Econ_561

ECO 561 J. Mack Bayles Business Recommendations for Big Drive Auto Big Drive Auto is a company that is in the process of redefining its market position in the automobile, truck sales and service industry. Our long range direction and decisions as a company are focused on creating a loyal repeat customer base. The new marketing and advertising initiative being launched paints an image of happy customers who feel “Big at Big Drive”. We want to provide the customers with both their short and long term auto needs. Big Drive will sell you the car, service and products under one roof. Every customer will be treated as a celebrity. Brand image for Big Drive will become synonymous with all things auto and truck. Pricing Strategy The business objective is to further penetrate our market share in the auto services division as well as motor oil, coolant and tire sales. Sales trends for these areas have increased over the last three years for both the company and industry. The pricing strategy will work in conjunction with the new marketing efforts and offer unique service package deals. The service deals include most common auto and truck services at a perceived cost savings to the consumer, but increased volume profit to Big Drive. The strategy is one of value based pricing. This approach is when the price of a product is based on the value that it creates for the customer. Value based is usually the most profitable form of pricing, if you can achieve it (Allen, 2010). Martin Christopher examines price as one of the simplest ways of segmenting markets, stating that price segmentation can become far more effective when based on value-in-use. Consumers respond well to a good value during tougher economic times. Big Drive will also cultivate and increase our already vast network of suppliers and manufacturing partners. These relationships help to provide a wide variety of cars and truck selection in the mid-range and high end quality range. Pricing strategy for autos and trucks will be based on a cost-plus pricing system. Big Drive will use an 8-12% sliding scale profit margin markup that corresponds with the quality range of the vehicle. Current economic conditions indicate the price is more elastic for consumers in the mid-range market. Pricing in this market will be competitive for that reason. Big Drive will attempt to increase the dealer profit margin by targeting and closing high-end auto and truck sales contracts. Dealer profit margin is defined as, “the difference between MSRP sticker price (retail price) and invoice price (wholesale price) is a dealer's potential profit margin, assuming vehicles sell at sticker price — ignoring other costs, charges, or rebates he might receive. In keeping with the value added strategy, luxury service packages are also included at a perceived cost saving. Big Drive will become known as a company that provides quality automobiles and valuable services at fair prices. Nonprice Barriers to Entry Big Drive Auto is an Oligopoly organization that caters to all a consumer’s automotive needs. This organizational classification is based on the fact that it offers differentiated products. The products range from automobiles, parts for repair and servicing the vehicles. Like with any economic endeavor there are factors that can keep a company from becoming successful. These factors are none as “Barriers to Entry” and will be identified and evaluated during the course of this paper. Church and Ware defines entry barrier as a structural characteristic of a market that protects the market power of incumbents by making entry unprofitable (McAfee, Mialon, & Williams, 2003). Though there are numerous barriers to entry, this paper will highlight the ones that impact Big Drive Auto. The barriers that impact Big Drive Auto are Government, Capital, Control of Resources, Advertisement, and Economy of Scale. Since Big Drive Auto has multistate location their first barrier is the Government. The Federal Trade Commission has rules and regulation that come in the form transit and trade tariffs that hinders the expansion of existing enterprises into new markets (McAfee, Mialon, & Williams, 2003). The governments’ principal role is to preserve competition through granting monopolies and through regulations (Porter, 2010). Capital will be the next barrier that will be explored. Being that the product that is sold by Big Drive Auto is not manufactured by them, money is needed to purchase the vehicles that are sold. A large amount of money is needed to start up the company and needed to maintain an inventory that can compete with other dealerships. Control of resources is a big barrier that Big Drive Auto will have to overcome. Do to the fact that Big Drive Auto does not manufacture the vehicles it sales, they have limited control over its resources. If there is a shortage of quality vehicles for them to purchase for resale then the company suffers. Big Drive Auto must also compete with manufactures selling their own cars and not selling the cars to them. Advertisement or the lack can be a barrier that is hard to overcome. Being that Big Drive Auto offers different products to include services they need to have sufficient advertisement to inform consumers. Again the expense and effort involved in product differentiation would be wasted if consumers were not made aware of product differences (McConnell & Flynn, 2009). The last barrier is Economy of Scale and this is a major barrier. If Big Drive Auto cannot provide quality vehicles at a low price then it would not be able to compete with other dealerships in the automotive industry. This will be challenging because they do not manufacture their own product. Because of this fact the economy of scale depends on the Control of Resources. The better control over resources Big Drive Auto has the chance of achieving economy of scale. Product Differentiation A differentiates itself from its competitors when it provides something unique that is valuable to buyers beyond simply offering a low price (Blackwell publishing, 2009). Big Drive Auto can differentiate by providing a superior protection package. The protection package vehicles will be given oil changes free of charge as long as the consumer owns the vehicle. Tire rotations and balancing of wheels will also be free of charge. Big Auto Drive should employ a service team that is consistently courteous and polite to customers and who provide excellent service to customers. Top notch certified mechanics are available to meet the needs of the customer. The maintenance package will allow consumers to receive car washes and rentals cars at no additional charge. With these sorts of incentives the likelihood of car sales will be increased. When consumers are satisfied they tend to put in a good word with friends and family members. This type of praise will increase the possibility that consumers will revisit Big Drive Auto to purchase a vehicle for them, trade in their vehicle, or purchase a vehicle for a family member.   With the purchase of a new vehicle Big Drive Auto will offer the consumer free gas for a range of two to four months. Incentives and cash rebates will also be an appropriate recommendation for Big Drive Auto as well. According to All Business.com (1999 - 2009), Manufacturers often offer special incentives to both customers and dealers in an effort to increase sales on cars that are not selling as well as anticipated. Offering incentives with case rebates gives consumers assurance that flexibility exists (All Business.com, 1999 - 2009). During service appointments, Big Drive Auto could offer the consumers free Wi-Fi service, free snacks, and free coffee. As a business decision Big Drive Auto continues to be loyal to their consumers as they aspire to entice new consumers. REFERENCES All Buisness.com, 1999-2000 Big Drive Auto Scenario, (2011) Retrieved from: University of Phoenix Class Resources ECO/561 Version 5. Blackwell publishing. (2009)  Differentiation Advantage. Retrieved from www.blackwellpublishing.com McAfee, R. P., Mialon, H. M., & Williams, M. A. (2003, December). Economic and Antitrust Barriers to Entry. Retrieved from http://www.mcafee.cc/Papers/PDF/Barriers2Entry.pdf McConnell, C. R., & Flynn, S. M. (2009). Economics: Principles, Problems, Policies (18th ed.). New York, NY: McGraw Hill/Irwin. Martin Christopher, (1982) "Value-in-use Pricing", European Journal of Marketing, Vol. 16 Iss: 5, pp.35 – 46 Porter, M. E. (2010). Porter’s Five Forces. Retrieved from http://www.quickmba.com/strategy/porter.shtml Scott Allen, (2010) Retrieved from: http://entrepreneurs.about.com/od/salesmarketing/a/pricingstrategy_2.htm