Larson Inc. must consider the alternative economic futures for their industry. In any market, economic conditions will change over time. The company must be able to adapt and change with the economy to remain successful. The company needs to find solutions for the changing economy to keep increasing their revenue and decreasing their costs. The economy may go through a recession, expansion and peaks over their years in business. Larson, Inc. needs to analyze the difference scenarios and determine the best course of action for each type of economic future. Also, the company must consider the economy’s stage in the business cycle to make well-informed decisions.
Economic projections
The business cycle will have continual change and fluctuate over time. History has shown us how the economy goes through peaks, recessions, troughs, and expansion. It is important for all businesses to understand the concepts of macroeconomics and how the business cycle is affected. Larson, Inc. can plan for the changes to remain successful and innovative. The business cycle is determined by the changes in GDP or gross domestic product. The change in the GDP can occur from economic reasons such as changes in demand, taxes and interest rates. It can also change from non-economic reasons such as war or natural disasters.
The company must be aware and analyze the different indicators of the changing economy. The recession, in which Larson Inc. is currently experiencing, is a normal part of the business cycle. It is said that fiscal and monetary policies can help decrease the peaks and recessions of the business cycle. The government would step in with fiscal policies. The government can provide more funding for private sectors and cut taxes to help stimulate the economy in a recession (www.frbsf.org). Monetary policy is controlled by the Federal Reserve Board. This agency can increase and decrease interest rates across the country to change investing and spending among consumers and businesses. Both policies show us how government spending and investing to help businesses fall into and remain in the expansion phase of the business cycle. As an international company, Larson Inc. will need to consider the economic future for the United States and Germany. With the United States currently in a recession, the company must determine how to create an upward slope toward expansion. In the current market of monopolistic competition, the company needs to concentrate on their product differentiation and advertising to go into expansion. In Germany, the company also needs to expand their market to remain successful. An oligopolistic market in Germany would allow Larson Inc. to work on expanding their marketing and streamline their products.
Alternative Economic Futures
Larson Inc. needs to have contingency plans for all the market projections over the next few years. The current recession is the largest economic downturn the United States has seen since the Great Depression, and thus less predictable than the mild recessions between. If the current recession persists and expansion comes slower than predicted, Larson Inc. should prepare to make adjustments to not only survive, but to come out of the recession more capable. The first issue to consider is branding. It is imperative that Larson establishes a strong brand name and image if it is to compete with an ever growing field of competitors, but while profits are down a full advertisement campaign is not feasible. A modest marketing strategy based on packaging and store signage will be an achievable first step in introducing Larson as a quality product, and not just your standard battery. Larson Inc. should continue the research and development of new products and improvements, but limit those endeavors to developing technologies implemented in more "necessity" items such as laptop computers and cellular phones. In fact, the only areas to experience growth in consumer electronics in 2009 were Hi-Def DVD players, laptops, and LCD TVs (Savitz, 2010). Another way to combat the recession and to maximize sales, Larson Inc. should engage in perfect price discrimination, because the monopolist practicing perfect price discrimination will produce a larger output than the monopolist that doesn't (McConnell 2009). Larson can achieve this by charging a premium price for the batteries while circulating discount coupons directed at non-business consumers. This has the effect of selling the batteries at a higher price to buyers with inelastic demand, but also offering lower prices for the same product to more elastic buyers. This strategy will help ensure that Larson Inc. continues to build a strong brand image, and deriving the most sales from both inelastic and elastic consumer segments. If the economic situation should gain strength and move into expansion, Larson Inc. should poise to be much more aggressive in marketing. Again, the priority should be building Larson Inc.'s brand image and recognition. If the economy s expanding Larson should invest heavily in advertising, as well as packaging and store signage, to establish itself as the trusted name in electronics batteries. Another benefit to an expanding economy is the likelihood that slower markets such as recreational electronics will likely grow. Research and development teams should begin to incorporate technology aimed at personal gaming devices, personal readers, and digital video recording devices. This will allow Larson Inc. to offer a technologically advanced battery that meets the requirements of emerging technologies. The perfect price discrimination strategy should still employ, but with less discounting with coupons. Once the economy has reached its peak, and Larson Inc. has had success with its branding and marketing strategy, advertisement should be able to decrease. The saved revenue from a smaller advertising budget could be used to acquire a manufacturer of lower quality batteries. This could be a second product line for Larson Inc. to explore. Since they have already marketed the company as a quality product, the addition of regular AA and AAA batteries could be highly profitable. Larson will be able to profit from name recognition while not needing to invest heavily in research and development. This new product line should differentiate from the premium products as a base product and priced very competitively. This new addition to the company will give Larson Inc. a broader market, and less susceptible to market fluctuations.
Future Recommendations
The battery industry that Larson Inc. is a part of can go many different directions in the next few years. Larson has operations in both the United States and Germany, there are different microeconomic factors that affect each directly and separately but a general trend will occur. In this recent economic downturn there is no doubt that consumers and battery dependent industries will require new technology, innovation, and cost-effective manufacturing processes to return to a thriving industry. Businesses have many possible future outcomes in this industry but three can be seen much more likely; the first being some major firms will be able to capitalize on investment in research and development, therefore being able to produce a technologically advance product which will keep them in the industry. The battery industry is limited; the largest 50 of approximately 125 battery companies in the United States account for 95% of revenue in the industry (Hoovers, 2008), therefore for these 50 companies they must experience technological advances in a large volume.
The smaller companies must continue to expand on their limited volume of specialized battery products. Another future trend in this industry could be smaller companies; those that make up 5% of total industry revenue, becoming larger and taking a larger market share from its larger competitors. If these smaller industries can maximize production of their specialized batteries, then they can fair much better although the economy is down. This would be very reliant on new technologies in other industries to grow to have a need for these specific and distinctive products. The final main possibility would be the industry would experience gradual growth. This growth would be reliant on the continuation of new products that have increased past growth in the battery industry significantly; like as cell phones, micro-electronics, new energy sources, and hybrid automotives. In this outcome market shares would stay approximately the same, although some small companies would fail and new small companies would emerge. In this way the large battery producers would stay on top and maintain their consistent growth. We can consider Larson Inc. to be a small to medium-sized company in the battery industry because of this Larson needs to maintain a product mix with equilibrium between product specific, specialty batteries that a small company would produce and mainstream batteries cost effective and know there is a market for. Because the economy is in a downturn, there has to be a stronger interest in the mainstream battery markets that have provided low but continual and steady growth and therefore are less risky. As in Robert Solow’s exogenous growth model, technological change can have positive effect on GDP and therefore business’ of all sizes. Only once out of the recession can there be more investment or “risk” in more specialized profits that could eventually lead to larger growth.
In conclusion, Larson Inc. must determine the best course of action for the company under any circumstances. The company needs to make the necessary changes as the economy goes through the business cycle. It is important for Larson Inc. to be ready for the changes in the economy whether it is in expansion, recession or peak cycle. The necessary changes will include maximizing production cycle, reducing costs, new innovative ideas and concepts.