Research Analysis for Business

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Question Description

The purpose of this assignment is the creation of a research analysis. Every day, consumers make millions of decisions that impact the marketplace and influence firms' decisions. Firms use economic concepts, models, and other "tools" of economics to help determine pricing, output, and profit maximization. As an MBA student of economics, you can apply the "tools" of economics to microeconomic and macroeconomic data to create recommendations for how firms can maximize revenue, profit and market share.

Assignment Steps

Resources: Tutorial help on Excel® and Word functions can be found on the Microsoft® Office website. There are also additional tutorials via the web offering support for Office products.

Scenario: Imagine you are a business consultant to a firm of your choice. You have been asked to analyze, advise, and create recommendations on how the firm can ensure its future success in its current market.

Work with your instructor to choose a firm that matches the following criteria: a publicly-traded company operating in the U.S. market. Note: A publicly-traded company is a private-sector firm owned by its shareholders/stock holders.

Prepare a minimum 1,050-word analysis of economic data and business data to explain how the core economic principles impact the sustainability of the firm and what actions the firm can take to ensure success.

Address the following:

  • Identify the market structure your chosen firm operates in, analyze your chosen firm's current market share, and identify the firm's local/global competitors. Analyze the barriers to entry in this market to illustrate the potential for new competition and its impact on your firm's future in the market. Hints: Be sure you review the barriers to entry discussed in the course text. You might consider presenting the data graphically.
  • Identify and explain trends in current macroeconomic indicators for last three years including:
    • Current stage of the business cycle.
    • Real gross domestic product (GDP).
    • Inflation as measured by the consumer price index (CPI).
    • Unemployment rate.
    • Federal funds rate.
    • Current rate for borrowing funds such as the so-called "prime rate." Note: A requirement of the Week 1 Influence of Economics on Household Decision Making report was to gather data on the CPI, GDP, and interest rates, so you should consider reviewing the feedback you received on the Week 1 report.
  • Evaluate trends in demand over last three years and explain their impact on the industry and the firm. Include quarterly (last two quarters) and annual sales (last three years) figures for the product your firm sells. Create business strategies by analyzing information and data related to the demand for and supply of your firm's product(s) to support your recommendation for the firm's actions. Remember to include a graphical representation of the data and information used in your analysis.
  • Examine available, current data and information, such as pricing and the availability of substitutes, and explain how you could determine the price elasticity of demand for your firm's product. Assess how the price elasticity of demand impacts the firm's pricing decisions and revenue growth.
  • Apply the concepts of variable and fixed costs to your firm for informing its output decisions. For instance, analyze how different kinds of costs (labor, research and development, raw materials) affect the firm's level of output.
  • Based on the data gathered and analysis performed for this report write a conclusion in which you:
    • Create business strategies, including price and non-price strategies, based on your market structure to ensure the market share and potential market expansions and explore global opportunities for your business in a dynamic business environment and provide recommendations.
    • Develop a recommendation for how the firm can manage its future production by synthesizing the macroeconomic and microeconomic data presented.
    • Propose how the firm's position within the market and among its competitors will allow it to take your recommended action.
    • Recommend strategies for the firm to sustain its success going forward by evaluating the findings from demand trends, price elasticity, current stage of the business cycle, and government policies.

Cite a minimum of three peer-reviewed references and a minimum of two government economic data sources/references.

Format your assignment consistent with APA guidelines.

