Essay: Operations Decisions Market Structure

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[. . .] A helpful way of considering short-run and long-run production and cost minimization planning is to use the frame of constraints that are pertinent to flexibility in decision-making (Besanko & Braeutigam, 2010). Long-run production decisions are not conditioned by constraints, as the quantity of inputs and outputs can be varied as desired by the company. At this prospective period of time, "the costs associated with the long-run decision are necessarily nonsunk" (Besanko & Braeutigam, 2010). Contrarily, short-run decisions are susceptible to constraints, with many decisions about inputs and outputs irreversible and necessarily liable to run their course (Besanko & Braeutigam, 2010). In the practical reality of the food industry, the decisions are less cut-and-dry than described here, occurring in a continuous flow that seemingly bleeds across neat demarcations.

When Should the Company Discontinue Operations?

The inputs of a long-range cost-minimization problem for a manufacturer are capital and labor. From economics, we know that there are combinations of inputs that can yield the same total cost to the company; isocost lines are used to graphically display these relationships (Besanko & Braeutigam, 2010). Over the short-term, inputs related to capital and labor may not be amenable to changes. However, adjusting the inputs over the long-term can produce some meaningful results. For instance, a company may find that spending, say, one additional dollar for labor results in savings of more than one dollar in capital services -- and keeps the output at a constant level. When cost-minimization strategies are not effective and short-term effects cause the company to develop a trajectory that indicates diminishing profits, it is time to divest.

Pricing Policies and Practices

A low-calorie microwaveable food company can maximize profits by manipulating pricing by using strategies that make comparison shopping easy and simple for consumers. One strategy that is commonly seen is product placement on shelves and in food coolers that juxtaposes two similar or nearly identical products and highlights the price differential. Another more sophisticated pricing strategy is make a product seem more or less expensive by causing the consumer to think generally about the product category instead of examining the distinguishing features in order to make discriminations across product features. Advertising with comparative and non-comparative foci may activate different mechanisms of processing information in consumers. While marketing orthodoxy has claimed that a product alongside higher priced products will make it appear to be less expensive to the consumer, there is more at play. Shulman (2011) found that grouping a product with higher priced products causes consumers to think of it as being more expensive and grouping a product with lower priced items suggests a cheaper product to consumers. Pricing may be critically linked to product assortment and promotion, such that price judgments and inclinations to buy products are effected by situational factors (Shulman, 2011). An important pricing strategy, then, is synchronization of price and promotion (Shulman, 2011).

Improving Profitability and Delivering Value to Stakeholders

With about 65% of the Healthy Choices foods consumed by women, it is clear that marketing should emphasize this brand choice for dinner and lunch (Newman, 2012). With only about 45% of the Healthy Choice entrees eaten away from home, the company can promote the brand as a viable workplace lunchtime food choice. In addition, the food category is separating from the fad diet trends and deprivation diet trends in order to emphasize the benefits of the brand (Newman, 2012). However, consumers currently do not differentiate within the food category on this basis (Newman, 2012). A new marketing campaign can better align with the challenges women experience when dieting, focusing on the affective aspects of eating healthy instead of on the product features.

References 5

Besanko, D. And Braeutigam, R. (2010). Microeconomics: An Integrated Approach, Cost and cost minimization [Chapter 7], pp. 30-235. New York, NY: John Wiley & Sons. Retrieved http://www.fep.up.pt/docentes/moutinho/micro/Besanko-ch07.pdf

Newman, A.A. (2012). Spots for Healthy Choice try to feel dieters' pain. The New York Times. http://www.nytimes.com/2012/09/14/business/media/healthy-choice-ads-try-to-feel-dieters-pain.html?_r=0

Shulman, (2011, February). Assimilation and contrast in price evaluations, Journal of Consumer Research. Retrieved http://www.foster.washington.edu/

centers/facultyresearch/Pages/price-analysis.aspx

SymphonyIRI Group. Retrieved http://www.iriworldwide.com/

Weston, J.F. And Chin, S. (1996). Growth strategies in the food industry. CIBER Working Papers: No. 95-12. The John E. Anderson Graduate School of Management at UCLA. Retrieved http://www.business.uconn.edu/ciber / documents/growthstrategiesfoodindustry.pdf

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