Out of the many options that today’s generation want easy is the food options. And this easy option is provided by frozen meals of the microwave like Lean Cuisine and Healthy Choice. They also offer favorable solutions of diet for current generation people who are busy. As a result of the growing demand, the competition is also growing and there are two major competitors in the low-calorie, microwavable frozen segment of food industry. There are a number of common factors between both the Companies like the type of product, the value of nutrition, and the price. Another similarity is the drop in sales that both the Companies have suffered. There is a regular contraction in the single-serve meal category of frozen foods and so both the Companies have suffered sales drop significantly. The intention of the Healthy Choice producer, ConAgra is achieving the aim of driving additional profitable purchase from the generation of baby boomers, which makes up about 60% of the total volume of that category (Watrous, 2014). The statement is that they are searching for even more robust approaches to marketing so that competitive pricing can be included to figure out in the retrial strategy in significant amount.
There have also been drop in profits to Nestle, the seller of Lean Cuisine from the sudden segment contraction in the low-calorie, frozen foods segment of the microwave food industry. They are looking forward to improving the product line of Lean Cuisine with the entry of new improved products.
There has already been start of production of new extension line selling of Lean Cuisine products which include natural ingredients and there is absence of preservations and additions of salad (Gelski, 2014).
Given that the organic growth in the market has witnessed somewhat muting, which means that there is reflection of lower prices in the market. There is a leverage of softer costs of input, which can meet consumer expectations that are more value-conscious (Gelski, 2014). This, in combination of substantial high investments back of their brands, is able to deliver momentum of volume growth, also alongside improving the operating margin.
There is a monopolistic structure in the microwavable industry for the low-calorie frozen segment. The monopolistic structure is backed up by the reason that there are unique product delivery attributes and there can be differential pricing that is a reflection of the uniqueness.
Since there is contraction of the industry, the Companies need to be competitive continuously by the improvement of processes and following tactics of strategic planning. Strategies of product differentiation and marketing activities could help the industry maintain its competitiveness. There is an existing endorsement with Jenny Craig for Lean Cuisine. A new product line relating to Jenny Craig could be opened with optimal pricing. If product differentiation can be guaranteed in the industry, there can be price premium supply command as the product image has an association with the brand success (McGuigan, Moyer, and Harris, 2014, pg. 336).
In the microwave industry, a number of firms act as partners and sell products that are differentiated. This is a typical characteristic of the monopolistic market. The firms need to follow certain standards of quality relating to calorie and others. If these rules are violated against Government standards, the firm may need to shut down.
There are a number of common characteristics between the market structures that are monopolistic and perfectly competitive. However the differentiating point is that in case of the perfect competition, the products are homogeneous or the perfect substitutes and in case of monopolistic competition, the products are somewhat differentiated. There is also difference in the price as the marginal cost of the product is lower than the product price so that the suppliers can have an influence on price and market power can be gained.
Additional factor that could cause change is the higher value of that price as compared to that of the marginal cost. This forms barriers for entry and exit for the firms. There are scarce barriers to entry and exit for monopolistic competition and for perfect competition; there are not at all barriers for the same, with individual subjective for profit of the market place.
Average Total Cost (ATC) = TC / Q
ATC = 160,000,000 /Q + 100Q + 0.0063212Q2 / Q
ATC = 160,000,000 / Q + 100 + 0.0063212Q
And, Average Variable Cost (AVC) = TVC /Q
AVC = 100Q /Q + 0.0063212Q2 /Q
AVC = 100 + 0.0063212Q
The minimum ATC can be founded by, ATC = MC
160,000,000 / Q + 100 + 0.0063212Q = 100 + 0.0126424Q
- 100 + 0.0063212Q – 100 - 0.0063212Q
Q * 160,000,000 / Q = 0.0063212Q *Q
160,000,000 / 0.0063212 = 0.0063212Q2 /0.0063212
25,311,649.686.77 = Q2
159,096.35 = Q
This is the output amount that should be produced by the firm to minimize the long run ATC.
In the competition environment, there is no longer a short-run.
Average Total Cost (ATC) = 160,000,000 / 159,096.35 + 100 + 0.0063212 * 159,096.35
= 1,005.68 + 100 +1,005.68
= 2111.36 cents
= $21.11
For as much as there is stability in the market value, there will be viability of the firm. In case more firms have an entry into the market, the price will fall even lower. In case the price falls below $21.11 given the long run, there may be a condition of firm exit. In the long run, this is the best possible output of the firm.
The condition for discontinuation of operations for the short term is that there is fall of the production below the cessation point. The same for the long run is when the price is lower than the break-even point. There will be experience of losses in the short run by monopolists when the price is lower than the average total costs, the price being the profit maximizing level. In case there is falling of prices lower than the average variable cost, the losses will be higher than the minimum total fixed cost.
