Eco_561_Wk_4_Business_Proposal_Will_Burry

Business Proposal University of Phoenix Economics ECO 561 Business Proposal Today's technological world has decreased the amount of hard copy books, newspapers, and printed magazines. Though technology has taken over the economy on a massive level, consumers are still enjoying literacy within the technological realm. Will Bury is an entrepreneur inventor with an invention that will enable readers to enjoy their reading leisure on a heightened level with digital programs and synthetic voice that sounds more realistic than the current digitized digital reading applications. Will Bury's dream of expanding his invention and offering it to the wider public means he will need to make some changes in his current business handlings and surroundings. Mr. Bury needs a added staffing and functional working environment to continue working on his latest digital invention. Identification of market structure Mr. Bury's current business endeavor is part of a monopolistic competition market structure. A monopolistic market structure is "characterized by a relatively large number of sellers producing differentiated products" (McConnell, Brue, & Flynn, 2009, p. 177). Bury's invention is categorized into the non-price competition strategy of the monopolistic market structure. A non-price competition structure best fits his business model because Mr. Bury is trying to distinguish his product from competing products based on his invention's design and workmanship. Such an approach as distinguishing one's product from the competition is referred to as product differentiation. Assumptions regarding market structure and elasticity The newly invented product can be viewed as an inelastic product based on the rule of price elasticity of demand. Price elasticity of demand "refers to the way prices change in relationship to the demand, or the way demand changes in relationship to pricing" ("What is Price Elasticity of Demand'," 2013, para. 1). Price elasticity references the amount of money a consumer is willing to pay for a specific product or service. Will Bury's digital production allow readers to view and even listen to a digital recording of their selected book. The digitizer is a product that is not in high demand. Because there are no substitutes in the digital market for such a product, the elasticity of the product is low. Chosen method to increase revenue Elsa Budley has given Mr. Bury some insight as to how he can increase revenue for his digitizer invention. Utilizing a proper marketing strategy in conjunction with a pricing overhaul will increase revenue for the new product. Currently Bury is selling his products at two prices: $10 for a title on which copyright has lapsed and $15 for a title that includes a royalty fee. During the first month of operation, sales for the digitizer included 1,000 sold of the older books and 2,000 for the newer books. The confusion that is weighing heavily on Bury is why he was not able to sell as many old books as he did the new. Elsa Budley mentioned that her artwork sold well but improved once she increased the prices based on her own business needs. Ms. Budley has suggested that Mr. Bury increase the sale price on his older books to increase revenue. Chosen methods to determine profit maximizing quantity Increasing prices for the older books may seem as though it is a shocking solution; however, when considering total revenue, the solution is ideal. Total revenue "is calculated as the quantity of a good sold multiplied by its price. It’s a measure of how much money a company makes from selling its product, before any costs are considered" (Tuck, 2013, para. 4). Bury's small business can increase its total revenue by selling more items or by raising the price of his current product. The optimal solution for the short term is to increase the price of his current product in order to make more revenue so he can utilize the earnings to expand the business. Expanding the business will enable Mr. Bury to purchase a proper functional working facility as well as higher employees to help run the business. Once the business has started to expand, and they are able to produce more product and more varieties of digitized books, Mr. Bury can again consider lowering prices to sell more products. Use of marginal cost and marginal revenue to maximize profit The profit-maximizing quantity is calculated by determining if the product is considered to be price-elastic or in-elastic. The price of the digitizer has been determined to be elastic. A decrease in price could increase total revenue. The suggestion by Elsa Budley to increase in the price of the older books without increasing the price of the newer books can equalize Burly's playing field by allowing him to gain more profit. The current price of the newer books has not affected consumers based on the reporting of double the sales for the newer books vice the older books. Burly can increase the price of the older books and decrease the price of the newer books to maximize his profit. Mr. Bury can create a revenue curve graph as additional sales at various prices create additional data. Profit-maximizing quantity for the digitizer can be determined by using the formula MC = MR, which is marginal cost equals marginal revenue. Marginal revenue is "the increase in revenue from selling one more unit of a product" (Pietersz, 2012, para. 1). One way to increase profit is to increase revenue as long as the marginal revenue is larger than the marginal cost in the fore mentioned formula. In order for Mr. Burly to maximize profit, he will need to produce a larger variety of digitized books. Suggested mix of pricing and non-pricing strategies The information Mr. Bury needs to determine marginal cost and marginal revenue is calculations on average fixed costs and variable costs to determine the overall expense in making the product. The marginal cost of each unit is the difference in the average total cost per unit. Will Bury has already determined that the price of a 500-page book on CD costs roughly $20. Mr. Bury's invention surpasses the competition by producing a product that will not surpass the higher costs of those in the CD market. His decision to price the newer digitized books at $15 is a wise decision. The older books are currently priced too low. Increasing the pricing of the older books to $15 will increase Mr. Bury's profit. Without this information, it would be very difficult for Mr. Bury to make a wise decision. Non-pricing strategies for the digitized book would be the implementation and maintenance of a website for the growing company. Websites can be maintained at a minimal cost to the owner. From the site, Mr. Bury can promote his product, create add space to fund the website, and offer discounted prices for first time buyers. Mr. Bury can also expand his social media presence for a larger audience. Social media is widely used as a free advertising and business relationship building foundation. Mr. Bury can build a stronger network and rapport with his customers with simple electronic solutions. Barier to entry The strongest barrier to entry into Will Bury's competitive market is the issue of the patent on his design. A patent 'is the exclusive right of an inventory to use, or allow another to use, his or her invention...patents provide the inventor with a monopoly position for the life of the patent" (McConnell et al., 2009, p. 203). The current length of a patent is 20 years from the time of application. Mr. Bury's invention is patented so this gives his competitors a stronger barrier to entry for at least 20 years. Suggested methods for product differentiation Continual upgrades to Will Bury’s design will increase his product differentiation. Once the company expands, Mr. Bury may also consider live technical support for the product to create a more personal touch for his product vise those of his competitors. Costs are already low for producing the digitizer; however continual product upgrades to make the product more efficient can help decrease the company’s costs. Chosen methods to minimize costs for the product The cost to produce the digital equipment is already inexpensive for Mr. Bury. The primary concern is the costs involved with training new employees on how to transform hard copy books into an electronic form. Mr. Bury will find that selecting a small group of individuals to train at first may keep costs down and improve efficiencies. The smaller team of employees leaves more room for dedicated training to prepare the employees to train other future members of the company. once the company has been staffed with trained personnel, Mr. Bury may choose to allow some employees to work from home in order to have the ability to rent a smaller facility and save money. Will Bury can also negotiate the price for royalties on books to a lower price once his product becomes of more demand. Will Bury must continue to monitor and evaluate the current economic market and adjust his business plan and products accordingly. The recommendations for increasing revenue to acheive maximum profit and increasing barriers to entry will assist Mr. Bury's organization in staying profitable and on track or ahead of his competition. References McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, proglems, and policies (18th ed.). Boston, MA: McGraw-Hill Irwin. Pietersz, G. (2012). Marginal revenue. Retrieved from http://moneyterms.co.uk/marginal-revenue/ Tuck, J. (2013). The Relationship Between Price Elasticity & Total Revenue. Retrieved from http://smallbusiness.chron.com/relationship-between-price-elasticity-total-revenue-24544.html What is Price Elasticity of Demand' (2013). Retrieved from http://www.wisegeek.com/what-is-price-elasticity-of-demand.htm