Pricing
The use of supply and demand models to set prices. Pricing strategy may also be based on a wide range of economic theories such as the idea of a price signal, sticky price or price umbrella.Business Model
Business models are the ways that a firm creates and captures value. This is always based on economics such as a theme park that is an example of club theory or a social media company that derives value from the network effect.Capital Investment
Economics is key to the timing and sizing of capital investment. For example, an understanding of the business cycle is required to time investments in new capacity.Operations
Using supply and demand forecasts to plan operations such as production.Distribution
Planning distribution elements such as warehouses, retail locations and product showrooms based on economies of density.Quality
Seeking to defy the tendency for all goods to be quickly commoditized by finding ways to improve quality beyond the commodity level to command a premium price.Promotion
Modeling promotional efforts with attention economics. For example, calculating the payback for digital advertising that produces improvements in brand recognition.Risk
Modeling risk using economics such as an insurance company that factors in adverse selection in their risk estimates.Customer Needs
Formulating and estimating customer needs based on factors such as diminishing marginal utility.Customer Experience
Customer experience related strategy such as using economies of scope to offer customers greater convenience.Technology
Recognizing the power of technology to change economics resulting in opportunity and risk in markets. For example, cloud computing turned computers into a utility service. This drove down prices and created opportunities for a vast number of firms who could suddenly command large computing resources on demand at a relatively low cost.Efficiency
Calculating the efficiency of your operations and products as a basic form of management accounting and optimization.Productivity
Measuring the productivity of workers, including knowledge workers, and finding ways to boost productivity such as investment in tools and automation.Competition
Developing competitive advantages using foundational economics such as barriers to entry.Small Business
Small businesses and startups also commonly use managerial economics. For example, a small business that seeks to avoid the market power of larger firms by creating niche products and services that do not compete directly with greater economies of scale. Small businesses may also seek to benefit from diseconomies of scale such as a large competitor that is slow to change.| Overview: Managerial Economics | ||
Type | ||
Definition | The use of economic models and theories to guide business strategy, decisions, optimization and problem solving. | |
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