Beechnut baby foods have recently marketed and launched a new product line. After years of the decline in baby food products, Beechnut realized that many moms in this millennium have begun to make their own baby foods. This trend was reflected in the opposition to purchasing concentrated and processed foods from popular baby brands. As a result, Beechnut developed a new line of 100% natural products. The catalyst for this new product was the extreme drop in ounces of baby food that a baby had in 2012 versus 2005. According to Beechnut’s research and interviews with new moms, these consumers believed that the homemade food was the best and healthiest option for their baby. Furthermore, the multitude of books and blogs stressed and instructed the importance of moms making their own baby food. Moms want to know what is in the baby food. In addition, moms and dads could experiment with new healthy combinations which have not been seen in the previous store bought baby food. For example, quinoa, kale and apple, four bean lentils and vegetable, etc.
To adapt to this business, Beechnut revamped its line of baby food, adding hip ingredients like pomegranate and quinoa and producing all natural, organic baby food (Ellet, 2014). In the beginning Beechnut reflected an Oligopoly, which is a business run by a small number of firms that together controlled the majority of the market share. In the United States, the food market for baby food in jars only consisted of three competitors. Gerber who was number one and had a market share of 65%, Heinz with a share of 17.4% and Beechnut with a 15.4% market share (Strom, 2014). However, with the influx of natural food and organic baby food trends, Beechnut can also be defined as a Monopolistic competition. This is an imperfect competition that has many producers which sell products that are differentiated from one another either from the branding or quality and, therefore, do not render perfect substitutes. In monopolistic competition, a firm takes the prices charged by its rivals and ignores the impact of its own prices on the prices of other firms (Stroux, 2004).
Before, the elasticity of the product is discussed, it is important to discuss the concept of diversification. The introduction of Beechnuts all natural baby foods are a corporate strategy to increase sales volume for new products and new markets. Diversification is often the expansion into a new area of the industry (here organic baby products) that the business is already in, or investing in a promising business outside of the scope of the existing business According to Igor Ansoff’s Product Market matrix,
Here, the first three concepts often are pursued with the same technical, financial, and merchandising resources that are used for the original product line. However, as in Beechnuts new scientific process that eliminates absorbic acid in its baby food products, it is a form of diversification. Diversification usually requires a company to acquire new skills, new techniques and new facilities.
In terms of the price of elasticity for Beechnuts all natural baby foods, they will only be considered to be elastic if a slight change in price leads to a sharp change in the quantity demanded or supplied. These kinds of products are readily available in the market and may not be needed in daily life. As seen in the recent trend of baby food, many families are opted to make their own baby food as opposed to buying baby food that is not “natural.” Furthermore, there are other products that promote the processing of baby foods in the home kitchen such as the baby bullet. In other words, elasticity will vary among consumers, because some products may be more essential to the consumer. However, many mothers love other organic baby food products such as Ellas because the pouches are great when you are on the go, but they are more expensive,” As a result, many moms and dads find it more cost-efficient to roast some vegetables than to spend $1.50 on a pack of food.” This is how Beechnut’s new line will differ from the competitors. They will offer up to 40 different baby food products made from non-genetically modified fresh and instantly frozen ingredients, sans additives or preservatives at a lower cost than other organic baby foods.
They will sell for $1.09 a jar, cheaper than other organic baby foods, which range from $1.39 to $2, but more expensive than its traditional line. However, the traditional line will still be produced (Strom, 2014). In discussing the marginal cost or revenue that is incurred with the decision for Beechnut to produce an all-natural baby food, it is important to indicate the cost changes. In order to produce an all organic, natural product, Beechnut adopted a new process which eliminates the absorbic acid in fruits and vegetables. Hence, carrots stay orange and beets stay red. These products require the development of new technology that uses cold and high pressure, which halt oxidation. These changes in marginal cost indicate how much total cost changes for a given change in the quantity of output. Therefore, the total of variable cost changes. In reviewing the marginal cost curve for Beechnut, it does decrease initially because of Beechnut taking advantage of the available economies of scale. However, Beechnut must also understand they may reach a point in its output level, which reflects the marginal cost in production that slightly rises because off this overstretch of new technologies, resources, experts, and machine depreciation (McConnell, Brue, & Flynn, 2009). Beechnut is a long established industry.
As a result, this company can be a barrier to for other companies to enter. Although there are other competitors such as Ellas, or Earth’s Best, which are established names in the organic baby food industry, other companies face the existence of high start-up costs or other obstacles that prevent may new competitors from easily entering the area of baby food. These barriers to entry benefit existing companies such as Beechnut because they are already operating in the industry. Beechnut protects will protect its revenues and profits from being whittled away by new competitors.
Producing all organic and natural baby foods, was a strategy for Beechnut to appeal to the health conscious, busy parents who recognized a lack in the market of all natural baby foods. These parents opted to make their own baby food, as opposed to compromising the nutritional standard they wanted to set for their daughter or son. Not only did Beechnut produce an entire new line of baby food, but they also created new packaging that will relate to the health and environmentally, conscious family. In addition, Beechnut redesigned its packaging as well as putting the food in attractive contoured glass jars with clear labels, but they have learned to adapt to new and growing market.
On the onset of this new baby food product for Beechnut, it is necessary in their decision making process to be educated on current global economic conditions. The global economic environment sets the stage in strategic economic planning and the business cycle. Currently, there are many economic challenges that the global community are facing. Under these current conditions the IMF on October 9th 2012 declared that the state to the global economy was worse thatn what was projected. Furthermore, according to the IMG the prediticons for the economic global growth was down 3.3 percent and down 3.6 percent in 2012. To add to these statements the GDP growth of emerging markets is slowing and expectations for the global economy is at the lowevest since March of 2011 (Guangzhou, 2014). According to the World Economics Situations and Propects by the United Nations, it states that
$$Ellet, J. (2014). “Beech-nut Takes Transparency to New Level with Launch of 100% Natural Food for Babies.” Forbes. From: http://www.forbes.com/sites/johnellett/2014/04/30/beech-nut-takes-transparency-to-new-level-with-launch-of-100-natural-food-for-babies/ Retrieved on May 5, 2014. McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, problems, and policies (18th ed.). Boston, MA: McGraw-Hill Irwin. Strom, S (April 25, 2014) “As Parents Make Their own Baby Food, Industry Tries to Adapt.” New York Times. From: http://www.nytimes.com/2014/04/26/business/as-parents-make-their-own-industry-tries-to-adapt.html . Retrieved on May 4, 2014 Stroux, S, (2004). US and EC Oligopoly Control. Kluwer Law International. Volume 14 of International competition law series, ISSN 1569-2817 http://en.wikipedia.org/wiki/Diversification_(marketing_strategy)