Milestone_1__Larson's_Business_Recommendations

Business Recommendations ECO/561 Business Recommendations Larson Incorporated is a growing industry. In order for the organization to continue to be successful, it is essential the company plan for various economic conditions. In addition the company should consider factors such as pricing strategy, non-price barriers, and product differentiation. Larson Incorporated must change and adapt to overcome potential roadblocks to the company’s success such as the movement into the Asian market, increases in unemployment, advertising elements, and competition from other battery markets. Pricing Strategy Larson is currently using the easiest pricing method known as the cost-plus pricing strategy to determine the price of their batteries. The selling price is made up of the manufacturing price along with a percentage for the profit. Although this method seems to be the easiest, there are two major setbacks. For starters, there is no way to determine customers are willing to purchase the merchandise at the estimated price and the price does not take product demand into consideration. The competition is very prominent in the American battery market; however, Larson’s previous product differentiation has been difficult (Apollo Group, 2010). The market has seen a tremendous downfall because of several factors that have had a negative impact. These factors include financial problems, increased unemployment rates, and a crisis in the housing market. All of these factors have forced consumers to spend less and save more; basically only allowing people to purchase out of necessity and not desire. Taking all previous elements into consideration, the alternate pricing strategy would be competition-based pricing. This concept would base the price on the major competition’s price. Even with the current market, the competition-based pricing strategy would be beneficial because price is determined based on the competition. Within the Germany division at Larson, the competition within the battery market is lower and population is considerably less than the United States division. An economy slowdown has resulted in fewer sales and the liquidity and spending is relatively higher. Taking these factors into consideration, the Germany division may want to consider the multiple pricing strategy. The multiple pricing strategy focuses on selling products in a larger quantity at a lower price in hopes of gaining the customer’s interest. The United States divisions pricing strategy has a greater opportunity for purchasing power and a very aggressive pricing strategy in comparison to Germany. According to the price discrimination strategy, different prices can be set for the same product based on their different economic standings. This would ultimately be the best strategy for the company to use entirely. Customers in United States have a greater ability to purchase out of want; the price discrimination strategy allows Larson the ability to increase the prices. Non-Price Barriers In the next five years Larson Incorporated could encounter several non-price barriers to include the difficulty of entering the Asian market, the high rate of American unemployment, and the lack of creative advertising. Asian markets are increasingly taking up a major share of the battery industry. In addition, the population of most Asian countries is growing, which is a sharp contrast to the declining population of Germany and nearly stagnant population in the United States. Gaining entry into the Asian battery market should be an essential part of Larson Incorporated’s overseas expansion. The high rate of American unemployment is also an area of concern for Larson Incorporated. Even though the unemployment rate has stopped going up recently, it shows little signs of going down over the next five years. Their batteries need to remain affordable and customer loyalty and an establishment of a strong brand will help retain consumer numbers. In addition, the American confidence in the consumer market is still at a much lower level than it would normally stand. Larson has little control over this index but should monitor it during the next five years to understand the effects it has on battery sales and on the corporation. Finally, the lack of interesting advertising in both the German and American battery markets is negatively affecting the expansion in these markets. An increase in the advertising budget will certainly pay off in the long run if it differentiates the product and establishes the company’s brand affectively. Product Differentiation Product differentiation is the practice of making a product distinctive from its competition, which makes it more attractive to consumers in a specific market (Piana, 2003). Larson Incorporated is an international company operating in Germany for more than 15 years and in America for the past five years. Larson Incorporated supplies batteries for electronic equipment. Batteries are sold for products from laptops to toys. In America, the average battery cost $80 in raw materials and production cost and at current or anticipated initial sales volume whereas fixed costs come to $30 per unit (Apollo Group, 2010). By adding the variable and fixed costs, the total cost calculates at $110 per unit and the current markup is 35% (Apollo Group, 2010). Currently a great deal of competition exists in the American battery market and much less competition in German battery market. The goal of Larson Incorporated is to differentiate their product from the competition. The major sources of product differentiation are as follows: Quality differences, which is accompanied by the differences in price Functional features or design differences Essential characteristics and qualities of goods the ignorant buyers are purchasing Advertising and sales promotions Product differences in availability, timing, and location within the market Larson Incorporated sells batteries for electronic equipment. One of their most popular products is the batteries for laptops. The current selling price for a battery for a Dell Latitude D810 Precision varies according to the manufacturer. The price ranges from $56.97 to $104.28 (Cross, 2010). Larson Incorporated can sell the same battery for a median price but this is only the starting point for differentiation. For Larson to stand out above the competition the company must find several ways to make the battery unique to the consumer. Laptop batteries currently have a life span of two to five years (Cross, 2010). Larson Incorporated can develop a battery that lasts three to six years. Laptop batteries fully charged last two hours (Cross, 2010). Larson Incorporated can develop a battery that will last three hours. In order for Larson Incorporated to produce a battery with updated changes that will be unique to the customer Larson Incorporated will have to spend money to have a successful new product. However, the cost will be minimal once the consumer compares the improvements against the other companies in the market. The cost cannot be the only reason to set apart the product. The extras such as a longer battery life and acquiring a longer lasting charge will entice the consumer to pay a little extra for the convenience. Over time innovation leads to product improvements in quality that differentiates the product. Larson Incorporated is willing to invest in creativity and innovative practices to set themselves apart from competitors in the battery market in America as well as Germany. Conclusion Larson Incorporated must use pricing strategies, overcome non-price barriers, and develop product differentiators to continue to be successful in the battery market. High unemployment rates and a large number of competitors in both American and Germany is an indication that Larson needs to address its current market strategy to remain successful. Larson will use pricing strategies to win customers and beat out their competition. They will extend sales and gain market share in Asia while monitoring the unemployment rates in their current markets, America and Germany. Larson will increase advertising to develop their brand and gain consumer confidence. The corporation will concentrate on developing an increase in battery life and retention of battery charge to make their product attractive and different from the other companies. Every company periodically faces challenges within the market and making sound and strategic business decisions can affect the success of the company. Larson will adapt to conquer the changes in the market and provide a better value to the customers than our competition. The business strategy increases market share and improves our market position even during these difficult economic times.  References Apollo Group, Inc. (2010). Larson Inc. Economics Course Description. Retrieved September 8, 2010. ECO/561 – Economics. https://ecampus.phoenix.edu/classroom/ic/classroom.aspx Cross, J. (2010). 10 Laptops With The Best Battery Life. Retrieved from http://www.pcworld.com/reviews/collection/3346/10_laptops_best_battery_life.html Piana, V. (2003). Product Differentiation. Retrieved from http://www.economicswebinstitute.org/glossary/product.htm#significance