Frozen Food Firm Evaluation

Frozen Food Statistics

The industry is quite a competitive one. There are a number of large firms in operation that already hold an enormous share of the overall market. Take for example Lean Cuisine and Stouffers. Lean Cuisine corners a healthier market, by covering lower calorie frozen food options and single serve dinners that appeal to those who are on a diet, but still do not have the time to prepare their own foods. Another major competitor here is Stouffers. This firm is much larger and therefore targets a more diverse demographic. It has its own diet options, but also caters to younger demographics and those who enjoy comfort foods but do not have the time to prepare them.

As seen in the last assignment, it was recommended that the firm cut its prices in order to increase overall demand. By cutting prices, the firm has the potential to increase its market share in the market environment. Yet, the firm has to be careful as to what price points to choose, as cutting prices too drastically would negatively impact the supply available, meaning that the firm would sell out too fast. Stock outs are expensive and can become a serious issue in regards to the ability of a firm to capture the potential market share. According to the research, "Stockouts negatively impact your organization's revenue and put money in its competitors' pockets" (Dominick, 2012). Essentially, if the firm chooses to price its products too low, it may result in negative impacts because it could have the potential to cause the firm to stockout. With no inventory to meet demand, the firm would ultimately loose out on sales, with potential customers turning to the firm's competitors to meet their demands. This is ultimately a behavior that would cost the firm nearly as much as pricing the product too high, which would also loose sales to competitors.

Ultimately the optimal price for this particular firm would be between $200-$300. As seen in the following Supply and Demand curve, this would be an appropriate optimal price that would increase demand and ultimately market share, without having the risk of stockout potentials. Avoiding stock outs is just as crucial as avoiding pricing products too high. Thus, pricing the product at around $250 to $275 would be the ultimate optimal price point for the product given the strategic goals of the company.

Sticking to similar pricing points in the event of changing markets would require greater flexibility. As the market environment a change, the firm needs to have a flexible that allows it to adjust pricing by the changes in the market environment. Here, the research suggests "a flexible pricing strategy allows a business to quickly adjust pricing as necessary to accommodate a changing business climate or to overcome competitive challenges," (Roltgen, 2013). Thus, in order for the firm to take advantage of the benefits of a flexible pricing strategy, it needs to constantly be evaluating the costs and factors in the market environment. This requires ongoing analysis of costs vs. demand factors in order to ensure that the set price point is appropriate at any given time. When the evaluation shows there is need for a change in pricing, the firm can then make the necessary adjustments in order to stay above the competition and to generate continually growing sales numbers.

Question 2

There are a number of factors that would create the need for the firm to adjust its marketing and operating strategies. First and foremost, the entrance of other competitors into the market environment could cause a serious need to adjust strategies. If a competitor has a much lower pricing strategy, as in the event of a price cutting strategy, it may force the firm to have to lower prices beyond what they are comfortable doing in order to stay strong against this new incoming competition. A strong new competitor that can produce more than what the firm can ultimately force the firm to have to renegotiate variable costs and the costs of materials in order to be able to compete with the production.

Additionally, there is the constant issue of changing technology. Here, the research suggests that "innovations in technology can force a business to change just to keep up" (). When a competitor implements new and more productive technology, it would be important for the firm to do the same in order to stay relevant within the market. However, roll outs of new developing technology can be a huge short-term investment that would ultimately lock up some of the firm's free cash. Additionally, it can cost the firm dramatically because it needs to retrain employees to keep up with the latest technology. New hires may be necessary that understand the new technologies better in order to ensure that a new technology roll out will be successfully. Although these costs can be quite high, they are necessary. It is important for a firm to stay up-to-date and not to allow the out dated technology to become a major factor in lagging productivity in comparison to other competing firms.

Question 3

In order to make the most well informed decisions, it is crucial to analyze both the short and long run cost functions. These evaluations use the average fixed cost (AFC) which is set at 1,175.49, the average variable cost (AVC) which is set at 186.04, and the average total cost (ATC) which is set at 1,348. These numbers are set when the demand is at an optimal setting.

For the short-term evaluation, let this research assume that the firm will continue operating with a production goal set at 6,000 units each month. Each month has an average of 20 working days, which accounts for the exclusion of weekends and any potential holidays during that month. This ultimately means that the firm produces 300 units a day by utilizing all 100 of its workers. In order to understand worker productivity (WP), all one has to do is divide the number of units produced each day by the number of workers. This leaves an average worker producing 3 units a day within the given circumstances.

ATC= TC/Q = (160,000,000)/Q + 100 + 2 * 0.0063212Q = 1,348

===(AVC= TVC/Q = 0.71 = 186.04

===(AFC= TFC/Q = 1,175.49

To calculate these computations further Q* = 13,611

TC = 160,000,000 + 100Q + 0.0063212Q2

160,000,000+100(13,611) + 0.0063212(13,611)2

160,000,000 + 1,361,100+ 1,171,061.22

TC=162532161.22

VC = 100Q + 0.0063212Q2

100(13611) + 0.0063212(13611)2

1361100 + 1,171,061.22

VC= 25321161.22

MC= 100 + 0.0126424Q

=100 + 13611.0126424

MC= 13711.0126424

In this case, ATC is not minimized because it is not very close to the calculations of MC. Still, the ATC is lower than the MC, at 1,348, whereas the MC is at 13,711. Ultimately, from a short-term perspective, if the conditions and costs of materials do not change, the price per unit will also remain very similar to what it is at right now. This means that the firm will be able to continue production by covering all costs without the need to shut down.