Business Recommendations Memorandum 1

Business Recommendations Memorandum

Team A: Alpha Team Consultants
(April Hill, Kenechia Nelson, Nicki Stoops, Tina Parker, Teresa Tessier)
University of Phoenix
ECO/561: Economics

MEMO:
To: Big Drive Auto
From: Alpha Team Consultant, LLC
Date: January 16, 2010
Re: Business Recommendations for Big Drive Auto based on Economic Projections

This memo will present three specific economic futures over the next five years

for the Big Drive Auto Company. This memo features recommendations from year to

year and several graphs to provide visual support of the business recommendations

from the Alpha Team Consultants (Alpha). Alpha would like the opportunity to present

our recommendations for your future business management decisions. Our

recommendations will provide you with money and time saving options regarding

organizing, managing and integrating finances, product manufacturing and

development, consumer relations and supply chain all while continuously increasing

revenues and growth within Big Drive Auto.

As your exclusive consulting firm we have composed several forms of data

including diagrams, graphs and charts that aide in depicting the effects of our business

recommendations over the next five years. This data is based solely on the GDP and

any current economic contributing factors. The presented data and recommendations

will aid the Big Drive Auto Company in staying ahead of the competition, while

developing other methods that aide in business decisions making.

Business Recommendations Memorandum 2

GDP, Inflation, Pricing Strategies, and Policy

With the previous recommendations presented from Milestone I, II, and III, Alpha

Team has included a general description of the importance of GDP and Inflation data

collected for the next five years. In order to captivate the Auto Industry, Big Drive Auto

must analyze, project, and budget to remain profitable in any economic cycle. To

remain stable and maintain strength, Big Drive Auto must study the operations of the

U.S. economy. These basic distinctions will provide Big Drive Auto a benchmark of

data in which careful decisions can be made. The Gross Domestic Product (GDP)

“represents the total aggregate output of the U. S. economy” (Barnes, 2010). If the

economy faces a fast-paced growth level in GDP it can cause inflation.

Inflation’s relationship to GDP can cause eroded customer purchasing power,

diminishing returns on capital, undercut wage, layoffs, and debase the currency. “GDP
Business Recommendations Memorandum 3

gaps inflationary pressures and cannot be sustained indefinitely” (McConnell, p. 526).

Therefore, if GDP and pricing is not controlled the aggregate demand for Big Drive Auto

goods and services will increase faster than the supply, causing prices to go higher. In

order for Big Drive Auto to provide customers the perks, discounts, and high-level of

customer satisfaction it is imperative to monitor GDP for clear indication of recession or

inflation. Monitoring U.S. GDP will provide a calculation of net exports, consumer

consumption, and government outlays. Following the economic levels of GDP is a vital

tool in providing Big Drive Auto an economic future and assurance to exhibit pricing

strategy and policy recommendations.

Pricing is a major component to marketing, realizing profits, and the gaining of

market share. The pricing strategy Alpha recommends would position Big Drive Auto to

any drastic GDP changes. Implementing the pricing strategy structure will enable Big

Drive Auto to survive in any economic cycle. These series of steps are interrelated to

determine an efficient pricing strategy dependent on GDP levels:

• Estimate the demand curve

Business Recommendations Memorandum 4

• Global market and U.S. auto industry price sensitivity

• Pricing objectives to build image

• Current and projected profit and revenue maximization

• Survival in market decline, unemployment, and overcapacity

• Status quo to stable profitability and minimize competitive wars

• Skim pricing, penetration pricing and economy pricing to develop product and

service demand.

In order to balance pricing during different GDP levels, Big Drive Auto must

provide several pricing options to attract all-income level consumers.

First, there is economy pricing, in which Big Drive Auto will provide generic low

price value products. This will be a business approach which will offer minimal features

but solid consumer cost benefits. Then, there is penetration pricing which will help Big

Drive Auto achieve a desired pricing strategy in order to target all audiences and build

demand-value to customers whom are highly price sensitive. This alteration of prices

will reduce in-cost and accumulate volume increases.

Business Recommendations Memorandum 5

Lastly, price skimming is recommended by Alpha to “pursue profit margin

maximization” (Netmba, 2002-2010). This strategy will allow Big Drive Auto to set high

prices for customers whom are fewer prices sensitive. To remain successful, Big Drive

Auto must continue re-evaluating strategy needs in order to meet GDP level. This will

minimize Big Drive Auto’s risk and increase profitability to meet company objectives and

exceed goals.

