The analysis will apply important microeconomic concepts toward the competitive strategies of the Kudler Fine Food Virtual Organization, which affect its long-term profitability. The analysis will evaluate the differences between market structures and review the organization’s strategic plan, marketing overview, market surveys, and other material to evaluate the organization’s competitiveness in the marketplace, including its customers’ views. The analysis will identify the market structure that best applies to the organization, and assess how the market structure positively and negatively affects the firm’s long-term profitability.
The analysis will perform a market analysis, reviewing competitive strategies, and make recommendations on how the firm can maximize profits. The analysis shows that based on the details available in the strategic plan, marketing overview, market surveys, and other material the organization competes quite well in the marketplace. The only shop not doing as well is the shop in Del Mar, and there are plans to close this shop in the future. Furthermore, there are plans to relocate this store to Carlsbad, and the plans should help contribute to profitability for the organization.The strengths of the firm according to Kudler (2003) are
1) Small organization,
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2) No direct competition,
3) Many choices for the consumer,
4) Very customer-oriented,
5) Good store locations,
6) Kathy’s personal relationship with the staff, and
7) Repeat customers.
The weaknesses of the firm according to Kudler (2003), are
1) Deal in mainly perishable goods,
2) Specialty shops with high pay-roll,
3) Small management team with many responsibilities,
4) The Del Mar location is not doing as well as expected, and
5) Geographic expansion limitations.
The market structure that best applies to this organization is Monopolistic competition. According to Investopedia (2013) because “it is a type of imperfect competition in which many producers sell products different from one another but are not perfect substitutes. A firm takes the prices charged by its rivals and ignores the impact of its own prices of other firms. ” For example, many of the items for sale at Kudler’s are also available at the local grocery stores. Kathy Kudler charges what she wants for her items because she considers her organization a specialty store.
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The market structure positively affects the firm in several ways. According to Investopedia (2013), “The firm has freedom to set prices without engaging in strategic decision-making regarding the prices of other firms, and each firm's actions have a negligible impact on the market.” The cost of entering and exiting is low. Each firm sets the terms of exchange for its product. Firms have some degree of market power, which means the firm has control over the terms and conditions of exchange. A firm can raise its prices without losing all its customers.
The firm can also lower prices without triggering a price war with competitors that could ruin them. The market structure negatively affects the firm in two inefficient ways. According to Investopedia (2013), “First, at its optimum output the firm charges a price that exceeds marginal costs, the firm maximizes profits where p = MC. The firm's demand curve is downward sloping; this means that the firm will be charging a price that exceeds marginal costs. The monopoly power of the firm means that at its profit maximizing level of production there will be a net loss of consumer (and producer) surplus.
According to Investopedia (2013) “The second source of inefficiency is that firms operate with excess capacity. The firm's profit maximizing output is less than the output associated with minimum average cost. The firm’s demand curve is not flat but is downward sloping. Thus in the long-run the demand curve will be tangential to the long-run average cost curve at a point to the left of its minimum. The result is excess capacity”. Also according to Investopedia (2013), “These types of firms are inefficient; it is usually the case that the costs of regulating prices for every product sold far exceed the benefits of such regulation.
However, it would not have to regulate every product and every firm just the most important ones. ” A firm could be said to be marginally inefficient because it produces at an output where average total cost is not a minimum. This type of market is a productively inefficient market structure because marginal cost is less than price in the long-run. Markets are also inefficient as the price given is higher than marginal cost. The competitive strategies the analysis recommends are as follows:
1) Continue with plans to automate inventory and ordering systems,
2) Hire someone with financial background to help Kathy,
3) Develop a website and ordering system,
4) Develop the catering side of the business,
5) Finish site location for Carlsbad store,
6) Open Carlsbad store and close Del Mar location,
7) Geographical expansion throughout California,
8) Delegate purchasing process to someone with more time and experience,
9) Add more product line as company grows,
10) Spread brand outside California as company grows, and
11) Opportunity to be acquired.
The analysis agrees with Tarra Emiliano in her suggestions for competitive strategies for Kudler’s because so far the firm has been making a good profit, and if the firm continues in the same way it has it should continue to do so. The company has a good plan, and good expansion plans. The only thing the firm needs is to act on the plans, and to continue to change with the times. There are some places in California like Kudler Fine Foods, and other places in the country probably too. There are places that specialize in coffee like Starbucks.
There are places that specialize in donuts like Dunkin Donut. Each place is unique in its own way because of what it offers to the public. The analysis shows that specialty shops that cater to special things can make a profit. The trick is to be ever changing in today’s world. So that the firm can keep making a profit no matter what happens in the economy, or whichever market structure the firm is in. The problem is many firms will not be able to make the profit in the long-run, and so they will give up.
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