.Outline a plan that managers in the low-calorie, frozen microwaveable food company could follow in anticipation of raising prices when selecting pricing strategies for making their products response to a change in price less elastic. Provide a rationale for your response.
Most pricing strategies are based on four main factors that include, the competition, what the market can withstand, the cost-plus, and the estimated value that consumers are getting (Dolgui, & Proth, 2010). The low calories, frozen microwaveable food industry is monopolistic, as said in the earlier assignment. The two leading companies in the low-calorie frozen microwavable food companies are Healthy Choice and Lean Cuisine, which have market share of 11% and 10%, respectively. Each of the companies has a different marketing strategy. Lean Cuisine invests a lot in advertising and display and has a price elasticity of -3.085 compared to the price elasticity of -2.770 for Healthy Choices which does not much do much of advertising.
Given this situation, different pricing strategies are ideal for each company, and so each company will use a different plan to follow in anticipation of raising price. A price strategy that would be ideal for the Lean Cuisine is price discrimination strategy. Since the company does do a lot of advertising and promotion, having a price discrimination strategy would enable the company to effectively change to prices that are less elastic and get more returns in the process. Lean Cuisine can differentiate its products such that each product attracts a different type of customer. The company can then adjust product prices depending on the willingness of the customer to pay more or less for their products. The company could also introduce some rate fences that will ensure that customers of a market segment will pay for the set prices of the segments (Dolgui, & Proth, 2010).
For Healthy Choices, a discount strategy would be most ideal as the company does not invest much in promotion and advertising. Since the prices for Healthy Choices are mostly fixed, the company could consider selling some selected items at discounted prices for a limited period to boost their sales. However, the company does not need to discount all their products and instead choose a particular product to offer at discounted rates. The managers of Healthy Choices can then check on the market response and the willingness of their customers to buy the product. If the company is able to realize the discount benefit, then the discount period can be extended in order to generate more supplementary sales. In addition, the company could consider extending the pricing strategy to other products. However, if it does not work out, the discounted rates will only last for the planned discount period (Dolgui, & Proth, 2010).
2.Examine the major effects that government policies have on production and employment. Predict the potential effects that government policies could have on your company.
Government policies and regulations have major effects on production and employment. Government policies could impose costs on companies, and these costs may eventually be passed along in terms of higher product prices. As a result, customers could in turn purchase fewer items due to higher product prices or even seek alternative products. As a result, companies reduce their production or outsource from other companies, and this could in turn lead to loss of jobs and unemployment. On the other hand, government policies could boost investment in some industries which while enhance production and job creation. In addition, government policies could shift buying patterns among consumers in ways that would boost production and create jobs in the domestic industries (Hirschey, & Hirschey, 2006).
Government policies could have major effects on the low-calorie, frozen microwaveable food industry by influencing the quality and variety of food available to be purchases, the food prices, information available to consumer about the product and consumer confidence in the product. The effect of government policies on production and employment at Healthy Choices and Lean Cuisine depend on how the policies affect the cost of production, how these costs affect the end retail prices, how the policies affect employment practices and how the policies affect consumer preferences.
If the policies increase the cost of production, then the company would try to reduce production costs by laying off some workers or pass the costs to consumers through higher product prices. This would in turn reduce production and employment. If the policies favour production, then the low-calorie, frozen microwaveable food companies would be able to increase production at lower production costs or even hire more employees. Some government policies like imposing taxes in particular sectors like the low-calorie, frozen microwaveable food industry could cause investors to lose interest in that sector hence negatively affecting production and employment.
However, policies like tax exemptions can trigger investment or generate growth in that particular sector. Some policies like higher income taxes would affect businesses and individuals as they would have less disposable income. Less disposable income would mean that consumers would have less money to spend on microwaves and low calories frozen microwaveable food products. As a result, production and employment in the low-calorie frozen microwaveable food companies. However, lower-income taxes would increase the disposable income for consumers and the industry, and this would boost business at Healthy Choices and Lean Cuisine in terms of growth, production and employment (Hirschey, & Hirschey, 2006).
3.Determine whether or not government regulation to ensure fairness in the low-calorie, frozen microwavable food industry is needed. Cite the major reasons for government involvement in a market economy. Provide two (2) examples of government involvement in a similar market economy to support your response.
Government regulation is fundamental in advancing numerous policy objectives such as food safety. Following public outcry and calls for government intervention, the major players in the food production industry have opted to adopt self-regulatory initiatives. Some of the self-regulatory initiatives include limiting portion sizes, labelling nutritional and caloric content and labelling ingredients (Sharma, Teret, & Brownell, 2010). Government regulation is necessary, particularly in a monopolistic food industry as it ensure that the public is not treated unfairly through price-fixing and high consumer prices.
Government regulation is also necessary in the low-calorie, frozen microwavable food industry as it will ensure that businesses are treated fairly and ensure fair completion. Fair completion is the main ingredient in ensuring efficient and productive market economy. Without government regulation, businesses, particularly in the food industry would dumb goods in the market at lower costs in order to drive their competitors out of the market. In addition, companies would prevent their competitors from accessing vital goods and services (Sharma, Teret, & Brownell, 2010).
