Mapping Your Market Pool and Potential Profits

Knowing in which market a business should compete and the tasks needed to earn profit are necessary for sustainable growth. A paper by Gadiesh and Gilbert (1998) helps strategic decision makers think about their profit pools and how to earn sustainable profits.  Some companies have declined because they were trapped in drying pools and didn’t consider other possibilities in creating new revenue streams.

Mapping a profit pool affords the opportunity to see which activities are earning them revenue and which should be adjusted. Furthermore, it also provides an opportunity to open the underlining industry structure and determine which economic forces and pressures are impacting their opportunities. To understand the environment creates greater opportunity for strategic thinking. 

Mapping the value pool is a process of outline the value chain activities and then the potential profits of each. It is a process of defining boundaries, estimating the pool’s size, value-chain profits, and reconciling the calculations. Together these components should provide some discussion on the possibilities available in the market for new businesses opportunities. 

Defining the Pool: Defining a pool is helpful in determining what segment of market a business should be working within. The first step is to define this market for analysis. Understanding the boundaries of that market will help in narrowing down which information will be relevant for analysis. Are you in the banking business, fishing business, or telecommunications business?

Size of Pool: The size of the pool is the total profits that can be earned within a particular market. Analysts often look at industry reports to determine the overall value of a market. At times it may be necessary to add a number of industry statistics together if they fit within a firm’s market pool. For example, a fish farm may find that there is a billion dollars (pool size) total worth of fish activity within the area.

Value-Chain Profits: Breaking the pool down into the profits made through each value-chain activity can be difficult because financial information may not be readily available. Using pure players to create benchmarks and then estimating mixed players activity is beneficial.  The goal is to break the profits of the industry into varying activities such as fish farms, fishing vessels, distribution, farmer markets, etc…

Reconciling the Differences: Once you add up the distribution of value-chain profits and know the total value of the industry they should roughly equally the same size.  If they do not come out similar then the information used or the estimates may be wrong. It is necessary to explore the differences to seek better information. 

The benefit of outlining where profits can be earned and made is to determine where new businesses can find their profits as well as determining areas that have the potential to grow. Generally, the use of a pool analysis will help companies determine new opportunities and change their business strategies when their pool is declining. The overall process of understanding the market and scanning the environment brings more knowledge and information for decision-makers. 

Gadiesh, O. & Gilbert, J. (1998). How to map your industry’s profit pool. Harvard Business Review, 76 (3).

The Development of Business Education in History

Cecil Bohanon reviews the themes of business education from 1900 to 1930 to see which issues were resolved at this time in history. The research evaluated curriculum content, professional nature of business and business schools, social responsibility of corporate managers, and the desire to integrate business curriculum. These entry-level business school concepts continue today in a more complex form.

The very first business and commerce colleges started in the 19^th century lead by The Wharton School at the University of Pennsylvania in 1883. Business communities, who wanted their sons to learn about business with a liberal education, started the very first colleges. To the business community it was a way of formalizing a period of apprenticeship.  At this time in history, many families ran a business to maintain their needs and it was expected their sons would start their own or take over the family business.

Either most of the bright high school students went directly into business or they went to college to learn specific skills. These students did not have much desire to graduate with a degree and simply took the classes that furthered their business interests. College administrators felt that they could improve retention by offering degrees in business. They implemented programs that moved from trade school to formal education.

It took a couple of decades before professors began to feel as though business was a worthwhile subject for study. At the time, a liberal education was seen as the ideal standard of education. The very first business oriented curriculum included economics and sociology as part of their offerings. Economics provided the financial training and sociology offered the human elements training. Commerce was seen as the key course set that moved trade schools to business schools.

Social responsibility eventually made its way into the overall process of business education. Ethics were present before the 1930’s but focused on social responsibility to shareholders. The damaging aspect of not following the law could result in punitive economic actions. Ethics was based in how to make the most money in one’s career regardless of the wider social obligations.

