November 28, 2010
Milestone I:Business recommendations based on economic projections
Determine pricing strategy to meet organizational goals
In every organization strategies have to be put in place to ensure the company runs smoothly. Larson is currently facing a slowdown in business due to financial issues throughout the economy. The company is currently being labeled as a risk because of some of the past dealings with products and pricing. Larson is currently using the cost-plus pricing strategy. This strategy consists of setting the price at the company’s production cost which includes fixed cost at current volume, cost of goods, and a certain profit margin. (Allen,2010). This strategy is a good choice because the business should always be operating at a profit. However, due to the competition in the battery market and financial issues Larson needs to due some restructuring to its pricing strategy. After evaluating the present plan, it is clear that Larson needs to establish a new pricing strategy to assist with the recent dilemma. The pricing strategies that Larson should use is value based pricing. With value based pricing companies charge on a variable scale according to the results achieved. If Larson can successfully restructure to this strategy it may be the most profitable form of pricing. (Allen,2010). With this strategy Larson will charge a cheaper price than other competitor in the battery market. This will allow the company to capture new clients in the market and building an image for the products. Once clients realize Larson’s batteries are unique and long-lasting they will become valuable necessity, which in turn cause clients to return and suggest the products to others. Once the product has been deemed as valuable clients are willing to pay more. Therefore Larson can gradually begin to raise the price for a bigger profit.
Determining non price barriers to entry based on market structure Larson Inc. is an international company supplying batteries for electronic equipment. It has over 15 years of experience operating in both America and Germany. Larson Inc. has made a good name for itself in the highly competitive battery supply industry. Larson Inc. has had a difficult time realizing projected profits while attempting to break into the American market. This is due in large part to barriers to entry, which are obstacles in a firm’s path that make it difficult to enter a given market (McConnell, Brue & Flynn, 2009). The barriers to entry that Larson Inc. is experiencing are due to economic financial troubles in the U.S. economy and lackluster advertising/marketing. After reviewing the financial/economic results of the company (University of Phoenix, 2010) , the team made recommendations that will create non-price barriers to entry (eliminate barriers in Larson Inc’s path). Troubles in the U.S. economy have caused consumers to save more and spend less. This can be due in part to loss of jobs thereby causing consumers to either turn from essential items or cut down on the consumption of these items. The total cost per unit is only $110 in the U.S. Larson Inc. currently has a 35% markup on batteries in a highly competitive U.S. market. The team recommends a temporary reduction in the price of our products in the U.S. (reducing markup to 25%) which is slightly lower than our competitors pricing. The reduction in price will increase the consumers buying power and will jumpstart or increase the company’s battery sales in the U.S. market. Now in terms of the Germany market, there is much less competition. Total cost is $135 per unit, with only a 25% markup. With less competition we recommend a price increase (35% total markup) in the German market. This can be done, as Larson is a more recognizable brand having been operating in Germany for over 15 years with less...