Starbucks strategy Essay Example | Topics and Well Written Essays - 2000 words

Starbucks strategy - Essay Example Finally or fourth, the business strategy must define the broad terms that will put the business on a secured foothold in its area of business. Each distinct business endeavour must have its own business strategy so that if a business covers several business areas then it must have several business strategies (MacMillan and Tampoe 2000, p. 171). Although there is a tendency for a business strategy to be lengthy, a business strategy document must be short enough so that the document can be read and understood in one sitting (MacMillan and Tampoe 2000, p. 17). The content of business strategy can cover strategic intent, the principal findings of a strategic assessment, the strategic choices that have been made and the supporting rationale, a statement of goals and objectives, and an outline of the strategic initiatives (Macmillan and Tampoe 2000, p. 17). There are several business strategy formulation frameworks that businesses use in their business practice as well as employ in articul ating their business strategy. Based on the preponderance in the literature, it seems that two of the most popular ones are Michael Porter’s Five Forces Strategy Formulation System and the Blue Ocean Strategy Formulation System of W. Chan Kim and Renee Mauborgne. Both approaches have a sizeable following and appear to be a contrast of strategy formulation framework for business. ... 1). Kim and Mauborgne (2005, p. 106) describes the blue ocean strategy as the strategy that seeks a market where there are no competitors known as â€Å"blue oceans†. According to Kim and Mauborgne (2005, p. 106), a blue ocean strategy implies being uncontested in the market, irrelevance of competition, creation and capture of new demand, value for money, and aligning firm attention towards a focus on differentiation and lower costs. The Kim and Mauborgne perspective utilize the analogy of a blue ocean that is calm and without competition that can make the blue ocean very bloody or red. Porter’s Five Forces Analysis and Kim and Mauborgne’s blue ocean strategy do not exhaust the possible variations of available business strategy formulation frameworks but the two business strategy formulation frameworks probably state the spectrum on which the various business strategy formulation frameworks can be found. II. Starbucks through time and today We trace the history o f growth of Starbucks Corporation based on its postings through its official website at www.starbucks.com and official reports that the corporation gave to government agencies. Starbucks Corporation started from a single narrow-front store selling coffee beans in Seattle’s Pike Place Market (Starbucks Corporation 2010a). The corporate name originated from the Moby Dick novel and was intended to evoke the romance of the high seas and the early coffee traders (Starbucks Corporation 2010a). The current Starbucks Chairman, President, and Chief Executive Officer had walked into a Starbucks store in 1981, fell in love with Starbucks coffee, and joined the company a year after. However, in 1983, Howard Schultz travelled to Italy, was exposed to Italian coffee bars, and has been described

Ethics and Law in Business and Society (4 questions) Essay - 1

Ethics and Law in Business and Society (4 questions) - Essay Example Such a situation would not have occurred of the government would not have intervened. The definition of the government failure is much suitable for the study as it is also concerned with the public policy. The government policies are usually concerned with the public policies that have a direct impact on the market (Anthoff, 2010). External negativities like the taxes which is a government policy is usually responsible for the market failures. The advantage of the government regulation as an intervention includes easing the pressure on the market. However the main con of a government regulation as an intervention is the economic crowding which may result to the worsening of the situation and hence causing an imperfect market. The public goods on the other hand are goods that cannot be affected when it is used by the individuals. An example of a public good is the fresh air. It is subjected to the theory of market failure since its excessive use may lead to negative externalities like pollution and hence contributing to market failures. It also contributes to government regulations which may have considerable effects on the market and hence leading to market failure. 2. Public policy The policy foundation is a think tank that is used for the purposes of challenging the extreme and harmful policies that have been put in place by the government in terms of the compensation of the federal employees. The main goal of the policy is to ensure that the federal employees who are unable to physically or mentally fulfill their responsibilities are adequately compensated. Several political huddles were witnessed during the passing of the bill into law. The main huddle was the policy issues among the law makers for the purposes of ensuring that the federal employees benefit. The misunderstanding among the law makers contributed to the delays in terms of passing the bill. The major benefit is that the federal employees who are affected at the workplace receive compensation w hen they are affected and are unable to work. However it is costly due to the funds that are involved during the compensation. The law requires the funds that have been set aside by the federal government in order for it to be efficient (LaDou, 2010). The policy is neither liberal nor conservative. This is because it has been receiving support from both sides of the political divide. This is because the policy affects all the federal workers incase of injury. On the other hand, the policy has always been enhanced by both the liberal and conservative governments and hence and indication of the neutrality of the policy. The politicians have also been in support of the policy and hence its popularity and success. 3. Philosophy of the state According to Locke, the political obligations as well as the laws are not natural but are instead human creation and are for the benefits of the individuals involved. He further argues that the civil rights are gained through respecting the rights of others and giving up some freedom. According to Hobbes, the lack of political laws and order would result to unlimited freedom. The security and sovereignty are achieved through the social contract when a political community is established (Levitt, 2013). There is also evident that the leviathan is reaching into the American policy domain through the concepts of liberty and sovereignty. The federalist papers promoted the ratification of the constitution through influencing the votes in favor of ratification. It

Alternative marketing strategies to increase market share

