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The current advertising expenditure for GE is at $12M compared to Maytag at $0.7M. If Maytag stays out of the advertising market, then GE’s profit will be at $30M. If Maytag enters into the market, then the expected profit Maytag will be at $1M while GE’S Profit will be $20M. This results in a loss of $10M due to Maytag’s entry into the market. Whereas, if GE maintains its’ advertising expenditure to $700,000 and Maytag stays out of the market, then GE’s profit will be $35M. Now the risk is if Maytag enters into the advertisement market, then Maytag’s profit is expected to be $12M while GE’s profit will be $15M. This will result in a loss of $20M due to Maytag’s entry into the marketplace.

In a market such as home appliances, there is a limit of demand as appliance depreciation is slower than compared to clothing. GE will need to evaluate the current demand and seasonal timing when investing heavily in the advertisement. Knowing your competition, the marketplace, and how to effectively communicate are very important factors. In this situation increasing the advertisement funds should not be the best idea for GE at the moment due to the risk that Maytag may enter the marketplace. The unknown risk of them occurring is greater than the profit expected to be received. I recommend having GE wait until Maytag may also anticipate that GE will increase advertising may not be able to prevent Maytag from entering the market. Maytag may also anticipate that GE will increase advertising It would deter Maytag to enter the business even as the net profitability will be hit as the equilibrium has not been established.

A good current example of overspent advertisement would be Super Bowl ads. A 30-second ad spot in a Super Bowl can average around $3.5M. While some companies such as Hyundai and Toyota have improved their market share over that time, most have not (24/7 Wall St., 2012). Companies such as PepsiCo and Coca-Cola have competed over Super Bowl ads. Coco-Coal has spent more than almost every other advertiser. Since 2007, Coca-Cola has run several ads each year, including two 60-second commercials last year. Additional profits received from these ads did not cover the ads themselves.

Reference:

Douglas, E. J. (2012). Managerial Economics. San Diego, CA. Bridgepoint Education, Inc.

24/7 Wall. (2012). Here Are The 8 Companies That Wasted The Most Money On Super Bowl Advertising. Retrieved December 03, 2020, from https://www.businessinsider.com/here-are-the-eight-companies-that-wasted-the-most-money-on-super-bowl-advertising-2012-2

Tayvia Shamburger

ThursdayDec 3 at 6:42pm

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GE

MAYTAG

Advertising = $12m

Advertising = $0.7m

Stay Out

$0, $30m

$0, $35m

Enter

$1m , $20m

$12m, $15

In the mutual-dependence recognized (MDR) oligopoly the game producing and selling a similar product, the strategy is (let’s say) advertising expenditures, and the payoff is market share and the profit associated with that market share (Douglas, 2012). The current advertising expenditure for GE is at $12M compared to Maytag at $0.7M. If Maytag stays out of the market as shown above in the chart, GE’s profit will be at $30M. If Maytag enters into the market, at $1M then GE’S profit will be $20M so that’s a $10M loss instantly by Maytag entering in the market at $1M. If GE keeps the $0.7M advertising and Maytag stays out of the market, GE’s profit is $35M. But on the contrary, if Maytag enters at $12M, Maytag profits would be $12M and GE’s $15M therefore once again affecting profits. GE will lose $20M in profits if Maytag entered the market at $0.7M advertising. By Maytag entering into the market, GE could potentially lose $10M-$20M depending on advertising budget upon entering.

If GE increased advertising to by $2M so from $12M to $14M, with Maytag profits at zero but automatically losing $1.5M when increasing advertising profits, their overall expected profits decrease by $1.5M dropping GE profit total from $30M to $28.5M. I don’t think that adding an additional $2M more on advertising is best for GE with Maytag earning the market with $0 profits as the market tends to change. When advertising at GE is increased by $2M, the company is negatively being affected so it’s best to leave advertising at $12M. With Maytag out of the market, GE is earning $30M. Regardless, increasing advertising for brand awareness is not necessary unless the market was flowed with several competitors entering the market at once. GE profits can change quickly. Furthermore, additional spending on advertising would not achieve the effect of deterring Maytag from entering as increasing advertising is decreasing GE profits.

Reference:

Douglas, E. J. (2012). Managerial Economics. San Diego, CA. Bridgepoint Education, Inc.

David Hwu
ThursdayDec 3 at 10:06am

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A company must systematically research customer’s preferences and its competitors to stay ahead of trends or to identify any threats. Risks involved with a differentiation strategy include competitors imitating what a company has already spent the money to establish and implement. Differentiation and focus strategies for creating sustainable competitive advantage have changed the rules for marketing in an organization. Regardless of what a company sells, if that company can keep its costs below its competition, it has secured a major advantage. A company can set itself apart by offering quality and unique products and superior customer service. A differentiation strategy design is to appeal to customer needs and preferences.

One example can be the retail industry that has used this strategy of a franchise-based model to expand and create a further reach into newer markets. The vertical restraints for this approach are the issue and concern regarding supply chain establishment. If this concern is not solved properly then there will be supply chain-related quality issues from the franchisee. It is more important in food-related franchisees where quality needs to be the same throughout otherwise the brand value is diluted. Think of a brand like McDonald’s, if the quality at any of the franchisee is compromised the whole brand gets diluted. This is the primary reason where vertical restraints are creating problems for franchise-based models. A company can set itself apart by offering quality and unique products and superior customer service Differentiation and focus strategies for creating sustainable competitive advantage have changed the rules for marketing in an organization.

Reference:

Douglas, E. J. (2012). Managerial Economics. San Diego, CA. Bridgepoint Education, Inc.

Pamela Andrews

YesterdayDec 5 at 5:25pm

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In the low- cost strategy, a company must have a thorough understanding of costs and how to continually reduce them. The company must be willing to standardize its offerings in order to manage costs, which implies that exceptions requested by prospective customers must be limited or excluded in order to keep costs down. A low-cost company would attempt to reduce their cost of product that would lead to enhancing their contribution margin. These specific companies accomplish this strategy by decreasing the costs per product item. A technique these companies use to accomplish this goal is to concentrate on enhancing higher production rates and sales volumes (Douglas, 2012).

The company, which makes a decision to use a differentiation technique, concentrates on gaining very high profits by manufacturing an item or service, which is exclusive, compared from those provided by their rivals. The differentiation technique is a program to make a product/service, which is of higher quality from the consumer’s point of view; this means the client is generally prepared to pay more for the particular item. These organizations usually expend more on their item quality to let their items to be exceptional from those of their competitors, which leads to getting higher a price point in the market (Douglas, 2012). In a differentiation strategy, the company must totally understand its customers’ needs and preferences. It must be driven to innovate to continually address those wants and needs. And, it must build its brand to maintain its position and visibility.

As per research, many companies use both strategies as a combination of low cost and differentiation strategies depending on the product. For example, years ago Sony was the leader in personal musical devices, with the highest volume and profitability and now there is Apple using those same strategies.

Reference:

Douglas, E. J. (2012). Managerial Economics. San Diego, CA. Bridgepoint Education, Inc.