Business proposal for a service business with demand elasticity analysis

Wal-Mart is America's largest retailer and an epitome of business success. The corporation was founded in the 1960s by Samuel Walton, with a vision of quality products at affordable prices. For most of its existence, the company has been a specialized retailer, centralizing products of virtually any category into a single stop store format.

In recent years however, the company has commenced to create its own products and sell them to customers. This move into the private label sector allows the company to create and retail cost effective products, to attract the cost sensitive consumers, and also to retain them.

Currently, a consideration is being made relative to the corporation's possibility of launching a line of bio bakeries, all baked in-house. In other words, the primary features of the new product line would be that they are private label and ecologic. Still, at this stage, it is necessary to devise a plan for their introduction.

Marketing considerations

Market analysis

As it has been mentioned previously, the bio bakeries fall into two categories at the same time as they belong to both private label industry, as well as the market for bio products. The private label industry is characterized by an increasing popularity of private label products, as more and more retailers come to devise their own versions of already existent products. The advantage of such items is that they are produced in-house, and as such incur lower costs. They are ultimately sold at lower retail prices, which stimulate buyer interest (Lincoln, 2009).

The bio market is also following an ascendant path, with more and more players present in the sector. The bio products are characterized by a production mechanism which supports the health of the consumers, as well as that of the environment. The general perception over these items is that they are costly and reveal a lower quality in comparison to traditional products (Ianuzzi, 2011).

In the field of private label products, the barriers to entry are rather high and this is the result of the scale advantages created by Wal-Mart and other such retailers in the industry. In the case of the ecologic products however, the barriers to entry are rather low, resulting as such in an increasing number of industry players of all sizes.

2.2. Target market

The bio bakeries by Wal-Mart would address the target market formed from mature women, as these are the primary home shoppers. In other words, they are normally the ones who complete the grocery household purchases. Women are also more sensible consumers since they place an increased emphasis on the cost of the purchase as well the greater impact of the purchased item (Barletta, 2011).

2.3. The marketing mix

Before actually launching the bio bakeries, the marketing team at Wal-Mart would have to decide on several aspects of the product, the price, the place and the promotional strategies. These are revealed below.

a) Product

The bio bakeries are food items produced within the Wal-Mart bakery laboratory, sold within the company and packed in paper bags with the inscriptions of Wal-Mart

The items have a high quality due to the fact that they only use ecologic ingredients and this represents the point of difference in comparison to other similar products

b) Price

The pricing strategy decision is made more complex due to the combination of two seemingly opposite product traits, namely the private label feature, which stimulates lower prices, and the ecologic product feature, which generates higher prices

The pricing strategy to be selected and implemented is represented by the variable pricing strategy, which disregards the initial expectations and establishes a retail price in accordance with the costs incurred in the manufacturing and delivery of the items. In such a setting, a modification of the costs incurred would be immediately reflected in a modification of the retail price (Mills, 2002).

The pricing strategy would also have to consider the relative inelasticity of the products, as an increase in the price would not be followed by an increase in the demand for the company's eco bakeries.

c) Place

The bio bakeries would be sold within the Wal-Mart stores, fresh out of the oven

d) Promotions

The bio bakeries from Wal-Mart would be promoted with the use of the company's already existent promotional channels

Specific emphasis would be placed on the promotion of the bakeries in the Wal-Mart pamphlets, the banners in the store and the company's website

The scope of the promotions is that of luring the customers towards the fresh and tasty products, but also informing them of the eco traits of the bakeries.

3. Financial considerations

The production and sale of the bio bakeries at Wal-Mart is made more complex by the need to generate profits from the activity. In such a setting then, several financial considerations have to be addressed. These refer to the following:

Revenue increase

Profit maximization quantity

Marginal cost and marginal revenue for profit maximization

Cost minimization.

In order to increase the revenues from the sale of the bio bakeries, the company would initially strive to attract as many customers as possible. This effort would be completed through promotional activities, and the challenge would be represented by the ability to retain the customers once the promotional efforts are completed.

Gradually, as the products are established among consumers, the company could develop and implement other strategies to increase the sales volumes. Two examples in this sense include the signing of delivery contracts to schools or offices, or the enlargement of the product palette to serve more tastes.

In terms of the actual volume of production, this will be determined with the aid of a break-even analysis, through which the company would identify the production volume at which it has covered its costs and commences to generate a profit. In the same setting, it is important to give consideration to the concepts of marginal cost and marginal revenue.

Specifically, the maximization of the profit would depend on the marginal revenue, referring to the per unit revenue generated by a sale of one product. In other words, it is expected for the marginal revenue to be small as the production commences and for the marginal cost to be high at this point. As the production increases however, the marginal revenue would increase and the marginal cost would decrease. The balance between the two variables would indicate the company's point of profitability optimization.

Finally, in order to decrease the costs, the organization could develop a series of strategies, some of the more notable of them including those listed below: