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...

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…