Sky Render said:
There are basically I have two schools of thought in business. One is the financial approach, and the other is the brute-force approach.
The financial approach has you considering expenses carefully, and only expending capital when the investment will have a rapid and considerable return. The focus in this model is on the bottom line (ie. profit, not revenue). Under this business model, products are never sold for anything less than what they cost to make, and production is streamlined to match demand at all times (or come as close to this as possible). Success under this model is rarely huge (save for when a successful Blue Ocean Strategy is employed). However, it is all but assured that a profit will be made. This is the business model adopted mostly by small businesses and ones that survive for a long time.
The brute-force approach, on the other hand, is pretty much the opposite. With brute-force tactics, all that matters is the top line (ie. revenue, not profit). Any and every expense towards getting a higher revenue is taken, and financial risks of extreme natures are engaged in with the hopes of drawing in more revenue. Ideally this method results in significant profits over a middle-term period (ie. about 10 years). The problem with it is that if the risk fails, your company is suddenly saddled with a lot of debt and has a very big problem on its hand. Large businesses tend to adopt brute-force methods, as do short-lived ones.
Nintendo uses the financial method and focuses on the bottom line. Sony and Microsoft use the brute-force method and focus on the top line. It's not hard to see which tactic works out better in the long run. |
The thinking here is incomplete and very biased.
1) Businesses wish for a considerable return regardless of investment amount or time frame.
2) Businesses wish for profit above revenue. After all, profit is what keeps them in business.
3) Time frame is relative. The old phrase "Spend money to make money" applies here. All businesses will spend some before they make it, hence why these expenditures are considered investments. Sometimes the turn around is short (I buy today and sell tomorrow) and sometimes it is long (I buy today and sell 2 years from now).
4) Businesses will perform risk assessment/analysis on their strategies. If I am not reasonably assured I can sell my item 2 years from now, I will sell it today instead. The higher the upfront cost, the more often people are looking for a quick turn-around as resources are usually limited whether it is by availability in terms of quantity or liquidity.
Printer and ink manufacturers are a much better example of an industry which does better with higher initial investment (low printer price) and a higher periodic price (ink cartridges). These would be akin to the HD consoles and HD console games. Are they selling their printers below cost? No. Below potential price? Likely. The real money is not in the initial sale though, it's in the return over time. Even that is not to the extreme you make your second approach out to be.
Adopting a product line at a cost to yourself and hoping for a higher steady return is an extremely risky business practice that is not actually seen very often at all. The closest you will likely find are professional market speculators who regularly buy and sell based on future predictions but even that is recognized by most as highly risky.
