The four stages of change
Cost plus:
This stage occurs when the firm has high market dominance and this makes the firm to add a markup in the production cost in order to get a high profit. The high profit margin increases as a result of change in customers, technology and market competition (Keat, Young & Erfle, 2014). Firms determine the amount of anticipated sales for them to decide the degree of markup. For example, Kodak Company added a markup cost in the market and this helped the firm to gain a high profit margin. This change impacts the firms positively as it does examine the market competition or other pricing factors but it is a change which is straightforward and it defends the firms’ prices (Keat, Young & Erfle, 2014). In enabling the firms to flourish in economic situation, the government supports the economy by raising taxes, enacting tariffs and industry regulation.
Cost management:
The increase in profit margin as a result of technology, competition and customers forces the firms to enter in stage two which is the cost management to deal with changes through cost cutting, restructuring, reengineering and downsizing (Keat, Young & Erfle, 2014)g. Firms implement effective ways and activities of controlling the business cost. In cost cutting, firms focus on profit increase through cost reduction. Companies use strategies such as product benchmarking; reverse costing, value analysis among other in the cost cutting. In restructuring, the companies tend to reorganize the structure of the business to make more profit. Restructuring includes change in ownership structure, financial structure among more which are done by legal advisors or new CEO (Keat, Young & Erfle, 2014). Cost cutting is also done through downsizing and this means that the company reduces personnel to increase efficiency and organization performance. Last method in cost cutting is through reengineering which is a strategy in organization design and analysis. Reengineering is done to reduce operational cost, improve customer service and maintain competitive edge. For example the Kodak Company used reengineering in dealing with economic changes. The company has effective business process, improvement in productivity and it achieved new advances in technologies. It changed management and increased employee empowerment and organizations structure in general (Keat, Young & Erfle, 2014).
Revenue management:
In cost management, companies realize that the process may affect the profit increase and this force the companies to manage revenue. In revenue management, companies focus on micro-market level to review the consumer behavior so that they can ensure products and maximize the price. For example, IMB Company focused on revenue management to become the ‘top line growth’ and increased profit (Keat, Young & Erfle, 2014). In revenue management, companies offer the right product with respect to customers’ perception; they also offer quality brands at the right time, right place and with right pack. In this stage, companies focus on ‘top line growth’ where they tend to increase the gross sales (Keat, Young & Erfle, 2014).
Revenue plus;
In this stage, companies focus on profitable growth and they need a full recovery from economic changes for them to grow and gain profitability. In the process of revenue plus, companies tend to focus on developing the distributing channels, simplifying the product lines, shifting the price model, creating a maintenance plan and manufacturing quality products. For example, the Avon Company faced a decline in personnel and hostile threat. It used the three stages to deal with the changes now the company is using revenue plus to increase growth as well as profitability (Keat, Young & Erfle, 2014). To do this, it focuses on channel development and quality products such as new cosmetics and younger shoppers’ products.
Reference
Keat, P. G., Young, P. K. Y., & Erfle, S. E. (2014). Managerial economics: Economic tools for
today's decision makers.