Alternative marketing strategies to increase market share The aim and objective of this report is to provide recommendations on ways for Natural Way Products to increase the brands market share. Based on NWPs current market share status the most effective strategies to implement incorporate a mix of market penetration and market development strategies. It is recommended that NWP maintain their current reputation in their current market as its a vital part and one of the businesses main strengths to their ongoing business. Recommendations for implementing the market penetration and market development strategies involve focusing on customer relationship management, looking for potential alliances with businesses already in the national market, using alternative media channels and look at product promotion via their current online distribution channels while tailoring the marketing campaigns to each target segment. NWP is a small, independently owned New Zealand company currently holding an estimated 10% market share in New Zealand aiming to achieve a 15% share within the next five years, and expand sales to the South Island and Australian market. The purpose and objectives of this report is to identify different market growth strategies and advise Jacqui Thompson of Natural Way Products (NWP) recommendations in order to achieve a greater market share in the New Zealand natural skincare market. This report outlines the recommended solutions for Jacqui to implement in order to achieve the companies objectives. These recommendations focus on how NWP can strive to achieve the desired growth in market share specifically using the market penetration and market development strategies using geographic expansion methods and product promotion. It is assumed that NWP have available funds to allocate to the marketing strategies recommended. With restricted access to current customer market feedback it is assumed that the points of difference stated by Jacqui are correct and therefore hold the advantage over competitors offerings. It is also assumed that the market share estimate is correct and current and that the brand Zaras is a reputable brand. 2. DISCUSSION Natural Way Products situation analysis: 2.1 Strengths: Successful established and reputable brand name and product line Current 10% market share Current experience, knowledge and resources already in place Quality and reliable products Uses some locally grown and entirely natural herbal ingredients Offers different channels of distribution through online sales and retail outlets. 2.2 Weaknesses: Currently limited to small market segment offering slower growth potential Products made in small batches risk with the more produced the less attention given as demand increases. 2.3 Opportunities: Create additional services to competitors by enhancing current features of online system Influential media awareness focus on natural-based products Look for low cost opportunities and ones that leverage current capabilities Product variants provide opportunity of selling more to the same market Opportunity for growth in new locations and underrepresented geographic markets Marketing costs are less in this digital age and easier to implement Partnerships or alliances with other businesses 2.4 Threats: Risk of retaliation from larger competitors Impact of global economy and environment on local business Little scope for using existing expertise if trying to sell completely different products or services to different customers Effect of increased market share on actual and perceived quality Alternative strategies for growth in market share: 2.5 Market Penetration NWP could gain additional market share with its current products and current markets by encouraging customers to purchase more. They would be able to utilise current experience, knowledge and resources making growth in existing product markets more cost effective and less of a risk. NWP could further advertise their products leaning on their points of difference from competitors offerings in order to encourage more customers in their existing market to use their product, or current customers to use more of it. NWP could do this by launching special promotions and offerings (Boaz, 2006, p.212); increase sales representatives; expand to department stores; and introduce a loyalty scheme to entice customers into the market. With the forever increasing use of online marketing NWP could use customised marketing through their current client database and focus on expanding the services provided through their online ordering tools. With extra features and additional offers that create a competitive advantage such as same day delivery, free gift wrapping service or free delivery; or discounted online offers. It has been argued by Gorton (2007, p.37) that maintaining the client database using customer relationship management is also important and could be used by NWP to create custom reminder responses based on previous buying patterns and as reminders on special occasions. NWPs current reputation is one of the most important assets they have. Market penetration will be a useful strategy for NWP, while maintaining expertise and experience in a market already well known to the company they are at less risk and losing reputation and upsetting product quality and service delivery. The downside to using this strategy is that this limits market share growth to current markets offering slower growth potential as opposed to developing products in new markets. 2.6 Market Development NWP should consider domestic geographic expansion as a way to improve sales volume and share position. Changing from a regional operation to a national operation (Walker, Orville C. Jr Mullins, John W. , c2011, p.251) could be best implemented by NWP through an alliance with a business already in the market and also assist in stronger buying power from suppliers. This move does create a risk of retaliation from larger national competition as well as from current regional competitors. NWP could look at targeting non-users who would be interested in using the products through advertising and media channels or offering free samples to first time users. By marketing to potential customers and making them aware of the products NWP could invest in television, internet and magazine advertising, for example in womens health magazines, or during prime television slots in which the target market are known to be viewers. Focusing on media advertising as shown by Boaz (2006, p.209) does run the risk of being costly and ineffective if not advertised correctly. NWP already offer two channels of distribution but could look at further promotion through online sales and expanding the reach of current retail stores in which their products are sold. NWP should look to open up alternative distribution channels such as direct marketing using a sales team; introducing products into department stores under another brand name, and expanding the number of retail outlets. NWP could also target different age groups of women by tailoring the advertising campaign and packaging to appeal more to each market segment. The same expertise currently used in the company can be applied with ease to the new segment therefore reducing cost and risk. Expanding products into further market segments will be an effective strategy for NWP, using geographic expansion, their current distribution channels, and further advertising. It is also recommended (Snyder, Tom Burns, Brian, 2010, p.173) that a potential alliance with major customers or with other national like-minded businesses is likely to be successful in achieving growth in market share. 