Profit Maximization Strategies - Essay Example

Number Subject Name Lecturer’s Name Profit maximization strategies Due date Date Submitted Profit maximization strategies Profit maximization strategies refer to the approaches that are adopted and implemented by any particular firm, in an effort to maximize its income. These strategies include the marketing strategies, the production approaches, and distribution activities among others. They also incorporate proper adaptation to the existing market environment, such as gaining the monopoly of the concerned market, placing themselves strategically in the monopolistic market, acquiring competitive advantages in the market among other strategies. The firms also adopt various strategies depending on the market in which they are operating, such as price discrimination in a monopolistic market, entering into a collusive oligopoly, and the imposition of the market entry barriers, all aimed at increasing the individual firm ability to maximize profit. Every industry requires the firms operating in it to adopt different profit maximization strategies, with particular attention to the hospitality or the tourism industry. In relation to this, the present paper presents a comprehensive analysis of the profit maximization strategies of three specific firms, operating in the hospitality or the tourism industry. The firms selected includes the (Prokhorova, 2015). The analysis will involve the evaluation of the monopoly, monopolistic and competitive strategy of each of them. Further, all the competitive elements such as the marginal costs, marginal revenue, long run and short run costs is critically analyzed. Firms in the Hospitality/Tourism Industry and their market Structure There are different markets that exist within the hospitality or tourism industry in Australia. These markets include the hotels market, the tourism market, events and destinations markets, resorts market among others. These markets adopt a different market structure such as the monopoly, monopolistic, oligopoly, perfect competitiveness, and duopoly. The market structure prevailing depends on factors such as the numbers of firms existing in that market, the nature of competitor of these firms, the number of buyers, among other factors. Depending on these different market structures in the tourism or hospitality industry, the firms considered for examination of their competitive strategies include: Shangri-La Hotel and Resort, Sydney The Woolworths Supermarket Australian Pacific Touring (APT) Shangri-La Hotel and Resort, Sydney Shangri-La Hotel and Resort Sydney is a company operating in the hospitality industry. The company specializes in the offering food services, accommodation, events organizations and facilitation among other things. The company also offers traveling services to the families and groups. It also offers its customers wide variety of vibrant cultural experiences, tropical retreats, rejuvenation activities, among other experiences. The firms operate in a monopolistic competitive market. As illustrated by Park, Jin, Song & Yoon (2015), a monopolistic competitive market is where the producers sell the same products and services in the market. However, their products and services are differentiated from one another. The products are differentiated by factors such as quality and branding. Therefore, they do not form perform a perfect substitutes. For that case of Shangri-La Hotels and Resorts in Sydney, the company offers the same product as its competitors. However, it differentiates the products and services, on the basis of branding, quality and the mode of providing the products and services (Sboui ET AL., 2002). Further, Shangri-La considers the rivals prices as it is given, and also ignores its prices impact on the prices of other firms. Woolworths Supermarket Woolworths is an Australian company operating in the hospitality industry. The company operates a wide range of supermarkets and groceries, where it sells wide varieties of food products, and provides services such as meals serving. It is also the largest liquor retailer in Australia. The company has adopted various growth and competition strategies, all aimed at increasing the profit it is able to generate. These strategies include extension of leadership, portfolio examination in order to get the value of the shareholders as well as effective maintenance of the track record, as a mechanism of ensuring improved growth in the business. Woolworths Limited operates in an oligopoly market. As illustrated by Nakamura (2015), an oligopoly market is a market structure in which the market is dominated and controlled by few firms, which together, has the greatest control of the market share. The remaining small market share is left for other firms in the industry, which are the majority. Further, prices of products and services are determined by these few firms. Concerning the Woolworths Limited, they