Pricing Strategy Plans
The low-calorie food business is facing price elasticity of demand at the ratio of 1.19. According to McGuigan, Moyer, and Harris (2014), ‘(price) elasticity of demand refers to the ratio of the percentage change in demanded quantity, to the percentage change in price” (p. 26). The development leads to changes in quantities demanded. According to Cutler, Glaeser, and Shapiro (2003), low-calories foods are relatively elastic with regard to price changes. Consequently, the managers of the company have to be very careful when planning for raising the prices of the product.
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Given the elasticity of the low-calorie foods, it follows that price increases will lead to reduced demand for the products. On the other hand, a reduction in prices will create an increase in demand. Elasticity in relation to the demand for low-calorie foods also varies with the various ingredients used. The element is also affected by other expenses incurred in producing the food. For instance, cross-price and income elasticity of demand are major concerns to managers (McGuigan et al., 2014).
Given these aspects of elasticity in relation to the low-calorie foods, it is apparent that by increasing the prices, the managers risk losing revenue. However, according to Guthrie, Lin, and Frazao (2002), the sale and consumption of healthy foods are likely to rise with the increased availability of these products. People need to be convinced of the health benefits of the low-calorie foods for them to purchase these products irrespective of an increase in prices. The demand for this product has been shown to be inelastic with regards to advertising expenditure.
Managers should consider increasing the availability of these foods, as well as labeling them. The two are some of the strategies that can be used to woo more customers even after price increments. However, since the effect of labeling is relatively small, the reduction in prices is the best strategy for enhancing the consumption of the products. An example is the U.S foods market. In spite of the increasing popularity of healthy menus, a considerable number of Americans continue to gain weight as a result of consuming unhealthy food products. According to Chandon and Wansink (2007), between 1991 and 2001, the proportion of obese adults in the U.S grew from 23% to 31%. As such, increasing the prices of low-calorie foods may lead to diminished demand irrespective of other control measures.
Effects of Government Policies on Employment and Production in the Low-Calorie Microwavable Foods Industry
The food industry is highly regulated due to its significant impacts on the wellbeing of the public. Consequently, various government policies regulate employment and production in this industry. The products fall under the processed foods category. Policies and regulations in the food processing sector influence the supply and prices of these products (Guthrie et al., 2002). In addition, the nutritional composition and quality of the foods are regulated by the government. In addition, the legislations touch on the information that should be communicated to consumers (Balasubramanian & Catherine, 2002).
Some of the regulations that have significant impacts in the sector include the approval for food production technologies by the federal government. The approval is meant to enhance safety assurance. According to Chandon and Wansink (2007), such factors as labeling and packaging constitute a major undertaking in the processed foods sector. The government highly regulates the packaging materials used. It also controls branding to avoid the use of misleading information (Chandon & Brian, 2002). Labeling policies ensure that consumers are provided with adequate information regarding the nutritional value and safety of the products (Chandon & Wansink, 2007).
Regulation of employment in the food industry ensures that the workforce is competent enough to enhance safe and clean production processes (Chandon & Brian, 2002). Food handlers are also required to have appropriate training on proper protection and handling techniques of these products (Chandon & Wansink, 2007).
The various policies and regulations are exerting a toll on the industry. For instance, requirements for the use of advanced technologies raise production costs. In addition, the stringent packaging and labeling requirements raise operational costs. Consequently, the company will need to raise the prices of its products in the future due to increased overhead expenditures. The proposed technological and competence requirements may lead to staff layoffs in the long-run.
The Need for Government Regulation in the Industry
Government regulations are required to enhance fairness in the low-calorie frozen microwavable foods sector. The industry is vast and sensitive due to its impacts on public health, calling for government intervention. According to Cutler et al. (2003), the ability of food manufacturers to satisfy variations and gauge consumer preferences has increased. The reason behind this is the technological advancements made in relation to processing, transportation, communication, and storage of the products.
In the US alone, consumers have over 40000 different products of processed food to choose from. Without adequate regulations, food manufacturers can easily exploit and harm the population by providing sub-standard products. According to Cutler et al. (2003), the producers are competing to retain customers by increasing the variety of their products. Consequently, large servings of these foods are offered to the consumers, increasing incidents of obesity in the country.
