Burton Snowboards

1
Burton Snowboards

• Presented By
• Group 4

2
Group 4 Members

• John Astfalk
• Peter James Wallace
• Rob Hill
• Melissa Keefe
• Chelsea Dague

3
Table of Contents

• History
• Supply and demand
• Substitute and complement
• Opportunity cost
• Type of firm
• Explicit and implicit costs
• Specialization

4
Table of Contents Cont

• Profit Maximization
• Consumer Choice
• Income Substitution Effects
• Elasticity
• Oligopoly

5
History

• Mid 60s Sherman Poppens snurfer
• Mid 70s - Jake Burton moved from Manhattan to
  Londonderry, VT
• 1977- 1st snowboard factory was born
• 1978- production moved to Manchester, VT
• Early 80s pushed for ski areas to open lifts
  to snowboarders
• 1982 Suicide Six Resort in Pomfret, VT

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History Cont.

• Late 80s - product innovation
• Early 90s considered just a fad
• 1992 - Moved production to Burlington, VT
• 1998 Named an Official Olympic Sport
• 2002 - Salt Lake City Olympics fully launched
  snowboarding into the mainstream

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Burton SnowboardsCompetition in the Markets

• The Burton Snowboard Company is in a Imperfectly
  Competitive Market
• Imperfect Competitive Market
• Individual buyers and Sellers have some
  influence over the price of the product

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The Demand for Snowboards

• The New American Sports Data shows that
  snowboarding is again the nations fastest growing
  sport, up 51 from last year
• Snowboarding has seen a 240 increase in interest
  in the last 10 years.

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The Demand for Snowboards

• In 2000 and 2001, snowboarding has become the
  fastest growing sport among those surveyed by the
  National Sporting Goods Association. Snowboarding
  grew 31 percent in 2000, increased another 23
  percent in 2001 to a total of 5.3 million
  participants. According to NSGA snowboarding has
  grown from 1.3 million in 1998 to 5.3 million
  people in 2001 a 308 increase in participants.

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Demand

• Market quantity demanded The total amount of a
  good that all buyers in the market would choose
  to purchase at a given price
• In 2000, Burtons annual sales where 200
  million.

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Demand

• Change in demand A shift of the demand curve in
  response to a change in some variable other than
  price.
• Changes in demand are caused by the ceteris
  paribus factors of demand.
• Income
• Number of consumers in the market
• Expectations of consumers
• Price(s) of related goods
• Tastes

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Substitutes

• Substitutes a good that can be used in place of
  some other good and that fulfills more or less
  the same purpose
• Salomon - Adidas
• K2
• Nike

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Substitutes

• When the price of substitutes increase, the
  demand for Burton increases.
• When the price of substitutes decrease, then
  demand for Burton decreases.

P
D2
D1
Q
P
D1
D2
Q
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Opportunity Cost

• Which year does Burton have absolute advantage in
  2001 or 2002?
• Which year does Burton have comparative advantage
  for?

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Which year has the Absolute Advantage?

• Year 2002 has absolute advantage over year 2001.
• Year 2002
• 7,791,000 snowboarding and cross country in
  total.
• Year 2001
• 7,680,000 snowboarding and cross country in
  total.

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Burton 2001

• Snowboarding
• 5,343,000
• Opportunity Cost
• Give up 2,337,000 cross country for 5,343,000
  snowboarding.
• OP Cost
• .4374 cross country per snowboarding

• Cross Country
• 2,337,000
• Opportunity Cost
• Give up 5,343,000 snowboarding for 2,337,000
  cross country.
• OP Cost
• 2.2863 snowboarding per cross country

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Burton 2002

• Snowboarding
• 5,589,000
• Opportunity Cost
• Give up 2,202,000 cross country for 5,589,000
  snowboarding.
• OP Cost
• .3940 cross country per snowboarding

• Cross country
• 2,202,000
• Opportunity Cost
• Give up 5,589,000 snowboarding for 2,202,000
  cross country.
• OP Cost
• 2.5381 snowboarding per cross country

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Which year has the comparative advantage in
participants?

• Year 2002 has comparative advantage for
  snowboarding.
• Year 2001 has comparative advantage for cross
  country.

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WHY?