control approximately 80% with another company named as Coles, in all the supermarket and groceries sales. Further, they both control approximately 60% of the alcohol retail. However, both of them are involved in a non-collusive oligopoly. Australian Pacific Touring (APT) Australian Pacific Touring (APT) is an Australian company operating in the tourism and hospitality industry, under the tour and river cruises operator. The company is family managed and owned, with a global reach. The company offers several products to its travel customers, in terms of the specific trips (Queen, 2015). These services include the river cruises, the 4WD adventures, the small ship cruises, the rail journey, the land journeys, travel among others travel services. Under its global operation, the company travels its customers to various destinations, including Africa, Australia, Asia, Canada, and New Zealand among others. Concerning its market structure, Australian Pacific Touring operates in a perfectly competitive market structure. In this market, as illustrated by Muthuswamy, Gupta, Yuksel & Kar (2012), there are no barriers to entry. There are also an unlimited number of producers and consumers in this market structure. The reason for this is that in Australia, the tourism sector is very large. There are millions of tourism in the industry, both local and international. Additionally, there very many firms offering travel and tour services in the industry. This gives the market perfect competitive characteristics (Nakamura, 2015). Further, these firms offer homogeneous products and enjoy a normal profit. Competitive Strategies of the Firms As mentioned earlier, the profit maximization strategies are the approaches and techniques adopted by any particular firm, in order to maximize its returns. These strategies may be applied at any level of production or provision of services, ranging from procurement of the raw materials to the after sales services. All of the three firms discussed above observe different approaches in their profit maximization strategies. The strategies adopted by each one of them also depend on the market structure in which each of them is operating. The competitive strategy of each of them has effectively been discussed below. Shangri-La Hotel and Resort, Sydney As mentioned earlier, Shangri-La Company specializes in the offering food services, accommodation, events organizations and facilitation among other things. The company also offers traveling services to the families and groups. The company operates in the monopolistic market, where the firms offer similar products, but with significant differentiation. Under this condition, the company implements several profit maximization strategies. Marginal revenue-marginal cost approach Shangri-La Company significantly relies on this perspective, as a mechanism of increasing its profit. In this case, the marginal profit is equal to the marginal revenue less the marginal cost. The company considers that if the marginal revenue is greater that the marginal cost, there is a positive marginal profit. In this case, the company produces more products, to increase profit. In case the marginal revenue is less than marginal cost, then the marginal profit is negative, implying that fewer products should be produced. Product differentiation The perspective of profit maximization through the marginal revenue and marginal cost perspective is enhanced by differentiation strategy. The supermarket offers quite differentiated products and services, in terms of packaging and quality. The differentiation enables its customers to establish their loyalty to the product, which in turn increases the returns. Woolworths Supermarket As mentioned earlier, Woolworths operates a wide range of supermarkets and groceries. The company also operates in an oligopoly market; it is in control of a significant market share. To maximize its profit, the company adopts effective strategies (Khanra, Maiti & Maiti, 2015). Total revenue total cost perspective The company considers that to obtain the quantity that will maximize the profit; it adopts the concept that profit is given by the difference between total revenue and total cost, with particular emphasis on the long-run figures. In this case, the profit-maximizing output is the quantity of output the differences reaches its maximum, as represented in the following graph. As represented in the above graph, the output level, which maximizes the profit, is represented at the point in which total revenue is at the point of C while the total cost is at the point of B. In this case, the maximum profit in the long-run is measured by CB. Similarly, the total output level is also achieved in case the total profit curve arrives at its maximum. Quality Improvement Woolworths operates in an oligopoly market. The market exercises a non-collusive oligopoly, where Woolworths and Coles are faced with a kinked demand curve. This