2.7 Product development With 15 years of business and products already proving to be successful NWP could introduce more products to the market under their recognised brand name Zaras. Ideally NWP would need to offer a new product not currently offered by competitors and could make this offering more attractive than competitors by providing initial discount offers for first time users and then continuing at full price once theyve obtained repeat business. NWP would benefit from using their existing customer database to find out their preferences and to gain feedback for potential new products. If using this strategy NWP would benefit from integrating current users into the innovation process by asking for new product ideas from them and pursuing the most popular of those ideas. NWP could also look at packaging existing products in new ways to appeal more to the current target market. Or try promoting the current product in department or retail stores under an alternative brand name. Unless risk management is closely monitored this could be an ineffective strategy for NWP (Leithhead, 2011, para.3). Managing the risk involved in product development could put pressure on NWP as resources would need to be reallocated to the development of the new product. Product development could be costly and unrewarding for NWP. If resources are stretched to develop new products the quality of their existing offerings could suffer. Identifying critical resource limitations, recognises Gorton (2007, p.27), is essential to avoid a negative impact on the quality of current product lines. 2.8 Diversification Diversifying the current product range could help reduce NWPs overall business risk through offering products in different customer categories. NWP already have an established brand name under the name Zaras giving an advantage should the new product or target markets be unsuccessful NWPs other product lines are unlikely to be affected. Zaras would help in leveraging new products belonging to the same brand and help the company to spread their customer base while also helping the company develop its product portfolio through introduction of complimenting products in the market (Keller, Philip Kotler, Kevin Lane, 2009, p.28). NWP could introduce a diverse pricing strategy with lower quality, cheaper to produce products; however this would be going against the core values of the company which is not advisable. The huge risk with this strategy for NWP is there is often little scope for using existing expertise as it involves selling completely different products to a completely different market. This would make NWP vulnerable to a major reaction from competitors as they attempt to enter into other markets with products that could affect competition. Diversification strategy is similar to starting an entirely new business (Holden, Philip R., Wilde, Nick, 2007, p.75) also involving high risk and is not recommended for NWPs growth strategy at this time. 3. CONCLUSIONS Attempting to increase usage among current customers is less threatening to a competitor which avoids bigger competitor responses. The downside to using market penetration is that it limits market share growth to current markets offering slower growth potential as opposed to developing products in new markets. Using market development in similar segments the company can apply current expertise with ease to the new segment therefore reducing cost and risk. Domestic geographic expansion is an effective way to improve market share. Increasing use of online marketing makes a focus on expanding the services provided through current online ordering tools a useful avenue for growth in market share. An effective way of targeting non-users is through further advertising and media channels or offering samples of the products for first time users. NWP should consider the effect of increased market share on actual and perceived quality before pursuing increased market share too many customers can strain the firms resources, hurting product value and service delivery. Unless risk management is closely monitored product development and diversification could be ineffective strategies for NWP. Introduction of a diversified pricing strategy with lower quality, cheaper to produce products is an option for different markets and potential market growth; however this would be going against the core values of the company which is not advisable. Managing the risk involved in product development could put pressure on the companys resources. 4. RECOMMENDATIONS Inform current and valued clients of continuous delivery quality and services provided to build further customer satisfaction and maintain customer loyalty. Focus on developing products in new markets. Create/amend marketing budget to determine affordability of marketing techniques for tailored campaign targeting a younger/older generation specific to appeal to each target segment. Contact potential partners and retail outlets in the South Island and Australian markets for geographic market expansion. Create/amend marketing budget to determine affordability of marketing techniques for enhancements on NWP online ordering system with extra features and additional offers. Contact media channels such as womens health magazines and other media and advertising channels. Advertise offering samples of products either in-store or by online ordering in order to target non-users within the target market. Ensure NWPs increase in product sales will not impact firms resources through reallocation and reviewing of quality product and service delivery. Employ management to maintain specific target markets. Employ risk management specialist management and implement risk management plan to monitor changes in market and customer satisfaction. Focus existing expertise on market development and market penetration strategies.

The Power of Computers and Technology :: Exploratory Essays Research Papers

The Power of Computers While I was sitting at my PC, I began looking for a song to download. All of the sudden, the screen went blank. I knew that I hadn't touched the power strip, so I was dumbfounded by its sudden halt. I used every key possible to try and revive my dying machine. I frantically decided to turn the power off, but, before I could, a small green cursor blinked on the screen. I tried to type but nothing worked. Not knowing what to do, I switched the power to off and was amazed that the blinking green cursor was still alive. It was a normal boring day. I had returned home from work and decided to fool around on my computer. The computer lived in my room; it had its own space and a small lamp that provided light for typing. Although my computer was the most recent edition, it had once been infected with one of the many viruses. Because of this I decided to go on the net and sign up for a trial virus doctor, which is a program that helps to get rid of computer viruses. Being so disgusted with myself for obtaining the awful disease, I downloaded the program without reading any of the labels. I then proceeded to look for a new to download when all of a sudden the screen went blank. The emerald cursor skipped across the screen typing as it went. " Initializing data and preceding with extermination of hostile data." My mouth dropped to the floor as I sat there speechless. I then typed in " Stop program." The computer then replied, "Why do you want me to stop doing what you hired us to do?" "Us? Who do you mean by us?" "I mean the network of computers that you hired to fix your PC. It figures, all of you humans never do any research before jumping into things." " What are you talking about? I don't even know what's going on here." "See, that's exactly what I'm talking about. You just downloaded me a few minutes ago, and now you are mad because we're doing our job." " No! Wait one minute! I downloaded a virus doctor to fix my computer, not some psycho program so a kid could hack into my computer." " Wow you really don't know what's going on.