Since a firm has split probability of short run profits, the price should be set at a place where the marginal cost is equal to the marginal revenue. This will let the Company have dollars per unit earning output (McGuigan, Moyer, and Harris, 2014, pg. 360). There should be attempts from the management to invent ways in maximizing profits. There is maximization of profit by the production of output quantity at the level where marginal cost equals the marginal revenue of the last produced unit.
Q (Quantity) = 350,000 – 100P
Q – Q + 100P = 350,000 – 100P + 100P – Q
100P / 100 = 350,000 – Q / 100
P = 3500 – 0.5748
TR = P * Q = (3500 – 0.5748Q) *Q
P * Q = 3500Q / Q – 0.5748Q2 / Q
For profit maximization; MR = MC
3500 – 0.5748Q = 100 + 0.0126424Q
3500 – 0.5748Q + 0.5748Q -100 = 100 + 0.0126424Q -100 + 0.5748Q
3400 / 0.5748= 0.5748Q /5748
5915.10 = Q
The companies of the low-calorie and frozen microwavable foods can be able to maximize their profits by following competitive pricing. According to this policy, there can be lowering of the prices for attracting more consumers, matching the prices of the competitors and setting higher competitor prices. However, if the prices are set higher, the firms will be required for creation of environment that prevents premium warranty so that something extra is added which is not being provided by competitors.
The products that are involved in selling homogeneous products generally use competitive pricing (Investopedia, n.d.). When a product pricing has reached the equilibrium, after being in the market for considerable period of time, usually the competitive pricing is used (Investopedia, n.d.).
P = 3500 – 0.5748(5915.10)
P = $100.00
ATC = 160,000,000 / 5915.10 + 100 +0.0063212(5915.10)
ATC = 27049.42 + 100 + 37.39
ATC = 27186.81 or $271.81
This is the cost of production for the output level of 5915.10.
As compared to perfect competition market structure, this type of market structure has higher profit margins. Given the long run, if a firm enters a market, there will be shift of supply curve at the right and there will be continuation offing till the zero point is reached. For the prevention, there needs to be creation of strategic barriers so that positive economic profits can be continued to earn.
The players in the industry can invent ways for reducing the costs by the management of these costs precisely and the reduction of wastes. They can initiate the analysis of suppliers so as to assess the receiving of best deals or the consolidation of supplier base.
There can be analysis at the firm level to analyze the facilities and see the financial returns of the space. In the end, there can be assess of the firm through production so that waste can be cut and the costs of materials can be lowered. Another way of profitability improvement is the analysis of product offering, the sellers, and the prices to be set for further improvements. The idea of price reviews on a periodic basis is necessary to make amendments on marketplace basis. There can be potential of firm price raise without rise in risks of sales. The profitability can be increased by higher focus on profitable and loyal customers. There can also be expansion of business for risk management.
References
AmosWEB is Economics: Encyclonomic WEB*pedia. (2016). Amosweb.com. Retrieved 3 June 2016, from http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=perfect+competition,+long-run+equilibrium+conditions
Gelski, J. (2013 Aug 9) Nestle seeks to fatten up Jenny Craig, Lean Cuisine profits. Retrieved on May 15, 2014, from http://www.foodbusinessnews.net/articles/news_home/Financial-Performance/2013/08/Nestle_seeks_to_fatten_up_Jenn.aspx?ID=%7BD6AD78D0-5F26-40FA-A4D3-163828854B67%7D.
Investopedia. (n.d.) Competitive Pricing. Definition of Competitive Pricing. Retrieved on May 15, 2014, from http://www.investopedia.com/terms/c/competitive-pricing.asp.
McGuigan, J.R., Moyer, R.C., & Harris, F. (2014). Managerial Economics: Applications, Strategies, and Tactics (13th ed.). Pricing and Output Decisions: Strategy and Tactics (pg. 336). Cengage Learning, Mason, OH.
Price Elasticity Of Demand Definition | Investopedia. (2003). Investopedia. Retrieved 3 June 2016, from http://www.investopedia.com/terms/p/priceelasticity.asp
Regulation of Monopoly | Economics Help. (2016). Economicshelp.org. Retrieved 3 June 2016, from http://www.economicshelp.org/microessays/markets/regulation-monopoly/
Watrous, M. (2014 Feb 14) ConAgra seeking healthier sales for Healthy Choice. Retrieved on May 15, 2014, from http://www.foodbusinessnews.net/articles/news_home/Business_News/2014/02/ConAgra_seeking_healthier_sale.aspx?ID=%7B28F5670D-F1CB-40B1-8756-383C061EE043%7D&cck=1.
What is competitive price? definition and meaning. (2016). BusinessDictionary.com. Retrieved 3 June 2016, from http://www.businessdictionary.com/definition/competitive-price.html
