Marco’s Pizza Strategic Expansion Coursework
Headquartered in Toledo, Marco’s Pizza is a popular pizza restaurant chain that gives high-quality, authentic Italian pizza, salads, rooster wings, baked subs, and other products. Being one of the fastest-growing franchises within the United States, Marco’s Pizza planned to continue its growth to Iowa, in particular, the Des Moines area. Following its program for strategic enlargement, the company aimed to introduce 15 new places in Iowa in 2017, with 1 or 2 of them in Des Moines (“Marco’s Pizza,” 2017, para. 1). Within the next a number of years, the number of places is predicted to grow in accordance with the company’s aggressive scalable business mannequin.
As of 2017, there were only 8 areas in Iowa, all of which partnered with Marco’s franchise Family Video (“Marco’s Pizza,” 2017, para. 3). The initiative to find Marco’s Pizza in Des Moines was initially taken by Dan and Sherri Holmes, the residents of Des Moines who needed to introduce quality products and customer-friendly service to the community. Under Holmes’ possession, the primary Marco’s location opened in Des Moines (“Marco’s Pizza,” 2017). Apart from Des Moines, focused markets for growth embody its suburbs, corresponding to Norwalk, Norwoodville, and Avon Lake.
Laws of Supply and Demand
The strategic expansion of Marco’s Pizza to the Des Moines area shall be subject to the regulation of provide and demand. In specific, when opening new areas, franchisees will have to resolve on the price of the product and the amount of that product. Rational estimation of those values will contribute to the cost-effective allocation of assets. In order to make these choices, a thorough analysis of the market has to be conducted.
It is important to know the demand for the product to estimate what number of merchandise (raw materials) must be bought to generate the required supply. Marco’s Pizza has become a beloved model of many Americans because it makes pizza with contemporary elements only (“Marco’s Pizza,” 2017). This means that dough by no means will get frozen and is baked daily, and the cheese mix can also be by no means frozen. If the franchise proprietor units too high prices for its merchandise, customers will not be prepared to buy them. If the prices are lowered, the demand for these products will improve. One could state that to extend the demand; costs may be lowered much more, although, in such a case, the income generated could not cowl prices of operation (Cowell, 2018). Therefore, the prices should be set at the level when provide and demand reach equilibrium.
In the true world, the availability is also affected by production capacity, operation costs, and other opponents in the market. The demand is affected by the standard and cost of the product. If the price of Marco’s pizzas drops, the shopper base will enhance. If the price of Marco’s pizzas increases, its clients might select to purchase pizza at Marco’s opponents. However, the legislation of provide and demand may be utilized not only to prices but also to other actions. In particular, the wages of Marco’s staff will depend on the extent of unemployment or, in different phrases, the availability of employees and the demand for work.
It must be stated that the demand for Marco’s merchandise varies across states, and so does the value. If the worth for Marco’s pizza and different merchandise have been the same for all of the states, there can be no have to estimate the worth for each position in the menu. However, it is a fact that costs differ slightly, and this is dependent upon numerous factors, the first of which is the value of operations. One could assume that different Marco’s Pizza stores have totally different prices of operation, including labor, taxes, and local charges. Marco’s franchisees set their own prices with nobody dictating the price-setting strategy. However, this doesn’t mean that franchises may set too high costs to maintain customers coming. At the same time, following anti-monopoly and anti-collusion legal guidelines, the prices of native franchises ought to be completely different.
Surplus and Shortage of Supply
The amount which producers may need to sell doesn’t essentially match the amount which the consumers need to purchase. This could also be particularly the case for shops that have opened just lately and can’t determine the efficient quantity of supply (Cowell, 2018). If Marco’s Pizza bakes more pizzas than demand, this situation is called excess provide or surplus. It must be mentioned that surplus is always mounted to a selected value of the product since when the value is lowered, it might be anticipated that most of the extra pizzas will be bought. The worth will drop until there isn’t any more surplus.
Conversely, if the quantity equipped is less than the quantity demanded, excess demand or shortage could also be noticed. If in some businesses it is possible to increase prices, that won’t work for the pizza industry that has a massive quantity of rivals and thus high elasticity of demand. If Marco’s franchisees decide to extend the worth, consumers may be unwilling to pay extra and can choose Marco’s opponents. Taking into consideration that Marco’s Pizza is new to residents of Des Moines, the price improve technique may not convey a lot revenue. Therefore, when deciding on supply, the corporate must be guided by the rule of profit maximization and set marginal income equal to the marginal price.
