Business Proposal
The market for delivery of quality and notorious cooked meals in Dubai holds tremendous potential. While growing at unprecedented levels, Dubai attracts professionals and skilled workers from all over the world. Due to the demanding work schedules of these individuals and their desire to obtain wealth, there is very little time for them to make home cooked meals. Therefore, they purchase the majority of their food from restaurants and food stalls which is usually high in calories, fat, sugar, and contaminates from unsterile environments. Due to this growing epidemic, it has been reported by the Dubai health authority that a growing number of people are falling ill due to over consumption of unhealthy non-nutritious food. This issue has led to a rise in the demand for healthier options and it presents a viable opportunity to introduce a delivery system of providing quality home cooked meals for this target audience. This opportunity will help fulfill and create a need by satisfying people’s demand for hygienic, healthy, fresh and customized meals in Dubai.
Economic Analysis
There are several home based kitchens in Dubai that would be direct competitors for this new business. A few of these companies include Casserole Home Cooked Food, Mother’s Home Meals, and Dubai Last Suppers. Due to the fact that we would be entering an existing industry, it is important to look at the entire economic analysis for this business venture (McConnell, Brue, & Flynn, 2009).
Market Structure
The market for home based kitchens in Dubai is a Monopolistic Competition. A monopolistic competition type of market features a lot of firms with limited pricing power over the consumers, modest barriers to the entry of other market players—which are something that would bring about product differentiation. Monopolistic players tend to disagree to idea that business and access to the market should be dictated by the level of competitiveness of their respective company or by the quality of their company’s product or service. Instead, they focus on marketing strategies that would limit the entry of other market players that may of course later on turn out as competitors to the market which would only lead to the decrease of each player’s share of the market. Also in a monopolistic type of market, the consumers usually have little to no power when it comes to choosing a variety neither of equipment nor in requesting or demanding for the right price of a product or equipment. Instead, all that power is vested on the monopolistic player knowing that the consumers will all have to adhere to the company’s pricing family no matter how ridiculous it may be, because of the fact that they-the consumers, do not really have a choice.
All of the competitors are selling similar items that are not completely substitutable. This market is based on product differentiation and each company has control over their prices. They are selling the goods at various price points in order to maximize profits. There is considerable non-price competition in this market and each company distinguishes themselves through product differentiation. In this market, there are very few potential barriers to entry, these include the product registration with the Dubai authorities, limited taxation, and brand awareness. (McConnell, Brue, & Flynn, 2009). Some of the best and most common examples of barriers to entry are patents and other licensing requirements. These entry barriers are prevalent in the fields of technology and information technology. They prevent other companies—mostly new market players, from copying, infringing, or even tweaking another company’s work, idea, or product. These barriers can actually be classified as a protection from competition. They can make it very hard for or even disable other potential market players from entering the market.
Pricing Strategy
The key to the survival of any business includes increasing sales which in-turn usually increases revenue. We plan to keep the price of our items very low and competitively priced in effort to build a customer bases and increase sales. Reducing product prices will most likely result in an increase in the quantity demand. If a firm lowers its product prices and the other firms do not follow suit, the former will gain a competitive advantage when it comes to market share. This is actually referred to as a cut-throat type of competition. As stated in one of the tests in chapter 6, a price-elastic demand emphasizing low prices will help boost revenues. In addition, we plan to market our price points and product quality as part of our differentiation strategy.
Our meals would offer a menu that includes appetizers, main courses, side dishes, and desserts. Here is the menu and price list for our items.
- Appetizers
- Main Course
- Desserts
Elasticity of Demand
The market is not currently saturated with a pure competition so an increase or decrease in the price of food items will relatively denote an inelastic effect. The price of food is currently underpriced in Dubai so an increase in price would not trigger a decline in the demand, especially considering the target market that we are targeting. The more necessary a product or service is, the lower the price elasticity of demand would be. Food is an example of a very necessary product but kitchen products and/or furniture—while they may be directly related to the process of preparing food are not. Additionally, the more players are put in the market, the higher the price of elasticity of demand will usually be. As stated before, a price-elastic demand emphasizing low prices will tend to lead in a situation of increased revenue; if demand is price-inelastic on the other hand, increasing prices will help boost revenues.