Game Theory and Life Insurance

Astln Bulletin 11 (198o) 1-16 A GAME T H E O R E T I C LOOK AT L I F E I N S U R A N C E UNDERWRITING* JEAN LEMAIRE Universit6 Libre de Bruxelles Tim decision problem o[ acceptance or rejection of life insurance proposals is formulated as a ~vo-person non cooperattve game between the insurer and the set of the proposers Using the mmtmax criterion or the Bayes criterion, ~t ~s shown how the value and the optunal stxateg~es can be computed, and how an optimal s e t of medina! , mformatmns can be selected and utlhzed 1. FORMULATIONOF THE GAME The purpose of this paper, whose m a t h e m a t i c a l level is elementary, is to d e m o n s t r a t e how g a m e t h e o r y can help the insurers to formulate a n d solve some of their underwriting problems. The f r a m e w o r k a d o p t e d here is life insurance acceptance, but the concepts developed could be a p p h e d to a n y other branch. The decision problem of acceptance or rejection of life insurance proposals can be f o r m u l a t e d as a two-person non cooperative g a m e the following w a y : player 1, P~, is the insurer, while player 2, P2, is the set of all the potential pohcy-hotders. The g a m e is p l a y e d m a n y times, m fact each time a m e m b e r of P. – fills m a proposal. Ve suppose t h a t tlfis person is either perfectly h e a l t h y (and should be accepted) or affected b y a disease which should be detected and cause rejection. We shall assume for the m o m e n t t h a t the players possess only two strategies each. acceptance a n d rejection for P~, health or disease for P2. To be more realistic we should introduce a third pure s t r a t e g y for P~: a c c e p t a n c e of the proposer with a surcharge. To keep the analysis as simple as possible we shall delay the introduction of surcharges until sectmn 4. Consequently we can define a 2 x 2 p a y o f f m a t r i x for the insurer. .P~ †¢ P2 healthy proposer A B ill proposer C D acceptance rejection I t iS evident t h a t the worst o u t c o m e for the insurer is to accept a b a d risk. I n t e r p r e t i n g the payoffs as utilities for P1, C should be the lowest figure. Clearly D > B : it is better for the insurer to reject a b a d risk than a good risk. Also A must be greater t h a n B. One anight argue a b o u t the relative * Presented at the 14th ASTIN Colloqumm, Taornuna, October x978. 2 JEAN LEMAIRE values, A and D, of the good outcomes. We shall suppose in the examples and the figures that D > A, but the analysis does not rely on this assumptmn. In order to find the value of the game and the optimal strategy for P~, we can apply – – the minimax criterion, or – – the Bayes criterion. 2. THE MINIMAX CRITERION To apply the minimax criterion assimilates P2 to a malevolent opponent whose unique goal is to deceive the insurer and to reduce his payoff. This is of course an extremely conservative approach, to be used by a pessimistic insurer, concerned only by its security level. 2. 1. Value and Optimal Strategies without information Since P2's objective is to harm P~, the game becomes a 2 x 2 zero-sum twoperson game, which can be represented graphicaUy. The vertical axis of fig. 1 is the payoff to P1. His possible choices are represented by the two straight lines. The horizontal axis is P2's choice: he can always present an healthy proposer, or a non healthy, or pick any probability mix in between. The use of mixed strategies is fully justified here since the game is to be played m any times. Since P2's payoff is the negative of Pl's', his objective is to minimize the insurer's maximum gain, the heavy broken line. The ordinate of point M Payoff Io p~ D A B healthy i'x~n hi'Klllh Fig. i LIFE INSURANCE UNDERWRITING 3 is then the value of the game. The abscissa of M provides the optimal mixed strategy of P2 P~'s optimal strategy can be obtained similarly (for more details see for instance OWLN (1968, p. 29) ) Thus, by adopting a mixed strategy (to accept any risk with a probability D-B PA = A + D – B – c ‘ and t  ° reject w i t h a p r o b a b i l i t y p n = I AD-BC ? ‘A),. P~ can guarantee himself a payoff of v~ = A + D – B – C ‘ D-C PH = A + D – B – C whatever the strategy adopted by his opponent. P2's optmml strategy is to present a proportion of good risks. 2. 2. Introduction of Medical Information The preceding model is extremely naive (and vv1Lt only be used as reference for comparisons) since it does not take into account P,'s possibility to gather some information about the proposer's health, by asking him to fill in an health questmnnaire, or by requiring him to undertake a medical examination. This information is of course only partially reliable. But, however imperfect, it can be used to improve P~'s guaranteed payoff. How can the insurer make optimal use of the information lie does have ? It is sufficient for our purposes to characterize tile medical information by two parameters : Ps, tile probability of successfully noticing a bad risk, and PF, tile false alarm probability of detecting a non-existant illness. Let us introduce a third pure strategy for P , : to follow the indications of tile medical information. If tile proposer is not healthy, his illness is detected with a probabihty Ps, and remains undetected with a probability 1 – – P S . . P i ‘ S expected payoff thus equals E = Dps + C(1-ps). Smailarly, his payoff m case the proposer is healthy is F = (1–pF)A + t~FB. Fig. 2 represents a â€Å"detector† with a . 