Long-Term Investment Decisions for the Low-Calorie Microwavable Foods Company
- Pricing strategies plan
- Effect of government policies on employment and production in the low-calorie microwavable foods industry
- Need for government regulation in the low-calorie, frozen microwavable foods sector
- Complexities the company might face under expansion through capital projects
- Convergence between company stockholders and managers interests
Low-Calorie Frozen, Microwavable Food Company: Long-Term Investment Decisions
Pricing Strategies Plan
A company’s pricing strategy essentially forms major component of the overall business strategy. The previous analysis reveals that the business is apparently facing price elasticity of demand, at the ratio of 1.19. Consequently, it is right to consider that the low-calories food company is experiencing elastic demand as the industry expands.
According to McGugain, Moyer and Harris (2014), “the (price) elasticity of demand refers to the ratio of the percentage change in required quantity, to the percentage change in price, which results in or facilitates change in relation to requested amount” (p.26). Cutler, Glaeser and Shapiro (2003) further argue that the low-calories foods industry prices are relatively elastic. The company managers hence have to be very careful while planning on raising the prices of their products.
Since the demand for the low-calorie foods is elastic, it follows that price increases will most definitely culminate into lower demand for their products. On the other hand, reduction of the low-calorie foods prices would cause an increase in the quantity of the order. Striking a balance of both the producer and consumer interests should thus form the basis of the company’s pricing strategy.
Elasticity in relation to the demand for the low-calorie foods also varies while considering the various ingredients used and other expenditures. For instance, the cross-price elasticity and income elasticity of demand constitute a major source of concern. Considering all these aspects of price elasticity about the low-calorie foods products, it is apparent that increment in the prices risks the company loss of a lot of revenues.
According to Guthrie, Lin and Frazao (2002), sales and consumption of healthy foods are variables subject to increment by increasing the availability of these foods. People need to be more convinced of the health benefits of the low-calorie foods if they are going to be convinced to buy irrespective of increased prices. The low-calorie diets demand was previously shown to be inelastic with relation to the advertising expenditure.
Managers should consider increasing the availability of the low-calorie foods and labeling as some of the strategies of wooing more customers even after price increment. However, since the effect of labeling is relatively small, reduction of the prices of the low-calorie foods provides the best strategy for enhancing consumption.
A case example is the U.S foods market. Despite of the increasing popularity about healthier menus, the actual ground facts are contrary. For instance, the number of Americans who are obese is growing. According to Chandon and Wansink (2007), from 1991 to 2001, obese adults’ proportion in the U.S grew from 23% to 31%. Consequently, increasing the prices of the low-calorie foods might cause diminished demand, irrespective of other control measures.
Effect of Government Policies on Employment and Production in the Low-Calorie Microwavable Foods Industry
The food industry is highly regulated due to its sensitivity to the health and well-being of the general public population. Consequently, various government policies govern the employment of individuals, and production of the food products in the industry. The low-calorie microwavable foods fall under the processed foods category. Policies and regulations in this industry either directly or indirectly influence the supply and prices of the food products.
Also, the nutritional composition and quality, as well as information communicated to consumers regarding the foods are also regulated by these policies (Balasubramanian & Catherine, 2002). Some of the regulations with significant impact in the sector include food production technologies approval by the federal government, to enhance safety assurance.
According to Chandon and Wansink (2007), factors such as packaging and labeling constitute a major undertaking in the processed foods sector. The government highly regulates packaging materials used, as well as branding, in order to avoid misleading information (Chandon & Brian, 2002). Labeling policies, on the other hand, ensure consumers are provided with adequate information as they make decisions regarding nutrition and safety (Chandon & Wansink, 2007).
Regulation of employments in the food industry requires that personnel should manifest an adequate level of competency for safe and clean food production (Chandon & Brian, 2002). Food handlers are also obliged to have appropriate training on proper food protection and handling techniques (Chandon & Wansink, 2007).
The various policies and regulations are exerting a greater toll in the food processing industry. For instance, the more advanced production technologies, packaging, and labeling requirements raise the production costs, although this is for a good reason. Consequently, the low-calorie microwavable foods company will in future require raising product prices, due to the increased production costs. The proposed food processing technologies, and employees competence might also necessitate staff layoffs in the long-run.
Need for Government Regulation in the Low-Calorie, Frozen Microwavable Foods Sector
The need for government regulation to ensure fairness in the low-calorie frozen microwavable foods area is indisputable. Apparently, the food industry is vast and sensitive due to its effect on the population, hence the need for government regulation.
According to Cutler, Glaeser and Shapiro (2003), the ability of food manufacturers to satisfy variations and also gauge consumer preferences has increased. The technological advances in processing, transportation, communication and storage have facilitated enhancement of this capability.