Erecting Barriers of Entry
In addition to generating profits, the objective of providing healthy home cooked meals is to be competitively priced in order to attract customers, and to build a customer base that is loyal and conscious about the quality of food they consume. Our business aims to create a brand that focuses on product differentiation and price efficiency by creating high quality, nutritious, and delicious meals at competitive prices that the competition cannot compete with. Our differentiation would also extend into our marketing strategy of targeting the business clientele through promotions such as corporate discounts and free delivery and additional meals with large orders. These strategies would help strengthen the business by erecting potential barriers to entry (McDaniel, Lamb, Hair, 2007)
Target Market
The target market of the home cooked meals includes professional men and women in Dubai, ages 25 – 55, who are in the middle to upper-middle class income groups. This market consists of people who are conscious about their health and who are willing to pay a little more for a healthy meal (Kotler, 2010).
Ordering Process
In order to make the meal delivery business a success, we would make the ordering process as streamlined and easy as possible for the customer. They would be able to order meals over the phone, internet, text message, or thought a custom app on their smart phone. We would also have the option of auto delivery so they can have meals delivered automatically every week.
Marginal Costs and Revenues
The marginal costs would include the size of the facility and the appliances needed to manufacturer different quantities of meals. However, it has to be taken into consideration that no matter how much output the business creates, the building and machinery costs would remain the same say for every month or annually. The marginal revenue includes the sales of the meals we sell. The initial sales goal would be to sell at least 250 meals per day. The projected revenue per day is 15,000 DHS (250 meals X 60 AED).
Fixed and Variable Costs
The fixed costs would include the rent for the business infrastructure and the warehouses, the machinery and equipment costs, etc. The fund for the raw materials will have to be included under the variable costs since food costs directly correlate with the amount of food products produced which will obviously be not fixed. The variable costs would include salaries, electricity, and the fuel for delivering the food which will amount to 500 DHS per day. As the company becomes established and sales increase, we will have more buying power to help decrease our fixed and variable costs in order to maximize profits (McDaniel, Lamb, Hair, 2007).
Non Pricing Strategies
In addition to pricing strategies, the company will focus on other revenue-generating initiatives such as targeted promotions on the service delivery and unmatched product design. We will also have a competitive loyalty and refer-a-friend program. The goal would be to obtain publicity from advertising in newspapers, magazines and on the internet. This would not only help create a distinct image of home cooked meals in the minds of the target customers, but would also help reach potential new customers indirectly. In addition, the business will focus on creating product differentiation by serving meals that are hygienic, healthy and still hot when they are delivered. We will also have incredible customer service and will offer a 100% satisfaction guarantee (Kotler, 2010).
Conclusion
In summary, there is a tremendous opportunity for a delivery based meal business in Dubai due to the large expatriate community and the time constraints that prevent them from cooking healthy meals. The growing trend of being health conscious and the consumption of food that is healthy and hygienic is a key factor in this business venture. In this regard, an evaluation of the market based on targeting the right segments, devising a pricing strategy, and concentrating on effective marketing initiatives plays a significant role in the success of this business.
Recommendations
The pricing and non-pricing strategies that we plan on implementing to make this business venture—which includes the entering of a new market will all start in determining a possible workaround to the hard to penetrate market of home-based kitchens in Dubai that is a monopolistic competition. By knowing what type of market we are dealing with, we can exploit the weak spots of this market which in this case is a monopolistic competition one. Monopolistic competition is an imperfect type of competition wherein a lot of producers sell products that are differentiated from one another but are not and cannot be perfect substitutes, either in terms of quality, location, and/or branding . Also in a monopolistic competition type of market, the pricing policies of one firm does not serve as a basis for other firms to follow because as mentioned before, the products that these market players produce cannot be considered as a perfect substitute to each other’s products and so changes in pricing will only lead to little to no impact on the fluctuations in the market share. Some of the classical characteristics of a monopolistically competitive market include: the presence of many producers and many consumers with no business having total control on the market price, the consumers’ perception that there are non-price differences among each market players’ or manufacturers’ products, few entry and exit barriers, the producers’ high degree of control over the price.
