized meals and beverages, and free
gifts to guests. In the year of its launch, KFA was voted as the best new
airline of the year. KFA has an advantage of familiarity of brand with the
customers. Thus, it does not conduct marketing and promotional activities. The
pricing strategy of the aviation industry is also affected by the
environment-related factors, such as crude oil prices, dollar rates, and
competition. When KFA was launched, it was called as the budget airline as the
ticket prices charged, were lower than its competitors, such as Indian
Airlines, Jet, and Sahara. The ticket prices were 25% lower than Jet Airways
and around `20% more than Air Deccan. Jet Airways brought down its fares to
compete with KFA when it took over Sahara Airlines. These competitive price
pressures lead KFA to provide more value-added services, including mobile
updates and home delivery of air tickets. According to
Mallya, “We are offering
our passengers’ more than just value-based fares; we will offer a complete
lifestyle experience.” In this high competition, KFA has positioned itself as a
successful airline in a shorter period of time. The targeted segments of KFA
are high and middle income customers. It also targeted the youth and high
lifestyle segments. Mostly, the targeted population is modern and trendy that
is looking for a great flying experience. It has been termed as a true value
carrier and awarded as the prestigious 5-Star Airline Status by Skytrax, which
is the world’s leading independent research and quality evaluation body for
airlines.
Questions:
Q1. What pricing strategy
was followed by Kingfisher to complete in the aviation industry? Was it
competition or cost-based strategy?
Q2. Do you think that pricing acts as a differentiating factor in the
aviation industry?
Case Study 3: The Business Cycle of ABC Country
ABC country was facing a
downturn in its economy. All the economic factors, such as production, prices,
savings, and investment, of the country started decreasing. In the initial phases
of downturn, businessmen were not able to recognize it. They considered it
minor fluctuations in the economy, which could be easily handled by market
forces. Therefore, they continued to produce goods and services at the same
rate as they were doing earlier. As a result, the supply of goods and services
exceeded the demand. Gradually, businessmen realized that they had
overinvested. This problem of one industry spread in other industries, due to
interlink among different industries. At this time, businessmen stopped any
type of further investment in consumer and capital goods. Consequently, they
started reducing the cost on labor, machinery, furniture and other factors of
production. As a result, various economic factors, such as consumption, savings,
and employment, started decreasing. In addition, debtors were not able to repay
their debts and creditors were not ready to lend more money. Apart from this,
individuals and businesses were not ready to invest in stock markets. Many weak
organizations left industries or dissolved. At this point of time, the economy
had reached its bottom level and from this point, individuals and organizations
tried to
become optimistic.
Therefore, organizations started hiring employees at low wages. Employees
accepted the amount of salary provided to them by organizations because they
wanted to fulfill their basic needs. In addition, consumers also had an opinion
that the price of products and services would not fall now. Therefore, they
started increasing their consumption rate. This consumption rate stimulated the
demand and consequently the production. As a result, the investment and bank
credit also increased. The economy started running back on the growth path.
Questions:
Q1. What are the phases of business cycle explained in the case study?
Q2. What are the main causes of recession in ABC country?
Case Study 4: Russian Economy from 1990 to 2007
The Russian Federation
(Russia) faced several economic problems when it was formed after the
dissolution of Union of Soviet Socialist Republic (USSR) or the Soviet Union.
Therefore, Boris Yeltsin the first President of Russia implemented various
measures for the economic growth of Russia, such as stabilization policies and
economic restructuring. These measures helped the Russian economy to become
market-focused economy from a centrally planned economy. These measures are
briefly discussed in the present case study. In addition, the case study also
analyzes the policy measures presented by Vladimir Putin, Russia’s second President.
It also focuses on the economic conditions of Russia in the Presidency of Boris
Yeltsin and Vladimir Putin and the impact of their policies on the economy.
