Market structure of the low-calorie frozen, microwavable food company
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Market structure within which the low-calorie frozen, microwavable food company operates
Following the results from Assignment 1, it is safe to conclude that the nature of the market is regressive as the elasticity of the price of the low-calorie, microwavable food is -0.008. This is shows that in the market, the demand for the low-calorie microwavable food is elastic. This means that if the price of this food increases, the quantity demanded decreases at a fair amount.
Leading competitors in the low-calorie frozen, microwavable food industry
Technology has taken great strides towards developing safe, efficient, economical and reliable sources of heat and a method of preservation. The microwave is being used to cook food and in the context of our topic, the microwave is being used to heat frozen foods. The foods through technology have also been frozen as a form of preservation. The level of education and the amount of information available to the public has greatly increased. To this effect, most people prefer to eat foods that are nutritious, healthy and low in calorie. The Combination of the three ‘conveniences’ has brought about the demand of low-calorie frozen, microwavable foods. Subsequently, emerging companies are competing to have the lion’s share of the customers in this industry.
The two most popular companies that deal with the production of low-calorie frozen, microwavable foods are Lean Cuisine and Healthy Choice. Lean Cuisine is a company in the United States, which started at the 1980’s. The company is owned by Nestle with branches in Australia and Canada. Healthy choice is a low-calorie frozen, microwavable food product of ConAgra. It is a competitive company, which has been in the market for a time span similar to Lean Cuisines.
(Walter, 2012) says that variables that arise from the behavior of a product are those that feature the patterns of buying a product such as the frequency at which the foods are bought and the amount of products that are bought. The other variables deal with the graphics of the psychology. These monitor behavior of the purchases by customers, their lifestyle and personality. It is observed that if customers hold differing opinions, lifestyles and personalities, their attitude towards the low-calorie frozen, microwavable foods differs. The choices they make when buying a product is based on where they stand in the society and their economic status.
According to Baron (2000), it is necessary that the segments of a market be profiled. The segments in the market vary, and various ways through which the differences are seen should be identified. Variables used in profiling the market segments, are such as geographical locations, economic group and social economics of the audience to be targeted. When it comes to establishing structure of food industry market, it is always necessary to identify the audience being targeted. Secondly, it is important to study the growth of the economics of foods. Three things need to be considered, the scale within which the foods company will be operating, the objectives within which the food company will operate with the reasons of the food company operations.
It is observed that the growth of the frozen foods industry will go with the growth of the population in America. Once the scope of the food industry is determined, it is possible to match up with the microwaves sold in the same market. The customers who are aware of the health benefits of the low-calorie frozen, microwavable foods are those with a reasonable amount of income and are still the ones who will buy the microwaves.
The pattern with which customers take up the frozen foods is based on the gender of customers, economic status, educational level and social standing of the potential customers. It is important to focus on the purchasing power of the customers. The rate at which microwaves are bought is a hopeful indicator of the rate at which the low-calorie frozen, microwavable foods will be bought. The sales will be affected by the number of people in the market who have microwaves, the level of education of the targeted customers and their preferences.
Analyzing effectiveness of the market structure for the company’s operation
To measure the effectiveness of the structure of the frozen foods structure will rely on the level of demand and subsequently the funds generated from the sale of the products. It has been observed that the nature of demand of the low-calorie frozen, microwavable food is elastic. This means that if the prices of the frozen foods go up, this will lead to a decline in the quantity of the frozen foods demanded.
The elasticity of the income generated by the frozen foods is flexible. In such a case, it is said that the product is a luxury. The policy that a company applies while advertising the frozen foods has a direct impact on the level of sales of the products.
Cross Elasticity means that if the other products that are in competition with the low-calorie frozen, microwavable foods increase their price, their sales will go down and the sales of the latter will in extension increase (Baron, 2000). For example, if the price of vegetables that are fresh and organic increases, customers will turn to the cheaper substitute, which are the frozen foods and hence increase their sales.
Factors causing change in business operations
Walter (2012) explains that relative products are those that are directly or indirectly necessary for the sale of a product. The latter may be independent from the relative product or may be dependent on it. In our scenario, microwaves are considered relative products to the low-calorie frozen, microwavable foods. If the prices of the microwaves are reduced, it is expected that their uptake by customers will significantly increase. The increase in sales of the microwaves is seen as a projection of the sales expected from the low-calorie frozen, microwavable foods.
Another factor that may bring about a change in the structure of the frozen food market is the price of the substitute products. This might manifest in the establishment of a new company offering the substitute products. The ripple effect to the market is felt when the other companies start lowering their prices in a bid to beat competition but luring customers with the lower prices. (Miller & Starr, 1960).
Analysis of Short run and long functions
A company through its various functions will incur costs on them. The major cost is incurred during production. This will occur during the manufacturing of a good and the delivery of a certain service. The cost incurred during production arises from the cost of raw materials and the cost incurred to get labor. In these expenses, we can determine the short running costs and long running costs. The long running costs are those that do not have factors of production that are fixed. On the other hand, (CNB, 2004) says that the short run costs have factors of production that are fixed and various variables that may affect the production of goods. If the outputs and the purpose of a company are combined, it is observed that the long run costs will be persistent and efficient.
