Economics week 9 assignment Long Term Investment decisions

Running head: OPERATIONS DECISION 1

OPERATIONS DECISION 9

Operations Decision

Chris Czeiszperger

Professor Kornilov

Managerial Economics and Globalization

February 14, 2014

There are many options of foods with low-calorie in the market. With the rise in income people can now use microwaves to cook instead of traditional cooking methods. The rise of microwaves has led to rise in food items. Having a variety of products available one can target on healthy choices of microwavable foods. For a type of food to be considered health it should contain sources of proteins, 600 milligrams of sodium and 3 grams of fiber for satiety purposes. Manufacturers of these options include Lean Cuisine and Healthy Choice. Both of these companies are competitors in frozen food markets. Lean Cuisine started in the year 1981 under the ownership of Nestle and has expanded its markets in Canada, US, and Australia and it offers variety of frozen foods and a leading choice for low-calorie s. Healthy Choice is another choice for low-calorie foods the product produced by ConAgra. Healthy Choice are the biggest opponents of Lean Cuisine (Schlosser).

These two companies have two strategies for pricing which are penetration pricing and skimming pricing. A penetration pricing is involved with low initial prices to encourage a large number of customers to try the product. The companies’ hopes are to sell large volumes in order to generate high revenues. New varieties of food stuffs are often introduced at low opening prices. A company does not utilize a high strategy for such products. This initial low price of the product is often combined with samples, advertising, coupons and other special incentives in order to increase awareness of the product and customers to try it. Companies start to make profits when more units start to be sold. The company can also experience profits when there is expansion of product distribution that lead to increase in profits.

The pricing strategy which involves setting high initial prices for food products to get back the investment spend on the product is called skimming pricing strategy. This market involves customers who are not price sensitive or those that adapted with the product long time ago.

For a company to gain enormous profits, then its product must have been accepted in the market place. The profitability stage of a company is characterized by higher profits which attracts more competitors who enter the market very quickly. A company must ensure the availability of its product whenever a customer needs it otherwise it will lose the customer to its competitors. The best plan to assess the effectiveness of the company’s performance include laying down the companies goals which are to make the maximum profits while incurring the low costs, also ensuring that the frozen food products are available to consumer whenever the consumer needs them. Also for an effective business, a company should determine the company’s challenges and opportunities so as to make the best profits. The companies also should clearly identify their target market and ensure that their products reach the intended consumers and also be prepared for the competitions that they may face in the market. Effective companies and marketing plans are very detailed, anticipating and satisfying the consumer’s needs.

For a company’s market structure to change there must have occurred an outlawed activity like the tying of consumers where a customer is required to buy goods they do not want in order to acquire the goods they want. This leads to a company losing customers therefore the strategy of many buyers and many sellers becomes unbalanced therefore a business opting to change their market structure. A company can also change its market structure when there occurs interlocking directorates. This is where we have same individuals serving on board of directors of competing companies. This leads to the two companies producing similar products and therefore changing the market structure of a company. There may be a change of market structure when we have price discrimination where some customers are served with different prices with other customers. This majorly leads to dissatisfaction of customers and therefore customer opting for either substitutes or going for the products from another company. The effect of the company changing their market structure if so defined and it may lead to a company losing a very portion of their profits and therefore incurring big loses. Also it is clear that a change in market structure can lead to a company losing many of its consumers due to dissatisfaction.

The reaction of the firm’s negative economic profit will depend on the time horizon. The firm does not have an option of departing the production industry. In the short run the company is stuck with its costs and its factors of production. The company has two options either to stay or close down. If the company decides to stay open it will make the profit even if it is a negative profit. If the company shuts down it will lose an amount equal to its fixed costs because shutting down both revenue both their revenue and their variable costs disappear but fixed costs remain. The company’s short run decision to produce or not decision is based on where it loses a lot of money. If the negative economic profits of the quantity are less than the negative economic profits of losing fixed costs the firm will remain open.

In the long run perfectly competitive companies will not produce at negative economic profit if they can make more money elsewhere and if it is easy to get out of the market. Therefore these companies make zero economic profits in the long run. When other things are not equal, the firm will move from one average total cost to another as it expands its capacity. Eventually, it will reach average total cost curves that exist at the most efficient scale and then the firm will be pushed to the breakeven point on the average total cost curve.