Towards the end, the case study highlights the challenges faced by the Russian
economy. Several Russian officials and economists have described the economic
conditions of Russia in different time period as follows: According to Mark
Spelmen, Accenture Energy Analyst, in July 2007, “Everyone is focusing on the
fact that there are more billionaires in Moscow than there are in London, but
what we’re actually also seeing is that the disposable income of skilled people
in Russia is going up. You see a lot of infrastructure a lot of housing,
shopping malls. The commodity boom is now percolating beyond Moscow.” According
to
prominent Russian
intellectuals in the late 1990s, “The catastrophe has run its course. The
economic policy of Yeltsin’s and Chernomyrdin’s aides has made a small section
of the farmer communist nomenclature and of the “new Russians” unbelievably
rich, plunged most of the nation’s industry into paralysis, and reduced the
majority of the population to poverty. As far as property ownership is
concerned, the gap between the rich and poor is much deeper now than that which
led to the [1917] October [Bolshevik] Revolution.” Earlier to 1991, Russia was
considered as the biggest republic with the name Russian Soviet Federative
Socialist Republic (RSFSR) in Soviet Union. In 1990-1991, the inflation rate in
Russia was very high and there was a shortage of supply in every industry. At
the time, the GDP of Russia shows a decline of 17% and retail prices reached to
140%. The political conditions of Russia were also not good at this time. As a
result, the Soviet Union was dissolved in 1991. After that, Boris Yeltsin was
elected as the President of Russia. Boris Yeltsin took several measures to
transform the Russian economy in the market-based economy. In 1991, Boris
Yeltsin along with his advisors and an economist, Yegor Gaidar implemented
certain measures for bringing up the Russian economy form inflation. The
measures taken by him were stabilization measures and economic restructuring.
The stabilization measures involved decreasing the government budget deficit,
increasing government revenues, and controlling the supply of money by
subsidizing credit provided to business persons. In addition, he enforced price
control policies, made several amendments in tax policies, and increased
privatization. In the initial stages, the policies made by Boris Yeltsin were
not able to achieve its goals. However, with the introduction of monetary and
fiscal policies, the government was able to implement such measures and
achieved its goals and objectives. In 1996, Boris Yeltsin was again elected as
the President of Russia. After that, Russia faced a situation of decrease in
the foreign exchange reserves and the economy started showing another decline.
In 1998, Russian economy experienced a financial crisis in which its currency,
ruble, showed a decline of 75%. The financial crisis in Russia made people
against Boris Yeltsin; as a result, he faced high opposition in the parliament.
The State Duma elections of 1999 and Presidential elections of 2000 brought a
major change in the Russian politics. Vladimir Putin was elected as the
President of Russia on 2000. The Parliament of Russia started supporting
policies introduced by Vladimir Pultin, the President of Russia and Mikhail
Kasyanov, the Prime Minister of Russia. Both of them
look various legislative
initiatives and measures to transform the Russian economy in the market-based
economy. In 2007, the Gross Domestic Product (GDP) of Russia was above $1
trillion. In the mid of 2000s, the growth of Russian economy was very fast that
is mostly contributed by the growth in domestic energy industry of Russia.
According to various Russian analysts, the major source of income for the
Russian economy was oil exports. Therefore, the Russian economy showed a
drastic change with the change in the prices of oil. Therefore, the decline in
oil prices was considered as a risk factor for the sustainability of the
Russian economy. According to the report of World Bank in 2007, Russia should
have taken measures to control inflation as the global economy was going to
face an inflationary condition, which might affect the Russian economy.
However, Russia was the least affected country in the global economic slowdown
of 2007. It is because of the fact that the major contribution in GDP of Russia
came from its fossil fuels and natural resources that were hardly affected by
recession. In addition, Russian trade with United States, which is the source
of financial crisis of 2007, was very limited.
Questions:
Q1. What are the measures adopted by Boris Yeltsin to overcome
inflation?
Q2. What are the measures used by a government for controlling
inflation?
Case Study 5: Competition in Magazine Industry
Earlier, there were only
few organizations operating in the magazine publication industry. At that time,
it became a trend to provide free gifts, audio and video CDs, DVDs, and scented
candles, to customers along with magazines. The concept of free gifts was
introduced to increase customer base. However, after some time, it became a
problem for the entire industry as he cost of production was increasing. In
such a situation, some organizations stopped providing free gifts, so that the
cost of production could be reduced. Consequently, these organizations lost
their customers. This is because at this point, customers preferred free gifts
with magazines. On the other hand, some organizations increased the prices of
magazines to overcome the cost of production. However, these organizations did
not succeed in their strategy, as the
customers were not willing
to buy magazines at higher prices. Even some of the organizations reduced the
prices of magazines to increase the number of customers, generate revenue, and
overcome the production cost. As a result, rest of the organizations in the
industry also reduced their prices to earn profit and minimize cost of
production. This led to heavy losses for organizations that initially reduced
the prices. Therefore, organizations were bound to provide magazines at fixed
rate along with free gifts.
Questions:
Q1. What type of market structure is prevailing in the magazine
industry? Why?
Q2. What are the problems
faced by organizations in the magazine industry due to oligopoly?
WE PROVIDE CASE STUDY ANSWERS, ASSIGNMENT
SOLUTIONS, PROJECT REPORTS AND THESIS
aravind.banakar@gmail.com
ARAVIND - 09901366442 –
09902787224
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