SOA ERM EXAM WITH COMPLETE SOLUTIONS!!
-Strategic Risk
-Liquidity Risk
-Risk Measure
Strategic Risk
Categories of Strategic Risk - ANSWER 1. Industry: commoditization, margin squeeze,
new regulations
3. Brand:
5. Customer: overreliance on a few customers
7. Stagnation: flat or declining volume, volume up but margin down
2. Technology:
4. Competitor: gradual market share gainer
6. Project: new product developement failure, merger/acquisition failure
INDUSTRY MARGIN SQUEEZE - ANSWER Ever costlier R&D, increasingly powerful
suppliers, overcapacity, and commoditization erode profit margins for all industry
players.
Countermeasure: Shift from competition to collaboration. For example, the Visa and
MasterCard networks allow member financial
institutions to share payment-processing and marketing services that are much more
efficient than any bank could create.
BRAND EROSION - ANSWER Product defects or a failure to develop appealing new
offerings endangers your brand.
Countermeasure:
1. Redefine "brand investment" — consider other factors that affect a brand such as
, service and product quality.
2. Reallocate brand investments — based on early signs of weakness identified through
constant measurment of the key dimensions of the brand.
Example: When American Express began losing market share to rivals, it reduced
merchants' transaction fees, accelerated payments, and enhanced its Membership
Miles rewards program—paying more to participating airlines and adding hotel chains.
These
moves arrested the slide, spurring dramatic growth in Amex's market value over the
past decade.
CUSTOMER PRIORITY SHIFT - ANSWER 1. Customers' preferences shift suddenly and
dramatically—or gradually and invisibly.
2. Increasing customer power
3. overreliance on a few customers
Countermeasure:
1. Gather and analyze proprietary information to detect potential shifts.
2. Conduct fast, cheap experiments to identify attractive offerings for different customer
microsegments.
Example: Known for its conservative styling, Coach wondered whether its customers
would remain loyal if it explored trendier styles to expand its customer base. It
conducted customer in-store product tests and market experiments to gauge the impact
of new
pricing, features, and offers by competitive brands. It then used the information to
quickly alter product designs, drop unappealing
items, and create new lines featuring different fabrics and colors. It also tailored
merchandise presentations to fit customer demographics at specific stores. Result?
Coach retained its traditional fans and attracted new customers.
MARKET STAGNATION - ANSWER 1. Growth slows in a mature market.
2. prices fall,
3. producing weak earnings.
Countermeasure:
-Strategic Risk
-Liquidity Risk
-Risk Measure
Strategic Risk
Categories of Strategic Risk - ANSWER 1. Industry: commoditization, margin squeeze,
new regulations
3. Brand:
5. Customer: overreliance on a few customers
7. Stagnation: flat or declining volume, volume up but margin down
2. Technology:
4. Competitor: gradual market share gainer
6. Project: new product developement failure, merger/acquisition failure
INDUSTRY MARGIN SQUEEZE - ANSWER Ever costlier R&D, increasingly powerful
suppliers, overcapacity, and commoditization erode profit margins for all industry
players.
Countermeasure: Shift from competition to collaboration. For example, the Visa and
MasterCard networks allow member financial
institutions to share payment-processing and marketing services that are much more
efficient than any bank could create.
BRAND EROSION - ANSWER Product defects or a failure to develop appealing new
offerings endangers your brand.
Countermeasure:
1. Redefine "brand investment" — consider other factors that affect a brand such as
, service and product quality.
2. Reallocate brand investments — based on early signs of weakness identified through
constant measurment of the key dimensions of the brand.
Example: When American Express began losing market share to rivals, it reduced
merchants' transaction fees, accelerated payments, and enhanced its Membership
Miles rewards program—paying more to participating airlines and adding hotel chains.
These
moves arrested the slide, spurring dramatic growth in Amex's market value over the
past decade.
CUSTOMER PRIORITY SHIFT - ANSWER 1. Customers' preferences shift suddenly and
dramatically—or gradually and invisibly.
2. Increasing customer power
3. overreliance on a few customers
Countermeasure:
1. Gather and analyze proprietary information to detect potential shifts.
2. Conduct fast, cheap experiments to identify attractive offerings for different customer
microsegments.
Example: Known for its conservative styling, Coach wondered whether its customers
would remain loyal if it explored trendier styles to expand its customer base. It
conducted customer in-store product tests and market experiments to gauge the impact
of new
pricing, features, and offers by competitive brands. It then used the information to
quickly alter product designs, drop unappealing
items, and create new lines featuring different fabrics and colors. It also tailored
merchandise presentations to fit customer demographics at specific stores. Result?
Coach retained its traditional fans and attracted new customers.
MARKET STAGNATION - ANSWER 1. Growth slows in a mature market.
2. prices fall,
3. producing weak earnings.
Countermeasure:
