Evaluating a Business Strategy for a Corporation

Long-Term Investment Decisions
Pricing Less Elastic
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 respond to a change in price less elastic would be the following: recognize why consumers are buying the product in the first place—is it because of brand loyalty or because the price is right? When prices are inelastic, consumers know what to expect when they go to purchase the product. They are not shocked by rises in the price. Should the price become elastic and the brand they are used to buying suddenly go up in price, they will be more likely to try an off-brand which they viewed as being offered at a discount to their usual brand, which has now become more expensive (Stone, 2010). The degree to which consumers have brand loyalty for the low-calorie frozen, microwaveable product will determine whether there is a significant shift from the firm’s brand to the off-brand. Considering that the low-calorie product is a specialized product (low-calorie), it is less likely that a competing off-brand will offer the same incentive to consumers. However, in order to set the pricing strategy, an assessment of competition will have to be made: is there a competing product that offers the same product at a lower price to consumers?
This question is important because the best way for the firm to keep consumers buying its products even after raising the price is to promote, through marketing, the main reasons this product is different and better than competitors’. Highlighting the fact that it is low-calorie (whereas off-brands are not) is one way to do that. Highlighting other differences can also be effective and certain tricks in marketing can be used to highlight those differences—for instance, the colors of the box, the images of the food (the food should be made to look especially succulent and tasty), and so on. This appeal to the consumer will help off-set the risk of consumer loyalty failing when price elastic strategies are introduced.
The Effect of Government Policy
Government policy can have a tremendous impact on production and employment—from establishing the extent to which foreign workers can be hired (via a visa program) to the setting of tariffs or a border tax on products that the company will import for its own production line. There are also regulatory issues that arise in business, which the government will oversee. One example of this is the way the Food and Drug Administration oversees the production of drugs for consumers. There are numerous regulatory policies that pharmaceutical companies must follow when developing a new drug and government policy changes will have a big impact on the process of development (Jefferys, 2001). Indeed, the more restrictive the regulation, the harder it is for companies to get product to the shelves. Another example of government policies that can impact regulation is in the medical and recreational marijuana industry: federal law is at odds with state law in many parts of the country and there is a big question mark on the extent to which producers are safe from prosecution. Government policy can not only cause businesses to have to spend more to ensure safety and quality, they can also cause businesses to cease production entirely because of concerns related to legality or prosecution. Government therefore has a big impact on business—and in terms of deciding who can work for a company through visa policies (such as H-1B) could play a significant role in who a company hires.
For the low-calorie, frozen microwaveable food company, government policy might have some of the following effects, depending on the type of regulation that is enforced: 1) for employment, it is not likely that hiring policy will make a big impact—though policy related to health care coverage could be impactful, as it will mean assessing what type of employees should be hired (full-time vs. part-time) and what types of benefits must be provided to employees in accordance with federal health care policies; 2) government policy could also have an impact on production and become restrictive for microwaveable food products and cause producers to spend more time and money in the development phase so as to ensure that products are meeting all safety and code regulations. This would inevitably lead to an increase in prices, which could negatively impact the company’s bottom line. On the other hand, if such a policy is about to be implemented, the company could get out in front of it and address it among consumers and stakeholders by describing how the triple bottom line (TBL) will not be affected by the regulation, as it is in the top interest of consumers and the environment that such regulation is installed (Slaper, Hall, 2011). The company could promote being in full compliance with such regulation and thus present itself to consumers as the ideal product that has social and environmental concerns at the top if its priority list. This sort of corporate social responsibility (CSR) can be an advantageous way to win conscientious consumers over the long haul (Castka, Bamber, Sharp, 2005). Using TBL to assess a company’s value and promoting CSR can be positive ways that a low calorie microwaveable food company can use regulation to create a favorable image for the company that the public can feel good about supporting—so not all regulation is bad.
Government Regulation
Two big reasons for government regulation of the market economy are: 1) to ensure that monopolies do not seize the market and create an unfair advantage for themselves, and 2) to ensure that businesses are operating safe environments for workers and for consumers.
The issue of price fixing is one that the FBI has become involved in over the years and a good example of government involvement with this issue is with the case of Archer Daniels Midland and its international price-fixing of lysine with other producers. The company was fixing prices of the product and controlling the market through this illegal activity—so the government through its investigative bureau took action and prosecuted the company. The aim of this involvement was to make the market fairer.
Another example of government intervention is legislation, such as the Clean Air and Water Acts, which promoted a better environment for people impacted by businesses that were polluting the air and streams of communities. This type of intervention in the market is used to ensure that businesses are not harming communities through carelessness and through improper handling of waste materials.
