Revenue, Cost Concepts, and Market

Revenue, Cost Concepts, And Market Structure Proposal

Revenue, Cost Concepts and Market Structure Proposal

Case Assumptions:

the current retail price of the books is low;

no other company offers the same items as Will Bury;

the demand for digitalized high quality books is increasing;

the company's production capacity is inadequately exploited.

Will Bury is the owner of a revolutionary technology which will change the face reading. His efforts focus on the creation of electronically supported books which offer more value to the customer and are more appealing than the current market offering. Yet, the owner, who remains a full time employee at High Tech Digital Industries, faces numerous challenges. And the low levels of sales further generate disappointment. Bury's friend Elsa Budley, who has expanded her art business online, argues that Bury should follow the same strategy she implemented -- that of increasing retail princes.

Increasing retail prices would traditionally increase revenues, but it also stands the risks of distancing some of the customers who become no longer willing to pay the higher price. The strategy is extremely risky as it requires the customers to allocate more of their personal resources in order to maintain a relationship with the firm. Price increases could also reduce the product's competitive position and could influence the customer to purchase a similar item from the competition. Therefore, in the traditional sense, price increases should not be used as a strategy to increase revenues.

Yet, in the particular case of Will Bury's books, it has to be noted that the exact items are not offered by any other company on the market. This means that a price increase would not reduce the product's competitive position as it has no direct competition. Nevertheless, it does encounter indirect competition from traditional paper books. The past years have witnessed a tremendous increase in the popularity of electronic and audio books, but traditional books continue to attract customers. In other words, if a price increase was to occur, it should not translate into a retail price higher than that offered by traditional or other electronic books.

In light of the situation presented, and in a context in which history and academia recommends that entrepreneurs do not resort to price increases to enhance their revenues, this particular situation suggests the opposite. And this is given by the unique features of the products distributed. Books are works of art, and just like a book might be judged by its cover, it is also judged by its price. This means that an extremely low price will make the prospective buyer assume that the book is bad; on the other hand, a more expensive book would be considered more valuable. Given this understanding, Bury should as such increase his retail prices as a means of generating more value for the books, but also with the purpose of generating more revenues for his business.

Aside the applicability of the price increase in the context of the products and the lack of direct competition, fact remains that the increase in price has to be sustained by other changes within the entity. First of all, it is imperative to increase sales in order to increase revenues. This endeavor could materialize in the offering of promotional sales to loyal customers. If Bury sells his books online, he should keep a record of all customer purchases and present his most loyal customers with discount prices. Also, he should place more emphasis on promoting his product offering.

Given the resource constraints, it would be possible for Bury to promote his website and his offering through free advertising websites, the blogs and websites of friends, or even street fliers. Bottom line is that Bury has to increase sales and there are several cost efficient ways of promoting his products.

At the internal level of his business operations, it has to be noted that the increase in sales volumes has to be supported by an increase in production levels. Given this necessity, combined with elements such as ease of use of the technology and the minimum skills requirements of the person digitalizing the books, Will Bury ought to consider the following:

To a degree to which this does not negatively impact the family life or the individual life of the family members, Will Bury should ask his wife or his children to help with the digitalization process

In a context in which the help of the family is either impossible or insufficient, Bury should hire an employee to handle the digitalization processes. This employee would require minimum skills and would as such be paid minimum wage. The salary of the employee would be cumulated based on hours worked, which would normally equal the number of digitalized books.

It is advisable that the employee be a responsible local teenager who is looking to earn some extra money. It could be the child of a neighbor or a colleague from the children's school. It is true that the costs could be even further reduced with the outsourcing of the digitalization processes, but this solution is not viable for the time being due to the fact that the digitalization represents a core process and as it is necessary for Bury to supervise it at all times.

Relative to the other costs incurred, their alteration is rather difficult since Will Bury a is small size entrepreneur who does not reveal any power to influence the retail prices of the books, the technologies used or the copy write fees. Yet, he could implement several strategies:

The operational costs with electricity could be reduced with the usage of more natural light in the detriment of artificial light. Also, it would be possible to replace the traditional bulbs with environment friendly light bulbs, which consume less energy

It would be possible for Will Bury to seek for investors and sponsors who would offer him financial support