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Running head: RESEARCH ANALYSIS FOR BUSINESS Research Analysis for Business Caleb Bonillas ECO 561 1 RESEARCH ANALYSIS FOR BUSINESS 2 Research Analysis for Business The economic parameters have a significant effect on the overall economy, which in turn affects the performance of the business operating in the concerned economy (Liow, 2016). For instance, an economic boom period leads to prosperity and growth of the concerned business. The great economic recession between 2007 and 2009 lead to bankruptcy of many businesses, since they could not survive in the prevailing harsh economic conditions. However, there are various strategies that could be adopted by a company to address and overcome the turbulence of the economic performance. In relation to this, the present paper conducts an analysis of economic data and business data to explain how the core economic principles impact the sustainability of the firm and what actions the firm can take to ensure success. The firm considered in this case is the Walmart Stores Inc. Walmart Market Analysis Walmart operates in a fragmented discount retail industry. The market structure in which Walmart operates is the monopolistic market structure. This is because there are a lot of retailers who competes with the company. Walmart faces competition from international companies such as the Carrefour in France, Metro AG in Germany, Tesco in the United Kingdom, Loblaw Companies in Canada, and Ahold in the Netherlands. It also faces competition from Target Corp, Costco Wholesale, Dollar General, Amazon among others retailers (Hicks, 2016). Walmart market share, as per the 2016 statistics was 11.4%. This market has few barriers of entry in the market. These include the high cost of establishing a retail business, and the involved fierce competition. There is also low margins since firms offer lower prices. RESEARCH ANALYSIS FOR BUSINESS 3 Trends in current macroeconomic indicators The USA has been having a vibrant microeconomic indicators. Considering the business cycle, USA is at the mid-expansion phase, which is has remained for the last six years expansion roll. The real GDP of USA has been increasing for the last three years. In 2013, it was $16691.52 billion, in 2013, it was $17393.1 billion, while in 2015, and it was $18036.65 billion. Inflation has been experiencing significant fluctuations. In 2014, it was approximately 1.5, but droped to an average of -0.2 in 2016, and rose again to an average of 1.5 in 2016. It reached the highest peak of 2.5 at the end of 2016. The USA unemployment rate has declined significantly for the last three years. For instance, in 2014 January, it was 6.6% and declined to 5.5% in 2015. The decline continues to 4.9% in 2016. The country’s federal funds rate is quite low, though it has been increasing over time. In 2014, it was 0.09%, and increased to 0.13%, and 0.4% in 2015 and 2016 respectively. The current American interest rates FED are maintained at 0.750%. The prime rate is maintained at 3.75%. Figure 1: USA GDP variation RESEARCH ANALYSIS FOR BUSINESS 4 Trends in demand over the last three years The data for the domestic demand of the US is presented in the table below. There were wan increase in demand between 2014 and 2015, from 2.45% to 3.22%. Then declined to 1.53% in 2016 and is projected to rise to 2.43% in 2017 and 3.34 in 2018. An increase in the rate of demand would lead to the increase in demand for goods and services offered by the retail industry in USA, and consequently, an increase in the goods sold by Walmart Stores. This case would be experienced between 2014 and 2015 (Hicks, 2015). However, the vice-versa would be experienced between 2015 and 2016 due to decline in domestic demand. Data table for: Domestic demand forecast, Total, Annual growth rate (%), 2014 – 2018 Location ▾ ▾ 2014 ▾ 2015 ▾ 2016 ▾ 2017 ▾ 2018 OECD - Total 1.90 2.38 1.80 2.00 2.35 United States 2.45 3.22 1.53 2.43 3.34 RESEARCH ANALYSIS FOR BUSINESS 5 Walmart sales in US is presented in the table below. Walmart Annual Sales Year 2013-01 2014-01 2015-01 2016-01 Revenue USD Million 446,509 468,651 476,294 485,651 RESEARCH ANALYSIS FOR BUSINESS Walmart Quarterly Sales Jan. 31, 2017 130.94B Oct. 31, 2016 118.18B July 31, 2016 120.85B April 30, 2016 115.90B 6 RESEARCH ANALYSIS FOR BUSINESS 7 The most effective strategy a firm should adopt is to depend on the prevailing demand in determining the products to supply in the market. The forecast of future demand should determine the supply to be made by the firm in the market, since the sales would be higher. Price Elasticity Price elasticity of demand expresses the responses of the responses of the quantity demanded of a product to price. It is calculated by the use of the following formula: PEoD = (% Change in Quantity Demanded)/(% Change in Price) In the case of Walmart, the price of elasticity of demand could be calculated by looking at two different prices of the same product, and the amount of a product bought as the varying prices. This would indicate the percentage by which quantity demanded changes when the prices of the same product are changed. Price elasticity of demand has significant effect on pricing of a product. A high price elasticity of demand implies that a small change in price result to a big RESEARCH ANALYSIS