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Assignment 3

4085 words - 17 pages

Assignment 3 LONG TERM INVESTMENT DECISION

The grocery food market is filled with various options for microwavable food depending on the preferences of the consumers. Instead of the traditional use of the oven many families now use the microwave because of their busy lifestyles. The variety of healthy low calorie -microwave food has made shopping much easier for today’s busy consumer. Low calorie labels are regulated by the Food and Drug Administration (FDA) and require food “labels claiming low-calories must not have more than 40 calories for a given reference amount (except sugar substitutes)”. (The Calorie Control Council, 2014)

Healthy low-calorie microwave foods have come a long ...view middle of the document...

Investment is the purchase or creation of assets with the objective of making gains in the future. Typically investment involves using financial resources to purchase a machine/building or other asset, which will then yield returns to an organization over a period of time. Planning investments involves thinking about a range of issues that have a bearing on where you ultimately decide to put your money. These issues will vary according to your particular age, circumstances and attitude to risk, and thinking about them carefully before you start making commitments will help you avoid some potentially costly mistakes. 

1. Outline 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 response to a change in price less elastic. Provide a rationale for your response.

Pricing the product to reach out the current and potential customers is crucial for the managers. It is their understanding and decisions that are going to determine the success of any business. A major strategy that ensures that customers are retained with the product is to make the product inelastic employing pricing and other strategies. However, before the strategies are discussed to make low-calorie microwavable food inelastic, we must know the meaning of elasticity.
Elasticity or price elasticity is a measure of quantity demanded responds when price is changed, that is, it a measure of responsiveness of the consumer due to change in price. It is measured as the ratio of the percentage change in the quantity demanded and percentage change in price. If the elasticity of demand is greater than one, we say that demand is elastic, if it is less than one, we say that demand is inelastic, if equal to one, we say demand is unit elastic.
The company aims to keep the prices of its products as inelastic as possible. This means that the pricing strategy should have no impact on the way the consumers perceive and buy such products (Definition of Inelastic, (n.d.)). Generally we see such demand only in situations in which the good or services are indispensable and the consumers cannot do without those goods and services. But this is not the case for microwavable food products. There is competition in the market to keep the prices under check. Hence the company needs to do two things to make its prices inelastic- First of all the company needs to spend money on the R&D efforts to differentiate its products from the rest of the players. This differentiation could be on the basis of the core product, advisory service which comes along with the product, packing, availability, support services or virtually anything else. As the second measure it needs to send down two important messages to its potential as well as current customers through its marketing communication efforts- First that the low calorie food should not be choice but be used as essential and...

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