The outline of Tiffany & Co.

1
Tiffany and Co.

• By Brian Ahearn, Chris Lucatorto Katie Johnson,
  Megan Miller and Jamie Rigney

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Table Of Contents
Megan History, Competitive Markets and Price
Discrimination
Katie Opportunity Costs, Factors of Demand, and
Substitutes
Jamie Cost of Production, Short Run Costs,
Maximizing Profit, Taxes on buyers and sellers
Chris Substitutes and Elasticity, Economies and
Diseconomies of Scale, and Advertising
Brian Income Equality, Employer Prejudices,
and Roles of Government
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Tiffanys

• History

• 1837- Charles Lewis Tiffany and John Young

259 Broadway Street New York
Blue Box (1845)- American idol of sophistication
Tiffany and Co name given by Charles Tiffany
1853
http//www.tiffany.com
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Tiffany and Co

• 1862 Union Army

• 1885 Revises seal for the United States of America

Headquarters moved in 1940
Stock is offered 1987
http//www.tiffany.com
http//www.greatseal.com
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Tiffany and Co.

• Expansions

-To San Francisco
Global Expansions
- Japan in 1972
-1986 London First in European market
-1996 Tokyo
http//www.tiffany.com
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Opportunity Costs

• Opportunity Cost
• The Truest Measure of Cost is Sacrifice
  (Lecture)
• What you give up over what you get.

• Example for every watch that Tiffanys Co.
  makes, they must sacrifice one or more of another
  item
• Silver Business Card Case 180
• Stainless steel watch 1950
• Diamond Ring 970-1,000,000

http//www.tiffany.com/shopping/default.asp?
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Opportunity Cost (cont.)

• Breakdown of Net Sales
• Jewelry 80
• Tableware 5
• Watches 3
• Other 12

http//www.shareholder.com/tiffany/faq.cfm285
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Some Factors of Demand

• Scarcity A situation in which the amount of
  something available is insufficient to satisfy
  the desire for it.
• Tastes Does society find this item desirable?
• Normal Goods when income increases so does
  demand.

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Shifts in Demand
Price

• A Rightward shift of the Demand curve for
  Tiffanys Diamond Jewelry can be caused by
• Increase in scarcity
• Increase in Tastes (because it is a normal good)

Dº
D¹
Quantity
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Expectations and Tastes

• Interdependent Preferences Adam Smith
• Preferences dependent upon our perception of
  others well being in addition to our own wants
  and needs
• Diamond Engagement Ring
• Traditional, expected in our culture
• Social pressure for man to buy one for his wife?
  because of interdependent preferences

Lecture Materials, Lecture 1
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Diamond-Water Paradox

• Diamonds
• Little practical use
• Mainly decorative
• Rare
• Expensive

• Water
• Necessary to all forms of life
• Drinking, cooking, cleaning
• Free (more or less)

Why? Because of Demand and the principle of
Scarcity
www.victorianweb.org/economics/division.html
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Substitutes

• Price of Tiffanys Diamond Ring
• 970-1,000,000
• Price of Walmart diamond ring
• 198-2988
• BUT must take into consideration quality
  differences
• Color, shape, clarity

• http//www.tiffany.com/shopping/engagement.asp
• http//www.walmart.com/catalog/catalog.gsp?cat112
  221adid1500000000000000292530dest19488path0
  3A38913A112221

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Costs of Production

• Explicit Costs- money a firm actually pays for
  inputs

• Examples
• Wages
• Salaries
• 6,000 employees
• 3) Rent
• -120 stores and boutiques

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Costs of Production

• Implicit Costs- opportunity costs of production
  that does not involve money outlays

• Examples Company owners time, labor, land

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Short Run Costs

• Fixed Costs- costs which remain constant
• Example Utilities, Factory Equipment

Variable Costs- costs which vary in the
company Examples Salaries of employees -Tiffany
s might decide to increase production of an
engagement ring over the next quarter by
obtaining more gemologists and metal workers.
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Maximizing Profit

• In an economy which firms are free to seek the
  maximum profit, firms will tend to produce the
  maximum output possible from the inputs they use.

• Also known as MRMC

• As of July, 31 2003
• Total Revenue- 442,495
• Total Costs- 401,348

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Tiffany Co.

