Economics

From the regression results in the previous assignment, it clearly shows that the product inelastic. Considering the elasticities of the 26 companies, it clearly shows that the market structure is a monopolistic competition market. This implies that each company controls a small proportion of the market share. They have almost similar product, only slightly differentiated.

The Leading Competitors in the Low-calorie Microwavable food Industry

There are many low calorie microwavable food options available in the market today. With the rise in income people can afford a cheaper lifestyle; therefore there has been a change in the cooking style of people. People now use microwaves in place of traditional cooking methods. With rise in microwaves, the rise in food items also occurred. With so many varieties of products available, one can easily target upon a healthy choice of microwavable food. A low calorie food or a healthy option of food is one which comprises of a good source of protein along with having at least 3 grams of fiber (for satiety), in addition to not more than 600 milligrams of sodium (Zelman, (n.d.)).

Some of the options are manufactured by Lean Cuisine and Healthy Choice. Both of them are the competitors in the market of frozen foods. Lean Cuisine was started in 1981 and has since then grown its market in US, Canada and Australia. The company is owned by Nestle and offers variety of frozen foods and is a leading choice for low calorie food.

Healthy Choice, the product manufactured by ConAgra is another leading low calorie frozen food supplier. They are the biggest opponents to Lean Cuisine. The market segment is decided by three criteria’s which are Behavioral, Psychographic and Profile variables.

Behavioral variables are those that are sought from the product, and buying patterns like frequency and volume of purchase may be considered the fundamental basis.

Psychographic variables are used when purchasing behavior correlates with the personality or lifestyle of consumers. Consumers who hold varied personalities and lifestyle trends also become prejudiced towards certain products. Their choices are determined by their economic and social standing.

Profiling is not a very important criterion for market segmentation. After deciding upon the differences the markets also needs to decide upon the channel through which these are exhibited. Profile variables such as socio-economic group or geographic locations are very necessary in deciding the target audience.

In determining the market structure for food industry, one would firstly keep in mind the target audience. A clear study of the economic growth of the whole food industry is very important. There also need to be a motive and objective for growth amongst the company itself. The scale of operation needs to be decided upon i.e., whether the company is going to for local market, national or global market.

The growth of the food industry in US also determined upon the 1 % population growth of the nation. Food industry is also associated to the population therefore an increase in population is bound to have an impact on sales in the food industry. When we determine the scope of market for frozen food we can also relate it to the sale of microwaves. Microwave sales are directly linked to the rise in per capita income and the rise in increase of working class people. Healthier food options are therefore also related to the conscious customer.

Consumer behavior is dependent upon the gender, age, educational, social and economic background of the people. When we have a look at the consumer behavior of the food industry we should first study the target consumers. Our target would be on the buying and purchasing power of the consumer. Our sales would also be determined on the sale of microwave ovens.

More the number of microwave oven users more will be the demand for frozen foods. The taste and educational background of the consumers would also affect the sales. Since the aware consumers would be a result of the educational awareness about healthy eating habits, it is necessary that we realize our potential consumers and work for providing them with the product that they want.

Analyzing effectiveness of the market structure

The effectiveness of our market structure would be dependent upon the increase in demand and thereby the sales revenue generated through them. The demand for the low-calorie microwavable food is inelastic in nature. This implies that an increase in the price of the food leads to the fall of the quantity demanded by less than proportionate amount. The income elasticity of the products is flexible and therefore we can say that it is a luxury good. Thus advertisement policy also has an essential role to play on the impact of the sales of the product. (Nicholson, 2012)

Cross Elasticity explains that if the demand for substitute goods will constantly be positive, then the demand for one good will increase if the price for the other good increases. Like for instance, if the price of fresh vegetables increases while all other market conditions remain the same, the quantity demanded for frozen, which is a substitute for fresh food will increase as consumers switch to an alternative.

Determining factors of change

If cost of microwaves is reduced, then there will be more consumers who would be demanding frozen foods. Therefore the cost of relative products also plays an important role in the market structure of goods. Substitute’s products can also bring about the change in market structure. This may be brought about by an introduction of new firm to the market. The effect of this is that companies will try to lower their prices and improve quality of products and services in order to maintain their competitive advantage.

Long Run and Short run Cost of Production analysis

Cost of Production is the cost that an organization incurs in manufacturing a product or delivering a service. Production costs include raw material costs as well as the cost of labor. It includes long run as well as the short term expenses incurred. Long run costs have no fixed factors of production, while short run costs have fixed factors and variables that impact production. Efficient long run costs are persistent after the combination of outputs with the purpose of a firm producing results in the preferred extent of the goods at the lowest possible cost.

Long run production cost for low calorie microwavable food includes the cost of machinery and land for setting up the manufacturing unit. The short term cost of production includes the variable costs and the costs that are only incurred for a short period of time.

Short terms costs include the costs are based on a depiction of the medium-term stably-acting macroeconomic variables that affect food prices, as well as knowledge of their intensity and the timing of their transmission. This analysis is formalized by a partial single-equation model of food price inflation, and the model approach is further supplemented and established by means of other information and expert judgment (CNB, 2004). Short term cost includes taxes and other expenses that are variable or incurred once or short term. Any expense incurred towards advertising the product is short term cost.