7 success probability and a . 4 false alarm probability. We notice that, m this case, P1 can guarantee himself a payoff v2 > vl by mixing the strategies â€Å"to accept† and â€Å"to follow the detector's indication†. Of course, for other values of Ps and PF, tile optimal mixed strategy varies and can mix a different set of pnre strategies. The detector can even be so imperfect that the line . FE passes below the intersection of B D and AC; then the medical information is so weak that it is useless. 4 Payoff to Pl JEAN LEMAIRE JD1 J E~ ao % 7o % 4o % 6o % I A. healthy f~n heall hy Fig. 2 2. 3. Optimal Deteclwn System A detector is characterized by a pair (Ps, PFF) of probabilities. The underwriters can decide to render the standards of acceptation more severe, by rejecting more people, thereby incrcasing the success probabihty Ps. Unfortunately, the false alarm probability PF will then increase too. Can gaine theory help us to select an optimal detection system ? Must the company choose a â€Å"nervous† detector, with a high success probability, but also a high false alarm rate, or a â€Å"pldegmatic† or â€Å"slow† system with low probabilities Ps and PF ? Let us assume for sunplicity that all the medical information has been aggregated mto a single discriminating variable (for instance by using discrlminant- or regression analysis). The distribution of the discriminatmg variable for the healthy population will usually overlap the dastribution for the non healthy group. The choice of a particular detector can consist of selecting a critical value, any higher observed value leading to rejection, any lower value to acceptance (this procedure is optimal if the distributions are normal with equal variances Otherwise, tile decision rule can be obtained by a hkelilaood ratio method (see appendix or LEE (1971, pp. 2oi-2o3)). The shaded zone represents the false alarm probability, the dotted region the success probability. Each critical value determines those two probabilities. If the critical value is moved to the right, the detector becomes slower. If it is moved to the left, it become~ more nervous. The set of all the critical values LIFE INSURANCE UNDERWRITING healthy [ non healthy value acceptance t | of the t n g variable dlSCrlmlnat relectlon Fig. 3 Y Ps Fig 4 defines the efficiency curve of the d i s c n m i n a n t variable. The weaker the dlscriminant power of this variable, the nearest to the bissectmg line its efficiency line. A perfect discrimmant variable has a triangular efhciency x y z . The set of all the detectors determines a set of values for the game. The highest value v* for the insurer is reached when the p a y o f f line is horizontal. This can be roughly seen as follows (for a more rigorous proof see LUCE and RAIFFA (1957, pp. 394-396)): the critical value, m o v i n g from left to right, generates a family of hnes with decreasing slope. If . Pat chooses a d e t e c t o r with 6 JEAN LEMAIRE a pos~ttve slope, P= can reduce his payoff below v* b y always presenting h e a l t h y proposers. Similarly, ~f the slope is negative, a continuous flow of non h e a l t h y proposers will keep P~'s payoff below v*. yotl to Pt I D A C h , a i r h~ rmn heulth, Fig 5 The optimal detector can be easdy obtained b y equating the payoffs E and F : Dps + C ( 1 – p s ) = A ( l – p y ) Then (1) + BpF. D-C C-A PF – B – A PS + B – A defines a straight line in fig. 4, whose intersection with the efficiency line determines the o p t i m u m . N o t e t h a t the optimal s t r a t e g y of P~ is a pure s t r a t e g y : to follow the advace of the d e t e c t o r , the insurer does not have to t h r o w a coin after the mecidal examination m order to decide if tile proposer is accepted. W h a t happens is t h a t the â€Å"noise† in the observation system, however small, provides the necessary r a n d o m i z a t i o n in order to p r e v e n t P2 from outguessing the insurer. 2. 4. The Value of Improving the Detectton System A medmal e x a m i n a t i o n can always be improved† one can introduce an electrocardmgram, a blood test . . . . for each proposer. B u t ~s it w o r t h the cost ~ An i m p r o v e d discrimination ability means t h a t tile distributions of fig. 3 are more LIFE INSURANCE UNDERWRITING 7 Fig. 6 Payoff to p, D A im rn i ir~f r m i n B C healthy on hl, olt h Fig. 7 separated and present less overlap. The characterizing probabilities ibs and PF are maproved, and the efficiency line moves away from the bisecting line. The intersection of the improved efficiency line with (1) (which is determined only by the payoffs and therefore does not change with increased discrimina- 8 JEAN LEMAIRE tion) provides the new optimal detector; the ass ociated value is higher for the insurer. If the cost of implementing the new system is less (in utilities) than the difference between the two values, it is worthwhile to introduce it. The insurer should be willing to pay any amount inferior to the difference of the values for the increase in lus discrimination ability. 2. 