August 18, 2014
Existing industries bring new products into the market regularly. Sometimes there are already similar products from other industries in the market and sometimes industries bring in a completely new product. One such industry is Tresemme. Tresemme is a professional hair products company that sells everything from shampoo and conditioner to hair products that renew a hair’s health. If Tresemme decided to bring in a product that would cause curly and/or frizzy hair to dry straight, the company would have to consider the market structure, elasticity of the product, the pricing in relation to elasticity, pricing ...view middle of the document...
This means that consumers pay attention to the price they are paying because there are several companies selling hair care products and the consumer can choose a different product if the price is raised. Individuals who consider a product that straightens their hair a necessity may not pay a lot of attention to the price of the product if it changes, but an individual that may not consider a product that straightens their hair a necessity will pay more attention to the prices. If Tresemme introduced a new straightening product it would be elastic because there are several companies that sell hair care products and consumers could choose a different company if the price was too high.
Marginal Cost and Marginal Revenue
Marginal cost is “…the added cost of producing one more unit of output” (McConnell, Brue, & Flynn, 2009, p. 51). In the case of Tresemme’s new product for straightening hair, it may be best to start with a lower number of unit output. This is because it is a new product and it is unknown how the consumers are going to react to the product. There is potential that the product sells very well, but there is also potential for the product not to sell well and then money will be wasted as a result.
“Marginal revenue is the change in total revenue (or the extra revenue) that results from selling one more unit of output” (McConnell, Brue, & Flynn, 2009, p. 178). The marginal revenue is going to be based on the marginal cost. However, as stated before, if Tresemme starts with a smaller marginal cost because the product is new that is also going to lead to a smaller marginal revenue. It may be important to start by introducing the product to see how consumers are going to react before mass producing the product.
The best way to maximize pricing for Tresemme is to increase revenue while decreasing cost. In order to increase cost the quantity of sales will need to be increased, up sell products to existing customers, sell more diverse products, and revise price in order to produce a balance between price and cost. In order to decrease cost overhead needs to be analyzed, buy in bulk and negotiate for cheaper prices, make manufacturing more efficient, and buy equipment instead of leasing. Outsourcing is another great way to cut costs (Philips, 2014).
Nonpricing strategies are strategies that can be used to increase barriers to entry. Barriers to entry are “The factors that prohibit firms from entering an industry…” (McConnell, Brue, & Flynn, 2009, p. 202). The best way to identify market barriers to entrants is to review the company’s history at start up and then identify which barriers presented themselves to the business as it grew. Then figure out which barriers are still in place now for new entrants. Tresemme could purchase a patent for its new product making it more difficult for other industries to enter the market.
Next, the company should check its business plan. “Barriers to entry can exist...