FINC 5810 Wk1 book questions.docx

Customers are not price sensitive the price

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Customers are not price sensitive – the price sensitivity of a product varies with the level of importance consumers place on price relative to other. Example: people don’t want to buy cooking books, they want to invite their friends and relatives to dinner and have a good time. Customers care about product features – they buy the vision of themselves being more awesome or the progress customers are hoping to make. Example: Tesla, customers of Tesla are paying for the unique features of the car. A car that still gets you from point A to point B, as expensive as any luxury car, but it provides huge feature differentiation.
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Customers are not fully informed – when customers know what to do, how to do it, what to expect and why, they usually follow instructions. When customers are uncertain about what, how or why, they will often hesitate in uncertainty and doubt. Example: car maintenance company would put a bright sticker saying “bring your auto in on time and save 10%.” This will boost customer service quality, add value to the company and avoid engine damages. Demand is stable – stability makes life difficult for new entrants. Example: services such as water. Water is indispensable for life. Yet, the industry makes it hard for new entrants to easily break-even. Competitors are limited – this in linked to monopolies and may be based on ownership of resources or a patent. Example: the Fed which is a privately-owned U.S. central bank monopoly on interest rates, money supply and reserve requirements. 2-4 Types of comparative advantage that might lead to international business activities: (1) Natural resources often contribute to comparative advantage when countries’ weather and environment have advantage over another country in the production of oranges or a natural resource, (2) economies of scale also come into play when it is cheaper for a country to import cars or any other goods and services than produce its own, and (3) technological advantage can make a country develop advantage in a specific area as countries find it cheaper to pay the United States to put their communications satellites in orbit than develop their own rockets.
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