Company X specializes in making coffee machines. The company has developed some of the unique coffee machines in the world. It aims to bring convenience, affordability, time saving, and elegance through its designs. Customers have known Company X for developing small, portable coffee makers. These are space saving machines that customers have admired.
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However, changes in technologies have necessitated the company to develop a new coffee machine for the contemporary home and office. Company X has noted that today’s coffee machine market is highly competitive with new technologies. In order to survive in this market, the company must develop new products, which offer convenience, affordability, and match changes in technologies at homes and offices. Company X will develop a new interactive coffee machine for a modern smart home and office at an affordable price.
The interactive coffee machine is based on a high-tech approach. The coffee machine shall have Internet access capabilities based on a Wi-Fi platform. It will also come with a large touch screen. Users can make their coffee by using different types of ingredients. Moreover, they can develop their unique coffee recipes for both cold and hot coffee drinks. Users have the opportunity to get the latest news on the interactive coffee machine. Besides, the interactive coffee machine provides latest updates on currency rates, stock markets, road traffic conditions, and weather forecasts. These data are available on the screen. This is a smart coffee machine for smart homes and offices. It can make enough coffee for the office or home. Moreover, the coffee will still retain its high-end quality that many coffee consumers desire.
A short history of the potential competitive organizations and a description of their products
Many companies have strived to develop new coffee makers, which reduce time spent on the process of making coffee. The major competitors in this industry include Starbucks, Keurig, Nespresso, and Douwe Egberts. Starbucks and Keurig have developed interactive coffee machines for a single serve.
While these companies have interactive coffee machines, their machines do not have additional facilities like touch screen with Wi-Fi for internet access and other real time updates. Starbucks interactive coffee machine produces espresso and milk beverages. Currently, the market has single cup coffee machines.
Factors that affect demand, supply, and equilibrium prices in the market in which the potential competitive organization operates
The price of the new interactive coffee machine will have great impacts on its supply. An increase in the price of the product would prompt Company X to manufacture and supply many interactive coffee machines to the market. This would result in increased profitability for the company.
Prices of other interactive coffee machines shall also affect supply of the Company X interactive coffee machine. The company shall ensure that it maintains competitive supply of the interactive coffee machine.
High costs of production may reduce the supply of the new interactive coffee machine to markets. Company X would strive to keep the costs of production low in order to maintain profitability of the product.
Changes in availability of the product resources may affect the supply of the product. The company shall ensure that it gets reliable suppliers for the product’s resources and raw materials. However, a general decline in raw materials in the industry may result in supply fall.
Economists show that “the income status of consumers may affect the demand” (McConnell, Brue and Barbiero, 2002) for the interactive coffee machine. This is a state-of-the-art coffee machine based on a smart home technology. Thus, it may only attract high-end consumers. Tastes and preferences of consumers may also affect the demand for this product. Consumers who prefer portable coffee machines may not purchase the large interactive coffee machine for home and office use.
Consumers’ expectations that the future prices of interactive coffee machines would fall may affect the demand for the product. The number of potential consumers who have opted for smart home technologies have increased significantly. This may result in high demands for the interactive coffee maker machine.
The company may supply enough quantity to meet the demands for the interactive coffee machine at a given price. However, an increase in the number of product’s buyers would result in high prices until some buyers decide not to purchase the new product. An increment in the number of sellers would also create high demands for the interactive coffee machine.
The market for the competitive product, including an analysis of its competitors, potential customers, or potential buyers
Company X would sale its interactive coffee machine in a highly competitive market. Some coffee giants already dominate the market with their sophisticated coffee machines. Starbucks is a major play in the coffee market. Company X would have to fight for the market share with Starbucks, Keurig, Nespresso, and Douwe Egberts among others. Analysts believe that the future of selling coffee relies on convenient, affordable machines (Jones, 2012).
Company X targets the growing consumers of coffee consumers who have a busy lifestyle and would not like to spend time on making their coffee. In addition, these are consumers who have interests in smart home technologies. The coffee machine would provide them with real-time updates on news, the weather forecast, stock market and foreign currency markets, and traffic updates. Smart home technology is a trend that is becoming popular with modern consumers. Hence, Company X has designed its new interactive coffee machine for this new, unexploited market. In addition, companies are also likely to purchase the new interactive coffee machine for their employees and visitors. They can catch the latest events while making their favorite cups of coffee from the interactive machine.
