Larson Milestone One

Business Recommendations for Milestone One

David Mancilla, Anthony Williams, and Rolando Gomez

Economics 561

May 17, 2001

Matthew Mulyanto

Week three homework

Product Pricing Recommendations

Larson Inc is battery-manufacturing company that has been operating in America for five years and in Germany for 15 years. After analyzing profits for both American and Germany divisions, profits were lower than anticipated. Major decisions need to be made to turn the company’s profitability around. Profits lower than anticipated have clearly demonstrated that Larson Inc’s current pricing strategy is not working to achieve maximum profitability. Current product pricing at Larson Inc is cost plus pricing for both divisions, America and Germany. Pricing strategy must be changed in order to maximize profits and lower company costs. Over the next five years, the following series of changes are recommended to take place.

Pricing must be set at optimal level where marginal costs equal marginal revenue. Additionally, one of the biggest problems in America is that advertising is almost none existent and what little exists is boring. The right level of advertising needs to be implemented to build the brand increase profitability in the company. The population in the American market is three and half times bigger than it is in Germany and by introducing a successful ad campaign and setting the price of the batteries an optimal price level where marginal costs equals marginal revenue, volume will increase and profits will come back up.

Once the price has been set at the optimal level and profits are brought up where the company has a comfortable source of revenue, production processes will need to be examined and improved. An investment will need to be made in the production process to eliminate any inefficiency and reduce the over all per unit cost and to optimize the production capacity.

Larson Inc will need to develop a variant of its battery and...