Microeconomic Analysis: Consumer Products Inc
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While sitting in your office one evening, you begin to think about some of the key microeconomic messages you want to communicate to the Board. (Key concepts include, but are not limited to, supply and demand, pricing, competition, costs & production, and economic value added.) Pick two key concepts and discuss what you will present to the Board and why.
Scenario:
Consumer Products Inc. (CPI) is a U.S. regional consumer products company located in Phoenix, Arizona. The company manufactures and distributes a small line of consumer products to retailers in major western cities including Los Angeles, San Francisco, Seattle, Portland, and Phoenix. The company has an excellent reputation as a good corporate citizen and producer of some of the highest quality products in the business.
CPI's three major brands are Shades of Youth, a hair care line that recently has been doing extremely well as the aging baby boomers look for products to help retain some of their youth; Super Clean, a line of detergent and bleach products; and Super White, a line of tooth paste that quickly and safely whitens teeth. Super Clean is the anchor division, and it was the sole line of products the company had when Javier Lopez founded it in 1951. The company launched Shades of Youth in 1975 and Super White in 1980.
You have headed up the Super Clean division for the last 8 years and were recently promoted to Chairperson of the Board and Chief Executive Officer (CEO). The firm went public ten years ago under the leadership of your predecessor as CEO, Regina Baker. CPI is well established on Wall Street and has a reputation of being a good company that is conservative and a safe investment.
With only a U.S. regional presence and $200 million in revenue, you are clearly aware that the company's ability to compete with the industry giants (Procter & Gamble, Unilever, Colgate, and Gillette) is limited. You believe that the firm must expand to other regions in the U.S. and begin international expansion if it is going to grow and prosper over the next decade.
The Board has reservations about making such bold moves, arguing that the company has been a successful regional company for over 50 years and can remain a niche player in the consumer products business. You see things differently. You see that the market is changing and competitors are becoming more aggressive by making acquisitions or developing new products that are extremely competitive with CPI's brands. More importantly, you believe that the company will either be crushed by competition or forced into a merger to survive.
You know the task ahead of you is daunting. As you approach the challenge of persuading the Board to expand, you believe it is critical that you outline the global macroeconomic issues that are driving the industry and articulate the microeconomic dynamics that are central to the firm's success. Ultimately, you see this as a decision-making problem. The Board must make the right decision now because the survival of the firm is at stake.
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Solution Summary
The Solution provides a summary of two microeconomic concepts (demand and supply and competition) to share with the Consumer Products Inc board.
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Demand and Supply
Due to changing consumer preferences, margin erosion, aggressive competition, and the need to lead with strong brand preference has changed the dynamics of consumer goods market. In an effort to gain greater market share companies are trying to gain a competitive advantage on better managing the supply chain. They are finding new approaches to improve product lines, accurately forecast demand, and manage inventories to meet rapidly changing consumer taste. For any manufacturing company to be successful, it is vital to have the ability to get the right amount to right products on the right time on the shelves to meet the demand. Flexibility in this respect measures how fast a company can react to changing consumer demand and disruptions in supply chain. Gone are days when whatever was on the shelves was picked up and consumed. Now consumers have become more aware of different options existing not just in local market but also in international markets. Their spending power has increased which means goods which were unreachable earlier have come within the reach of consumers who don't want to compromise on any aspect. This has in turn created problems for consumer goods industry. As a result the gap between demand and ...
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