Memo_Larson

Memo To: The Larson Inc. Board of Directors From: Team D CC: Peter Oburu, ECO/561 Date: November 22, 2010 Re: Business Recommendations Based On Economic Projections Team D is pleased to inform the board we have finished reviewing the results of the recent decisions made by Larson Inc. Over the last several weeks Larson Inc. has made preparations to increase industry competitiveness. In Team D’s review, we noticed Larson Inc. consistently updates pricing strategies, non-price barriers, and product differentiation plans relative to the alternative economic futures forecast for the short-run (within the next five years). These are all great first steps; however Team D intends to compliment these decisions in order for Larson Inc. to maintain industry lead. We offer the following recommendations as part of Larson Inc. business decision process, assisting with changes focused on possible economic conditions which may occur over the next five years: • Use existing pricing strategy to continue to expand both in the United States and Germany to address the current markets/business cycles. • Expand non-price barriers to entry to include patents and licensing of new ideas, unique cost cutting measures, and R&D (research and development). • Enhance product differentiation by investing in new marketing concepts both locally and internationally. Explanations are outlined below regarding these recommendations with supporting graphs and illustrations. Pricing Strategies Pricing strategies are contingent upon the economic conditions of commerce and consumer spending. Business cycles and trends will dictate the best financial objective for the company’s longevity and future permanence. The United States and German markets are the primary targets with emphasis on cost to product, consumption levels, and disposal income. Set economic factors are as follows: United States Market • Peak: Propose to increase pricing with variable costs to $90 with a $40 fixed cost per unit. • Recession: Reduce the price of products by no more than 5%, bringing the combined variable and fixed costs to $123.50. • Trough: Larson Inc. will adjust its pricing strategy to set declining profits loss to no more than 10% of its profit earning potential. See figure 1 below Figure 1 Germany Market • Peak: In the event the United States market is inundated with economic instability, the mark-up on the German units are currently set at 25%. The company will retain its pricing positioning with the current variable cost pricing of $162.50. • Recession: Reduce cost by 5%, bringing the price to $154.37. • Trough: Reduce cost by 10%, bringing the price to 138.94. Break-even levels of inventories must be set as indicators to the decline or rise in consumer spending as shown in figure 2. Figure 2 Non-Price Barriers Protecting Larson Inc. brand and ensuring the safe guard of products through patents, licensing, and copyright laws are imperative. These measurements provide the company with exclusive rights of Larson Inc. R&D, new technologies, and clinical trial discoveries. The non-price barrier to entry that is proposed for Larson Inc. in the American and German Markets are as follows: United States Market • Peak: Larson Inc. should ward off any potential competitors from trademark and intellectual property rights violations with a full staff of legal representatives. • Recession: Larson Inc. will continue to shield its products by enforcing the Federal Patent Statue of 1952 to protect its patented products from new competitor infringement for up to 20 years. • Trough: Continue to monitor trademark, patents, and branding for data leakage or piracy issues. Germany Market • Peak: Because of a lucrative region, Larson Inc. will continue to exploit products with high-end advertising and marketing while keeping focus on new entrants and competitors for strict proprietorship infringements. • Recession: The legal staff will monitor potential entrants to the market, trade secrets, and breach of technologies by focusing on intellectual property rights • Trough: Alternative Dispute Resolution (ADR) teams in foreign territories will resolve legal disputes in the event such situations occur Product Differentiation Larson Inc. has found product differentiation to be a challenge regarding the competition with other battery companies. Therefore, Larson Inc. should address product differentiation in the following manner: United States Market • Peak: Spend high on advertising and marketing costs. Note: Investing is important for promotion of Larson Inc. possessing better deals among competitors. • Recession: Generate and keep revenue flowing at all costs. Because prices drop, recommended Larson offer additional incentives such as rebates and longer warranties that will entice the consumption. • Trough: Provide longer lasting products with new technology to give customers a stronger sense of satisfaction. Germany Market • Peak: Focus energy toward ensuring products are of good quality and consumers are receiving a value. Use of marketing campaigns to feature durability and long-lasting effects of the batteries. • Recession: Provide consumers more value for their dollar through extra discounts. • Trough: Market product at lowest price possible. Dropping the price means a lower margin; but in turn this means increased sales. The table below represents the recommended investment profile for Larson Inc. to achieve product differentiation objectives.