Revenue,_Cost_Concepts,_and_Market_Structure_Proposal

Revenue, Cost Concepts, and Market Structure Proposal Rita Benchekroun ECO/561 Instructor: Sangeeta K. Bishop, Ph.D November 29, 2010 Clear Hear is a maker of cell phones, where Kendra Sherman exerts as a business development specialist. Kendra apprehensively anticipates meeting with Lisa Norman, the production manager at Clear Hear. Kendra has locked an order of 100,000 cell phones that are practically alike Clear Hear’s Alpha model. This opportunity will back up a support that a main company, Big Box, is having with a telephone service provider (University of Phoenix website). The scheduled delivery date is in 90 days. Lisa shows interest, relatively because she holds a surplus capacity of 70,000 cell phone unit s over the upcoming three months, and a part of her bonus is derived from operating the factory at capacity. Alternatively, the larger part of her bonus is obtained from the plant’s overall output. Big Box, though, will not disburse more than $15 for each unit of cell phones, which are supported by $20 per unit Alpha model, which reduces Kendra’s dedication (University of Phoenix website). The second production line that Clear Hear runs at its factory is the Beta model, which has more attributes. This model’s suggested price is $30, but it costs a little more to manufacture it. Lisa realizes that she could change production of 30,000 units from the Beta model to Alpha to secure the order. Just last week, though, an Original Equipment Manufacturer (OEM), which has a broad experience in manufacturing cell phones for other brands and has received several quality awards for its manufacturing developments, demonstrated Lisa a prototype of the Alpha unit. The OEM tried to convince Lisa that not only could they generate up to 100,000 units of the Alpha model on short notice, but the effectiveness of the cell phone would be indistinguishable to Clear Hear’s product. The price would be a nonnegotiable $14 per unit (University of Phoenix website). Recommendations for Increasing Revenue Successful companies have a business operation model intended to capitalize on the company’s profit. Clear Hear needs to set some marketing strategies in place to increase profit. For example, the firm needs to build an ingenious website that can generate a large volume of traffic. In order in increase revenue, Clear Hear must differentiate the current products from the rest of the market. An Original Equipment Manufacturer (OEM) showed Clear Hear a prototype of the Alpha cell phone. This indicates that Clear Hear’s cell phones are easily substituted by other manufacturers; therefore, distributors will go to the cheaper model. The scenario indicates that OEM has a unit price of $14, which is less than the fixed and variable costs of Clear Hear totaling $17. Clear Hear should outsource the Alpha cell phone model and focus on the Beta model. Mobile Software Management (MSM) can put forward strong advantages for the mobile ecosystem with the help of other revenue flows in advertising applications, software and services as well as developments in the customer experience of mobile gadgets. These aspects , along with allowing consumers to have greater control over customizing their mobile devices, can all turn into greater consumer satisfaction, which will result in more enthusiasm following in the well competitive cell phone market (Stephen D. Drake, 2009). Recommendations Ideal Production Levels An opportunity cost for Clear Hear exists in deciding the ideal production levels. Opportunity cost is the value of a resource in its next best use (McConnell, 2009, p. 155). For example, capital assets used in the production of the Alpha model will not allow for simultaneous use in the production of the Beta model. The Alpha model is in a competitive market with competition from OEM and other manufacturers. By utilizing the OEM to manufacture the Alpha model order, Clear Hear would be in good standing with the customer with a consistent, quality product and receiving the 100,000 units in a timely manner. Since the demand is low for high priced items, it would be better to produce more items at the lower price level. This would allow production to increase because of the higher demand for these priced items. Fixed Costs and Variable Costs Fixed costs could be lowered to consider higher margin and possibly more competitive pricing. The supplier's cost is a true cost, a fixed cost, while the producing cost is a rubber yardstick, with manufacturing controlling cost figures, similar to a ‘cost plus’ arrangement in some government contracts. The cost per unit of production (the variable cost) may be very heavily affected by the efficient use of machines and labor. The cost of the machines will be a fixed cost, but the efficiency of those machines in producing output from inputs can be crucial in determining variable costs. The variable cost reduction is not enough to overcome the fixed cost increase. The introduction of new technology will not only boost efficiency but also reduce variable costs (Martin, 2000). Clear Hear should try to lower its fixed costs in order to generate more overall profitability. Variable costs should also be adjusted based on labor costs, and the outputs. The lower the variable costs, the higher the total cost, and the higher the profit. Assumptions Clear Hear’s market structure is monopolistic competition. The barriers to entry are low, especially at the smaller scale levels and there are a number of different companies offering similar and competing products. There really are no buyer entry barriers, and there are many different buyers and buyer types ranging from consumers to corporations. Consumer confidence is fairly high, and the economic times show an expansion. In conclusion, if Clear Hear takes the approaches discussed above, it will accomplish the desired market structure. The company should be well prepared to gain market share and remain competitive. It is certainly not easy to compete in a monopolistic market structure, but there are potentially many opportunities for Clear Hear to grow and maximize profits. Focusing on the Beta model will help Clear Hear benefit from adjusting the fixed and variable costs. By using the OEM to manufacture the Alpha model order, Clear Hear would be in a good shape with the customer, offering consistent and good quality products. References University of Phoenix. (2010). Clear hear scenario. Retrieved from University of Phoenix, ECO561 website. Martin, M. (2000). How costs affect profits. : .