1)It is widely said that global economies are now facing an age of deflation. What are the common deflationary forces in global economies? Has the US experienced deflation in recent times?
2)Ina Food has been successful for 55 years of continuous revenue and profit growth. Nevertheless, the Japanese economy has been stagnant do to inflation. If Japan can overcome deflation, Ina could do much better. How can Japan overcome deflation?
3)Put your quant hat on! In the main text, it is claimed, “If the gross margin of a product was 30%, it could be increased as much as 17% through simply raising the price 5% if the cost is not changed.” Explain this mathematically.
4)Tsukakoshi believes that as long as a company is confident in its products’ competitiveness, there are always methods to raise prices and increase profits smoothly. Is this a viable general business model in a deflationary environment?
5)The case authors consider Ina Food’s successful price increase in a period of deflation to be a “contrarian” strategy. What is a “contrarian” strategy? What in the case supports Ina Food’s contrarian strategy?
6)Tsukakoshi decided to raise prices during a period of deflation. What if he had lowered them as so many companies were doing in this environment? What would have happened?
Consider this: The old price is 10. The new price is 12. Demand under the old price was 200. Demand under the new price is 150. Calculate the percent change is quantity demanded and percent change in price. Now calculate the price elasticity of demand PED): % change in quantity demanded/% change in price. If the PED is greater than 1, then demand is sensitive to price changes. If the PED is less than 1, then demand is inelastic (not sensitive to price increases).
How would you use PED to test a proposed price change strategy in a deflationary environment, in the same and other industries, in Ina or any firm using its historical data.
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