FOR BUSINESS 8 change in quantity demanded. Hence, charging high prices would reduce sales and revenue. However, if the elasticity is inelastic, then a higher price change has little effect on the quantity of products demanded, and hence the company would increase price without losing sales and revenue. Concept of variable and fixed cost The level of output depends on the cost involved in the production (DiModica, 2006). In Walmart Stores, the variable coat is high as compared to the fixed cost. The major variable costs include the labour, reduces the amount of money used for procurement and expansion. The cost of the products from the suppliers affects the amount of the goods to be bought for sale. The higher the unit cost of the products, the lesser the amount ordered by the company, and the lesser the stock in the Walmart stores. Fixed cost also make a significant portion of production, which include the rents. Most of the Walmart stores are on rented premises, whose rent consists of a significant portion of the production cost. Conclusion Based on the above analysis several recommendations could be made to Walmart Stores. The company operates in monopolistic market, where price elasticity of demand is usually elastic. Therefore, it is advisable for the company to set their prices lower than its competitors, so as to increase their sales volume. The higher sales would recover the lower prices charged. To manage its future production, Walmart should take advantage of the economies of scale, so that it could manage to access its products at a lower cost, as compared to its competitors. This could be done by having long term engagement and trustful suppliers. To pursue these strategies, the company would use its reputation and brand name, to woe its customers and suppliers to develop RESEARCH ANALYSIS FOR BUSINESS 9 a loyal and long-term engagement. To sustain its success, Walmart should set periodical budgets and objectives, which should involve maintaining and improving its market share, social responsibility, quality products and observing the set standard, policies and regulations. RESEARCH ANALYSIS FOR BUSINESS 10 References DiModica, P. (2006). Hunt for business: Grow now or be eaten! six proven management methods to grow your business. Cost Engineering, 48(11), 10-11. Retrieved from https://search.proquest.com/docview/220457970?accountid=45049 Hicks, M. J. (2015). Estimating wal-mart's impacts in maryland: A test of identification strategies and endogeneity tests. Eastern Economic Journal, 34(1), 56-73. doi:http://dx.doi.org/10.1057/palgrave.eej.9050002 Hicks, M. J. (2016). Wal-mart's impact on local revenue and expenditure instruments in ohio, 1988-2003. Atlantic Economic Journal, 35(1), 77. doi:http://dx.doi.org/10.1007/s11293006-9062-6 Kazakov, S. (2016). The impact of market orientation levels on business performance results. Worldwide Hospitality and Tourism Themes, 8(3), 296-309. Retrieved from https://search.proquest.com/docview/1826444309?accountid=45049 Liow, K. H. (2016). Linkages between cross-country business cycles, cross-country stock market cycles and cross-country real estate market cycles. Journal of European Real Estate Research, 9(2), 123-146. Retrieved from https://search.proquest.com/docview/1826809899?accountid=45049 RUNNING HEAD: RESEARCH ANALYSTS Research Analysts for Business ECO/561 April 7, 2017 Professor Dell Roberts Introduction RESEARCH ANALYSTS FOR BUSINESS The cosmetic industry is a multi-billion dollar industry. The North America Make-up industry is expected to maintain positive growth through 2018, with an anticipated compound annual growth rate of 3.8% for the five-year period of 2013-2018, reaching $8.4 billion (Market Research, 2016). Similarly, the global fragrances and perfumes market is expected to experience positive growth through 2019, with a compound annual growth rate of 2%. Skincare is the largest category in the cosmetics industry, accounting for nearly 35.3% of the global market back in 2014 (Market Research, 2016). The products in the global skincare segment create a $121 billion industry (Market Research, 2016). Premium products are a major contributor to the beauty and cosmetic industry (Market Research, 2016). Global premium products are expected to reach over $126 billion by 2019 (Market Research, 2016). Estee Lauder is a key player in the cosmetic industry accounting for billions in cosmetic sales annually. This paper will analyze both economic and business data to explain how the core economic principles impact the sustainability of Estee Lauder and what actions Estee Lauder can take to ensure success. Estee Lauder Estee Lauder is a publicly traded cosmetic company that manufactures skin care, makeup, fragrance and hair care products (Forbes, 2017). Estee Lauder was founded by Estée Lauder and Joseph Lauder in 1946 and is headquartered in New York, NY (Forbes, 2017). The company sells some of the leading cosmetic prestige brands globally. According to Forbes (2017), the company is net worth at 34.6 Billion and made $11.6 Billion in revenues last year (Forbes, 2017). The company employed over 44,000 and was voted #646 on Forbes list (Forbes, 2017). Estee Lauder faces stiff competition from L’Oréal, Coty, and Avon products worldwide (Morgan, 2015). According to Research and Markets’ Business Wire report, the beauty