In a free-market economy, the government would intervene in order to ensure greater equality through equitable distribution of wealth, to provide subsidies and positive externalities, and reduce economic problems like recession, unemployment, or high costs of production. The government also intervenes in the market economy to ensure that businesses practice fair practices and that consumers are not exploited. Government involvement in the market economy occurs through legislation and regulation, state provisions, improved information, fiscal policies, and other interventions such as setting minimum and maximum prices and using buffer stock systems. The government also introduce policies such as anti-discrimination laws to ensure that there is fairness when it comes to hiring and firing employees and that no one can be denied of goods or services on the basis of race, age or gender.
There are various ways in which the federal government has been involved in the market economy of processed foods. For instance, there is legislation that required adulterated or misbranded food not to be sold. As a result, food processors are required to ensure that the food they are producing is not adulterated or misbranded. This ensures that food processors produce quality and non-adulterated food products and that consumers are protected from unsafe practices. The federal government also has set policies like Good Manufacturing Practices (GMP), which ensure that food processors produce safe food products. Such legislation and policies ensure that food processor meet all the standard requirements needed to produce food for human consumption. The standard procedures also ensure that all food processors are able to engage in fair market activities (Sharma, Teret, & Brownell, 2010).
4.Examine the major complexities that would arise under expansion via capital projects. Propose key actions that the company could take in order to prevent or address these complexities.
There are a number of major complexities that would arise under expansion via capital projects. Such complexities include too fast growth, expansion capital, infrastructure needs, personnel issues, changing roles, among other problems. While expansion of business can help in meeting market demand and needs, too much growth can be overwhelming, especially to firms that are well prepared for the expansion. For instance, while expanding production capacities in order to meet the demand of a product, a company may encounter limitation in its facilities and capacities (Müller, & Jugdev, 2012). This in turn hinders the whole expansion activity. Healthy Choices and Lean Cuisine can address this complexity by engaging in effective research and long range planning to be well prepared for the expansion.
Another complexity is the expansion capital. Business or production expansion will often require additional financing and finding additional finances can be quite tricky for an ill prepared business. In order to prevent this complexity, Healthy Choices ad Lean Cuisine should revise their business plans before undertaking the expansion project to ensure that is adequate financing. While under expansion via capital projects, firms will need to update their infrastructure, including management of finances, tracking inventories and distribution, monitoring cash flows, among other activities involved in expanding business activities. However, infrastructural needs increase at a higher rate than what an expanding business could expect. Healthy Choices and Lean Cuisine will need to expand their infrastructure so as to provide adequate support to the expanded business operations (Müller, & Jugdev, 2012).
Another complexity that arises from expansion via capital projects is personnel issues. Expanding operations would mean that expanding companies would need to hire additional personnel needed to perform the new business activities. In most situations, expanding companies would often invest more resources on production and marketing and forget about developing personnel. This could have detrimental effects on business expansion activities as there would no employee to perform the new tasks. In order to address the personnel problem, Healthy Choice and Lean Cuisine should consider careful hiring practices in order to hire the appropriate personnel needed to perform new business activities resulting from the business expansion. The companies should consider investing in personnel while investing in production and marketing. At the end of the day, expansion via capital projects should not mean that a firm would be grappling with bigger problems in business operations. Firms should be able to understand and manage the new sets of complexities that arise with expansion. Proper planning and effective research could go a long way in preventing these complexities (Müller, & Jugdev, 2012).
5.Suggest the substantive manner in which the company could create a convergence between the interests of stockholders and managers. Indicate the most likely impact to profitability of such a convergence. Provide two (2) examples of instances that support your response.
The relationship between managers and shareholders is known as agency relationship because shareholders hire managers to manage the company or make decisions on their behalf. However, shareholders are not able to assess whether managers are serving their interests. However, there is a conflict of interest between managers and shareholders as managers want to further their own interest while shareholders want managers to invest in projects that increase a company’s present value.
According to Gordon & Roe (2004), untethered managers tend to serve their own interests and the interests of the company’s employees and creditors at the expense of shareholders’ interests. It is therefore necessary to create a convergence between the interest of shareholders and managers. This can be created through ensuring that managers are compensated on the basis of the value of a business. For instance, shareholders can offer shares to the managers on the basis of financial performance. For example, managers could have earnings per share, share price, among other compensation schemes to ensure that managers make decisions that favour the interests of shareholders, which is to increase company value and enhance shareholder wealth. This means that managers will always be rewarded when they add value to the company (Gordon & Roe, 2004).
Such a convergence of interest would ensure that managers engage in activities that bring more benefits to the company. For instance, managers and other employees would work hard to achieve the objectives of a company if they know that they will also be rewarded. At the end of the day, the company would achieve more returns in terms of profitability and company value. Companies like Citigroup and LACERA have linked the interests of managers and shareholders by compensating managers for their services. This has not only promoted the interests of both parties but has also enhanced the profitability and value of the companies.