Financial Accounting: An Integrated Statements Approach, 2nd Edition

Business Stakeholders

A company’s business emphasis, often termed a strategy, directly affects its economic

performance. For example, Kmartwas unsuccessful in implementing a business em-

phasis that would allow it to compete effectively against Wal-Mart. The result was that

Kmart filed for bankruptcy protection in early 2002, and Kmart stakeholders, includ-

ing employees, creditors, and stockholders, suffered.

Abusiness stakeholderis a person or entity that has an interest in the economic

performance and well-being of a business. For example, stockholders, suppliers, cus-

tomers, and employees are all stakeholders in a corporation. Business stakeholders can

be classified into one of the four categories illustrated in Exhibit 2 and the top of page 10.

Capital market stakeholders provide the major financing for a business in order

for it to begin and continue its operations. Banks and other long-term creditors have

an economic interest in recovering the amount they loaned the business plus interest.

8 Chapter 1 The Role of Accounting in Business

Industry

Business Financial

Emphasis Airline Freight Automotive Retail Services Hotel

Low cost Southwest Union Saturn Sam’s Ameritrade Super 8

Pacific Clubs

Premium price Virgin Federal BMW Talbot’s Morgan Ritz-

Atlantic Express Stanley Carlton

Exhibit 1

Business Emphasis

and Industries

Where’s Rudolph?

HOW BUSINESSES MAKE MONEY

In future years, holiday shoppers won’t find as

many seasonal products as they have in the past.

For example, Hershey Foodshas decided not to

rely as heavily on seasonal products such as

Christmas-colored candies. Hershey and other

retailers don’t want to be stuck with excess sea-

sonal, time-limited products that they might have to

discount heavily in after-holiday sales. Instead, re-

tailers are using “limited edition” items during the

year that don’t have natural time boundaries.

Customers are often willing to pay premium prices

for such limited editions, which also increases de-

mand for the original brands and showcases inno-

vative products. For example, Hershey’s sales rose

last year with the aid of limited edition white choco-

late Reese’s and inside-out Reese’s.

Source:Pallavi Gogoi, “Avoiding Retail’s Post-Holiday

Blues,”BusinessWeek Online, November 23, 2004.

Some well-known businesses struggle to find their competitive advantages. For ex-

ample,JCPenneyandSearshave difficulty competing on low costs against Wal-Mart,

Goody’s Family Clothing,Kohl’s,T.J. Maxx, and Target. At the same time, JCPenney

and Sears have difficulty charging premium prices for their merchandise against com-

petitors such as The Gap,Old Navy,Eddie Bauer, and Talbot’s. Likewise, Deltaand

United Airlineshave difficulty competing against low-cost airlines such as Southwest

andJetBlue. At the same time, Delta and United don’t offer any unique services for

which their passengers are willing to pay a premium price.

Exhibit 1 summarizes the characteristics of the low-cost and premium-price em-

phases. Common examples of businesses that employ each emphasis are also listed.