industry brought in 2013 revenue of $379 billion, which is anticipated to reach $461 billion in 2018 (Morgan, 2015). Estee Lauder RESEARCH ANALYSTS FOR BUSINESS is a beauty brand that continues to grow and maintains company success in both the international and domestic marketplace. Estee Lauder Market Share Estée Lauder is dominant in the cosmetic industry; products from the prestige brand are sold in more than 150 countries and territories (Morgan, 2015). The company has international manufacturers in the US, Belgium, Switzerland, the UK, and Canada (Morgan, 2015). The procurement of raw materials (essential oils, alcohols, and specialty chemicals) takes place on a global basis through EL’s Global Supplier Relations department (Morgan, 2015). This helps facilitate faster quality improvements and cost reductions (Morgan, 2015). Estee Lauder continues to thrive in the cosmetic industry with sales growth ranking third-highest globally among leading cosmetic companies between the years 2012 to 2015 (Morgan, 2015). Estee Lauder's compound annual growth rate, or CAGR, was reported at 5.6% (Morgan, 2015). The CAGR for Estee Lauder is higher than the average of 5.4% for the peer group considered for research (Morgan, 2015). It's also greater than that of peers Shiseido and Beiersdorf, which posted CAGRs of 4.7% and 4.1%, respectively, over the same period (Morgan, 2015). Barriers to Entry Estee Lauder has successfully dominated the cosmetic industry for decades. Skincare has brought the company its greatest success. The cosmetic industry is a highly saturated industry. Every day thousands of brands enter the cosmetic industry producing both skin care and beauty products a significant number of substitutes and competitors (Morgan, 2015). However, competing with large companies like Estee Lauder with a high reputation is not always successful, unless the competing brand has a new technology that promises permanent skin improvement (Morgan, 2015). Estee Lauder develops many essential ingredients in its research and development departments; this distinction proposes a significant competitive advantage (Morgan, 2015). RESEARCH ANALYSTS FOR BUSINESS Most cosmetics are typically bought according to the consumer's skin types and income levels (Morgan, 2015). It’s difficult for a new company to enter the skin and beauty care business unless the brand features new technology (Morgan, 2015). Dominating beauty companies like Estee Lauder rely heavily on repeat customers and mainly compete on product quality, brand recognition, and product differentiation (Morgan, 2015). Macroeconomic Indicators Businesses go through 5 cycles, expansion, peak, recession, depression, and recovery. Estee Lauder is currently in the development phase. On the below chart, the development phase can be identified as the cycle that moves above the steady growth line (5 Phases of a Business Cycle, 2015). During the development phase, there is an increase in various economic factors, such as production, employment, output, wages, profits, demand and supply of products, and sales (5 Phases of a Business Cycle, 2015). Estee Lauder sales have continued to grow with positive job outlook, demand and supply and profits across the board for the organization. Estee Lauder has also acquired many other cosmetic companies during the expansion phase. This is partly due to an increase in investment opportunities, idle funds of organizations or individuals that are utilized for various investment purposes (5 Phases of a Business Cycle, 2015). Estee Lauder has successfully maintained the cash inflow and outflow of their business and business units equally. This expansion will continue until the economic conditions are favorable (5 Phases of a Business Cycle, 2015). RESEARCH ANALYSTS FOR BUSINESS Source: 5 Phases of a Business Cycle, 2015 The 2007-2009 recessions caused an overall global rise in GDP and economies across various regions (Rajput, 2017). Currently, the increasing GDPs of different countries are positively affecting the global cosmetics market (Rajput, 2017). A continuous rise in GDP is promising because it improves the economies of various countries and raises the spending capabilities of individuals (Rajput, 2017). The rising disposable income levels of people across different regions are driving them to buy personal luxury goods, which, in turn, are positively influencing the global market growth and promoting inflation among the consumer price index (Rajput, 2017). The relationship between the federal fund rate and unemployment rate can become confusing at times, but both are dynamic in supporting each other. With the stability and rise of the economy, unemployment has decreased, and the federal funding has increased causing an influx with more consumers able to spend and more companies able to make a profit. RESEARCH ANALYSTS FOR BUSINESS Source: 5 Phases of Business Cycle, 2015 Cosmetic Industry Trends and Demands Estee Lauder continues to be a market leader in the cosmetic industry with Skincare and Makeup accounting for half of the company's profits and sales. The company continues to have tremendous growth amongst its competitors and continues to rise to the cosmetic industry's trends and demands through its innovation and revolutionary product development. The Cosmetic industry also continues to shift toward the