Once colleges were established, the concept of curriculum integration became more important. Students could receive an excellent education in class silos but did not have proper frameworks for integrating these concepts into a more cohesive framework. As the concept of integrate developed so did the practices of relating classes to each other.  Courses that are more general were built on the fundaments of economics, accounting and statistics.

Business colleges have come a long way. In today’s world, a higher level of fundamental, business and liberal education has become common place. Social responsibility has moved beyond making only money to include one’s responsibilities to society. Courses are more technical and include other elements in response to the changing complexity of the business environment. The report does not indicate this concept, but it would seem that the next development of business colleges beyond technological trajectories will be the creation of integrated frameworks for understanding complex environmental factors as well as creative/innovation development methodologies.

Bohanon, C. (2008). Persistent Themes in College of Business. Journal of Education for Business, 83 (4).

The Development of Fluidity in Business Strategies

Strategy is a key method of navigating organizations to and through environmental changes. A paper by Tamas Meszaros provides some insight into the development of strategy over the past few decades (2012). He argues that strategy has moved from being something concrete to something more fluid. His arguments make sense in terms of the ability of executives to put forward strategies but then adjust those strategies based upon an ever changing environment. 

If we think of how fluid each decade has become with an advent of technology we may find that strategy is no longer stale and concise but is more of a trajectory toward organizational goals. The paths can change and adjust as new information and new pressures become apparent. As the environment changes so does the need to change the strategies based upon developing factors.  

According to Cummings, et. al. (2009) history has changed the way we view strategy:

-1960’s: Strategy was seen as a thing. Decisions in the present aim the organization toward a future outcome.

- 1990’s: Strategy was seen as a verb. Past practices create patterns that influence the present and future.

-Present: Strategy can be seen as an adjective or adverb. How future characteristics encourage current activities that creates paths to success.

The development of strategic thought is a result of the development of human thought and complexity. What was once seen as rigid is more fluid. Strategy can be seen as a future orientation based upon perception. The method of achieving the fulfillment of that perception rests on particular thoughts and actions that lead to the creation of a reality. It is a movement from perception to reality. 

Planning is a precursor to strategy (Roney, 1976).  Planning should take into account the various resources, cultures, abilities, market trends, and other factors in order to make reasonable predictions of outcomes. Yet these outcomes should have a focus on some achievable objective in the future. Strategy is the market approach that takes into consideration the available resources found in the planning stages. 

There is no definitive must use strategy for obtaining needed outcomes.  “Three decades of experience with strategic planning have taught us about the need to loosen up the process of strategy making rather than trying to seal it off by arbitrary formalization.” (Mintzberg, 1994.,p. 114.). Despite strategic fluidity there are some methods such as the Delphi Method, SWOT analysis and other methods that have proven track records. It should be remembered that such systems are ways of formalizing thoughts and are not infallible or apply to all situations equally. 

Others have described the new strategic planning process of simply being more adaptive by nature. “Strategic planning processes have changed substantially over the past two decades in response to the challenges of strategy formulation in turbulent and unpredictable environments. Strategic planning processes have become more decentralized, less staff driven, and more informal... permitting… greater adaptability and responsiveness to external change.” (Grant, R., 2003.p.515). As circumstances change so does the need to ensure that new information is calculated within the strategy.

Strategy is a fluid process that is based upon previous models that have worked well. One should not be so confined to these models as to not see new information as it enters into the situation. Strategy has moved from being a centralized function to taking on a more fluid decentralization. The reason is that the environment has become more fluid and requires new cognitive skills to master.  Strategy starts in the planning process and takes into account desired goals and attempts to match them with current resources and potentially successful paths to achieving those goals. Strategies should be evaluated and changed when the fluid environment deems it necessary. Such strategies should not be so fluid as to create chaos without a goal but should not be so rigid as to maintain an improper course of action.

Cummings, S. & Daellenbach, U. (2009). A guide to the future of strategy? The history of long-range planning, 42.

Grant R. (2003): Strategic planning in a turbulent environment: Evidence from the Oil and Gas Majors, Strategic Management Journal, 24.

Mintzberg, H. (1994). The Rise and Fall of Strategic Planning. Prentice Hall, Englewood Cliffs,N.J.