• Taxes on consumers shifts the demand curve down
  causing consumers to purchase less.
• Local taxes if applicable, will be added to ones
  order except for Delaware, Montana, New Hampshire
  and Oregon.

Price
Quantity
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Taxes on Sellers

• Taxes on sellers will not effect what the sellers
  are willing and able to sell. However it will
  shift the supply curve to the left.

Price
Quantity
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Substitutes and Elasticity

• The demand for jewelry produced by Tiffanys is
  determined by a buyers taste and budget
  constraint.

• An item is elastic when consumers are willing
  and able to buy from substitutes. (Tiffanys
  vs. department stores)

• An item is inelastic when a buyer is only willing
  to purchase from Tiffanys.

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Economies of Scale

• Specialization and division of labor

• By specializing in jewelry, Tiffanys can produce
  more output in a more efficient time period.
• 80 of sales is from jewelry sales

Diseconomies of ScaleDistribution- the more
popular Tiffanys became, this allowed to expand
their selling market.-International sales
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Advertising

• One way to differentiate your product

• 1.) Informs

• 2.) Product Efficient Resource Allocation

• 3.) Promotes Competition

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Ways of Advertising

• Catalog

• Webpage Tiffany Co_ Home.htm

• Bridal magazines
• Modern Bride

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Advertising

• Advertising is most effective during certain
  times of the year.

• Christmas
• Valentines Day
• Spring Time ( weddings)

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Does Tiffany's have a compeletly competitive
market?
Assumptions of Perfectly Competitive Markets
Homogenous Product Easy Entrance and Exit
Large number of Buyers and
Sellers Perfect Knowledge of Product
Tiffanys is different from their other
competitors such as Kauffmans
Range from middle to high classes due to price
Can go to the web site but one can not know
everything
P
No!
Q
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Is Tiffany's a monopoly?
Monopoly is the only seller of a good or service
with no close substitutes
P
The monopolist is the market Price Searcher
D
Q
If the price of a diamond ring increases, then
quantity sold will decrease.
If Tiffanys wants to increase the quantity of
diamond rings sold, then they must decrease price
NO!
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Does Tiffany's have a Monopolistic Competitive
Market?
Assumptions of Monopolistic Competitive Markets
Heterogeneous Product Downward sloping
demand curve Marginal Revenue is below
demand curve Perfect Knowledge of Product
Large Number of Actors Relatively easy
entrance\exit
Bowls, baby gifts, jewelry

D
MR
Q
YES!
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Does Tiffany's have succuessful price
discrinination?
Conditions Necessary for Successful Price
Discrimination Some degree of monopoly
power Different elasticity's of demand Separate
markets by elasticity Prevent resale
Yes
Yes
NO
Yes
Charging different prices to different customers
for reasons other than differences in cost.
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Income Inequality

• Differences in Wages
• Employer Prejudices
• Differences in Human Capital and Ability

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Differences in Wages

• Attractiveness of jobs
• Differences in Productivity
• Imperfections in Labor Market

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Employer Prejudices

• Discrimination group of people have different
  opportunities because of personal characteristics
  that have nothing to do with their abilities
• Market forces work to discourage discrimination
  and reduce or eliminate any wage gap between the
  favored and the unfavored group.

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Differences in Human Capital and Ability

• Jobs that require more costly training will tend
  to pay higher wages
• Employees with greater talent, intelligence, or
  perseverance will be more productive
• Generate more revenue for firms more pay
• Obviously Tiffanys tries to meet these
  individuals needs and tastes

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Why do differentials persist?

• Non monetary job characteristics
• Cost of living differentials
• Differential in ability
• Differential in human capital
• Barriers to entry

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Tiffanys-problems that arise from Income
Inequality

• Necklaces
• Looked at 5
• Ranged from 550 - 4,750
• Too pricey for some consumers
• Large part of potential consumer group unable to
  purchase
• Force cheap alternatives to emerge

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Roles of Government

• Legal System
• Important to institutional infrastructure
• Criminal Law

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Govt. Controls

• -Controls on the import and export of rough
  diamonds
• - In future diamond industry trying to make
  own regulations
• Tiffanys affected by these diamond regulations
• Higher cost for true diamonds
• Jewelry Council of South Africa (citation)

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The end
Thanks for watching. Thats all for today. Lets
discuss the next time. Power by
www.tiffanyjewelrylife.com