growing demand and market increase of Millennials who continue to create supply and demand for premium, natural and safe cosmetics. Source: Distribution Channels, 2015 RESEARCH ANALYSTS FOR BUSINESS Price Elasticity and Revenue Growth Overall Estee Lauder finds it most struggling when competing in the cosmetic industry throughout Europe, where the market is most competitive. Other European cosmetics brand has merged into the market vastly, creating an elastic supply of cosmetics in the European market (). However, Estee Lauder continues to dominate the North American market, witnessing a steady increase in product launches and market sales. Estee Lauder's revenue growth continues to remain active and thrives with the growing economy. Conclusion It is recommended that Estee Lauder seeks global opportunities in countries like Brazil, Latin America, and other markets that their competitors have not already tapped into. Global expansion is critical to the company growth and revenue increase. Estee Lauder should stay away from zones that are already saturated by competitors or smaller brands. Targeting new locations is ideal for market growth and expansion. Estee Lauder can continue to thrive through innovation by maintaining in-house production, R&D, Patents and being the first to market with new product launches and technologies. Estee Lauder can continue to be a global powerhouse if the firm continues dominating the cosmetic industry with revolutionary products and innovative skincare solutions. In the beauty industry, there will always be competition; however, shifts in the economy can dictate who the key players are, so Estee Lauder must focus on brand loyalty and brand recognition to always stay ahead of its competitors. Estee Lauder should maintain its premium products in prestige retailers and its mass products in mass retailers. The firm must think outside of the box and make sure it is following price elasticity and other economic trends to ensure it maintains not only the best skin care solutions but cosmetics that are valued the most economical for its consumers. RESEARCH ANALYSTS FOR BUSINESS References: 5 Phases of a Business Cycle (With Diagram). (2015, August 11). Retrieved April 06, 2017, from http://www.economicsdiscussion.net/business-cycles/5-phases-of-a-business-cycle-withdiagram/4121 Dividend Drive Long-term horizon, growth, dividend investing, growth at reasonable pricePremiumUK Free Cash Flow Dividend Stars. (2016, March 18). Estée Lauder: First-Half Results Show This TopPerforming Company Remains A Compelling Buy Right Now. Retrieved April 06, 2017, from https://seekingalpha.com/article/3959431-estee-lauder-first-half-results-show-top-performing-companyremains-compelling-buy-right-now Estée Lauder on the Forbes Global 2000 List. (n.d.). Retrieved April 06, 2017, from https://www.forbes.com/companies/estee-lauder/ M. (2016, January 26). MarketResearch.com: The U.S. Beauty and Cosmetics Market Expected to Exceed $62 Billion in 2016. Retrieved April 06, 2017, from http://www.prnewswire.com/newsreleases/marketresearchcom-the-us-beauty-and-cosmetics-market-expected-to-exceed-62-billion-in-2016300209081.html Penny Morgan . Aug 28, 2015 12:42 pm EDT. (n.d.). Business Overview of Estée Lauder. Retrieved April 06, 2017, from http://marketrealist.com/2015/08/business-overview-estee-lauder/ Rajput, N. (n.d.). Cosmetics Market by Category (Skin & Sun Care Products, Hair Care Products, Deodorants, Makeup & Color Cosmetics, Fragrances) and by Distribution Channel (General departmental store, Supermarkets, Drugstores, Brand outlets) - Global Opportunity Analysis and Industry Forecast, 2014 - 2022. Retrieved April 06, 2017, from https://www.alliedmarketresearch.com/cosmeticsmarket ...
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Running head: ANALYSIS OF ECONOMIC DATA

Analysis of Target Corporation
Student’s Name
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ANALYSIS OF ECONOMIC DATA

2
Introduction

The parameters in an economic field have a considerable effect on the whole economy at
large. This, therefore, affects the overall performance of a firm that operates within that specific
economy. Businesses have come up with strategies that have helped regarding recession to avoid
instances of bankruptcy that eventually lead to complete closure of the company. The policies
aimed at making the businesses relevant in the conservative world amidst prevailing harsh
economic conditions. This paper seeks to provide an economic analysis of Target Corporation.
It is a shop in the United States which deals with both retail and manufacturing. It has its
stores all over the United States and thus provides its resources to a significant community
within the U.S. It offers electronics, food and beverage, clothes, and cosmetics. Since the
founding of Target Corporation in 1902, the company strives to differentiate its stores from its
competitors, mainly Kmart and Walmart, by putting forward what they consider fashionable and
trendy products at a lower cost instead of just focusing on low price goods. The most significant
market for this business is younger customers since most of the strategies used by the company
are to attract the younger population. The brands owned by the company include Market Pantry,
Art Class, S...

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