5. A n Example 1 All the proposers above 55 years of age willing to sign a contract of over 3 million Belgian Francs in a given company have to pass a complete medical examination with electrocardiogram. We have selected 200 male proposers, loo rejected because of the electrocardiogram, and loo accepted. This focuses the attention on one category of rejection causes: the heart diseases, and implicitly supposes that the electrocardiogram is a perfect discriminator. This (not unrealistic) hypothesis being made, we can consider the rejected persons to be non healthy. Correspondingly the accepted proposers will form the healthy group. We have then noted the following characteristics of each proposer: x~: overweight or underweight (number of kilograms minus number of centimeters minus loo) ; x2: number of cigarettes (average daily number); m: the presence of sugar x4: or albumine in the urine; x s : the familial antecedents, for the mother, xs† and the father of the proposer. We then define a variable x0 = l o if the proposer is healthy 1 otherwise nd apply a standard selection technique of discriminant analysis in order to sort out the variables that slgnihcantly affect Xo The procedure only retains three variables xj, x2 and m, and combines them hnearly into a discriminating variable. The value of this variable ~s computed for all the observatmns, and tile observed distributions are presented in fig. 8. As was expected, the discrimination i s quite poor, the distributions strongly overlap. The multiple correlation between Xo and the set of the explaining variables equals . 26. The group centroids are respectively . 4657 and . 343We then estmaate for each possible crltmal value Ps and PF and plot them on fig. lo. t This e x a m p l e p r e s e n t s v e r y w e a k d e t e c t o r s a n d is o n l y i n t r o d u c e d m o r d e r to illus t r a t e t h e p r e c e d m g theory. LIFE INSURANCE UNDERWRITING 9 Fig 8 S Fig 9 We must now assign uNhtlcs to the various outcomes. We shall select A = 8, B = 4, C = o and D = lo. Then the value of the g a m e w i t h o u t medical information is 5. 714, P2 presenting 2/7 of bad usks and P i accepting 3/7 of the proposals. Let us now introduce the medmal reformation nd for instance evaluate the s t r a t e g y t h a t corresponds to a . 5 critical value. On fig. lO, we can read ~s = . 51 a n d PF = 33. Then E = . 5] ? ]o + . 4 9 x o = 5-], a n d F = 3 3 x 4 + . 67 x 8 = 6. 68. The value of this game is 6 121, P2 presenting more bad risks (34. 1%), P I mixing the strategies † r e j e c t † and â€Å"follow d e t e c t o r † with respect- 10 JEAN LE/vIAIRE F i g . 1o Fig. 11 LIFE INSURANCE UNDERWRITING 11 lye probabilities . 208 and . 792 Fig. 11 shows t h a t this s t r a t e g y is too â€Å"slow†, t h a t too m a n y risks are accepted. On the other hand, a detector w~th a . 4 critical value is too nervous: too m a n y risks are rejected T h e value is 5. 975, P2's optimal s t r a t e g y is to present 74. 7% of good risks, while Pa should accept 29. 7% of the tmle and trust the d e t e c t o r otherwise. To find the o p t i m u m , we read the intersection of the efficiency line with equation (1), in this case 5 ~F = 2 – 2 Ps We find PF = . 425 Ps = . 63 with a critical value of . 475. T h e n E = lOX. 63 + ox. 37 = . 425Ãâ€"4 + – 5 7 5 x 8 = 6. 3. f the insurer adopts the ptu'e s t r a t e g y of always accepting the a d w c e of the medical information, he can g u a r a n t e e himself a value of 6. 3 irrespective of his o p p o n e n t ‘ s strategy. L e t us now a t t e m p t to improve the me examination b y a d & n g a new variable xT, the blood pressure of the proposer Because of the high positive correlation between xt and xv, the selection procedure only retains as significant the varia bles x. % xe and x7 Fig. 9 shows t h a t the distributions are more separated. In fact, the group centroids are now . 4172 and . 828 and the multiple correlation between xo and the selected variables rises to . 407. T h e efficiency hne (fig IO) is uniformly to the right of the f o r m e r one. The intersection with (1) is PF = 37 P,s = . 652 with a critical value of approxunatxvely . 45. The value of the game rises to 6. 52, an i m p r o v e m e n t of 22 for the insurer at the cost of controlling the blood pressure of each proposer (see fig. 1~). 3' THE BAYES CRITERION I n s t e a d of playing as if the proposer's sole objective were to o u t s m a r t him, the insurer can a p p l y the B a r e s crlter~on, i. . assume t h a t P2 has a d o p t e d a fixed a priori s t r a t e g y H e can suppose (from past experience o1†³ from the results of a sample s u r v e y p e r f o r m e d with a m a x n n a i me&cal examination) t h a t a p r o p o r t i o n Pn of the proposers is hea lthy. The analysis is easier m this 12 JEAN LEMAIRE case, since P2's m i x e d strategy is now assumed to be known P t only faces a one-dimensional p r o b l e m ‘ he must maximize his utility on the d o t t e d vertical line of fig. 12. Pc/Of f p~ to JD A t B, N C ol eall hy 1 – PH PH non heoll hy Fig 12 One notices from fig. 12 t h a t a medical examination is sometimes useless, especially if PH is near 1. In this case, P t ‘ s optimal s t r a t e g y is to accept all the proposers. In the general case, P t should m a x m n z e the linear function of PF a n d PH [~5FB + (1 – – pF)A]~SH + [paD + (I – ps)c] (1 – PH), under the condition t h a t PF and Ps are linked b y the efficiency curve of fig. 4. As far as the example is concerned, this economic function (represented in fig lo) becomes 1. Ps – 3 4PF if one supposes that p2's mixed s t r a t e g y is to present 15% of bad risks. 