Thomas Money Service Inc. established in 1940 with the intent of providing small loans for household needs. The success of the company has led them to expand their services which include business loans, business acquisition financing, and commercial real estate loans. In 1946 Thomas merged with a company that specialized in equipment financing called Future Growth Inc. This merger, although was a risky move was a proven success for The company as they became a competitive company in forestry and construction industry with an advantage in the market.
For over 67 years, the company has seen continual growth and financial success. Because of the current economic conditions this past year the company is experiencing significant losses in their stock values and as a result the company has to layoff some employees. Massive flooding, forest fires, animal activist protesters in addition to the economic crisis are all reasons why the company is experiencing a 30% loss in sales from the previous year. Based on the loss in sales and other rivals in the equipment manufacturing industry that can offer substitutions Thomas Money Service Inc.
has requested an analysis of the situation to determine the way ahead on how he can turn the company around and re-establish his status in the industry. The intent of this proposal is to provide a recommendation on how the company can increase revenue, achieve ultimate production levels, determine how fixed and variable costs can be adjusted to maximize profits, suggest a mix of pricing and non-pricing strategies, and create barriers to entry into the market if possible. This proposal will also look into ways on how the company can increase product differentiation, and if there is other means to minimize the cost for the product.
Increasing Revenue Based on the data from Thomas Money Inc. the first recommendation is to develop a plan that will increase revenue. Because of the decrease in sales, the company must first look at the marginal revenue and the marginal cost profit maximizing guide to determine if it is profitable to continue producing their building and forestry equipment. Based on the data, after completing the analysis it proves that the output at each marginal revenue exceed the marginal cost thus proving that no more would be added to cost than to revenue.
If profits are to be maximized, prices must be in excess of the average total cost where (P=MC output) as prices are kept at the equilibrium point to maximize revenue. Production differentiation is a must to the consumers, as this awareness will influence their demand for the product. This is accomplished through means of advertising. A strong marketing team must show the consumers what FGI can offer not just in pricing but also in terms of the benefits of buying FGI equipment as opposed to the other brands. Another way of increasing revenue is for Thomas Money Inc. to include its employees in the plan.
This can be accomplished through quality customer service and since hospitals and nursing homes are in demand for new buildings there is potential for new revenue. Another recommendation for Thomas Money Inc. is in finding ways to improve the production levels. Since the company produces its own brand of forestry and building equipment they have an advantage to create or increase barriers to entry by their rivals by branding, patenting, or licensing its products. Investing in other subsidiaries within the medical industry with a focus on new construction of nursing homes and hospitals will also increase revenue.
Based on the information provided prices are higher than the marginal revenue at every level of output thus putting the company in a position to produce the amount of demand for the product. Reducing prices and a strong advertising campaign are ways the company can boost its production levels. Maximizing Profits Thomas Money Inc. has the potential to maximize profits especially since the information stated that marginal revenue exceeds marginal costs. Increasing revenues and limiting variable costs are the primary motives for the company therefore FGI will need to shift from its consumer targeting from new
equipment to used equipment. By focusing on the used equipment and liquidating the repossessed units will generate an increase to marginal revenue since the variable costs for those units do not exist. The company does not have to stop producing new equipment, but the level of new production need to follow the economic condition and markets to retain normal profit. In calculating the data provided additional revenue can be achieved by integrating resource and production efficiency. In using a series of short-run production analysis and application techniques FGI can maximize profits using the total revenue and total cost approach.
With total revenue of $2,600 and total cost of $1,050, it produces an economic profit of $1,550 before the law of diminishing returns begins to affect it negatively. Since fixed cost has maintain the same output level and variable costs fluctuates at each level increasing at more than $50 dollars, it is recommended that the company look into the cost of advertisement. Although it is a much needed source to increasing revenue and production levels, there need to be some other alternatives to advertising during the super bowl events especially since it is very costly during that event.
Other methods of advertisement can be in the form of newspaper ads, and local TV channels. Creating Price, Non-price strategies and barriers to market entry In every market the primary goal for companies is to sustain or increase profitability especially during a slow-down of the economy. Ways of doing so is by limiting marginal costs of production and maintain a fair or comparable market selling price to keep consumers from buying from other rivals. As companies incur marginal cost of producing, it triggers a trickling effect where those costs are transferred into the market price which in turn is felt by the consumers.
The result is a decrease in consumer demand for the product which creates a loss in profits for the company and consumers looking at other companies for similar products or substitutes. When considering pricing strategies, consumer expectations must be considered. Pricing should be set based on several factors such as geographical location, market segment, and economic conditions. Being flexible toward pricing policies change based on the dynamics of the market is the recommendation for the company.
Non-price strategies and barriers to market entry are effective ways of sustaining economic profit and provide a higher potential for increased revenues and maximizing profits. Investing in research and development, becoming technologically equipped, and implement a strong consumer-oriented programs to substantiate the organizations appreciation and show organizational worth of those consumers expectations, demand and wants. (McConnell) As mentioned previously, some barriers to entry should include patents for designs, copyrights, and branding of Thomas Money Inc and FGI within the current and future economic markets (McConnell)
Product Differentiation and other cost saving measures Product differentiation is achieved by ensuring an entity’s products are established from all other organizations within the market, which includes establishing a product mix appropriate to Thomas Money Service Inc. and FGI’s goals and objectives. The improvement of equipment through research and development in the nursing and hospital market through merging, acquiring, or investing in other existing and reliable organizations validates a strong product mix across various market. Thomas Money Service Inc.
and FGI may reduce internal costs through various and simple methods which strengthens increase in revenue, profit maximization, sustaining applicable market pricing, establishing product mixes and differentiation through high quality. Some cost saving measures includes establishing a strong purpose toward product improvement and eliminating unnecessary areas of productivity. In summary, to sustain the goals of continuing to be a competitive and profitable company this business proposal has considered the market conditions in which the company performs.
The rate of success Thomas Money Service Inc. and FGI have maintained over the long years of performance provides the basis for the proposal made to increase revenue, employ profit maximization, establish product mix and differentiation, establish price and non-price barriers to market entry, and reduce costs. The design and strategic approach under the business proposal is to ensure the continuance, profitability, and stability of both Thomas Money Service Inc. and FGI providing a strong a basis for expansion, promoting growth, and development for future years respectively.