Question

Two criteria for a toy store:

a. average premium of $4000 (probability of 0.65)

b. average annual net return of $1500(probability of 0.20)

To improve the toy store, 2 alternatives:

1. The costs of this program are $2,200 annually.
2. The cost is $750 per year

Questions:

Calculate the net returns toy store A and toy store B for each of the two support programs

At what probability of obtaining an A toy store from the 1st alternative program would the toy store owner be indifferent using the expected value approach between the two toy stores assuming all else stays the same?

Answer 1

1) Strengths:

a) Unique and attractive products: Wooden toys are the competitive edge of the store.

b) Loyal customer base: They have regular customers who even buy their products online even during off season.

c) Location of the store: The store is located at Piney Lake, which is the favorite spot of tourists in vacations. Whenever the families visit the lake, they surely visit the store, at least for once in a trip. The store sells uniquely crafted wooden toys, which captivate the tourists and force them to purchase at least one from the display.

d) Higher sales potential: By collaborating with Amazon.com, company has ability to earn higher profits than selling at just Piney Lake.

2) Weaknesses:

a) They are not technologically very sound. Poor managerial skills to manage the store website.

b) They are stick to only one product, i.e, wooden toys.

c) Scale of operation is relatively small in comparison to competitors.

d) Little name recognition outside existing customer base. They are not very popular, only people who come their have knowledge about the store.

3) Opportunities:

a) Innovation in new products: Percentage of sales can be increased at the store by giving expansion in the product offerings.

b) Expansion in online customer base: It can be done by offering special discount and product bundles.

c) Entry in global market: Store can enter into the global market by offering wooden toys on its own virtual platform.

4) Threats:

a) Stiff competition on virtual platform: Many competitors are present at the virtual platform who can give tough competition to the store.

b) Product imitation: Product can easily be copied with certain innovation in the online market.

General Corporate Strategy for Wish You Wood:

According to me, the store should change its current approach. It should not move further with the business partners who become competitors during the agreement period. I would like to recommend a concentric diversification strategy. They could move into new businesses related to selling toys that might have a higher demand and better marketing presence. In order to successfully implement this strategy they should utilize their strengths while attacking new opportunities to grow their business. Also, Jim and Pam should concentrate on improving their website. They should offer their entire product range to the online potential customers. They should provide complete assistance in purchasing and placing orders to their online customers. They should also remember that their store's website failed due to mismanagement and lack of knowledge of conducting the business at the virtual platform. So, in order to avoid this situation, they should hire trained staff who can conduct the business successfully on the virtual paltform.