In the production of the low-calorie frozen, microwavable foods, the long run costs are incurred from the expenses of machinery and the land upon which the manufacturing machinery will be set on. (CNB, 2004) says that, the short run costs are incurred by costs that are experienced within a short period and the other costs that vary during production. The short-term costs feature the expense of taxes and other variable expenses that are experienced either once or within a short period. Any other cost that might be incurred in an effort to advertize the frozen food, is considered a short-term cost.
Circumstances under which the company should discontinue Operations
(Miller & Starr, 1960) suggests that a company that does not generate revenue to cover the various costs of operations and the costs of production are deemed unsuccessful and are likely to be discontinued. Once the demand for a product decreases, the sales from the same products will decline and this might lead to losses on the part of the company. Circumstances under which a company can be discontinued from its operations will be primarily, the amount of capital; if it is inadequate then the business is discontinued. If the company has no money to run its operations, it is only advisable that it closes down its operations to save itself from possible losses and going into debt.
(Wagner, 1975) advises that if the business has a poorly managed inventory, it is advisable to close the operations of that business. The importance of an inventory is significant; it ensures that a balance is kept between demand and supply of a product. If the equilibrium or the balance between demand and supply is distributed, this might lead to closing of business operations.
If a business grows beyond the capacity that the management can handle, it is mostly advisable to close down. The management is responsible for the smooth running of a company or business. If it emerges that an increase in demand will affect the management, it is advisable to close down the operations of a business so as not cause any failure (Miller, 1960).
Pricing policy for profit maximization
(Wagner, 1975) points out that for a business or company to remain and operate in a market; it has to have favorable pricing method. However, there is no definite method of pricing that is accurate. There are factors that are considered in price determination that include demand of a commodity, the position of the commodity in the current market and various competitors of a product.
The main goal of a business is to make profit, it is also necessary that they find all methods of maximizing profit. Profit can be maximized by ensuring the business gets optimum pricing, which is the price the potential customers would be willing to buy a product. It should also be taken into consideration, the prices of the competitors in the same market.
The advisable way to follow when pricing the products should be after the analysis of the production cost and the prices of competitors in the market. The goals of the organization have to be considered in the planning of profit maximization (Baron 2000).
Inverse Demand equation
P= -5200+20C+5.2(I) +0.20(A) +0.25(M)-QD
42
P= -5200+20(6) +5.2(5500) +0.20(10000) +0.25(5000)-22502
42
P=101.62
Total revenue function
TR=P X Q
TR=101.62 x 22502
TR=2,286,653.24
Marginal Revenue (MR) Function
MR=Revenue
Units
=2,286,653.24
5000
=457.33
= 457.33 =0.0915
5000
Hence;
457.33-0.0915=457.2385
=5001 x 457.2385
=2,286,649.74
MR= (2286653.24 – 2286649.74)
(5000-5001)
MR= -3.5
Optimal price and Optimal Output
MC= 100+ 0.0126424Q
=100 + 0.0126424 (5000)
=163.212
Evaluating Financial Performance
Evaluation of financial performance of a company or business begins with the measure of how the business or firm utilizes its assets to generate income. The term, evaluation of financial performance can be perceived to be the financial health of a firm over a certain period. This information can be used to compare with other competitors in the market.
According to Myers (1962), financial ratios are necessary tools in determining the financial performance of an organization. The financial ratios are best observed and studied by an accountant. The financial ratios assist in determining and interpreting how a company or firm is functioning in line with its finances.
Another tool necessary for evaluating the financial performance of a business or firm is financial analysis. This is an accounting tool applied internally within the firm and externally in reference to the firm. Internal analysis measures the workers performances, credit policies and the efficiency of the business operations. External analysis of the financial performance is also necessary to help understand the credit worthiness of the firm through possible creditors, the investment returns are necessary and hence investors are also analyzed and finally the financial standing of a firm might be necessary for the borrowers, investors and creditors (Myers, 1962).
Financial analysis is carried out by a professional accountant who works with data provided by the firm or business, the financial disclosure of the business or the firm and the external source of economic data and financial data. Many ratios may be used in evaluating the financial performance of a firm or business. Some of the ratios include; profitability ratios, financial leverage ratios, solvency ratios, activity ratios, liquidity ratios and shareholders ratios.
Profit Improvement and Value delivery to Stakeholders
The first way of improving profit is through increasing the price of a unit of the products. This is a disadvantage to firms producing commodities with substitutes in the competitors’ firms. If the quantity of commodity remains constant, the increase in unit price will guarantee increase in profits. The other method is through increasing sales. Putting into consideration that the price of a commodity is kept constant, selling of more commodities will bring in more income to a firm or business.
For a business or firm to apply these two methods, it has to ensure that the products have more features to a level that they exceed the competition in the market. (Walter, 2012) suggests that by increasing features to the products, customers will not opt for cheaper substitutes. For sales of a firm to increase, the business can altogether, increase the output capacity. An additional strategy is for the business to advertise the products to reach more people and hence increase the market for the products.