curve restricts them for altering the prices of the products, because of loss f market share. As a result, they involve themselves in non-price competitions (Azadeh et al., 2012). In this case, Woolworths increases its competitive advantage through improvement of the quality goods and services. This in turn increases the market share, resulting t an increase in the profit realized. Australian Pacific Touring (APT) As mentioned earlier, Australian Pacific Touring (APT) specializes in tour transport. It operates in a perfectly competitive market, where there are many competitors and many buyers, who are tourists in this case. Total revenue total cost perspective The company observes the perspective that profit is maximized at the point in which there is the greatest difference between long run total cost and long run total revenue. In the above graph, this point is illustrated by q*. The point coincides with the level in which the total revenue slope and that of the total cost are the same. It applies the concept presented by Sboui, Rabenasolo, Jolly-Desodt & De Waele (2002), which indicates that the total revenue curve slope at any point is equal to the marginal revenue, and the total cost curve slope ant any point is equal to the marginal cost of the firm. Marginal cost MC = marginal revenue MR concept Since the firm is a price taker, it maximizes its profit at the point in which marginal revenue is equal to the marginal cost. In this case, if the additional revenue generated by additional unit of output is greater than incremental cost, then there is an increase in profit with output. Therefore, as long as MR > MC, the Australian Pacific Touring expands its output to increase the profit generated. Conclusion From the above analysis, it is evident that profit maximization strategies are the approaches which are adopted and implemented by any particular firm, in an effort to maximize its income. In the Australian hospitality industry, there many firms which adopt variant strategies to increase their profit. For Shangri-La Hotel and Resort, Sydney, which operates in a monopolistic market, it adopts marginal revenue-marginal cost approach and product differentiation strategies. For Woolworth’s supermarket, which operates in an oligopoly market structure, it adopts total revenue-total cost perspective and quality improvement strategies. For Australian Pacific Touring (APT) which operates in a perfectly competitive market, it observe the total revenue-total coast approach, and the marginal cost MC = marginal revenue MR concept to maximize their profit. References Azadeh, A, Ghaderi, S, Pourvalikhan Nokhandan, B, & Sheikhalishahi, M 2012, 'A new genetic algorithm approach for optimizing bidding strategy viewpoint of profit maximization of a generation company', Expert Systems With Applications, vol. 39, pp. 1565-1574. Available from: 10.1016/j.eswa.2011.05.015. [18 October 2015]. Khanra, A, Maiti, M, & Maiti, M 2015, 'Profit maximization of TSP through a hybrid algorithm', Computers & Industrial Engineering, 88, pp. 229-236, Business Source Complete, EBSCOhost, viewed 18 October 2015. Levinthal, DA, & Wu, B 2010, 'Opportunity costs and non-scale free capabilities: profit maximization, corporate scope, and profit margins', Strategic Management Journal, vol. 31, no. 7, pp. 780-801. Muthuswamy, PK, Gupta, A, Yuksel, M, & Kar, K 2012, 'Path-vector contracting: Profit maximization and risk management', Computer Networks, vol. 56, pp. 1286-1302. Available from: 10.1016/j.comnet.2011.11.004. [18 October 2015]. Nakamura, Y 2015, 'Price versus quantity in a mixed duopoly: The case of relative profit maximization', Economic Modelling, vol. 44, pp. 37-43. Available from: 10.1016/j.econmod.2014.09.019. [18 October 2015]. Sun, G, Tian, X, Xu, Y, & Wang, X 2015, 'Profit maximization for secondary users in dynamic spectrum auction of cognitive radio networks', Wireless Communications and Mobile Computing, no. 9, p. 1331. Available from: 10.1002/wcm.2409/abstract. [18 October 2015]. Park, S, Jin, Y, Song, H, & Yoon, Y 2015, 'Designing a critical peak pricing scheme for the profit maximization objective considering price responsiveness of customers', Energy, 83, pp. 521-531, ScienceDirect, EBSCOhost, viewed 18 October 2015. Prokhorova, Y 2015, 'Does Profit Maximization is the Main Task of the Economist?', International Journal Of Management Cases, 17, 2, pp. 7-11, Business Source Complete, EBSCOhost, viewed 18 October 2015. Queen, P 2015, 'Enlightened Shareholder Maximization: Is this Strategy Achievable?', Journal Of Business Ethics, 127, 3, pp. 683-694, Business Source Complete, EBSCOhost, viewed 18 October 2015. Sboui, S, Rabenasolo, B, Jolly-Desodt, A, & De Waele, N 2002, 'A profit-maximization dynamic model for supply chain planning', IEEE International Conference On Systems, Man & Cybernetics, p. 6, Publisher Provided Full Text Searching File, EBSCOhost, viewed 18 October 2015. Read More