Considering the trends in this industry, though government intervention becomes necessary. In the opinion of Balasubramanian and Catherine (2002), the value of the microwavable food market is expected to exceed $75 billion by 2015. The growth is attributed to the fact that the quality of microwavable foods is improving, thanks to government regulations. Globally, the worth of the industry is expected to reach $186 billion. The major markets include The US, the UK, and Asia (Balasubramanian & Catherine, 2002). Government agents, such as the Food Standards Agency (FSA) in the UK, have played a major role in the growth of the industry through the introduction of policies and regulations.
Complexities the Company May Face by Expanding Through Capital Projects
Capital projects are some of the best expansion methods used by companies. They have long term benefits for the business organization. As such, they need to be analyzed carefully (McGuigan et al., 2014). However, the approach is associated with a number of complications. Some of the complexities that the company may face by adopting this expansion strategy include changes in technology. Technologies in the food manufacturing industry are evolving very rapidly.
The organization may invest heavily in a production plant, only for it to become obsolete after a short time. Such projects would be difficult to alter once established. To overcome this problem, the company can expand by investing in low-scale capital projects. Consequently, it will be easy to implement changes in the future. However, such a move may limit the organization’s production capacity in the long-run.
The other challenge the company may face by expanding through capital projects relates to the impacts of these undertakings on the pricing strategy. According to Balasubramanian and Catherine (2002), these projects have a major influence on the cost of finished products. They usually lead to financial burdens in the firm. To a large extent, the type of investment determines the manufacturing cost (Cutler et al., 2003).
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For instance, a capital project, such as a production facility, may use large quantities of resources in the long-run. The consumption of such resources as energy may lead to an increase in the cost of products. Such complexities can be addressed by investing in projects with optimal returns for the company. For instance, the firm may choose to focus on the latest technologies in spite of its cost. In addition, the management may opt to restrict investments to projects with a long lifespan.
The convergence of the Interests of the Company’s Stockholders and Managers
The interests of the managers and the stockholders may clash when the two parties have different objectives regarding the enterprise (Chandon & Wansink, 2007). For instance, the stockholder may be interested in increasing the value of the firm, while the managers are more concerned with revenue growth as opposed to profits. Due to the small fraction of the company stocks owned by the managers, these stakeholders may concentrate on maximizing their incomes (Cutler et al., 2003).
However, it is possible to reconcile the interests of the managers and stockholders of the low-calorie frozen microwavable foods company in question. For example, the remuneration of managers can be tied to their performance. Such a move will ensure that they maximize the profits and value of the company. The salaries and bonuses of the managers can be varied depending on the overall performance of the firm. Consequently, they will strive to optimize the performance of the company.
The interests of the managers and the stockholders can also be harmonized by ensuring that the former own substantial stocks in the company (McGuigan et al., 2014). As such, the managers will have no alternative but to work for the interests of both parties. For instance, 10% of the company stocks can be assigned to managers. As a result, they will focus on increasing the profitability of the company.
Balasubramanian, S., & Catherine, C. (2002). Consumers’ search and use of nutrition information: The challenge and promise of the Nutrition Labeling and Education Act. Journal of Marketing, 66(3), 112-127.
Chandon, P., & Brian, W. (2002). When are stockpiled products consumed faster?: A convenience-salience frame-work of postpurchase consumption incidence and quantity. Journal of Marketing Research, 39(3), 321-335.
Chandon, P., & Wansink, B. (2007). The biasing health halos of fast-food restaurant health claims: Lower calorie estimates and higher side-dish consumption intentions. Journal of Consumer Research, 34(1), 301-314.
Cutler, D., Glaeser, E., & Shapiro, J. (2003). Why have Americans become more obese?. Journal of Economic Perspectives, 17(3), 93-118.
Guthrie, J., Lin, B., & Frazao, E. (2002). Role of food prepared away from home in the American diet, 1977-78 versus 1994-96: Changes and consequences. Journal of Nutrition Education and Behavior, 34(2), 11-16.
McGuigan, J., Moyer, R., & Harris, F. (2014). Managerial economics: Applications, strategies, and tactics (13th ed.). Stamford, CT: Cengage Learning.