Running head: BUSINESS RECOMMENDATIONS FOR BIG DRIVE AUTO
Business Recommendations for Big Drive Auto
Learning Team B
October 4, 2010
Business Recommendations for Big Drive Auto
Economic influences play a major role in the success of a company especially when consumers are hesitant on spending or investing their disposable income or have many choices of who they will purchase from. Demand shifts influence profitability, which has a direct effect on the company’s ability to remain successful. Companies must carefully analyze the industry within they fall and understand how economic influences will affect their functions and infrastructure. Big Drive Auto Company is a major player in the market of automobile dealers in its market area. With many locations, including Canada, Big Drive Auto is an automobile company that sells many types of automobiles and automotive parts. What has made the company so successful is that Big Drive Auto has always attempted to stay on top of what its competitors are doing and how they are doing it. “Management is always scanning the macroeconomic environment for signals that may help Big Drive Auto better plan their business” (Big Drive Auto Scenario, 2010). After examining the data the company has maintained on its volume of sales for its various lines of business, the company determined it needed recommendations from experts. These recommendations would include suggestions on pricing strategies, non-price barriers to entry, and product differentiation. Pricing Strategy
Whether a company is attempting to find its strengths to maintain or build leverage the company must have a pricing strategy. “In a competitive market, the seller must consider the four "P"s of marketing: price, product, place, and promotion. Firms must develop pricing strategies to accomplish marketing objectives based on their assessment of market conditions (e.g., forecasts of supply and demand) and the economic condition of the business entity” (Review seller’s market, 2010). Big Drive Auto is one of many firms that sell automobiles in a large market. Because Big Drive Auto exists in a “situation in which a particular market is controlled by a small group of firms” the company is an oligopoly type market structure (Oligopoly, 2010). Unlike a monopoly market, which consists of only one firm in its market, an oligopoly market structure involves more than one firm. Of the two types of oligopolies that exist, homogeneous and differentiated, Big Drive Auto is a differentiated oligopoly because they “typically engage in considerable non-price competition supported by heavy advertising” (McConnell, et al., 2010). “In profit-maximization pricing, the seller assumes that demand falls as prices increase, and grows as prices decrease. A firm using this strategy carefully analyzes the market to find the combination of price per unit and quantity of sales that maximizes profit. When employing this strategy, the seller considers the following points: • Is demand sensitive to price changes?
• As price increases, does demand decrease?
• As price decreases, does demand increase?
• What is the point of profit maximization?
This is determined through analysis of the relationship between price and demand. However, this pricing strategy is most effective in situations where: • Price is an important marketing factor affecting demand. • Competitors react relatively slowly to price changes.
• Suppliers and dealers react relatively slowly to price changes. • Actual relationships between price and customer demand can be effectively estimated” (Review seller’s market, 2010). It is recommended that Big Drive Auto follow this pricing strategy because the company is capable of determining their own prices for the products they offer. Big Drive examines their competition’s pricing strategies and creates their product pricing according to what price the market is currently selling same-like products for....
References: Barriers to entry. BusinessDictionary.com. Retrieved October 03, 2010, from BusinessDictionary.com website: http://www.businessdictionary.com/definition/barriers-to-entry.html.
Big Drive Auto Scenario, (2010). Retrieved on October 1, 2010, from University of Phoenix online classroom
McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics. Principles, Problems, and Policies (18th ed.). Retrieved from the University of Phoenix eBook Collection database.
Oligopoly. (2010). Retrieved on October 2, 2010, from the Investopia Web site: http://www.investopedia.com/terms/o/oligopoly.asp.
Review seller’s market, 2010. Retrieved on October 4, 2010, from http://www.acq.osd.mil/dpap/cpf/docs/contract_pricing_finance_guide/vol1_intro.pdf.
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