Big Drive Auto
Big Drive Auto
There is evidence that suggests the economic futures can be forecasted by the automotive industry, and as a result this paper will discuss the economic projections of Big Drive Auto, a multistate, multi-manufacture of cars and trucks. The company sells vehicles and services parts for repair, in addition to conducting significant contributions in the motor oil, coolant, and replacement tire industries. In an effort of remaining successful, Big Auto will need to be able to forecast, based on the records kept from the past ten years, its future business needs and areas of growth if they are in to stay ahead of the industry. This information will assist management in making future production plans for the organization because it will be based off of the companies??™ previous sales of parts, service and auto sales, and an evaluation of the revenue generated in spite of fluctuations in the economy. Additionally, this historical data will be used from previous years to demonstrate future pricing strategy. Product recommendations for the company will be in part considered by management??™s intuition and awareness of where the economy was in recent years and is likely to lean towards what will assist the company in moving forward. Moving forward, management of the organization will need to predict with some certainty a solid strategy to deal with how well the automotive industry could fair in the coming years based on mathematical equations, which take into consideration economic analysis, to be inclusive of operations, costs, and productivity, as this will allow them to have some level of precision in their projections (Duffy, 2008). The paper will conclude with a summary of what is believed to be the direction of the company.
Pricing Strategy Recommendations
The company must? determine the demand for the? products and services rendered. Further, it must consider how productive the function is, in particular, the supply of its inputs. The pricing? services? are critical, primarily because it drives the firm??™s economics and defines value at a given price, in addition to enabling the company to reach its revenue and market share goals for the automotive industry.? They will also need to consider what the market will pay for automotive products and services. ? To achieve this pricing strategy, management will have to consider some important variables such as operating the business in excellence, offering the best products, being innovative, and guaranteeing customer satisfaction at all times. Based on the research, current trends in the automotive industry suggests that many manufacturer??™s pricing strategy is more of a science than an art, given the access consumers now have to the internet. Many buyers now are more educated on wholesale versus retail costs and as a result, from the standpoint of the consumer, they have more wiggle room to negotiate price (Automotive News, 2000). Other research suggests that from a manufacturer??™s or a dealer??™s standpoint, there is less wiggle room when the price they select is close to actual costs, and as a result they pacify consumers by offering service packages, accessories, or a protection package. They call it a transaction based pricing versus a no budge pricing and as a result, they meet the demands of consumers in nontraditional ways, as opposed to merely lowering the cost of the automobile (Wilson & Harris, 2010). As such, it is recommended that Big Auto follows suit given the trend of the industry.
Recommendations for Non-Price Barriers to Entry
Organizations face challenges with entry barriers. These barriers are ways of preventing them from entering a market industry. The first recommendation for non-price barriers to entry is placing restrictions on advertisement, as restricting the types of products advertised, the amount of advertising allowed, and advertisements that name competing products are huge factors. Most companies rely on such approaches as an effort to generate customer awareness. Therefore, the advertisement recommendation as an entry barrier will help to increase expansion within the auto market.
? ? ? ? ? The next recommendation for non-price barriers to entry is safety. Businesses must be able to adhere to all the safety and health requirements set by Big Drive. There must be strict safety requirements because many organizations may be lacking in this area, and the level of products and service offered by Big Drive Auto should not be jeopardized, so as to decrease any liability.
The last recommendation for non-price barriers to entry is product quality. Product qualities are the technical standards for determining a products quality level. Product testing performed in one firm may be of little or no value in another. Therefore, a product testing must be approved by Big Drive to ensure that all product requirements are met. A monopolist seeking to maximize total profit will employ the same rationale as a profit-seeking firm in a competitive
industry. If producing is preferable to shutting down, it will produce up to the output at which marginal revenue equals marginal cost (MR=MC)(McConnell & Flynn, 2009). Firms can enter the monopolistic competitions market fairly easily, and in doing so they increase the available supply, and drive down the market price to only normal profits. The monopolistically competitive firm maximizes its profit to minimizes its loss in the short run just as other firms do by producing the output at which marginal revenue equals marginal cost-MR =MC (McConnell & Flynn, 2009).
? ? ? ? ? Organizations face many entry barriers. These barriers are ways of preventing them from entering a market industry. The absence of any effective entry barriers permits the entry of a very large number of firms, which provide the basis of pure competition. So barriers to entry are pertinent not only to the extreme case of pure monopoly but also to other market structures in which there is some degree of monopolistic conditions and behavior.
One of the biggest decisions the management of Big Auto will need to make pertains to production differentiation because ultimately this is the way the business will distinguish itself from their competition. Once the recommendations are made by management, the company will need to review how it will move forward with implementing these changes over the next five years. The first recommendation for Big Drive Auto is to trademark its name. They will need to be known as ???the place??? for car and trucks sales, service and parts. They already provide services to vehicles as well as a line of products in the parts department and trademarking their name, in addition to the services they offer will set them apart. Further, a trademark of their name would make them more inline with companies such as Dell, Starbucks, UGG and Valvoline who already are known as brand names, as these companies are considered brand specific.
