Learn the merchant's trade

The new Elder Scrolls videogame is out and it has been an instant hit, selling millions of copies in only few days. There is a line one of the non-playable characters say "I like to spend time at the market, to learn the merchant's trade". It is a very important concept that a lot of business students ignore, the fact that learning the industry (merchant's trade) is essential.

Often times, people lump many different subjects /areas into one even though they are very distinct from each other because of a lack of specific industry knowledge. Take for example human resources which is actually composed of many areas:

1) Recruiting

2) Retaining Talent

3) Training Managers

4) Payroll

5) Pension / Benefits committees

6) Disciplinary actions / Rule violations

The same could be said about the science of job motivation, which many people do not know that job motivation, satisfaction and performance are all different and should be treated uniquely and differently.

The same could be said for retail, where you have your retail floor/sales personnel, retail management and corporate office - all 3 distinct areas with some similarities but enough differences to be unique.

Accounting is treated differently for different industries such as: real estate, mining, small companies, private companies. People outside of the accounting field are usually not aware of that.

Don't Just Roll the Dice Guide part 1

I will be reviewing the "Don't Just Roll the Dice" book on pricing software. The great part about this 81 page guide book is that it is available for free!! So you can actually go to the source and not just rely on this review. The book is freely available at :

http://www.neildavidson.com/dontjustrollthedice.html


If you like the book, you should support the author and purchase a real copy from Amazon for 11$: http://www.amazon.com/Dont-Just-Roll-Dice-usefully/dp/1906434387/

Even though the author is targeting a specialized subset: software, a lot of the pricing strategies easily applies to other industries.

Review+Analysis of Chapters 1,2 and 3 - Pricing Economics, Psychology and Pitfalls:

-A very interesting bit of pricing history for technology:
The two Hewlett-Packard founders sold their first oscilloscope in 1938 for 54.40$ because that is the latitude and longitude of the northern border of the United States of America! There was a comparable oscilloscope being sold for 400$ by General Radio at that time. This goes to show you that some very smart people (they were Stanford grads!!) can make some foolish pricing mistakes.

-You should be aware of how increasing the price will affect the demand in quantities sold. The end-goal is to increase revenue (quantity times price) after all..though a more important goal is profit margins and this can affect the desired quantity you want to produce too.

-In software, you are selling more then just the executable code, you are also selling: technical support, on-going documentation needs, re-assurance of new features being implemented (roadmap), and breeding familiarity to your staff...hence the reason why Microsoft dominates so much in the corporate environment while there exists much cheaper alternatives.

-pricing by companies is often done by comparing to existing reference points and what the market will bear

-fives and nines lower's the perceived cost of a product: example: 1,995$ feels significantly cheaper then 2,000$ even though it's only 5$ (0.25% of the cost of the product)

Analysis of Dollarama

http://www.thespec.com/news/business/article/256030--making-millions-on-your-dollar

http://www.winnipegfreepress.com/business/breakingnews/discount-retailer-dollarama-reports-21-million-profit-for-second-quarter-102847959.html

http://www.canada.com/nationalpost/financialpost/story.html?id=7dcebed2-ab61-413f-bf93-19b08cd945d9

-32 per cent of its sales now are paid for with debit cards
-From a credit-card standpoint we have concluded — following our 12-month test period — that we will not implement the credit card service as it has had no significant impact, negative or positive, on our sales
-No franchises, all stores are owned and managed by Dollarama's corporate headquarters
-IPO in 2009, now we can detailed information on it's business due to public disclosures such as like the annual report
-Same-store sales, which measure revenues from stores open at least a year, grew by 7.8 per cent
-The year-earlier results included a $21.3-million gain on foreign exchange derivatives...they take part in foreign exchange hedging even though it is a purely Canadian company.
-623 stores stores in total
-Nearly 40 per cent of items sold in its 623 stores across the country are priced at more than $1. That's up from 24 per cent a year ago and 34 per cent in the previous quarter.
-Sales grew by 13.2 per cent to $343.5 million in the second quarter, driven by the net addition of 12 stores.
-The average transaction at the retailer was up 6.2 per cent in its latest quarter compared with a year ago as the stores continued to expand their offerings of items priced above beyond their usual "everything for a buck" level.


Individual store sales is 2.2 million:
1. Sales for all quarters, extrapolate by using second-quarter sales: $343.5 million in the second quarter times four = $1.374 billion
2. 623 stores total
3. $1.374 billion divided by 623 comes out to a per-store revenue of $2.2 million

Store expanding at a relatively slow rate - it's a sign to explore other geographic markets such as the United States:
2% store expansion rate - 12 new stores out of the 623 stores