Customer Incentive Program, Credit Markets and Trade and Specialization

Business Recommendations Memorandum 6

The creation of a customer incentive program would provide free warranties and

one year maintenance on all new vehicles purchased, including tire balancing and

rotations, oil changes and ten free car washes. In addition to the incentive program Big

Drive Auto will offer extended hours for parts, service and repair. By offering extended

service hours, Big Drive Auto would be able to continue to increase their profits and

customer base in the service area.

Alpha Team Consultants will further discuss a business decision

recommendation related to the automobile industry based upon projected economic

credit markets. The credit market is a general term for the huge marketplace where all

credit securities are traded. According to Investopedia, “Credit Markets are broad

markets for companies looking to raise funds through debt issuance. The credit market

encompasses investment-grade bonds and junk bonds, as well as short-term

commercial paper” (Barnes, 2010). With the interest rate at a low for Big Drive Auto; the

company can focus on a strategic plan implementation to maintain their competitive

Business Recommendations Memorandum 7

edge in the industry. The mentality of the average customer of Big Drive Auto is to

spend less and get the best quality.

In a final recommendation of the business decisions for Big Drive Auto will be

based in the areas of trade and specialization. Technological influences aide in

providing different advantages in trade and specialization. Big Drive Auto uses the

Internet as a worldwide communication network which publicizes and advertises the

company’s specials, services, and vehicles for sale. “When consumers arrive at a

dealership, they know exactly what they want and they’re looking to get the best deal”

(Viswanathan, Kuruzovich, Gosain, & Agarwal, 2007).

Specialization of Big Drive Auto will reveal the exclusiveness of trade and

specialization allows companies to specialize according to their comparative advantage

which could be either resources or technology (Ros, J., 1987). Our recommendations

would be based on the trade and specialization of the effects of future global conditions

that can give Big Drive Auto the lowest opportunity costs. Also, our recommendations

for the Big Drive Auto Company will be to use the Internet and any other technological

resources. This will enable Big Drive Auto to directly evaluate its necessary services

and consumer needs to introduce new products and vehicles. Finally, we recommend

that big Drive Auto take part in this same effort and allow other international auto

industries to become a partner in a cleaner environment, this enables Big Drive Auto to

fight a great cause and also allows the company to purchase certain environmentally

friendly vehicles.
Business Recommendations Memorandum 8

Alpha Team Consultants recommendations will simply help Big Drive Auto to

become profitable and to sustain in an ever changing market and economy. Team A

has shown that our recommendations to be standard setting for Big Dive Auto in this

highly competitive automotive and manufacturing market and will surely set this

company apart from its competitors. We look forward to the opportunity to use this

memo as support to our noted recommendations and are confident that our

recommendations will drive the next steps towards the future of Big Drive Auto. If you

should have any questions or should require any additional information please do not

hesitate to contact our office.

Thank you for your time,

Alpha Team Consultants, LLC

1133 Consultant Drive

Houston, Texas 77559

1-888-995-8856

References
Business Recommendations Memorandum 9

Barnes, R. (2010). The importance of inflation and GDP. Investopedia. Retrieved from

http://www.investopedia.com/articles/06/gdpinflation.asp

ECO561- Economics Learning Course website:

https://ecampus.phoenix.edu/secure/resource/resource.aspNetmba .com. (2002-

2010). Pricing strategy. Retrieved from

http://www.netmba.com/marketing/pricing/

Marketing teacher. (2000-2010). Pricing strategies. Retrieved from

http://www.marketingteacher.com/Lessons/lesson_pricing.htm

McConnell, C. R., Brue, S.L., & Flynn, S.M. (2009). Economics: Principles, problems,

and policies (18th ed.). New York: McGraw Hill/Irwin.

Ros, J. (1987) 'Trade specialization and economic growth, J. Eatwel, M. Milgate and P.

Newman (eds), The New Palgrave: A dictionary of economics, London:

Macmillan. University of Phoenix (2010), Big Drive Auto Scenario,

Viswanathan, S., Kuruzovich, J., Gosain, S., & Agarwal, R. (2007). Online Infomediaries

and Price Discrimination: Evidence from the Automotive Retailing Sector. Journal

of Marketing, 71(3), 89. Retrieved January 14, 2011