If Scenarios to Remember

Question 1

If sales are flat and profits are taking a header …

Answer 1

Examine both revenues and costs.

Always start with the revenue side first. Until you identify and understand the revenue streams, you can’t make educated decisions on the cost side

Question 2

If sales are flat but market share remains relatively constant ..

Answer 2

Could indicate that industry sales are flat and that your competitors are experiencing similar problems

Question 3

If your case includes a decline-in-sales problem, analyze these 3 things:

Answer 3

1. Overall declining market demand (e.g., soda sales have dropped as bottled water becomes the drink of choice)
2. Possibility that the current marketplace is mature or your product obsolete (e.g., vinyl records give away to CDs, which give way to digital)
3. Loss of market share due to substitution (e.g., video rentals have declined because there are numerous substitutions vying for the leisure dollar, such as dining out, movie attendance, pay-per-view, Direct TV, and the internet)

Question 4

If the sales and market share are increasing but profits are declining ..

Answer 4

Investigate whether prices are dropping and/or costs are climbing.

If costs aren’t the issue, then investigate product mix and check to see if the margins have changed

Question 5

If profits are declining because of a drop in revenues

Answer 5

Concentrate on marketing and distribution issues

Question 6

If profits are declining because of rising expenses

Answer 6

Concrete on operational and financial issues - E.g., COGS (cost of goods sold), labor, rent and marketing costs

Question 7

If profits are declining, yet revenues have gone up, review: (5)

Answer 7

1. changes in costs
2. any additional expenses
3. changes in prices
4. the product mix
5. changes in customers’ needs

Question 8

If a product is in its emerging growth stage, concentrate on (3)

Answer 8

1. R&D
2. Competition
3. Pricing

Question 9

If a product is in its growth stage, emphasize (2)

Answer 9

1. Marketing

2. Competition

Question 10

If a product is in its mature stage, focus on (3)

Answer 10

1. Manufacturing
2. Costs
3. Competition

Question 11

If a product is in its declining stage, then (3)

Answer 11

1. Define niche market
2. Analyze the competition’s play
3. Think exit strategy

Question 12

If you lower prices and volume rises, and then you are pushed beyond full capacity …

Answer 12

your costs will shoot up as your employees work overtime, and consequently your profits will suffer

Question 13

Prices are stable only when three conditions are met:

Answer 13

1. Growth rate for all competitors is approximately the same
2. The prices are paralleling costs
3. Prices of all competitors are roughly of equal values