Operations Decisions

There are a lot of frozen food and low calorie microwavable food options available in the market. A few years ago people were not able to purchase the microwavable food but with the increase in income, people can now afford an easier lifestyle and can change the way they cook breakfast, lunch, and dinner. Because microwavable foods are easy to cook, people are replacing traditional cooking methods to microwavable foods, I for one know that it makes my life so much easier to do this at least once or twice a week. A few of the companies that are manufactured are Lean Cuisine, Healthy Choice, Stouffers, Marie Callendar etc. But the two we will focus on are Lean Cuisine and Healthy Choice. They both are competitors in the market of frozen foods, but more specifically they are competitors in the low calorie frozen food department. Lean Cuisine was started in 1981 and has since then grown its market in US, Canada and Australia. The company is owned by Nestle and offers variety of frozen foods and is one of the leading choices for low calorie food. Healthy Choice, the product manufactured by ConAgra is also one of the leading low calorie frozen food suppliers.

Healthy Choice is the biggest opponent to Lean Cuisine (foodbusinessnews.net). As far as the market sector: it is decided by three criteria which are Behavioral, Psychographic and Profile variables. Behavioral variables are those that are wanted from the product, and buying patterns such as frequency and volume of purchase which might be considered the fundamental basis of any company. The Psychographic variables are used when the company’s’ purchasing behavior correlates with the personality or lifestyle of customers. There are consumers who have different personalities and their lifestyles are more indecisive towards a specific product. Their choices are determined by their economic and social standing so with that being said a person may choose what fits into their budget over what is more popular or what tastes best over what has less calories. Profiling is not as important of a criterion for market segmentation. Once the company has decided what the differences between markets are, they have to decide how they are going to execute the plans.

Profile variables like socio-economic group or geographic locations are very necessary in deciding the target audience which can give a competitive edge. In Monopolistic competition there are few dominant firms along with a large number of competitive firms. The thing that sets the dominant firms apart is that they sell product that are differentiated in some way such as: real perceived, or just imagined. Individual firms make independent decisions, and it is easy to enter or exit the market but there are significant barriers when entering the market with leading brands. The cross-price elasticity of demand between the products of individual firms is much lower than in purely competitive markets (McGuigan, J. R., Moyer, C.R., & Harris, F.H. 2014). When the market becomes more concentrated, there would be a possibility of fewer firms in the industry. This in turn means if there are fewer firms in the industry, they can have more control on the price for the product. When this happens the monopolistic competition turns into oligopolistic competition.

Oligopoly market has few firms and each firm must consider the reaction of the rival firm and keep up with price, production, or product decisions. All the reaction that firms make is interrelated. Also, if all the firms in the monopolistic market would start changing price and compete using the price, firms would start realizing that their profits are reducing. Another factor that will make monopolistic competition to turn into oligopolistic competition is making the product alike. Monopolistic firms have to keep producing products that are different in their own way or consumers won’t buy them or would prefer one over the other. In monopolistic competition when it comes to short term analytics, price is always greater than marginal cost.

Which means that Monopolistic competitive firm may or may not generate a profit in the short run. When new firms enter in the industry, there is an increase in industry supply which causes the equilibrium price to fall (Ottaviano, G. & Thesse,J. 2011). Because of this the downward movement is reflected in the demand curve facing any individual firm. In monopolistic competition there is free entry and exit, there is a fluctuation in price and demand for the firms that have been in the market for a long period of time. When it comes to long run marginal revenue is always equal to marginal cost. Profits in long run are zero and also long run entry in industry would steal customers. Here are some reasons to discontinue operations:

1. If there is inadequate capital to continue a business project 2. Where there is no proper inventory management because inventory is essential to sustain equilibrium in between demand and supply and if the equilibrium is disturbed the company might have to shutdown. 3. If the business if expanding beyond the capacity of the management and operation, the company might not be about to handle the operations and have to shut down. 4. The company should be able to compete with existing companies in the market, if they care unable to do that then the company might have shut down. After looking at these points it can be concluded that lack of managerial ability, competition, low sales, and financial crisis would be the main reason a business have to discontinue operations and choose another path (McGuigan, J. R., Moyer, C.R., & Harris, F.H. 2014). If the company wants to stay in the market, it is important for them to understand the pricing policy to maximize profits.

There are some factors like the cost of production, demand of the product, market position and the competition through which business can determine the prices. If the company wants to maximize their profits, they should work on the optimum pricing. Optimum price is the price at which the consumer is willing to pay for the product. One other way that the company can use it is in competitive pricing, keeping track of the prices of their competitors in the market. Assuming P > AC, output level will be profitable, and the monopolist will have no incentive to alter output levels unless demand or cost conditions change. In Monopolistic competition firms have easy entry and exit in the market, but when it comes to oligopoly it is hard to enter and exit because there are fewer firms. Profits are not higher in monopolistic firms because there are so many in the market. On the other hand profits are higher in oligopoly because there is less competition (Ottaviano, G. & Thesse,J. 2011). For monopolistic firms short run earn them more profits and for oligopoly long run will earn them more profits.

The demand for the low-calorie microwavable food is inelastic, conclusion can be made that an increase in the price of the food leads to the fall of the quantity demanded by less than proportionate amount (Serwer, A. E., & Sookdeo, R. 1994). The US Frozen Food Production industry is reasonably determined; with the top four players estimated to account for 40.8% of industry revenue in 2013.To improve the profitability and deliver more value to its stakeholder company has to focus on advertising. Company should be aware of their competitors and what makes their product different than their product. The company has to differentiate products and brands to gain more shares in the market. The company should be willing to adapt to change, anticipate and respond to change according to what the consumer prefers. If there are other companies that raises their prices, company should be able to pass on the opportunity. There has to be effective quality control and have to make sure the product is safe to be consumed. If the quality is not maintained then the consumer can switch to a different product that suits their preference. If the company guarantees supplies at fixed prices, they are going to attract more consumers for their product (www.ibisworld.com).

References
www.ibisworld.com. Retrieved on August 09, 2014.
http://www.foodbusinessnews.net/articles/news_home/Financial-Performance/2013/08/Nestle_seeks_to_fatten_up_Jenn.aspx?ID={D6AD78D0-5F26-40FA-A4D3-163828854B67}&cck=1 Retrieved on August 11, 2014. McGuigan, J. R., Moyer, C.R., & Harris, F.H. (2014). Managerial Economics: applications, strategies and tactics: 13th edition. Mason, Ohio: Cengage. OTTAVIANO, G. P., & THISSE, J. (2011). MONOPOLISTIC COMPETITION, MULTIPRODUCT FIRMS AND PRODUCT DIVERSITY. Manchester School (14636786), 79(5), 938-951. Serwer, A. E., & Sookdeo, R. (1994). HOW TO ESCAPE A PRICE WAR. Fortune, 129(12), 82-88.