Circumstances under the Company should discontinue Operations

A business which is not successful and doesn’t generate enough revenue to carry out its business operations is very likely to be discontinued. When the demand for products lowers, the revenue is also likely to fall, leading to losses. Circumstances that can call for a discontinuation of a company include inadequate capital to continue a business enterprise. A company may lack funds to carry out its operations, thus shutting it down will help minimize more losses and debts. If there is no proper inventory management, it is ideal for a company to be discontinued. Inventory is necessary to maintain equilibrium in between demand and supply. If this equilibrium is disturbed this might lead to business shut down. A growth of a business beyond the capacity of the management can also lead to shutting down of a company. Management is expected to guide and run the company smoothly. If it happens that the management is incompetent to handle the high demands of the company, running the company will be risk as it may not be able to meet the demands of the consumers and all employees. If an organization, for one reason or the other, is not able to compete with the existing as well as the new entrants in the market, then it might be a cause for its failure. (Ames, 1983). Hence we can say that low sales, competition, lack of managerial ability and financial crisis are the basis for shutting down a company.

Pricing policy to maximize profits

Pricing is a very essential component of staying in a market. Despite the fact that there is no one single accurate method to find out your pricing strategy, fortunately there are some factors like the cost of production, demand of the product, market position and the competition through which we can determine the prices.

In order to maximize the profits the organization should work on the optimum pricing. An optimum price is the price at which the consumer is willing to purchase the product. Competitive pricing is also done by keeping in view the prices of similar organizations in the market.

Since the demand for the low-calorie microwavable food is inelastic in nature, we can derive a conclusion that an increase in the price of the food leads to the fall of the quantity demanded by less than proportionate amount. Since our commodity is a luxury good, its advertising elasticity also influences its sales. The pricing that the organization should follow should be therefore kept after analyzing the cost of production and the market prices of competitors. Organizational goals regarding profit maximization are also to be considered while determining an optimum plan for pricing.

Evaluating Financial Performance

Evaluating a financial performance of an organization means having subjective measure of how well a firm makes use of its assets from its primary mode of business as well as generates revenues. This expression is also used as a general evaluation of a firm's overall financial health over a given period of time, and can be used to compare related firms across the same industry or to compare industries or sectors in aggregation. While evaluating financial performance for our companies we can take help of the financial ratios as well.

According to Barron the performance of a business enterprise is affected by its strategies and operations in market and non-market environments. (Baron, 2000)

Financial ratios are an important element in determining the performance of an organization. Financial ratios should be analyzed by a professional accountant. In order to keep a record of the company’s financial health, ratio analysis is used as a tool. Ratio analysis determines and interprets how efficiently a company is working in terms of its finances. Ratio analysis presents a simple and comprehensible understanding of the accounting variables. It is an effective tool for understanding a business’s success in terms of financial undertaking and performance.

Financial analysis is an accounting tool that might be undertaken internally as well as externally. Measurement of performances of the workers, the efficiency of the operations in the company in addition to credit policies are some reasons for internal ratio analysis while on the other hand externally probable creditors, investors and borrowers perform ratio analysis to understand the credit worthiness, investing returns and the financial standing of the company. Financial analysis is carried out by the analyst using the data provided by the company itself, financial disclosures by the company, the financial and economic data through external sources as well.

Myers, (1962), defines ratio analysis as the study of relationships among various financial factors in business. There are many kinds of ratios which are classified according to their method of computation as well as their characteristics. Broadly the ratios can be segmented as ratios that reflect company’s position to face their obligation, the ones that reflect the relation between net profits and expenditures, the ratios describing relation between gross benefits and expenses and lastly the ones that reflect the component of one variable to other. These ratios can be named as coverage ratios, return ratios, turnovers ratios and component percentages.

The main types of ratios are liquidity ratios, financial structure or solvency Ratios, Profitability ratios, Activity ratios, Financial Leverage Ratio and Shareholders ratios.

Actions to Improve Profitability and deliver more value to Stakeholders.

There are various strategies that a company can use to improve profitability and hence adding value to stakeholders. Each strategy must be clearly analyzed to understand its impact to the company revenue before implementing it. One of them is by increasing the unit price of products. This may have a negative impact to the company in a situation where there exist substitutes. However, considering that the quantity being sold remains constant, raising the unit price of a commodity will definitely increase revenue per unit of goods sold. Another way is by increasing sells. Considering that the price is kept constant, selling, more products will yield more revenue to the company.

To implement these two strategies, the company can add more features to its products so as to exceed the market competition. By doing so, raising the unit price may not cause some consumers seek for cheaper substitutes. In order to increase sells, the company can increase production capacity of the plant. Advertising campaigns will also make the products reach more people and thus increasing market share.

References

Ames, M., (1983). Small Business Management. West Publishing Co.

Baron, D. P. (2000). Business and its environment (3rd e.d) NJ: Prentice Hall.