• Year 2002 has comparative advantage in
  snowboarding because the cost of snowboarding was
  lower in 2002 than it was in 2001.
• Year 2001 has comparative advantage in cross
  country because the cost of cross country was
  lower in 2001 than it was in 2002.

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Elasticity

• To find the elasticity you must use this formula
• Q (Q2-Q1)
• Q (Q2Q1)
• ED P (P2-P1)
• P (P2P1)

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Burtons Elasticity for all Equipment

• 27945000-26715000
• 2794500026715000
• ED 134 mil-148 mil -0.4536
• 134 mil148 mil

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Meanings

• If the P were to go up by 1 then the QD would go
  down .45
• If the P were to go down by 10 then the QD would
  go up 4.5

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Business Firms

• 3 types of Business firms
• Sole Proprietorship
• Partnership
• Corporation
• Burton Snowboards is a sole proprietorship.

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Explicit vs. Implicit Costs
Explicit Costs Money actually paid out for the
use of inputs. Implicit Costs The cost of
inputs for which there is no direct money payment.

• Explicit Costs
• Rent Paid Out
• Interest on Loans
• Managers Salaries
• Hourly Workers Wages
• Cost of Raw Materials

• Implicit Costs
• Opportunity Cost of
• Owners Land
• Owners Money
• Owners Time

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Specialization of Labor

• Specialization A method of production in which
  each person concentrates on a limited number of
  activities.
• Burton has a family of companies that specialize
  in different aspects of snowboarding.

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Specialization of Labor (Cont)

• The sub-divisions are
• Burton Snowboards
• Gravis
• Anon Optics
• Analog Streetwear
• R.E.D. Protection

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The Labor Market

• 558 employees
• 3 locations
• Massachusetts
• Vermont
• Austria
• Same Company but different labor markets

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Incentives

• All employees receive free season passes.
• Able to sign out latest equipment.
• Receive a day off to ride before company
  Christmas party.
• On Employee Appreciation Day, the plant is shut
  down so employees can go riding.
• When theres no snow on the ground skateboarders
  enjoy Burtons vert ramp.

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Profit Maximization How Does Burton Make
Decisions?

• Two ways to look at profit
• Accounting Profit
• Economic Profit
• Accounting Profit Total Revenue Accounting
  Costs
• Accounting profit only takes into consideration
  places where money is paid out
• Wages/Salaries
• Outlays on raw materials
• This is not opportunity cost total value of
  everything sacrificed

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Profit Maximization (cont.)

• Economic Profit Total Revenue (Explicit
  Implicit Costs)
• Explicit cost monetary value paid out for
  inputs
• Implicit cost something given up with no money
  change
• Ex time, forgone wages, etc.
• Burton minimizes costs by creating factories in
  markets such as Europe
• Greater volume decreases average production cost
• Become more efficient by eliminating shipping
  cost
• Wealth of knowledge to be gained from overseas
  markets who are more advanced (RD)

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Consumer Choice

• Changes In Income
• Changes In Price
• Changes In Demand Curve

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Changes In Income
Number of skis

• Causes a shift in budget line
• Still search for point where marginal utility per
  dollar is equal for both goods
• Snowboards are a normal good, therefore an
  increase in income will increase consumption

Number of snowboards
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Changes In Price
Number of skis

• Rotates budget line according to new possible
  combinations
• Will alter the marginal utility per dollar, but
  still chooses point where it is equal for both
  products
• Combine the quantities from multiple points to
  create demand curve

Number of snowboards
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Changes In Demand Curve

• Substitution effect consumer substitutes
  towards the good whose price has decreased, shift
  is opposite of price change
• Income effect a change in a goods price impacts
  the consumers purchasing power and will change
  the quantity demanded

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Combining Income and Substitution Effects

• Normal goods always obey the law of demand,
  income and substitution effects combine to move
  quantity the opposite direction of price
• Inferior goods income and substitution effects
  work against each other, substitution virtually
  always dominates to follow law of demand

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Oligopoly Cont.

• Non Price Competition
• Dedicated to making the best snowboards and
  snowboarding equipment in the world
• Conglomerate
• Gravis shoes
• Analog casual wear

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Oligopoly

• Heterogeneous product
• Difference between brands
• Price Rigidity
• Price tends to remain stable
• Few Firms
• Burton controls about 40 of the market

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Questions ???

• The End