Business
Part One
1. A pure competitive environment is a business environment where similar businesses sell the same product. Electronic City operates in a pure-competition environment. This is because it sells similar products and its only means of earning more profit is by distinguishing the products either by price, quality, promotions and many other options. I tend to say this because according to Phil, Electronic City is among just a handful of national chains selling the same products. A pure competition business environment exhibits cutthroat competition between businesses. According to the article, the environment was competitive on price where the margins were very small. This led to the introduction of warranty extension contracts that had higher profits for the business.
2. For a business to succeed, it should be managed in the best way possible. I consider the management style appropriate. The vice president used a popular marketing method of selling warranty extension contract to HDTV buyers. The marketing method increased the company’s profitability in an environment that was very competitive. The management style was appropriate because it ensured that the warranty extension contracts were pitched to all clients at the close of the sale. This was meant to increase the rate of uptake of the extension contracts that led to more profit in the company. Therefore, the management style of the vice president of marketing was appropriate and effective.
3. The major ethical issue on this case involves the introduction of warrant extension contract. These warranty extensions covered the HDTV for the period after the manufacturer’s warranty. Since the probability of a unit requiring repair is slim, –about 4 percent of all HDTV units sold require such repair- then it does not make sense to acquire such warranty extension. In addition, according to Phil, the people who were ‘a sure bet’ to take the warranty were the elderly and the blue color job people. When asked why this is so, Phil answered that it is because they were easy to convince since they did not know any better. The youth/students and the white color job people were able to realize that it was not worth it. Further, Phil indicated that he would not buy the warranty extension. Electronic City was, therefore, selling a service that was not beneficial to the unsuspecting and vulnerable customers.
4. Phil should become more adept at predicting. If he does, his accuracy might tend to raise thus his incentive pay might increase. This is because there are also some people with white collar jobs who may think the same as those with blue collar jobs thus buying the warranty products. By improving his accuracy, he will be able to increase his warranty extension sales hence increasing his incentives. Further, he will learn to cope with a large number of different personalities hence increasing the chances of convincing others to take the warranty extensions. Thus, an increase in his accuracy in predicting who will take the warranty extension will be directly proportional to the increase in his incentive pay.
5. Maria’s reaction encourages Philip giving him the impression that he is doing a good job, and he is also competent. According to the article, Maria was impressed by Phil’s competence hence giving Phil a sense of worth and encouragement. On the other hand, Dr. Smith engages Phil in an exposé of his customer profile. By asking him to define his buying and non-buying customers, Dr. Smith allows Phil to understand his customer profile. When Phil is asked why young and professional customers are not buying the warranty extension, he answers that they are educated and figure out that they risk is too low to be insured. Therefore, Dr. Smith comments change Phil’s perception of his job by letting him understand that he is manipulating his customers into buying an unwarranted service. Fr. George, however, is the one that asks the ethical question of the marketing method and profiling of customers by Phil. He asks Phil, whether any of that ever bothered him. With this question, Phil feels that he has been manipulating people who are ignorant and taking advantage of them for money.
6. When Phil goes back to work, he will probably raise the issue to the vice president of marketing in a bid to come up with a marketing method that does not capitalize on people’s ignorance. This is because Phil loves his work and he would want to continue working at the Electronic City, however, he will be uncomfortable selling these products to his usual clients who are unsuspecting. Since he cannot give them his honest opinion, which is that he would not buy the warrant extension, he will need to come up with another marketing method that will help the company make a profit.
Part Two
1. In January 2007, Phil got a check of $360.40 as his incentive payments. This is 10% of the total dollar amount of warranty extensions he sold in that month. Therefore,
Total amount=360.40*10010=3,604.00
Phil’s total dollar amount of warranty extension in January was $3,604.00
2. In the same month, 55 percent of the transactions were sold with warranty extensions that accrue 8 percent flat rate. That means $3,604.00 is 8 percent of the total dollar amount for 55 percent of the transactions.
Total dollar amount of HDTV sales = 45,050*10055=81,909.10
The dollar amount of HDTV sales was $81,909.10
3. Number of HDTV sets sold in 2006 was 320,000
Average price of HDTV set is 710,700,000320,000=$2,220.94
Revenue in 2007 is $2,220.94*332,800=$739,128,832
Revenue per-store is 739,128,832160=$4,619,555.20
Warrant extension sales target per-store is 75 percent.
Therefore profit per-store from warrant extension sale is 4,619,55.20*75100= $3,464,666.40
