Fundamentals of Strategic Management - Term Paper Example

? Evaluation of Demand Elasti Contents Contents 2 Introduction 3 Section Relative Price Comparison 4 Section 2: Analysis 6 Section 3: Conclusion and Recommendation 10 Work Cited 12 Name of the Student Number of the Course Name of the Course ID of the Student Date Evaluation of Demand Elasticity Introduction Theory of economics states that the price level for a product largely depends on the scarcity of product or the resources used to make the product. In the recent studies, the economists suggest that price level for a product introduced by the members of a company largely depends on the elasticity of market demand for the product. Price Elasticity is basically the degree of responsiveness of the change in quantity demanded for a product with respect to the change in the price level of the product. The value of elasticity (e) for a product lies in the range of 0 to 1. If the elasticity for a product is 0 (perfectly inelastic), then the sellers can easily manipulate changes in the price of the product. However, if the demand elasticity for the product is 1 (perfectly elastic), then the sellers must be very careful while changing the price of the product (as the demand is highly sensitive). This research paper will concentrate on the business price elasticity analysis of a Hamilton Beach 4 Speed Blender. The learnt from the paper will help the researcher to analyze the most optimal business strategy for the product (Arnold 167). Section 1: Relative Price Comparison This part of the paper will explain the relative price comparison table for the concerned product, Hamilton Beach 4 Speed Blender. This is a table that would compare the prices of the product with its close substitutes. Relative Price Comparison Table (Source: Author’s Creation) The above table explains the relative price comparison table for the Hamilton Beach 4 Speed Blender. The three selected locations are the different cities of Los Angeles. These are West Hollywood, Culver City and Santa Monica. The table would compare the prices of Hamilton Beach 4 Speed Blender in these three locations (prices of the same group products in three different markets in nearby geographic locations) (“Hamilton Beach 54615 Wavestation Express Dispensing Blender with 48-Ounce Jar, Black”). The two close substitute product of the Hamilton Beach 4 Speed Blender are the Hamilton Beach Big Mouth Juicer and the Hamilton Beach Stainless Steel Peeler of Fruit and Vegetable. It should be considered that there is no perfect substitute for the mixer grinder. This is the reason for which peeler and juicer are the closed substitutes of the product. The table would also compare the prices of the close substitutes of the Hamilton Beach 2 Speed Blender in the same markets (“Hamilton Beach Big Mouth Juice Extractor”). Before the table is analyzed, one has to understand the meaning of a substitute product. Products are substitutes of each other if the features inbuilt in the product satisfy the same type of demand (hence, utility) for consumers. Cross price relation of substitute products is positive. For example, Coke and Pepsi are substitutes of each other and thus, the rise in the price of Coke would decrease its quantity demanded (law of demand) and increase the price for Pepsi (“Hamilton Beach Stainless Steel Fruit & Vegetable Peeler – 03066”). Price of Coke Quantity Demanded for Pepsi (Source: Author’s Creation) The relative price comparison table in the above graph reflects the price differentials among the close substitutes in the three nearby markets (Hamilton Beach 4 Speed Blender, Hamilton Beach Big Mouth Juicer and Hamilton Beach Stainless Steel Peeler of Fruit and Vegetable) and almost no price differences in the same group of product (Hamilton Beach 4 Speed Blender) in the chosen locations in these three markets (Culver City, West Hollywood and Santa Monica). Before the in-depth analysis, the cause for this situation can be explained by theory of simple economics. The close substitutes are actually products with different characteristic features and thus, their prices are also different. On the other hand, the prices of the same product manufactured by the same company would not be much different across different nearby cities of Los Angeles. Section 2: Analysis The prices of products largely depend on its market demand and supply thresholds. However, qualitative differences in similar types of products also give rise to different prices of the same type of product. This is the reason which makes the analysis of Veblen Effect so famous in the contemporary world. According to this theory, the consumers in the market judge the price of a product on the basis of its quality. They realize that the high price for the product is completely due to the superior quality of the product. The discretionary powers of the buyers for these products in the market are very high. As shown in the above context of the table, the price of the blender is almost same in the nearby market locations of the same country. However, the selling prices of the products were completely different in each of these three markets, considering the cases of the close substitutes. The following context of the paper would explain the key disparities in qualitative features that exist between the three products (close substitutes) and henceforth, cause the differences in their prices. Hamilton Beach Big Mouth Juicer It is claimed by the market researchers that this juicer produces almost 24% more juice that the other juicers manufactured by the company’s competitors. The power with which the juicer operates is 800 Watt and extracts juice in the best and most refined form than any other juicer in the market. The juicer has an extra large pulp bean, which helps to obtain the juice in a highly nutritious form (as they also contain the fruit pulp in them). The design of the juicer is also very efficient and its parts can be easily cleaned and assembled as they are dishwasher safe in nature. The modern individuals are highly conscious about health and often prefer juices in their best of quality. Thus, these qualities render the Hamilton Beach Juicer as the best equipment for making juices of the highest quality in the market. Hamilton Beach Stainless Steel Peeler of Fruit and Vegetable A fruit and a vegetable peeler is a very far substitute of a juicer or a blender. However, there is hardly any individual in the market who does not own a peeler as small equipment in his or her kitchen. A peeler has many advantages that are not achievable if one uses a simple blender or a juicer. A peeler does not require electricity, is portable and can be carried to any place for