Ways to Minimize Costs for the Product - Research Paper Example

New Business Proposal Introduction The new product is toothpaste released in an existing business dealing with soaps and detergents. Marketing the product will be less difficult since there is an existing market for other products. It was evident that the introduction of the new product into the market would attract customers after performing a market analysis via consideration of the strengths, weaknesses, threats and opportunities (Stark, 2011). How will you increase revenue? In order to increase revenue, understanding the market trends for the product will be significant. The trends will provide information concerning customer requirements. The needs of the customer are vital because they help in making changes for the product such that it conforms to their needs (Stark, 2011). Providing a product that suits customer’s needs in terms of size, price and other characteristics will enhance revenue generation due to increased sales (Stark, 2011). The revenue will increase by creating a new product line extension. This process entails bundling the new product with the existing products by using a similar brand name. Apart from improving the name of the brand, the process will act as criteria for marketing the new product (Stark, 2011). As the product gains customers, it is possible to perform an analysis of the market in terms of demand and elasticity. This determines how customers will respond to any changes in price. If demand appears to be inelastic, it will be convenient to increase the prices of the commodity in order to generate sufficient revenue. When demand is inelastic, the amount of sales remains unaltered, meaning that a slight increase in price will result in high revenue (Stark, 2011). How will you determine the profit-maximizing quantity? Determination of the profit-maximizing quantity requires understanding of basic concepts of total revenue and total cost (Stark, 2011). After performing the sales of the new product, there will be a need to determine the gain at each sales level. This computation shall involve a consideration of all costs including labor plus other variable costs. It is possible to determine the profit maximizing quantity by first computing the marginal profits after the sale and finding where the marginal revenue becomes identical to the marginal cost (Stark, 2011). How could you use the concepts of marginal cost and marginal revenue to maximize profit? What information do you need to determine this? Without this information, how would you make a decision? In this case, the formula: marginal profit= marginal revenue – marginal cost, will apply. If the marginal revenue is higher than marginal cost, it means that there will be a marginal gain (Taylor & Weerapana, 2012). In order to maximize profits, the business shall ensure reduction of marginal costs and improvements in marginal revenue through promotion of sales for the product. The total revenue plus the total cost concept is applicable in case information on marginal revenue is not present. In order to use the concept of marginal revenue and marginal cost, there should be data of the sales of the new good at each stage (Taylor & Weerapana, 2012). What is your suggested mix of pricing and non-pricing strategies? Explain your answer. The business will employ competition pricing where the price of the product will compare with the price of the competitors. The business will set the price at a slightly lower level than that of the competitors in order to acquire a considerable market share (Stark, 2011). Since the product will be of high quality than those of the competitors, the business may decide to increase the prices, thus employing penetration pricing. The business will incorporate branding as a non-pricing method in order to improve a share of the market for the new product (Uphill & McMillan, 2007). Can you create or increase barriers to entry? If so how? The business will develop barriers to entry by making sure that the brand name stays at the top level. Building a brand will require sufficient marketing techniques and finances. However, the business will set proper strategies to achieve this as a measure of increasing barriers to entry (Uphill & McMillan, 2007). This factor ensures less competition as the customer is already aware of the brand. New firms intending to venture into business find it to be hard to penetrate such a market. The product is toothpaste with suitable herbal compositions. These compositions will give the product a patent ability so that no similar product enters in the market. Another approach that the business will use to ensure an increase of barriers to entry is through customer loyalty (Uphill & McMillan, 2007). The business will study customer needs and include services that will promote loyalty. Establishing high prices and customer loyalty will deter other investors from the market because providing a lower pricing of goods will depend on the cost of production. If a company is incapable of producing at a low cost, then lowering the prices for goods will lead to losses (Uphill & McMillan, 2007). How will you increase product differentiation? The business will incorporate a value based differentiation in preferred periods of the year, for example, during holidays (Taylor & Weerapana, 2012). There will be promotions where a customer will get a free product after purchasing a certain amount. Such a differentiation strategy is vital because a customer is likely to return for another purchase. The strategy will ensure customer satisfaction because there is a free product offer apart from high quality (Taylor & Weerapana, 2012). The appearance of the commodity must not resemble products from other firms. The business will ensure a succinct distinction of the commodity from those of the competitors. Offering delivery services for large amounts of purchase will be a vital aspect of increasing differentiation (Taylor & Weerapana, 2012). This will promote buying in large quantities in order to achieve the quantity suitable for delivery. Understanding customer needs in terms of product appearance will enable the business to design and produce unique products that conforms to the customer tastes plus preferences. This will promote product distinction and improve sales of the commodity (Taylor & Weerapana, 2012). Are there other ways to minimize costs for the product? There are ways of reducing the cost of the product, such as ensuring supplies are at the lowest cost possible. However, the cost phenomenon should not be considered at the expense of quality. Proper study on utilization of materials is fundamental to prevent wastes (Uphill & McMillan, 2007). If the process of production leads to large amounts of wastes, measures to reduce wastage are crucial in cost reduction. Labor costs are reducible, not by reducing the number of workers but through retention. This is possible by providing the best salaries and incentives to boost employee morale. Low morale leads to low employee productivity, hence incurrence of undesired costs. Reduction of operational coasts is possible through proper maintenance of utilities. For example, electric lights should be off during the day or when they are not in use (Taylor & Weerapana, 2012). Hypothetical data for variable and fixed costs Quantity Total Fixed Cost Total Variable Cost Total Cost (TC=FC+VC) Marginal Cost Average Variable Cost Average Total Cost (ATC=TC/Q) 0 $500 0 $500 - - - 1 500 300 800 $300 $300 $800 2 500 500 1,000 200 250 500 3 500 600 1,100 100 200 366.7 4 500 680 1,180 80 170 295.0 5 500 800 1,300 120 160 260 6 500 1,000 1,500 200 166.7 250 7 500 1,300 1,800 300 185.7 257.1 8 500 1,650 2,150 350 206.3 268.8 9 500 2,200 2,700 550 244.4 300 (Taylor & Weerapana, 2009) References Taylor, J. B., & Weerapana, A. (2009). Economics. Boston, Mass.: Houghton Mifflin. Stark, J. (2011). Product lifecycle management: 21st century paradigm for product realisation. London: Springer. Taylor, J. B., & Weerapana, A. (2012). Principles of economics. Mason, OH: South-Western Cengage Learning. Uphill, K., & McMillan, A. (2007). Buying and selling a business for wealth. London: Thorogood. Read More