Bang and Olufsen Economics

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  • Topic: Financial ratios, Financial ratio, Supply and demand
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  • Published : April 27, 2013
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Bang & Olufsen

Written Examination – Economics

Assignment 1

Question 1.1
As mentioned in the text, Bang & Olufsen A/S have to launch several new products. Give examples of fixed and variable costs by developing and selling a new product.

Fixed costs
* R&D cost
* Marketing cost to campaigns
* Building up sales and organization

Variable cost
* Production cost
* Sales provision, discounts
* Distribution directly related to the sales of products

Question 1.2
Analyze and assess by using the subject's concepts ‐ why 2009 was a challenging year for Bang & Olufsen A/S.

The global financial crisis started in 2007 and from 2008 it is called financial crisis. This is considered to be the worst financial crisis since the Great Depression of 1930s. The causes of it is complex and can be several, like high-risk lending, international trade imbalances. Concerning the situation of Bang & Olufsen in 2009, during the financial crisis, the company also reached a significant and outstanding slowdown in sales and private consumption. The sales of luxury have been impacted by the crises the most. In this situation the company’s market in the European countries was the mostly affected, because they generated more profit in the established market, than in the East and Russia. Sales were unsatisfactory and highly negative, even though in the hotels and real estate departments, it wasn’t affected that much as in case of automotive industry. However, the company keeps trying to solve and improve its sales from year to year. One method is to account the 25% of their sales for developing new products.

Question 1.3
Analyze and assess which form of competition characterizes the global market for audio/video products. Competition in an industry is rooted in its underlying economic structure and goes beyond the behavior of current competitors. The state of competition depends upon five basic competitive forces. These factors determine the ultimate profit potential in an industry, where profit is measured in terms of long-run return on invested capital.

Porter’s five forces
1. Threat of new competition
The barriers of entry regarding the global market of audio/video products is not so high, which means that it is a really attractive segment for new competitors, a firm which wants to represent itself can easily join and become a competitor. The difference between brands is not that significant, because the brand control requires almost the same quality in case of each brands. 2. Threat of substitute products

In case of Bang & Olufsen, the switching cost is not that high, so if a customer switch from Sony to B&O, it doesn’t mean an appropriate amount of money because the economies of product differences are not that wide. Nowadays it is not a common thing to have your home audio system produced by one company; it is more popular to find the best device for each segment of your “audio life”. It is one of the reasons why the price performance for substitutes does not really matter for the customers, and of course, a reason why a buyer is able to switch to a substitute easily. 3. Market competitors, intensity of competitive rivalry

The number of competitors of Bang & Olufsen is vanishing since it is a company which produces high quality audio systems. The most important competitors are Samsung, Sony, Loewe and Philips. They all sell audio and CarFi products (sound systems for cars), like Audi, Aston Martin and Mercedes but they also have partnerships and contracts with several of the world’s leading hotels. So the diversity regarding the economies of scale of competitors is quite narrow. All the competitors and B&O also give wide and full-reported information about their products and services. In conclusion in all of the companies, there is a well-equipped system to build up their image about the most adequate supplier in the industry. 4. The bargaining...
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