Wk 3 - Learning Team Assignment: Larson Inc. Scenario

Learning Team Assignment: Larson Inc. Scenario

Week Three Learning Team Assignment: Larson Inc. Scenario

Table of Contents

Introduction.........................................................................2

Pricing Strategy....................................................................... 2

Non-price Barriers to Entry................................................... 3

Ideas for Product Differentiation............................................ 3

Markets................................................................................... 4

Profit Maximization.............................................................................5

Loss Minimization...............................................................................6

Conclusion..........................................................................................7

Introduction

Larson Inc. must be able to adapt to the economic changes in the market to remain competitive. The needs of consumers will constantly change as well as economic conditions for the countries in which they operate in. The company must examine their pricing strategy, non-price barriers, product differentiation and costs to remain a successful international company. To do this, the management must take an active role in the decision making for the company. First, the company must be able to identify the market in which they are currently operating in. This will help Larson Inc. determine how to change their pricing strategies to meet their organizational goals. The different departments can work as a team to make recommendations to the management on their non-price barriers to entry and the product differentiation based on the current market. All of these factors will help the company analyze and determine the best methods for profit maximization for Larson, Inc.

Pricing Strategy

The American division of Larson Inc. has been operating with an average of $80 variable cost and $30 fixed cost per unit. The pricing has been set at a mark-up of cost plus 35%. Given the recent economic slowdown and the emergence of foreign manufacturing, this pricing strategy is too high. Larson Inc. would have a more competitive price by lowering the mark-up by 10%. This would still return a 25% mark-up per unit, and while this price will most likely not beat or even meet the foreign manufacturers, the high price strategy will be more profitable through effective branding and further research and development to obtain patents on new technologies.

The German division has suffered through an economic downturn as well, though not as severely as the American division. However, the mark-up on the German unit is already only 25% and therefore should not be lowered. This price is competitive without causing a price war, which would severely affect profits. The high price strategy will earn higher profit potential, with revamped branding and product development efforts, than utilizing a strategy that tries to out-price the new competition.

Non-price Barriers to Entry

Larson Inc. is in the unique position of producing a product that is useless alone. What good is a battery if there is not device for it to power? The potential for an electronics manufacturer to start producing their own batteries and bundle the products together is a concern. Larson Inc. should be proactive and make agreements with the companies whose products take Larson Inc. batteries. Like Intel Processors, select laptops could come equipped and label with Larson Inc. battery. Exclusive licensing agreements for bundled products would help secure Larson Inc.'s reputation in the electronics market. Larson Inc. does not want to be seen as a generic producer, but rather as a significant, reliable source of power for important devices. This would be best achieved by investing in further research and development to find longer lasting, more efficient batteries. This would also deter any more companies from joining the market, as they would have a considerably higher start-up cost.

Ideas for Product Differentiation

Larson, Inc.'s previous differentiation strategy in America has been lack-luster packaging, and little advertising. To build a strong brand image, which is necessary to facilitate the higher priced strategy, Larson Inc. must make their product a must have for the serious buyer. American buyers are quick to look at price, but when considering these batteries are for costly electronics, we must realize that quality is a major influence. Larson Inc. should emphasize the fact that these batteries are "Made in America", a statement that evokes thoughts of quality and craftsmanship. Since many f our competitors manufacture in China and other countries with lower manufacturing standards, this fact gives Larson Inc. a distinct edge. The branding effort should also rely on the German engineering in Larson Inc. products. Few countries have the same level of prestige concerning engineering as Germany. Once customers know that these batteries are "precision engineered" and "built by craftsmen" it will not be hard convincing them that a few extra dollars is money well spent. The packaging will need to be updated to reflect the premium price., because if people are paying $20 more for a battery that looks like it should cost $50 more, they will feel like they are getting a bargain. The ad campaign should extend further than a few television ads and rely heavily on online advertising. Web sites that sell electronics should be highly utilized as well as print ads in consumer electronics magazines. There will also need to be a cohesive theme to all advertising to further establish the brand. A versatile slogan like "Powering what moves you" will allow advertisements for multiple demographics while maintaining product recognition. For instance, a print ad in a women's magazine depicting a woman using her laptop computer to video chat with her husband with the slogan in the foreground would target the professional woman. Perhaps an online ad of a child opening a Christmas present that uses Larson Inc. batteries could spark sales in the youth market. This kind of ad campaign, coupled with the fact the batteries are of superior quality, will result in increased sales and profits.

Larson Inc.'s need for