Product differentiation through the use of patents and other licensing requirements can be a good strategy since it will limit, although not inhibit, the entry of new players on the market which will only bring about a higher level of competition for the existing market players. However, since we too are a new player, it would be initially hard to get over the hurdle of making sure that no patent or licensing rules that other companies have established are violated because such are also their ways of preventing potential competitors from entering the market.
Pricing Strategies
The quality and quantity of business operations can be directly dictated by the business’ revenue. Increasing its revenue can almost always lead to an increase in the quality and quantity of business operations. The initial strategy proposed was the use of a low or competitive-pricing policy, even though we know for a fact that this would not have a lot of impact on the market share of other companies in the same industry because one producer’s product cannot really be considered as a perfect substitute for the others’. However, the low pricing policy is not really meant to decrease the client base of the other players but to increase the sales of our company and also its client bases. They key to thrive in a monopolistic competition is not really the pricing strategy but customer and brand loyalty and one way of achieving high remarks in these two aspects is by starting initially with a competitive pricing strategy. As brand loyalty increases, the effect of increasing the prices for the company’s line of products will be less, leading to the minimization of its effects on the volume of sales and the maximization of the revenue.
The effects of demand elasticity should also be taken into consideration, specifically the fact that the more necessary a product or service is, the lower the price elasticity of demand would be. In this case, home-based kitchen products are our product, which cannot really be considered in any way as a necessity compared to food which is an absolute necessity, even though the former is directly involved in the production or processing of the latter. Also, the more competition in a market, the higher the price elasticity of demand will be. This is also why we have chosen to start out with a pricing strategy that emphasizes low prices—as per the total revenue test in Ch. 6, if demand is price elastic, emphasizing low prices will help to boost revenues; also, in a monopolistic competition market, the higher the competition—means more players, the higher the price elasticity of demand is. Therefore, emphasizing low prices, at least at first would only lead to higher revenues.
Non-pricing Strategies
As soon as we get our foot wet in the market, we will aim to increase the differentiation of our product. From our current line of products we will increase the variety of products in an effort to stimulate consumer demand. By diversifying the products, we are actually minimizing the effects of price hikes on their goods on the company’s sales without having to worry about the competitive response, even in a monopolistic competition. Also, we are planning to target specific niches such as health for health conscious consumers for example in order to stimulate consumer demand. But then again, diversification will still be the grander choice. We also plan on increasing the level of technology and update the machineries and equipment being used in the production of the products in order to minimize the overall production costs—although these two upgrade strategies will involve a high volume of cash-out initially.
References
Casserole Home Cooked Food. (2013). Menue. Retrieved from http://www.casseroleonline.com/category/casserole-menu-main.aspx
Kotler, P., 2010, Principles of Marketing, A south Asian perspective. 13th edition. India. Pearson Education.
McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics . New York City, NY: McGraw-Hill Company
McDaniel,C., Lamb,C., Hair,J., 2007, Introduction to Marketing. 8th edition. Noida, U.P, India. Anubha Printers
Mother's Home Meals. (2013). Retrieved from http://www.mothers.ae/blog/mothers/indian-food-in-dubai/
The Home Cooked Meals. (2013). Dubai Last Suppers. Retrieved from http://dfordelicious.com/2013/05/dubai-last-suppers-the-home-cooked-meals/
Colander, D. (2008). Microeconomics Theory and Applications with Calculus. Pearson.
Samuelson, W., & Marks, S. (2003). Managerial Economics 4th ed. Wiley, 379.
