00 a bottle of specialty wine, with an average fixed cost per bottle of $50. The $50 difference allows me to reduce the retail price if I find this is necessary to attract customers. I could also implement various pricing strategies, such as the penetration one in the beginning and the variable one after the penetration.
Break-Even Analysis: It sees that I would start making profits after I sell 8 bottles of wine. This would not however be true if I sell 8 bottles of the cheapest wines. The implemented price and the incurred costs once again allow me to joggle.
Industry Features: This may be one of the most important aspects of the new business, mostly given the recent talks and figures on a global economic recession. If the threats of such a situation materialize, it is quite likely that the living standards and priorities of the population would decrease. Ultimately, this means a reduced demand for speciality wines and a potential failure of my store.
5. Analysis
In order to make the best informed decision, one should better understand the so far presented concepts, as well as their potential implications. To achieve this, I should organize them into pro and con arguments.
Pros the industry has been growing and globalization offers easier access to resources and international purveyors have sufficient financial resources and I would not have to borrow any money the customer palette has been growing due to the desire to belong to elitist groups would not encounter direct competition in the surrounding area
Cons stand to lose my life's savings the opportunity costs is rather high and includes both money as well as social life activities return on investment could not be achieved within the first year might have to lower the initially established prices the break-even analysis is irrelevant if I don't sell expensive wines the current economy is facing serious threats and may not foster the best environment for opening and developing a new business
History has though us that the times of economic difficulties have proven fruitful periods for wealthy and courageous investors. However, they have also represented times of massive bankruptcies and the loss of live savings. The ultimate decision depends on each entrepreneur's aversion to risk. I myself have a low threshold for risk, preferring to avoid it and only engage in safe operations. However I do realize the limited chances of success with such a mentality, I am not willing to get passed it in the current circumstances, as the risks are too high.
6. Summary
In order to conduct such an analysis, one should first identify the forces which are likely to have an impact. In the case of my wine specialty store, these forces revolve around an observed demand for the specialty wines, the supply, the opportunity cost of opening and running the store, the expected return on investment, the retail price, the break-even analysis and finally, the industry features, the competition, funding opportunities and the inflation.
Based on the pro and con arguments generated by the above mentioned forces, I came to the conclusion that opening a specialty wine store may not be the best course of action, especially when considering the economic instability and threats of a global economic recession.
7. Learning
Writing the paper, I come to realize two important things. The first is that however a question may seem simple, it cannot be rightfully answered before a clear analysis of all the forces which affect it. In this case, I would have felt eager to say Yes! I Should Open a New Business!, but after further analysis, I came to realize this may not be the best decision at the time.
The second thing learned while writing the paper is that finding economic elements irrelevant to a matter is rather difficult. This is generally due to the fact that any economic movement could generate at one time or the other an impact upon any business. In the case of the speciality wine for instance, a change in the exchange rate between the U.S. dollar and the Chilean Peso may seem irrelevant, but in fact is not, as I would import wines from Chile at modified rates. Otherwise put, finding independent economic factors is quite a challenging task as most forces are connected.
References
Thomas, C.R., Maurice, C., 2008, Managerial Economics, 9th Edition, McGraw-Hill/Irwin, the McGraw-Hill Companies
2008, Financial Calculators - Breakeven Analysis, http://www.dinkytown.net/java/BreakEven.htmllast accessed on November 24, 2008
2008, Investopedia, http://www.investopedia.comlast accessed on November 24, 2008
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