The second recommendation is to redesign the packaging, making the trademark synonymous with all product packaging. Plans for redesigned packaging will also allow them to be more exclusive, which would help the company rise to the next level. All parts in the line would be repackaged under the new trademark. The idea is reintroduce the entire line of parts after a package redesign, securing the trademark of their name, and serving as a boost to their image, highlighting them as an innovative company offering superior parts and service to its consumers. Also if a patent could be secured by Big Drive, a higher price could be considered for the main line of parts while offering a generic substitute as a way of capitalizing on several different markets, as this idea would open up additional opportunities for the company to increase revenue. Setting goals such as a patented product would open the doors to expanding a line of Big Drive exclusive parts which could only be purchased through them would ensure exclusivity to the line. Also according to patent laws, they would seal their own brand for twenty years. Patents and patent laws aim to protect the inventor from rivals who would use the invention without having shared in the effort and expense of developing it. (McConnell, Brue, & Flynn, 2009).
According to the research (McConnell, Brue, & Flynn, 2009) monopolistically competitive industries are much more competitive than they are monopolistic. Product differentiation would be in the future of Big Drive to remain competitive. As is a multistate dealer of several manufacturers??™ cars and trucks the company would have exclusive rights. They could reintroduce the company with a retrained staff on products for which there are no close substitutes. Raising the standards of sales and services only offered by them could serve to block all potential competition. The purely competitive seller faces a perfectly elastic demand at the price determined by market supply and demand (McConnell, Brue, & Flynn, 2009).
According to the scenario the oil and tire division has fluctuated some over the last 10 years. Service has steadily increased so it would not be urgent to make any major changes to this aspect of the company until later, however because the most revenue has been consistently generated in this area and because some of the recommendations given will cause an increase in costs; Big Auto will continue to offer great service so as to not impact any of its revenue. However, the oil side of Big Drive needs the most attention hence making the trade name and brand name the priority. Purposeful behavior simply means that people make decisions with some desired outcome in mind. (McConnell, Brue, & Flynn, 2009). Ultimately, this is the goal for Big Drive Auto to become the people??™s choice when considering where to go for goods and services as outlined in the recommendations made.
According to the research, managerial economics pays attention to business in a way never done by other branches of economics, because it combines microeconomics, operations research, and management science in a way so as to produce practical projections as they relate to a company??™s future (Duffy, 2008). As a result, how a business determines its pricing plays a critical role, as they must balance what the market in willing to pay versus the costs associated with production. Given the growth of market based pricing, the automotive industry is now at a point where they are consistently offering less wiggle room in the negotiation of pricing and as a result, are finding alternative ways to satisfy consumers (Wilson & Harris, 2010). To remain a powerhouse in the industry, it is recommended that Big Auto does the same. In an effort on maintaining current levels of revenue in addition to increasing those levels over the years; it is recommended that Big Auto focus much of its energy on trademarking its brand. Based on the ten year statistical analysis the company sees its record numbers in the area of service revenue. Trademarking their service packages could serve to drive additional business their way, thus further increasing the revenue. Because servicing one??™s car could very well be considered an inelastic service, Big Auto has some freedom in continuing to increase their prices. By creating quality parts that must specifically be used for the cars they sell and by offering a level of service consumers are not able to get elsewhere, in addition to providing a tried and true brand name; this can be another way of them solidifying their market. While there will always be come type of competition from manufacturers who create less expensive cars that require less expensive service, there are also a market of individuals who do not mind paying higher prices for great quality and great service, both of which Big Auto will continue to provide in the building of its business and clientele. By implementing market based pricing that incorporates giving consumers additional services or accessories they can only obtain through Big Auto, the company will be able to remain a major force in the industry because the exemplary service and competitively priced products will all be back by their trademark, given its customers the security of knowing all products and services have solid foundation with a reputable company.
Big Drive Auto . (2010). Retrieved Jan. 11, 2011, from www.mycampus.phoenix.edu
McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Monopolistic Competition and Oligopoly. In N. Fox (Ed.), (chapter 11 pp. 223 -224) Retrieved from University of Phoenix
Duffy, F. (2008). Traditional Managerial Economics. In ,? Traditional Managerial Economics — Research Starters Business? (p. 1). Great Neck Publishing. Retrieved from EBSCOhost.
Pricing a car is now a science, no longer an art. (2000).? Automotive News, 75(5892), 12. Retrieved from EBSCOhost.
Wilson, A., & Harris, D. (2010). Shaking up the pricing model.? Automotive News, 84(6408), 1. Retrieved from EBSCOhost.