In the low-calorie frozen food industry, government regulation could be utilized to ensure safety of products and that monopolies are price-fixing are not happening. As in any industry, government regulation can help to ensure that no single corporation is obtaining an unfair advantage over another or putting consumers and stakeholders at risk through negligent practices. In the low-calorie microwaveable frozen foods industry, government involvement could also ensure that a company’s products are actually what they are advertised to be—i.e., that they truly are low-calorie and that they are indeed capable of being safely microwaveable.
Expansion via Capital Projects
The major complexities that would arise under expansion via capital projects would include: having enough cash or borrowing capacity to finance the expansion, expanding at the right time, and expanding with the right projects. Expansion should be supported by demand—and if demand is artificially created (for instance, as it can be during a bubble—like in the housing bubble that popped in 2008 and nearly brought the global economy to a crash) then expansion can be particularly disadvantageous for a company that chooses to finance the expansion. It can be left with a debt-load that it cannot service when the bubble pops and demand dries up. A company must also be sure that it is expanding with the right projects; it should evaluate the need for expansion based on surveys of consumers, raw data from sales, and trend lines in the industry which indicate where growth is happening most.
Key actions that the company could take in order to prevent or address the complexities would be to analyze which method of paying for expansion would be the best. The company could issue bonds to pay for expansion (Johnson, 2010; Smith, 2011) or it could pay for expansion by tapping into cash reserves if they are available. If interest rates are low and a good rate can be fixed, expanding through a line of credit could be a good way to go. The company should also identify where expansion is needed and why. This will help to ensure that the company is expanding at the right time and for the right reason.
One of the most important actions is to be patient and not rush in making decisions. Impulsive decision-making in business can lead to catastrophic returns. Due diligence should always be exercised whenever an investment like expansion is being considered. Another critical action to be considered is that the company should evaluate whether the company can sustain the expansion costs should the economy turn southward in the future. Expectations of a recession never happening are unrealistic and thus this occurrence should be measured in terms of how it would affect the company and its planned expansion. This is how to calculate for risk and act accordingly.
Convergence
Convergence between the interests of stockholders and managers could be created by rewarding shareholders with a substantive dividend for their investment in the company (which would keep the share price up and also be a boon for managers who collect shares from the company as part of their payment package of benefits). Another strategy to pursue would be for the company to reduce its debt so that it could increase its attractiveness to investors: too much debt can cause a company to be over-leveraged, which in a downturn, could lead to a serious problem (such as collapse). A company should have enough of an ability to maneuver financially without feeling handcuffed so that management and stockholders can be comfortably certain that economic obstacles will not be an obstacle at some point in the future.
By converging the stockholders’ interests and the interests of management, the company’s outlook can become wholly integrated with all stakeholders being considered in the corporate strategy towards profitability. Investors want returns and management want viability and options. The most likely impact to profitability from such a convergence therefore is the recognition that stakeholders and managers can actually work on the same page to do what is best for the company and in the best interest of investors.
Two examples that can support this notion are the leveraged buyout era with RJR Nabisco and the merger of Coors and Molson. The leveraged buyout era perhaps saw its biggest case with the LBO of RJR Nabisco, when the CEO wanted to take the company private by buying out shareholders. The problem was that the company had tried to expand with a product that was a failure and now needed to hide losses. There was no convergence between shareholders and management—though the buyout ended up reaping big returns for the CEO. The case of Coors merging with Molson is better because it shows how management and stockholders both benefited from this course of action which was to integrate all the needs of stakeholders in a way that would increase potential for all to profit.
Convergence between management and stockholders simply means that the two are aligned in their outlooks. When companies deviate from this alignment, one side is likely to lose. Consider Enron, for example: it completely fooled investors by way of fraudulent bookkeeping and left stockholders holding the bag when the company’s meteoric rise was followed by a crushing collapse when the reality of its shoddy dealings was finally revealed to the market. Management had tried to benefit only itself and had not considered what impact its get-rich-quick schemes would have on shareholders in the end. Had there been more convergence, there would have been more due diligence, more respect for ethical bookkeeping, and more consideration given to the business in which the company was engaged in. When the companies fail to show respect to all stakeholders, they risk entering into practices that can harm one and all and this can easily be avoided by allowing stakeholders to converge, to align their views, to work together towards a common goal. This alignment makes it more likely that ethical practices will be observed and rewarded.

References
Castka, P., Bamber, C., Sharp, J. (2005). Implementing Effective Corporate Social
Responsibility and Corporate Governance: A Framework. UK: British Standards Institution.
Jefferys, D. (2001). The regulation of medical devices and the role of the Medical
Devices Agency. Br J Clin Pharamacol, 52(3): 229-235.
Johnson, R. (2010). Bond Evaluation, Selection, and Management. NY: Wiley.
Slaper, T., Hall, T. (2011). The Triple Bottom Line: What Is It and How Does It Work?
Indian Business Review, 86(1).
Smith, D. (2011). Bond Math: Theory Behind the Formulas. NY: Wiley.