In the US alone, for instance, consumers have 40 000 various processed food products to choose from, including the low-calorie frozen microwavable foods. Without adequate regulations, food manufacturers can quickly exploit and harm the population by providing sub-standard products.
According to Cutler et al. (2003), food manufacturers are competing to attract and retain customers through the fast foods such as the low-calorie frozen microwavable foods. Consequently, a considerable number of the producers offer food products rich in fats at low prices, hence luring customers to their products under the guise of value for their money. The consequence is the growing number of obesity cases.
Considering the trend the food industry is taking, tougher government intervention becomes necessary. According to Balasubramanian and Catherine (2002), the microwavable foods market is forecasted to exceed $75 billion by 2015. The growth results from the fact that quality of microwavable foods is getting better (tastier and healthier), thanks to government regulations in the industry.
Globally, the industry is expected to reach $186 billion, with the major markets including the US, UK and Asia (Balasubramanian & Catherine, 2002). Government organizations such as the Food Standards Agency (FSA) in the UK have contributed immensely to the growth and governance of the industry through stringent policies and regulations.
Complexities the Company Might Face Under Expansion via Capital Projects
Capital projects provide one of the best methods for companies to expand. Capital projects also have long-term benefits for a business organization, hence their need to be analyzed carefully (McGugain et al., 2014).
Some of the complexities that the low-calories frozen microwavable foods company might face while expanding through capital projects include changes in technology. Food manufacturing technologies in the industry are evolving very rapidly; for instance the freezers and packages among others. The company might invest in a production plant, only for better facilities to be developed a year or more later. Such projects would be difficult to alter once established.
To overcome this complexity, the company can invest in low-scale capital projects while expanding. Consequently, the implementation of changes is much easier. However, it is noteworthy that the solution might limit the production capacity of the company in the long-run. The bottom-line in such a case is expanding in line with the company’s mission, vision and corporate strategy.
The other complexity the company might face if expanding via capital projects relates to the effect of expansion on the pricing strategy. According to Balasubramanian and Catherine (2002), capital projects have a significant influence on the cost of the finished products price.
Such projects usually lead to financial burdens that the company suffers during debt repayment. In addition, the type of investment to a significant extent determines the manufacturing cost (Cutler et al., 2003). For instance, a capital project such as a production facility might in the long-run consume more resources such as energy, which contributes to the cost of a product.
Such complexities can, however, be overcome by investing in projects with optimal returns for the company. For instance, the management can choose to only invest in the latest technologies despite of their cost. Putting the investment into technologies exhibiting longer lifespan before becoming obsolete also provides a more reasonable option.
Convergence between Company Stockholders and Managers Interests
Managers and stakeholders interests usually diverge whereby the objectives of both parties regarding the enterprise differ (Chandon & Wansink, 2007). For instance, while the stockholder might be more interested in increasing the value of the firm, the managers might different interests. The managers might be more concerned about revenue growth as opposed to profits.
Due to the small fraction of the company stocks owned by the managers, they might concentrate efforts on maximizing their incomes. The managers might choose to avoid risks in order to optimize their returns and earnings (Cutler et al., 2003).
However, the low-calorie frozen microwavable foods company stockholders and managers interests can be converged through several measures. The management remuneration can be tied to their performance hence ensuring that they maximize the company profits as well as the value.
For instance, the low-calorie frozen microwavable foods company managers’ salaries and bonuses can be varied in proportion to the overall performance. Consequently, managers will strive to ensure they get optimal performance in terms of company value and profits.
The low-calorie frozen microwavable foods company directors and stockholders interest can also be converged by ensuring managers hold substantial stocks in the enterprise (McGugain et al., 2014). In this manner, the managers will be left with no alternative but to work for the interests of both parties. For instance, managers can be assigned 10% of the company’s stocks, hence enhancing their loyalty and efforts towards furthering the profitability of the enterprise.
A company’s long-term investment decision should be based on various factors. The industry trends including competition, market regulations and consumer preferences constitute a basis on which investments should be carried out. The pricing strategy of the company’s products should consider quality for the customers, as well as profits for the enterprise. Balancing these factors should inform positive long-term investments decision for the organization.
Balasubramanian, S.K., & 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), 112–27.
Chandon, P., & Brian, W. (2002).When are stockpiled products consumed faster? A convenience-salience framework of post-purchase consumption incidence and quantity. Journal of Marketing Research, 39 (3), 321–35.
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.L., & Shapiro, J.M. (2003). Why have Americans become more obese? Journal of Economic Perspectives, 17(3), 93-118.
Guthrie, J.F., Lin, B.H., & Frazao, E. (2002). The 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.
McGugain, J. J., Moyer, R. C., & Harris, F. H. (2014). Managerial economics: Applications, strategies, and tactics (13th ed.). Stamford, CT: Cengage Learning.