The realm, in which the company operates, can be defined as monopolistic competition. There are little to no entry barriers in the specified market, both on the buyers’ and the sellers’ side. Besides, through two major companies are dominant, the market features a range of sellers and even more buyers (Koren, 2014).
As it has been stressed above, two key companies (Lean Cuisine and Healthy Choice) can be identified as the leaders in the low-calories, frozen microwave food industry. To keep its net profit high, Lean Cuisine has designed two price bands, the premium and the standard (cheaper) one (Pauwells & Hanssens, 2006). Healthy Choice, in its turn, has resorted to reducing the prices for products in general (Pauwells & Hanssens, 2006). The profitability of both companies seems rather high, with a $987 million net profit for Lean Cuisine (Boyle, 2014) (a 9.5% drop compared to the previous year (Smith, 2014)) and $2.5 billion for Healthy Choice (Schroeder, 2014). The specified companies have been viewed as trustworthy and credible since the day that they were founded.
Speaking of the structure of the low-calorie frozen food market, the assessment tool must comprise five key elements, which are the price, the buyers, the sellers, the technology, and the existing regulations. The price of the frozen meals should not exceed $3–5 per portion. Besides, the basic information about the buyers (age, preferences, lifestyle, changes in their number, etc.) must be defined. Likewise, the data about the sellers, i.e., the key competitors, must be gathered thoroughly (Fu, 2009). The role of technology in the specified industry is not to be underrated; the equipment used must provide the environment for maintaining the perfect quality of the products (Elfenbein, Fisman & McManus, 2013). A major emphasis must be put on the process of storage of the meals and their ingredients (Dunne, Klimek, Roberts & Xu, 2013). Eventually, the regulations regarding low-calorie frozen food must be addressed. According to the existing standards, it is demanded that frozen and quickly frozen food should be labeled correspondingly (U.S. Food Industry and Drug Administration, 2014). By taking the aforementioned parameters into account, one will be able to evaluate the success of a company operating within the realm of low calorie froze food market.
The change in the market structure, which can be traced when comparing the original supposition and the actual state of affairs, can be explained by the fact that the market is dominated not by one, but by at least two organizations. The other factor that has had a tangible effect on the change specified is modern media and the speed, with which it spreads rumors about the alleged threats of frozen low-calorie meals. It is expected that both factors will hinder the promotion of the company’s products to an impressive extent; however, with a proper marketing strategy, the firm is most likely to become quite successful in the specified market.
Judging by the information provided in the functions, the company should consider changing the price in the short run. As far as the changes, in the long run, are concerned, it is desirable that the number of customers and, therefore, the range of the target audience, should increase. The long-run changes can be carried out with the help of a well thought out promotion campaign (Lee, Lee, Cho, Im & Kim, 2011).
There is no need to stress the fact that Lean Cuisine and Healthy Choice are very dangerous competitors, and the threat of being outsmarted by these companies is very high. Therefore, as soon as the company’s inability to compete with the aforementioned firms is discovered, it will be necessary to terminate the current operations. It would be wrong, however, to assume that the organization should simply lay down and die under the pressure of more competitive companies. Instead, it will be required that a more adequate promotion campaign should be carried out. By putting a stronger emphasis on its assets and its benefits compared to the two key competitors, the organization will be able to retain its position within the current market. Alternatively, the pricing policy of the company should be changed. However, lowering the prices would mean that the costs for some of the production processes should be dropped; hence, the quality of the products might be jeopardized.
When designing the pricing policy for the company, it should be born in mind that the total revenue of the company will presumably vary from $8,825 to $24,850:
TR1 = (Q1xP1 + Q1xP2)/2 ± (Q1xP1 – Q1xP2)/2 = (17,650x$0.6 + 17,650x$0.5)/2 ± (17,650x$0.6 – 17,650x$0.5)/2 = $9707.5 ± $882.5
TR2 = (Q2xP1´ + Q1xP2´)/2 ± (Q2xP1´ – Q2xP2´)/2 = (45,000x$0.3 + 45,000x$0.2)/2 ± (45,000x$0.3 – 45,000x$0.2)/2 = $22,500 ± 2,350
Taking the MR = MC formula into account, one will be able to determine that the average cost for producing the low calorie frozen food in question must not exceed P1 ($2). Otherwise, the company’s endeavors will be counterproductive. It is also important to bear in mind that the specified price coincides with the one generated in Assignment 1 and presupposes that the company should produce at least 45,000 units of frozen food regularly. The aforementioned number is considerably higher than the alternative (17,650), which requires that the price should be increased up to $5–6. Indeed, with regard to the condition mentioned above (MC= 100 + 0.0126424Q), the MC and, therefore, the MR, must make MC= 100 + 0.0126424 x ((Q1 + Q2)/2 ± (Q1 – Q2)/2) = 100 + 0.0126424 x ((17,650 + 45,000)/2 ± (45,000 – 17,650)/2) = 100 + 396.02318 ± 172.88482 = 496.02318 ± 172.88482.