Meszaros, T. (2012). Traditional and new elements in strategic thinking. International Journal of Management, 14 (1). 

Roney, C. (1976).  The two purposes of business planning. Managerial Planning

1976/Nov.-Dec.

Higher Customer Restaurant Retention and Purchases through Customer Focus

The million dollar questions in the restaurant industry are, “how to encourage more patrons to frequent my establishment and spend more while they are there?” New research helps to identify and establish important factors for restaurant owners to consider when operating their businesses. Understanding which factors relate to consumer decision making is important for adjusting restaurant operations to highlight particular benefits and capitalize on the potential rewards.

The restaurant and service industry is growing faster than any other major industry in the country. When compared to other industries in the sluggish economy the food service arena has maintained sales increases (National Restaurant Association, 2009). This makes the restaurant business one of the best investments during tough times as volume continues to increase. To maintain that volume and profit level requires a focus on core business offerings.

Most of us know that improving customer satisfaction can increase patron retention. The process involves understanding customer’s needs and expectations better than the competition in order to enhance them for maximum benefit (Yang, Cheng, Sung & Withiam, 2009). Those establishments that are customer driven and customer focused have higher levels of market advantage. Yet it is hard to know precisely what increases the purchase and frequency rates.

Foodservice products can be seen from a particular perspective. They can be broken down into categorize of core benefits, tangible benefits, and intangible benefits (Kotler, 1998). Core benefits are the product/service, tangible benefits are the servicescape, and intangible benefits are the customer experience/interaction. Understanding each of these helps to see how they influence each other without damaging core business focus. No one should take their eye off of the ball in their search to develop higher levels of service experience.

As manager focus on understanding the pieces that answer the fundamental questions of frequency and increased spending they sometimes forget these core business principles. The type of restaurant and the demographic they serve are important aspects of understanding the context of other service enhancements. Each customer chooses their restaurants based upon personal preference and want to ensure that their expectations are being met.

Research conducted by Parsa, Gregory, Self & Dutta (2013)) attempted to determine precisely what are the most important factors in consumer decision making processes. In other words, when customers were making a choice what type of process did they engage? In order to test this concept the researchers focused on scenario bases experimentation where they used a high-end and low-end restaurant to assess client’s intentions to patronize and return to the establishment. They settled on eight possible combinations for two levels of restaurant attributes. A total of 190 cases were analyzed from each of the restaurant types.

Results:

-Customers were willing to spend more if the high-end restaurants focused on food quality while the low-end restaurants focused on speed.

-In the high-end category customers were willing to pay an extra $23.59 if the food was of exceptional quality while customers in the low-end category when services was fasters $2.47.

-Customers from high-end restaurants with high quality food and low-end restaurants with the quickest speed indicated a higher expectation to return.

Business Analysis:

Understanding the core strengths of a restaurant helps managers understand where to place their focus in developing higher levels of customer satisfaction. Through all of the possible combinations high-end restaurants that offered expensive food should focus on quality while low-end restaurants that focused on cheaper food should focus on speed. Other service factors didn’t matter as much as these two polarities. As customers pay more for their food they expect a higher level of taste and benefit. When customers pay less, customers want the service to be quick. Putting too much emphasis in the wrong places without realizing their secondary benefits will be a waste of money, time, and effort. This may be one of the reasons why establishments such as McDonalds focuses on processes and restaurants such as Andiamos focuses on the quality of the chef and food offerings.

Kotler, P. (1998) ‘Marketing Management: Analysis, Planning, Implementation, And Control’, Englewood Cliffs, NJ: Prentice-Hall, Inc.

National Restaurant Association (2009) online http://www.restaurant .org 

Yang, C., Cheng, L., Sung, D., and Withiam, G. (2009) Strategic pricing policy based on analysis of service attributes. Cornell Hospitality Quarterly, 50 (4).

Parsa, H., Gregory, A., Self J. & Dutta, K. (2013). Consumer behavior in restaurants: assessing the importance of restaurant attributes in consumer patronage and willingness to pay. Journal of Service Research, 12 (2).