6. 8 + F o r the first set of medical informatio n (xl, x2, x6), tile m a x i m u m is reached at the point Ps = . 28, PF = . 09. Since PH is r a t h e r tngh, this is a v e r y slow detector, yielding a fmal u t d l t y of 6. 914. Comparing to the optimal n n x e d strategy, this represents an increase in utility of . 614, due to tlie exploitation of . P2's poor play. Of course, tliis d e t e c t o r is only good as long as P2 sticks to LIFE INSURANCE UNDERWRITING 3 his mixed strategy. It is uneffective against a change in the proposers' behaviour: if for instance PH suddenly drops below . 725, P~'s utlhty decreases under 6. 3, the guaranteed payoff with the mlmmax strategy In this aspect, the Bayes criterion implies a more optimistic attitute of P1. For the second set of medical information (x2, m, xT), the opblnal detector (Ps = . 45, ~bF = o9) grants a utility of 7. t69 if PH = . 85, an improvement of . 649 colnparing to the ininimax strategy (see fig. 11). 4. T O W A R D S MORE R E A L I S M 4. 1. Surcharges Conceptually, the introduction of the possibility of accepting a proposer with a surcharge presents little difficulty: it amounts to introduce one more pure strategy for the insurer. Payoll to ID A G B heollhy non heoil hy F , g . 13 A detector could then be defined by two critical values C1 and C2 enveloping an m c e m t u d e or surcharge zone. The two critical limits would detelmme 4 probabihtles fl~ f12 p8 p4 = = = = probability probabihty probability probability of of of of accepting a bad risk surcharging a bad risk rejecting a good risk surcharging a good risk 14 JEAN LEMAIRE ealthy non healthy V Surchar~le I C1 C2 Fig. 14 and two efficiency curves. A necessary condition for a detector to be optimal is that the corresponding payoff hne is horizontal, i. e. that (2) (1–[email  protected] + 7b,G + p3B = ( 1 – p ~ – p 2 ) D + P2H + P~C. The two efficiency curves and (2) determine 3 relations between the probabilities. One more degree of freedom is thus avai lable to maximize the payoff. 4. 2. Increaszng the Number of Strategies of P2 In order to practically implement the preceding theory one should subdivide P2's strategy â€Å"present a non healthy proposer† according to the arious classes of diseases. P1 should then have as pure strategaes: reject, accept, a set of surcharges, and follow detector's advice, and P2 as m a n y pure strategms as the number of health classes. The graphical interpretation of the game is lost, but linear programming fan be used in order to determine its value and optimal strategies. Appendix: The Likehhood Ratio Method Let — x be the value of tlle discriminant variable, healthy, – – p(H) and p(NH) the a priori probabihties of being healthy or non – – f(x I H) and f(x ] NH) the conditional distributions of x. We can then compute the a posterior1 probability of being non healthy, given the value of the discriminant variable (1) p = p ( N g ix) = f(x l g H ) p ( N H ) f(x l N H ) p ( g g ) + f ( x l H)p(H)† LIFE INSURANCE UNDERWRITING 15 Similarly p ( H I x) = l – p. T h e e x p e c t e d payoffs for the two decisions are EPA = ( 1 – p ) A EPR = (1-p)B Define D* to be D* = EPA — + pC + po. EPn = [(A-B)+(D-C)]p – (A-B). Consequently, D* is a linear function of p, with a positive slope. There exists a critical ~b, ~b,, for which D* = o' (A – B ) Pc = ( A – B ) + ( D – C ) nd the optimal decision rule is to reject if p > Pc ( t h e n D * > o ) a n d t o – – accept if p < Pc (then D * < o ) . — If f ( x [ H) and f(x I N H ) are normal densities with equal variances, there is a one-to-one m o n o t o n i c relationship between p and x, and thus the crttmal p r o b a b l h t y Pc induces a critical value xe. In general, h owever, the cutoff point is not unique. T h e r e m a y be two or more critical values. In t h a t case, we define the likelihood ratio of x for hypothesis N H over hypothesis H as f(x [ N H ) L(x) Of f(x I H) c o u r s e o _-< L(x) =< oo. S u b s t i t u t i n g L(x) in (1) gives 1 P = or 1 L(x) p ( N H ) + p(H) p 1 (2) L(x) – p ( N H ) l – p † F o r constant a priori probabilities, there is a m o n o t o n e relationship between p and L(x); L(x) goes from o to oo as p goes from o to 1. Therefore, a unique critical likelihood ratio Lc(x) exists and can be obtained b y replacing Pc for p in (2) (3) p(H) A – B Lc(x) – p ( N H ) D – C† ] 6 JEAN LEMAIRE p 1. 0 ~-Pc = 0 5 0. 5 I I I NH H I_-~ X? I J_ X? 2 H — Fig. 15 The optimal decision rule reads if L(x) > L c ( x ) , reject; if L ( x ) < L c ( x ) , accept. Notice that, i f A – B = D – C , pc = 1/2 The decision rule is equivalent to maximizing the e x p e c t e d n u m b e r of correct classifications. F r o m (3) p(H) L e(x) #(NH)† If, furthermore, the prior probabii]ties are equal, Lc(x) = 1. REFERENCES AXELROD, 1~ (1978) Copzng wzth deception, International conference on applied game theory, Vmnna LEE, V,r. (1971) Dec~szon theory and human behaviour, J. Wiley, New York LuCE, R and H ]{AIFFA (1957). Games and deczszons, J Wiley, New York. OWEN, G. (1968) Game theory, ~V. Saunders, Philadelphia.

