Assignment 3 LONG TERM FINANCIAL DECISION

The grocery food market is filled with various options for microwavable food depending on the preferences of the consumers. Instead of the traditional use of the oven many families now use the microwave because of their busy lifestyles. The variety of healthy low calorie -microwave food has made shopping much easier for today’s busy consumer. Low calorie labels are regulated by the Food and Drug Administration (FDA) and require food “labels claiming low-calories must not have more than 40 calories for a given reference amount (except sugar substitutes)”. (The Calorie Control Council, 2014) Healthy low-calorie microwave foods have come a long way since the first Swanson pre-packaged TV dinner in the 1950’s. The meal tray was heated in the oven and consisted of a small portion of meat, two vegetables and dessert. The top two competing manufacturers of microwavable low-calorie foods are Lean Cuisine owned by Nestle and Healthy Choice owned by ConAgra. Both leaders in the frozen food market began in the 80’s. Healthy Choice works rigorously with the FDA to assure foods qualify under government health standards for healthy low calorie foods. Like all businesses these two businesses need a financial business plan that allows them to assess the company’s results and set targets for future growth. Marketing is a vital part of the business plan. Healthy low calorie microwave food as a health option is a concept which has gained enormous interest. The previous assignment discussed the background and the introduction of the company which caters to this segment. The purpose of this paper is to discuss the long term capital budgeting decisions that a company needs to make to determine the market structure operates in and to provide a framework to represent how market makes long term decision. One of the most important long term decisions for any business relates to investment. Investment is the purchase or creation of assets with the objective of making gains in the future. Typically investment involves using financial resources to purchase a machine/building or other asset, which will then yield returns to an organization over a period of time. Planning investments involves thinking about a range of issues that have a bearing on where you ultimately decide to put your money. These issues will vary according to your particular age, circumstances and attitude to risk, and thinking about them carefully before you start making commitments will help you avoid some potentially costly mistakes. 1. Outline a plan that managers in the low-calorie, frozen microwaveable food company could follow in anticipation of raising prices when selecting pricing strategies for making their products response to a change in price less elastic. Provide a rationale for your response. Pricing the product to reach out the current and potential customers is crucial for the managers. It is their understanding and decisions that are going to determine the success of any business. A major strategy that ensures that customers are retained with the product is to make the product inelastic employing pricing and other strategies. However, before the strategies are discussed to make low-calorie microwavable food inelastic, we must know the meaning of elasticity. Elasticity or price elasticity is a measure of quantity demanded responds when price is changed, that is, it a measure of responsiveness of the consumer due to change in price. It is measured as the ratio of the percentage change in the quantity demanded and percentage change in price. If the elasticity of demand is greater than one, we say that demand is elastic, if it is less than one, we say that demand is inelastic, if equal to one, we say demand is unit elastic. From the demand function and the elasticity considered, it is established that the market for the low calorie microwavable foods fit into a market of monopolistically competitive type. A monopolistic competitive is distinguished by a reasonable number of buyers and sellers. As a result people can change to another brand if a specific brand charges a soaring price. However, monopolistic competitive suppliers carry out product differentiation and consequently bringing in the consumers. Now, Profit (NP) = Total Revenue (TR) Total Cost (TC) = PQ TC According to the FOC of profit maximization, we get =- [Here P is not fixed] = MR MC = 0 so MR = MC From the elasticity as considered in the specified assignments, we can observe that the demand for the low calorie microwavable manufactured goods is not very elastic in nature. Now, with the purpose to maintain their products as inelastic as feasible, the firm will attempt to differentiate its merchandise from other products of other firms. If their product is dissimilar from others then the customers will not locate a substitute for that merchandise straightforwardly. That will formulate the demand for the equivalent product inelastic in character. The company aims to keep the prices of its products as inelastic as possible. This means that the pricing strategy should have no impact on the way the consumers perceive and buy such products (Definition of Inelastic, (n.d.)). Generally we see such demand only in situations in which the good or services are indispensable and the consumers cannot do without those goods and services. But this is not the case for microwavable food products. There is competition in the market to keep the prices under check. Hence the company needs to do two things to make its prices inelastic- First of all the company needs to spend money on the R&D efforts to differentiate its products from the rest of the players. This differentiation could be on the basis of the core product, advisory service which comes along with the product, packing, availability, support services or virtually anything else. As the second measure it needs to send down two important messages to its potential as well as current customers through its marketing communication efforts- First that the low calorie food should not be choice but be used as essential and second that the company serves this essential requirement like no one else does. Once the customers are aware and agreed with these two messages, price will play very minimum role in their buying decision (Price Elasticity of Demand, (n.d.)). Low Calorie Microwavable Food Company should consider the following pricing strategies to reduce price elasticity to achieve maximum profits. 1. Branding: This strategy involves creating a unique product identity, which customers can easily relate with and attach high quality. Branding is the process of creating an image or idea of a product or service in the market arena, which increases the demand for such product. It may include changing the packaging, creating brand names and improving the quality of a product. Once a brand is build, affirm succeeds in creating a major difference in the minds of a customer’s between their product and those of the competitors. Once a product attains a positive outlook in the mindset of consumers, the organization attains brand equity, which brings competitive advantage for the firm as customers view the products as unique or superior, which effectively reduces the price elasticity as substitute products become less close to their product. 2. Product Differentiation: In this pricing strategy, the firm should seek to identify and highlight the difference between its product and those of competitor products.. Differentiation looks to make a product more attractive by contrasting it...

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