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Issues or opportunities for Company X and the industry with regard to the new interactive coffee machine
Company X would use the price elasticity of demand to determine how changes in the price of the interactive coffee machine would affect its demand. Most consumers are sensitive to changes in prices. The company recognizes that high prices would result in low sales, whereas low prices would increase sales of the interactive coffee machine. At low price elasticity, there would be minimal changes in demands for the new interactive coffee machine.
Technological innovation will affect the interactive coffee machine. Company X has based its product on the latest technological innovations in the market. Later changes or improvement in technologies may render the interactive coffee machine to be obsolete. Therefore, the company must constantly work on new features and technologies to make the product highly productive for the consumer. The company would adopt new technologies to improve the product and increase demands.
Company X would also use advance technologies in production of the interactive coffee machine to reduce costs of production, enhance profitability, and improve supply of interactive coffee machine to the market.
The relationship between the amount of labor & capital employed and the law of diminishing marginal productivity
Labor is an important aspect of productivity that Company X shall utilize to maximize the production of the interactive coffee machine. The company will enhance efficiency through technologies in production in order to reduce labor costs (Patra and Nayak, 2012). This would allow Company X to maximize its profits from the new interactive coffee machine. Company X must focus on the law of diminishing marginal returns relative to costs of production. Hence, it must maximize employees’ productivity in order to reduce costs.
Company X shall analyze the cost structure of manufacturing the new interactive coffee machine. The company would control costs of production throughout the process. The focus would be on minimizing costs of raw materials acquisition and other facilities required for the new product. It will also take into account costs associated with the labor, sales, utilities, and marketing expenses. Company X would also account for other ancillary costs, which it would incur because of the new product development. In short, the company will account for any expenses incurred in the production of the new interactive coffee machine.
Cost structure would allow the company to determine the appropriate unit price for the new interactive coffee machine. It will also allow the company to analyze expensive processes and refine them. This would affect the unit price and improve the profit margin of the new product.
Factors affecting variable costs, including productivity and others that change the supply and demand for labor
Economists take labor cost as a variable cost (McConnell, Brue and Barbiero, 2002). Company X would increase the number of employees if it wishes to increase productivity of the new interactive coffee machine. Moreover, costs of materials for the new product would also increase as productivity increases. Overall, these costs would increase the cost of production and affect the unit price of the product. The demand for highly qualified employees in the industry would also increase labor costs. The situation would be bad if the supply for qualified employees is low.
Factors affecting fixed costs
Fixed costs tend to stay the same irrespective of how many interactive coffee machines Company X would produce. However, additional of capital to fund the new interactive coffee machine would increase capital costs. This would eventually affect fixed cost of producing the new product.
Recommendation for profit-making potential and successful competition in the new market
- Company X must minimize the cost of production of the new interactive coffee machine by analyzing all elements of the cost structure. This would help in determining the right price for the product and reconsider costly processes.
- Controlling cost structure at all stages would guarantee low costs of production and good profit margins.
- The company should maximize productivity of the new product by effective use of labor force. Company X should not hire new employees at the initial stages of product development, but it requires the best labor for the product.
- Company X must rely on the best available technologies for the new interactive coffee machine. It must constantly update the product feature. Otherwise, the new interactive coffee machine will be obsolete.
- Company X must conduct a thorough market research regularly in order incorporate customers’ views in the design processes. This would allow it to create effective promotional strategies.
- The company must rely on a wide distribution network in order to reach many consumers. This would enhance market share and revenue growth.
Jones, D. (2012). Starbucks’ coffee maker may drain Nespresso’s growth. Web.
McConnell, C., Brue, S., and Barbiero, T. (2002). Microeconomics: Canadian Edition, (9th ed.). Toronto: McGraw-Hill/Ryerson.
Patra, S., and Nayak, S. (2012). A Theoretical Study on the Relationship between Wages and Labor Productivity in Industries. International Journal of Economic Resources, 3(3), 157-163.