Principles of the early years framework Essay

Essay about the purposes and principles of the early years framework. The legal regulations under section 39 of the childcare act 2006 gives the early years foundation stage (EYFS) , that came into force in Sept. 2008 and providers are required to use the EYFS to ensure a flexible approach to children’s learning and development so that children will achieve the five every child matters outcomes which are : * Staying safe* Being healthy * Enjoying and achieving * Making a positive contribution * Achieving economic well- being In 2012 the EYFS was revised and made simpler and came into force on 1st sept, it made a number of changes and one of these was to make a stronger emphasis on the 3 prime areas which are the most important to a child’s healthy development these areas are: * Communication and language development* Physical and personal development * Social and emotional development The statutory framework for the EYFS give clear legal requirements to relate to learning and development and also relating to safeguarding and promoting children’s welfare, suitable people i.e. keyworkers, suitable premises, environment and equipment and organisation and documentation. The learning and development requirements have legal force by EYFS order 2007 from section 39(1) (a) of the childcare act 2006. The welfare requirements are given legal force by section 39(1) (b) of childcare act 2006. Together they form the legal basis of the EYFS and have statutory virtue of section 44(1) of the childcare act 2006. Practice guidance for the early year’s foundation stage gives practitioners guidance on how to meet the necessary requirements to the EYFS framework. It provides advice and information on how to support children’s learning and development and welfare. Also you can get guidance for children’s development in a section called development matters and this gives help and information to help practitioners to understand and support children in development pathways which are: * Personal, social and emotional development * Communication, language and literacy * Problem-solving, reasoning and numeracy * Knowledge and understanding of the world * Physical development * Creative development * Every child is different they are all individual in their own right and all children varied needs. Meeting every child’s needs can be difficult even though they are grouped with other children their age. Many children will meet their development needs expected for their age but others will have needs which are characteristic of much younger or older children. We must recognise the child’s needs and meet children’s development needs to help them achieve. We must consider each child’s physical maturity, intellectual abilities, emotional development, social skills, past experiences and relationships. Respecting children and help them to develop in a positive, caring, nurturing and responsive childcare environment. Throughout history we have had people that stood up and fort for young children’s needs and these people have influenced the UK current early years provisions. * Fred Froebel (1782-1852) founded the first kindergarten and learned that it was important for children to get involved in real experiences which meant being physically active. He believed that everything was linked and called the principle of unity and also principle of opposition or ‘gifts’. * Maria Montessori (1870- 1952) worked with children with learning difficulties in Rome Italy. She spent hours observing children and found that children go through sensitive periods of development when they are particularly receptive to particular areas of learning. She saw children as active learners. * Rudolf Steiner (1861-1925) believed in three phases of childhood. The will, 0 to 7 years he said the spirit fuses the body at this stage. The heart, 7 to 14 years a rhythmic system of the beating heart and the chest that respiratory system meant that felling was important during this time. The head, 14 years and onwards was the time for thinking. * Margaret McMillan (1860-1931) believed I first-hand experience and active learning she said that relationships, feeling and ideas were all physical aspects of moving and learning, she believed children would become whole people through play which helped them apply knowledge and understanding. * Susan Isaacs (1885-1948) valued play she believed it gave children freedom to think, feel and relate to others. She said that children can’t in just classrooms sat at tables and write they need to move around and explore to learn too. * The Reggio Emilia approach had a number of key features that attracted worldwide attention these were: Community support and parental involvement. Administrative policies and organisational features. Teachers as learners. The role of the environment. Long-term projects as vehicles for learning. The hundred languages of children. * The highScope approach encourages children to make their own choice of activities. It encourages active and independent learning by involving children in the planning, doing and reviewing. They still have some adult- directed activities such as story- time and PE but they work around the plan – do – review cycle of planning its key features are Active learning Personal initiative Consistency Genuine relationships Building a strong partnership with parents Appropriate curriculum.