Tim Gaertner

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Tim Gaertner Michael Grasso Michael Lukach Susan
Krah Holly McCloy
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• Mike G.
• Elasticity
• Marginal Revenue
• Profit Maximization
• Substitutes

• Holly
• History
• Opportunity Cost
• Land
• Labor

• Mike L.
• Complements
• Consumers
• Is it Perfectly Monopolistic?

• Tim
• Capital
• Entrepreneurial Activity
• Supply and Demand

• Susie
• Is it Perfectly Competitive?
• Long Run and Short Run Costs
• Explicit and Implicit Costs

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Humble Beginnings

• 1988 founded
• 1994 Doug Ducey joins the company
• 1994 One Million Cones
• 2002 500th franchise

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Humble Beginnings

• 2003 ranked 72 in Entrepreneur Magazines
  Annual Franchsie 500
• Fastest growing super-premium ice cream concept
  in the country known as Original Product
  Original In-Store Experience An Entrepreneurs
  Recipe for Success

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Opportunity Cost

• The value of the best alternative which must be
  given up in order to get something
• What is one small sundae at Cold Stone worth?

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Advertising

• Cold Stone Creamery could sacrifice the amount
  spent on advertising, such as flyers, and spend
  more on ice cream to increase the quality or
  flavors.

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Factors of Production

• Land

• Labor

• Capital

• Entrepreneurial Activity

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Land

• The physical space where production occurs.
• 46 states
• 800 locations

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Labor

• Time workers spend on producing goods and
  services.
• Characteristics
• Workers are self-motivated
• Team work

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Capital

• Tools people use to produce goods and services.
• Human Capital
• Physical Capital

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Entrepreneurial Activity

• When recognizing an opportunity and taking
  advantage of that opportunity
• For example, realizing there is a demand for a
  Cold Stone Creamery in a certain town or area.

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Factors of Supply

• I

• N

• E

• P

• T

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Factors of Demand

• Income
• Tastes
• Number of Consumers
• Prices of related goods
• Expectations of Consumers

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How Elastic is Cold Stone?

• Fairly High Elasticity
• Original concept
• Low price of ice cream
• It is a very small fraction of a persons budget,
  so they are more likely to spend between 3.50
  and 5.50 even if it is more expensive than other
  ice cream shops

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Marginal Revenue

• Since it currently exceeds Cold Stones marginal
  cost, the marginal revenue is causing Cold Stone
  Creamery to expand its stores

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Profit Maximization

• The fastest growing Super-Premium Ice Cream
  Concept
• Producing more, so MRMC
• When MRMC ? Produce More (hence, fastest growing
• Economies of Scale (Specialization)
• Franchise Development and Real Estate Teams
• Price Discrimination
• Currently making a non-maximized profit

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Substitutes

• Mix In Concept Stores
• Marble Slab Creamery
• Maggie Moos Ice Cream Treatery
• Large Chain Scoop Shops
• Baskin Robbins
• Dairy Queen
• TCBY
• Independent Scoop Shops

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Substitutes

• Besides Regular Super Premium Ice Cream, Cold
  Stone sells
• Yogurt
• No Sugar-Added, Fat Free Sinless Sweet Cream
• Virtually any mix ins to customize a product
• Full assortment of cakes

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Complements

• First Mix-In is free afterwards, customer pays
  for each additional mix in to customize their ice
  cream
• Waffle bowls and cones, dipped or not dipped in
  chocolate

• Pre-thought up concoctions Candlyand, Cookie
  Doughnt You Want Some More?, and Founders
  Favorite, etc.

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Target Market

• Marginal Utility
• Income Factors
• Why would people pay 5.00 for a bowl of ice
  cream?

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In what ways is Cold Stone Like a Monopoly?

• may be considered a partial monopoly because they
  have relatively few competitors in their specific
  industry, and none that have been as successful
  as they have.

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Is Cold Stone Perfectly Competitive?

• Large number of buyers and sellers?
• Homogenous product?
• Easy Entry and Exit into market?
• Perfect Knowledge of the product?

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Short Run Long Run Costs

• Short Run
• Variable wages, equipment and raw materials.
• Fixed franchising fees, rent, interest.

• Long Run
• All are variable however, one can open up
  another franchise to increase profit

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Explicit and Implicit Costs

• Explicit Costs the money actually paid out for
  the use of inputs.
• Implicit Costs the costs of inputs for which
  there is no direct money payment.

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So what is the best way to characterize Cold
Stone?

• Cold Stone is most like a monopolistic
  competition, with elements of both a monopoly and
  a competitive market.

• Monopolistic elements
• heterogeneous
• downward sloping demand curve
• Marginal Revenue

• Competitive elements
• There is a large no. sellers
• Entry and Exit

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Summary

• Cold Stone is one of the most successful
  franchising enterprises in the business world
  today
• Just like all firms, Cold Stone faces costs
• Monopolistic elements
• Competitive Elements
• Cold Stones Consumers and Target Market
• Continues to meet high goals set for the company

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Questions?
THANK YOU!