Pricing strategy and government regulation in frozen food markets

Long-Term Investment Decisions

Raising Prices

Keeping prices inelastic is one way to ensure that a pricing strategy does not impact the reasons for a consumer's purchasing of the product. If price is elastic, it rises and falls with various factors that impact its cost -- and this in turn more than likely will have an impact on whether or not a consumer will buy (unless brand loyalty is the main reason for purchasing, consumers will buy when a product is offered at a "discount" price and move to a different or "off" brand when the price is higher) (Stone, 2010).

However, with products such as low-calorie frozen, microwavable food there is not likely to be a high degree of brand loyalty unless the product has shown itself to be significantly better than other products. Even then any price inflation could upset the consumer base and alter demand. Thus an inelastic pricing strategy would be best suited. But if prices are determined to be raised by the company then a strategy to ease into this is suggested.

One way to ease into this strategy of raising the price and ensuring that consumer demand stays the same is to promote and market the products as being different and better than the products of competitors. The goal here is to boost brand loyalty so that when the price change is introduced, consumers will still purchase it and not be turned off by the increase in cost to themselves. This will help to ensure that the product retains its visibility on the shelves and that consumers are still attracted to it in spite of the concerns they may have about the price. They will be more likely to spend a little more because they will have a feeling, generated through the marketing agency of the company, that this product is superior and therefore that it is worth the cost. Thus a pricing strategy in this case is linked to a marketing strategy.

The Impact of Government Policies

Government policies have a tremendous effect on production and employment. Going all the way back to the early 20th century before child labor laws were enacted and before the agency that became the Food and Drug Administration was set in place, there were no policies in force to keep producers from exploiting labor or from using unsanitary and unsafe methods of production. Now, we have 40-hour work week thanks to the government as well as protocols and procedures in place for production. For example, the FDA is involved in regulating medical devices as well as food and drug production. As Jefferys (2001) observes, "devices are regulated as engineering products," (p. 229) but are viewed from the standpoint of government as something that has an impact on health and thus needs regulating. This in turn sets the stage for production, labor and development as time is needed for testing and approval: Jefferys (2001) again explains: "The life span of a device product is typically 18 months compared with 10 years or more for a pharmaceutical" (p. 229). This means that these devices have a very short shelf life as far as the market is concerned. Were the same regulations that are applied to drugs applied to devices, the devices would already be outdated before even being allowed to hit the market -- such is the speed at which technology evolves in this day and age. This shows that for different products there are different levels of regulation.

The potential impact that governmental policies could have on this company would be akin to what the electronic cigarette industry is currently facing with new governmental policies on vaporizing and the use of electronic cigarettes: if strict regulation is enforced, the sector could suffer as a result; but if regulators perceive the beneficial impact of the sector on health, they may be less inclined to suppress the sector through harsh regulatory acts. Microwavable food faces the same hurdles: if health groups begin to advocate against us, it becomes a problem for regulators, who may seek to establish harsher regulation which could hurt the industry. Sometimes health groups are sponsored by competitors who seek to drive a certain sector out of the market -- and this is what is seen with tobacco vs. vaporizing sectors: the big tobacco industry is losing market share to vaporizers and wants lawmakers to rule against vaporizers as a healthy alternative (Chaudhui, 2015). Should food producers view microwavable foods in the same light and press lawmakers to jump on the "healthy" bandwagon, even though or products are low-calorie, there could be significant backlash that hurts the company financially and causes employees to be laid off.

Is Government Regulation Needed?

The major reasons for government involvement in a market economy are that monopolies that are harmful to fair/free market principles can form, consumers may be unprotected against unregulated activities of unethical companies, and oversight is needed in order to keep companies from colluding and engaging in unethical practices like price fixing, etc. Thus, the main reason for government involvement is to eliminate unethical activity on the part of companies. But this does not always mean that government involvement eliminates unethical practices. In an imperfect society, government regulators themselves can act unethically and favor unethical practices by a company because of cronyism (crony capitalism) or bribery (corporate sponsorship such as is seen on the campaign trail when candidates receive significant sums of cash from firms).

Two examples of government intervention in a similar market economy would be in the case of the creation of the Clean Air and Water Acts, that allowed the government to get involved in the cleaning and purifying of rivers and streams that had been polluted by industries; and another example would be the creation of the Federal Aviation Administration (FAA) which oversees the movement of air traffic and allows for planes to fly with more freedom and safety than there would otherwise be. Thus, government intervention can be a good thing in a free market -- though it does not always have to be, as the bailout of the Too Big to Fail banks in 2008 shows: this was a case of crony capitalism benefiting the banks at the expense of the consumer.

As far as the low-calorie frozen microwavable food industry is concerned, the only reason for government regulation in this sector would be to ensure that quality is being delivered at safe levels for consumers. This would help to ensure fairness by putting all competitors on the same level in terms of obliging them to produce at the same regulatory standards. Without these standards, there would likely be unethical activity on the part of companies attempting to produce more for less, which invariably involves cutting corners on production, whether in terms of safety, standards of quality, or health standards. Thus, for the sake of fairness, it would be a good idea for government regulation in this sector -- but it is important to remember that this regulation should be conducted for the right reason and not because a competitor is attempting to exploit government regulation in order to gain an unfair advantage.

Creating a Convergence

A substantive manner in which the company could create a convergence between the interests of stockholders and managers would be to offer a significant quarterly dividend which would make stockholders happy (and managers typically hold stock too -- so they would also be appreciative), and another manner would be to eliminate date so as to raise the fundamental value and worth of the company. When converging interests under a unified goal or objective, a company shows that it is accountable in the public sphere and is willing to manage itself with a view to pleasing consumers, stockholders and management.

Two examples that support this idea is Apple's taking on more debt in order to issue a higher dividend to stockholders: this raises the valuation of the stock price per share, as more investors want to own shares in the company so as to receive the dividend payment. Another example is the expansion of tobacco companies like RJ Reynolds, which engaged in mergers and LBOs in order to expand its influence and income -- and this was problematic for management and shareholders at turns, but in the long run the equation evened out and the right formula or balance was found that allowed the company to grow and profit from the convergence. A third example would be the merger of Coors and Molson, which allowed the stock price to flourish over time and make both managers and stockholders happy. Thus, the point to having a successful convergence is to make sure that all parties have and receive what they want and require. Ignoring one side over the other or attempting to placate one and not the other can result in catastrophe, as RJ Reynolds certainly experienced at the outset of its expansion plans during its LBO days.