Case studies 7-12

Question 1

What is the harry potter case study about?

Answer 1

Scholastic set a $35 price for harry potter, and sold the book to retailers for $19.

Barnes & Noble sold for $21, + a 10% discount to members

Costco and Wallmart sold at $18.2 & $17.9 respectively.

Amazon sold at $18.

By pricing low, Amazon sold over two million copies, some to new customers who purchased additional items (some at the same time as purchasing HP).

Amazon estimated a $28.9 mil revenue increase to these follow up purchases. This is an example of a loss leader.

Question 2

What is the advertisers dillema? What was the results of over the air cigarette advertising being banned?

Answer 2

• Cigarette advertising is mostly predatory.
• Colluding over advertising is illegal.
• When the gov. banned the ads the profitability of cigarette’s increased.

Question 3

Unileaver’s Clearblue, how did conventional research fail?

Answer 3

• Unilever established a centralized research division to control labs
• Suffered setbacks in 60’s & 70’s.
• The bulk of funding went to protective or modified research
• Culture of caution had favoured incremental innovation of core products
• Decentralized structure & inter-company rivalry had poor results.

Question 4

How did Unilever change it’s reasearch arrangement to succeed?

Answer 4

• in ‘83 a new group was created and granted a large degree fo autonomy, & the medical diagnostics business relaunched as a new company.
• The culture emphasized the scientific & commercial, with the labs being market driven.
• Launched the OTC pregnancy test kit. Became market leader.

Question 5

Outline of HIH collapse

Answer 5

• In 2001, $5.3 billion defficiency, largest Au corporate failure.
• Mcgrath (Liquidator) attributed failures to rapid expansion, unsupervised delegation of authority, extensive & compelx reinsurance arrangements, underpricing, reserve problems, false reports, reckless management incompotence, fraud, greed and self-dealing.
• Breaches of law were designed to cover up the consequential increasing financial difficulties.

Question 6

What Commisioner Owen & 1995 independent report said about HIH

Answer 6

Main reasons:

Underreserving, and failure to properly price risks - this occured due to mismanagement, and poor corporate governence.

Company which has not yet made a complete transition from entrepreneurially run (dominated by senior management to the benifit of senior management) to an ASX listed company run primarily for the benifit of shareholders.

Question 7

What were some problems with HIH?

Answer 7

• CEO had no limits on authority.
• Chairman failed to oversee board functioning, which basically rubber stamped everything and had little indepent involvement.
• Board had no strategic directions for the company. Long term plan never submitted to them.
• CEO brought friends and associates to the board.
• Remuneration reviews were determined by the human resources committee, and then determined effectively by Williams, who attended ‘by invitation’.
• Audit committee concerned with accounts & figures, not risk management & internal control.
• Independence of auditor compromised, relationships with board members and paid for other work in company.
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Question 8

Deregulation of Dairy industry.

Answer 8

• Prior to 2000, milk pricing and supply were heavily regulated, controlling sourcing, distribution and pricing. Targeted to ensureing year round supply of milk.

Question 9

Dairy industry, result of report.

Answer 9

• Vicctoria had net negative public benifit, other states had a net benifit.
• All states agreed to orderly and managed reform process, provided the gov. supply a reform package.

Question 10

Dairy industry; Gov Package

Answer 10

• $1.92 billion
• Consumer levy used to fund, given consumers would benifit.
• The levy was 11c a litre, imposed from 2000-2009