varying uses. Moreover, a peeler is cheap in price and allows the users to peel the vegetables that can never be done efficiently by a juicer or a blender. Thus, the peeler is also very useful equipment and with its affordable price, it has turned out to be a necessary kitchen appliance in the market (David 46). Hamilton Beach 4 Speed Blender The product has an excellent appearance at the first instance. Moreover, technology used to make the product is highly modern. The unique wave action system in the product forces the food particles to move down the blades, thereby helping to grind items efficiently. The blender has a 48 ounce capacity dishwasher in the form of a Durasafe jar. The stainless steel, Ice Sabre blades of the blender is patented. The power with which the blender operates is as high as 500Watts, at its peak mode of operation. The best quality of the product is its moderate price level. The budget friendly price of the product makes it affordable to consumers of different income groups. It is reviewed by the consumers that the drinks like, smoothies, icy drinks and milk shakes are prepared excellently in this blender (Mankiw and Taylor 189). The online consumers’ shopping official sites of Amazon and Wal-Mart have claimed that the blender have gained high popularity in the market in a very short period of its launch in the market. Blending or grinding of any edible products ranging from ice to vegetables can be done in a very efficient manner with the help of this blender. Many of the consumer products rating companies have given an ‘A’ to this blender. This blender not only works as a mixer grinder, but also serves the purpose of a juicer. The electricity saver technology inbuilt in the blender helps the consumers to consume lesser electricity while blending. The product is an amalgamation of technology and unique designing. In a very short period of time, it has gained popularity in the market owing to its good quality features. The price of the product is exactly worthy of its superior quality features (Cheung and Jeong-Bon, "Economic Consequences Of Alternative Fixed-Cost Allocations in a Principal-Agent Setting"). It is true that each and every kitchen product is unique in nature and its features are also highly differentiated from each other. In this sense, the price elasticity of demand for the kitchen products should be relatively inelastic. However, in the contemporary world, the corporate firms engaging in the manufacture of kitchen products encounter cut throat competition with each other. For example, the company of Hamilton Beach has to come across different types of competitors in the market like, Kenwood and Morphy Richards. Thus, in the real world, the market for kitchen appliances enjoys a monopolistic competition among the firms. This is the reason which compels each firm in the industry to compete with the other in order to acquire a bigger share of the market demand. The consumers in the market places also have various choices to select (different companies producing kitchen products) from and thus, market demand for kitchen products is relatively elastic in nature in Los Angeles. Figure 1: Relatively Elastic Demand Curve (Source: Assael 212) The above graph shows the relatively elastic demand curve for the market of kitchen appliances. This is why a small change in the price of the product brings about a large change in the quantity demanded for the same. Section 3: Conclusion and Recommendation At the end of the research, it can be claimed that the price of same group of product in the nearby markets are always same. This is the reason for which the price of the Hamilton Beach Blender is more or less same in the different markets of Los Angeles. The same producer cannot discriminate among the buyers in the nearby market locations. This is because, if the consumers feel that the cost of transportation including travelling and purchasing the product from the lower priced market is less than the cost of the product in the same market, then the buyers would be interested to only purchase the product from the low priced market. Excessive demand in the lower priced market would be increasing the price of the commodity (Butje 88). On the other hand, the prices of the close substitutes of a product can be different owing to the inbuilt features and usefulness of each of the product. This is the reason which makes the price of a blender, juicer and peeler different. Simultaneously, it is also important to note that the usefulness of a product is directly proportional to its price. A blender can do more functions than those of a mere juicer or a peeler. This is the reason for which the multifunctional blender is more expensive than the juicer and the juicer in turn is pricier than the peeler (Negishi 134). It has been analyzed that Hamilton Beach Blender has a relatively or somewhat elastic demand curve in the market. A small rise in the price of the product can force the consumers to shift to some other brand, which manufactures blenders. These branded companies share monopolistic competition with each other (Slack 54). Based on the above analysis, it can be said that Hamilton Beach can decide to increase its price only in the most potential markets for its products. This is because only the superior qualitative features of its products can sustain its worth of price rise in the market (Rogers 222). Work Cited Arnold, Roger. Macroeconomics. Connecticut: Cengage Learning, 2008. Print. Assael, Henry. Consumer Behavior A Strategic Approach (2005) Indian. Delhi: Dreamtech Press, 2005. Print. Butje, Mark. Product Marketing For Technology Companies. London: Routledge, 2005. Print. Cheung, Joseph K. and Kim Jeong-Bon. (1996) "Economic Consequences Of Alternative Fixed-Cost Allocations In A Principal-Agent Setting." Asian Review of Accounting, 4.1, (1996): 63 – 80. Print. David, Fred. Fundamentals of Strategic Management. Columbus: Merrill Pub. Co., 1986. Print. “Hamilton Beach 54615 Wavestation Express Dispensing Blender with 48-Ounce Jar, Black.” Amazon, 2013. Web. 7 December 2013. “Hamilton Beach Big Mouth Juice Extractor.” Amazon, 2013. Web. 7 December 2013. “Hamilton Beach Stainless Steel Fruit & Vegetable Peeler – 03066.” Kitchen Collection, 2013. Web. 7 December 2013. Mankiw, Gregory and Mark Taylor. Microeconomics. Connecticut: Cengage Learning EMEA, 2006. Print. Negishi, Takashi. Developments of International Trade Theory. Berlin: Springer, 2001. Print. Rogers, Stuart Clark. Marketing Strategies, Tactics, and Techniques: A Handbook for Practitioners. Connecticut: Greenwood Publishing Group, 2001. Print. Slack, Nigel. Operations Strategy. New Jersey: Pearson Education, 2005. Print. Read More