Hence, it can be assumed that the maximum revenue must be no lower than $ 496.02318 ± 172.88482, or approximately $4 per each unit of frozen food. The price defined above is slightly lower than the P1 and P2 ($5 and $6 per each unit of the frozen meals) generated in Assignment 1, yet is still higher than their alternatives ($2 and $3 correspondingly). One must admit that maintaining a golden mean in the pricing policy is imperative for the company, seeing that the competitive rates are very high, and, setting its prices high, the firm will not be able to attract many customers. Lowering the pricing threshold too much, though, is not going to be of many effects, either, since the company needs to retain at least some of the revenues to cover the basic costs (Zhelobodko, Kokovin, Parenti & Thisse, 2011). The company, however, should also develop a flexible system of discounts, including seasonal and holiday ones; thus, it will be possible to attract more customers and gain a competitive advantage to face the rivalry with Healthy Choice and Lean Cuisine (Hunt, 2011).
There are many ways in which the company can improve the strategy adopted towards its stakeholders. Changing the current leadership strategy can be viewed as one of the most efficient methods. Though the use of authoritative leadership may seem reasonable for defining the course, vision, mission, and values of a young company, in the long run, transformational leadership will allow for much more positive relationships between the stakeholders of the company based on the principles of customer and employee satisfaction.
It could also be argued that the company would benefit greatly from the change in the system of knowledge transfer. It is essential to bear in mind that in the 21st century, using modern technologies is not only profitable but also imperative for a company to succeed; therefore, the firm must utilize IT innovations in its key processes, including information retrieval, processing, and transfer, promotion campaigns, etc. As soon as the data related to the organization’s key processes is stored in a virtual password-protected database, it can be assumed that the company’s information is relatively safe. More to the point, active information sharing must be promoted among the staff so that the possible issues should be identified at the earliest stages of their evolution. Naturally, the approach of knowledge sharing presupposes that the competition rates among the staff should be brought down a few notches, whereas the rates of trust among them, on the contrary, should be increased.
Reference List
Boyle, M. (2014). Nestle Lean Cuisine sales drop as shoppers shun freezer.Bloomberg. Web.
Dunne, T., Klimek, S., Roberts, M. & Xu, D. (2013). Entry, exit and the determinants of market structure. The RAND Journal of Economics, 44(3), 462–487.
Elfenbein, D. W. Fisman, R. J. & McManus, B. Market structure, reputation, and the value of quality certification. Columbia Business School Research Paper No. 13-14. 1–54. Web.
Fu, W. (2009). Applying the structure-conduct-performance framework in the media industry analysis. The International Journal on Media Management, 5(4), 275–284.
Hunt, S. (2011). The theory of monopolistic competition, marketing’s intellectual history, and the product differentiation versus market segmentation controversy. Journal of Macromarketing, 31(1), 73–84.
Koren, M. (2014). Is the frozen-food industry thawing out?National Journal. Web.
Lee, H., Lee, Y., Cho, H., Im, K. & Kim, Y. (2011). Mining churning behaviors and developing retention strategies based on a Partial Least Square (PLS) model. Decision Support Systems, 52(1), 49–57.
Pauwells, K. & Hanssens, D. (2006). Performance regimes and marketing policy shifts. The Tuck School of Business at Dartmouth. Web.
Schroeder, E. (2014). Crunch time at ConAgra Foods.Good Business News. Web.
Smith, G. (2014). Nestle launches $8.8 billion share buyback as profit slips.Fortune. Web.
U.S. Food Industry and Drug Administration. (2014). Guidance for industry: A food labeling guide (8. Claims). U.S. Department of Health and Human Services. Web.
Zhelobodko, E., Kokovin, S., Parenti, M. & Thisse, J. (2011). Monopolistic competition: Beyond the constant elasticity of substitution. Econometrica, 80(6), 2765–2784.