Elasticity of Demand
The elasticity of demand defines the extent to which the demand is impacted by a change within the worth of a product. The demand could additionally be elastic and inelastic, depending on its responsiveness (Kreps, 2019). Since Marco’s Pizza has competitors in the Des Moines area (Fong’s Pizza, Blaze Pizza, Gusto Pizza, and others), the demand for pizza is elastic. In different words, if the price of the product modifications, the demand will change considerably. This, in flip, will lead to a change in revenue. The greater the variety of Marco’s competitors, the more elastic the demand for its merchandise will be. This is as a result of competitors act as substitutes to which shoppers will possibly turn if the price of Marco’s pizza increases.
In a free market, it’s assumed that each shoppers and producers are guided by rational self-interest in their decision-making. The idea of rational self-interest may be applied to the concept of the invisible hand that is used to explain the egoistic intentions of a person which would possibly be helpful to society. It isn’t solely franchisees who profit from opening new pizza shops in Des Moines but in addition customers who are given a possibility to buy high-quality pizza. The market is thus built on voluntary exchanges between producers and customers. Owners of Marco’s Pizza franchise had been keen to sign the settlement to purchase the franchise and produce pizzas to sell them and generate profit. Consumers who are pizza lovers need to pay cash for Marco’s pizza. Both events are ruled solely by their rational self-interest, and that’s how equilibrium is set.
Consumer benefit is the value that a consumer gets when interacting with a company. Considering that the value could also be real or perceived, Marco’s Pizza has to pay significant attention to determine in what method it can create value for shoppers. The extra causes the customer has to come to a pizza store, the extra revenue the franchise will generate. Types of client advantages embrace but are not restricted to client wants, preferences, expertise, perceptions, quality, and pricing (Kreps, 2019). Consumers of Marco’s Pizza could additionally be attracted by reasonable and easy pricing, the perceived quality of the pizza, customer-friendly service, and a variety of pizza toppings.
Marginal utility is considered to be the additional benefit that a customer obtains from buying an extra unit of products. This idea helps decide how many objects consumers are keen to purchase. It is mostly assumed that, all else being equal, as the number of items bought grows, the marginal utility declines (Seaman & Young, 2018). When a buyer involves Marco’s restaurant, she feels hungry and decides to purchase six slices of pizza. Marginal utility is the highest for the primary slice, which is eaten with the best satisfaction. Upon consuming the second, the third, and the fourth slices of pizza, the marginal utility of the product is gradually reducing because the customer turns into full. If the customer does not need the fifth and the sixth slices of pizza, their marginal utility is adverse.
Benefits of Competitive Market Structure
In the given case, the competitiveness of the market structure is represented by the number of different pizza shops which are future competitors of Marco’s restaurants in Des Moines. At the same time, there are many consumers, and there’s no single vendor or purchaser who might influence the market worth. The higher the variety of rivals, the more aggressive the market shall be. In a aggressive market, it’s mostly customers who take pleasure in advantages. Firstly, the probabilities that clients might be exploited by producers are low since companies do not have a pricing monopoly (Mandy, 2016). This signifies that if Marco’s restaurant increases the prices of its merchandise, prospects will have the power to choose other cheaper options. Thus, in excellent competition, firms would find it disadvantageous to raise costs. Secondly, firms compete to attract a client to buy their product. A aggressive market construction implies that the market is customer-oriented, and sellers purpose to fulfill prospects, so they do not shift to a different vendor.
Marco’s Pizza has a protracted history, during which it has turn out to be certainly one of America’s favourite pizza corporations (“Marco’s Pizza,” 2017, para. 1). However, considering that there are a quantity of pizza restaurants in Des Moines, Marco’s Pizza will have to have some advantages over its competitors. These benefits could embrace the model name, high-quality merchandise made with the most effective obtainable components, never-frozen cheese blend and dough, and customer-friendly service. Therefore, customers will benefit from opening Marco’s Pizza in Des Moines as they may get yet one more choice to select from, and the franchise will do its finest to draw new buyers in multiple methods.
Cowell, F. A. (2018). Microeconomics: Principles and evaluation (2nd ed.). Oxford, England: Oxford University Press.
Kreps, D. M. (2019). Microeconomics for managers (2nd ed.). Princeton, NJ: Princeton University Press.
Mandy, D. M. (2016). Producers, customers, and partial equilibrium. Amsterdam, Netherlands: Academic Press.
Marco’s Pizza proclaims strategic growth in Des Moines. (2017). Web.
Seaman, B. A., & Young, D. R. (Eds.). (2018). Handbook of research on nonprofit economics and management (2nd ed.). Northampton, MA: Edward Elgar Publishing.