Business Concepts

Choosing a pricing strategy is a defining point in the life of a business — it decides the customer segments a business caters to, how much profit it will make, and the overall brand image of the endeavour. Price Skimming is one of the pricing strategies employed by businesses out of a host of different pricing models. Simply put, Price skimming is a pricing strategy in which the price of goods and services is highest at the time of launching a product to maximize profits from upper-market segments, and then lowered later on to attract price sensitive mid-market and lower-market...

When a business chooses to expand by either acquiring another company or developing expertise in an unchartered area itself, it uses either of two strategies — Horizontal Integration or Vertical Integration. Understanding these two concepts is critical to make sense of the strategy behind decisions made by companies and make a reasonable prediction about their future.  Put simply, Horizontal Integration is when a company tries to expand by acquiring a similar one in their industry at the same level of the supply chain. Marriott Hotels' acquisition of Starwood Hotels & Resorts for $13 billion in 2015, which created the world's...

Created by Lewis C. Lin, Circles Method is a framework that product managers can use to develop comprehensive & thoughtful solutions to product design questions and challenges. To give examples, these product design questions could be anything from redesigning the Facebook newsfeed to improving Pinterest.  The Circles Method helps product managers cover all major bases of a unique product design problem using seven steps, which together form the CIRCLES acronym: Step 1: Comprehend the situation Step 2: Identify the customer  Step 3: Report the customer's needs Step 4: Cut, through prioritization Step 5: List Solutions Step 6: Evaluate tradeoffs Step 7: Summarize your recommendation. Let's look at each of...

Let's suppose that Company A reported revenue of $50000 in 2020 and $25000 in 2019.  To calculate year-on-year growth, one would have to use the following formula: In the case of 'Company A' example, we would substitute the following values in the formula: As per the calculation, Company A had a year-on-year growth of 100%. As you must have figured out by now, year-over-year analysis entails comparing the performance of one period with the same period. The period comparison made during the Year-over-Year analysis could be annual, quarterly, or monthly. In most cases, year-on-year analysis is used to assess the financial performance of...

The interest coverage ratio is a quantity that is used to evaluate the financial health of a company. It is calculated by dividing the earnings of a company (before interest and taxes) by the amount of interest the company is required to pay over a fixed time period. It can be calculated using the formula, text{Interest Coverage Ratio}= frac{text{Earnings before interest and taxes(EBIT)}}{text{Amount of interest to be paid by the company}} We can calculate the EBIT of a company by subtracting the expenditure of the company from the total revenue. The interest coverage ratio is also known as the Times Interest Earned ratio...

Let's suppose that an airline has been incurring recurring losses and wants to shut shop to avoid further losses. However, the airline owes a considerable amount of debt to its investors, using whose money the airline purchased airplanes in the first place.  Scraping the airplanes would not give enough return on their original value. Another airline looking to amp up its fleet numbers would be ideal to buy the planes. But finding such a buyer when the struggling airline is looking to exit the business would be an uphill task. If the airline doesn't find a buyer, it would have...

Let's suppose someone wants to start a lemonade stand. Getting one up and running would be relatively easy and within the financial reach of the majority of the population. In this case, one could say that the barriers to entry to starting a lemonade stand business are low. On the other hand, if you wanted to start a new airline, getting one up and running would be relatively more difficult than starting a lemonade stand and outside the financial reach of the majority of the population. And say even if you had the financial resources needed to create an airline,...