A company should discontinue its operation when its sales have decreased to a level where the company cannot get back. The decline in sales may be due to consumer preferences where consumers have preferred low-calorie microwavable food from other companies and this makes the company go into a loss of producing large numbers of products which are no consumed. Technological advances also may lead to decrease in the sales of the company if the company does no utilize it in the advertisement of it products. Proper advertisement of the company’s products ensures the products reach a wide variety of consumers. Also alternative available in the market that satisfy the same needs as the company’s product may lead to the company’s making low profits which may lead to closure of the company. The company may also shut down when the operation cost exceeds the returns from the sale of foods from the company.

The management should ensure proper management of the company and also involve more in advertising as this helps in capturing more customers and making them aware of the products. The company should prepare for a tuff completion from other companies producing the same products in the market. The rationale for this is to ensure that the company remains running and serving its customers satisfactorily.

There are two pricing policies that can be used but the most effective pricing policies is the penetration pricing strategy. This strategy involves using the initial price of the product to encourage the customers to try the product. The aim of the company is to sell large amount of low-calorie microwaveable food (Rodale, 2008). New products are introduced at initial prices. These low prices are always accompanied with advertising, coupons, samples and other special incentives this helps to increase awareness of the product and get the consumers ready to try it and use it. Because of its low initial costs on the product penetration pricing strategy encourages customers to switch to the new product. This means an increase in number of customers for the company and therefore increased returns for the company. The penetration pricing strategy is the most commonly associate with the marketing objectives of increasing market share or the sale volumes. Its lower price on the products when entering the market is a competitive weapon against other companies that produce the same products of low-calorie microwavable foods. Penetration strategy catches the completion off-guard and therefore the competitors do not have time to prepare. It also encourages word of mouth recommendation for the product because of the attractive pricing and makes the company to focus on minimizing unit costs as the business starts. The low prices act as a barrier for other potential competitors to enter into a similar strategy and the sales volumes should be high because distribution may be easier to obtain.

The financial performance of the company is the measure of how long a company will stay on production. For a company to be able to meet the short-term financial obligations is a very important part to use to maintain operation of the company and for future growth. A large factor determining the short term financial performance of a company is liquidity which is the degree to which a market is willing to buy a particular product. The money market account as a type of asset can be converted into cash within a day or two if not instantly. A building where the company sits is very liquid because it can take a long time before it is sold and make cash out of it. According to the low-calorie microwave company the profits of the sales from freeze foods and the liquidity of the buildings of the company portray the company’s financial performance. The long term financial performance of low-calorie microwave Food Company is generating enough income to sustain the company for a long period of time. When the company is making a long term financial performance it looks for opportunities of making maximum profits. The company does not produce negative economic profits. The evaluation of financial performance requires managerial decisions where a manager should decide on the best decision to take in order to maximize the profits.

For a company to improve its profitability and deliver more value to its stakeholders, it should have a customer focused growth strategies where areas that generate the largest proportion of revenue and profits are identified. Customer-focused strategy is based on the company’s existing customers. Another customer-focused strategy is to enter business that have a strong strategic links to the core. Another strategy that a company should take to gain more profits is to focus in executing growth strategies this will include how organized the management is to deliver a high level of value to customers. Also have a management that is performing this will ensure they work hard in making the companies grow. This is the plan to implement the above recommendations:

1. The company should work towards minimizing costs. This is done through identifying the steps you could take to minimize on expenditure for example negotiation on you supplier’s prices.

2. The company should be focused on reaching its customers and on attaining maximum profits.

3. Make sure the company is in continuous improvements and the profits should have steady improvements.

In conclusion managers should lay down good plans to assess the best market structure that will lead to development of the company. A change of market structure can enormously affect the company’s performance and there the management of the company should be very cautious on the market structure. There occur some circumstances when a company may be forced to shut down. These situations may be either be long term or short term. A success of a company depends also on the pricing policy. Good pricing policy leads to the success of a company through making of maximum profits.

References

Doukidis, G. I. (2004). Social and economic transformation in the digital era. Hershey, PA [u.a.: Idea Group Publ.

Harder, F. (2003). Fashion for profit: A professional's complete guide to designing, manufacturing, & marketing a successful line. S.l.: Frances Harder.

Mann, M., & Amazon.com (Firm). (2010). Make millions and make change!: Secrets to business and personal success. S.l: MakeMillions.com.

Gitman, L. J., & McDaniel, C. D. (2009). The future of business: The essentials. Mason, OH: South-Western Cenage Learning.

Schlosser, E. (2012). Fast food nation: The dark side of the all-American meal. Boston: Mariner Books/Houghton Mifflin Harcourt.