Analysis of Ford Fusion in Terms of Principles of Demand and Supply - Case Study Example

Student Name: Student ID: Tutorial Class: Tutor Name: Date: Report Title: Word Count: Pages: Article Summary The article “Ford Fusion Output Boost Tests $2,300 Premium over Camry” produced by Trudell Craig wrote on 26 August 2013, looks into the dynamics of demand and supply of Ford Fusion compared against the competitors. Ford utilized distinctive strategies to outwit competitors. Compared with Toyota Camry and Honda Accord, the writer observed that Ford had not only maintained high volume of sales but also succeeded in pricing their vehicle at a competitive price. Additionally, the article affirms Ford’s optimism that even with an increasing supply from its production plants; the company will continue registering high sales and profits. Camry’s price was reported to be dwindling but Fusion retained its position as a market leader. Introduction This paper intends to analyze Fusion in terms of principles of demand and supply. First, an assessment of factors that led to an increase in demand for fusion will be addressed. These factors comprise of changes in customer tastes and preferences, quality of products, pricing of goods, and price of complimentary goods. Improvement of production at Flat Rock and other plants in addition to government support and customer demand for engines that are friendly to the environment has led to a high supply of Fusion. Despite the fact that the price of Fusion was way above the price of Camry and Honda, its demand remained consistently competitive as will be demonstrated using diagrams. Another aspect that will be given attention in this discussion is Fusion’s characteristic of appearance as a Veblen good whose demand curve is positive and inelastic. Analysis Boyes and Melvin (2007, 52) alluded to factors that cause the demand curve to shift either to the left or to the right. Income, preferences, prices of related goods, and expectations play a critical role in shifting the demand curve. In the case of Ford Fusion, changes in tastes and preferences affected demand for the vehicle. Trudell (2013, n.p) establish that the gorgeous look of the vehicle was the driving force behind increased Fusion sales. This can be illustrated in terms of rightwards shift in demand curve as shown in figure 1. Figure 1: Rightwards shift in demand curve A lot of financial investment was injected into production of Fusion vehicle. Vehicle redesign measures have as well culminated into improved vehicle features. The 13% increase in Fusion’s sale has been credited to positive customer perception of the product i.e. attractive design. These variables are favourable and have the effect of shifting rightwards the demand curve from D1 to D2. Besides the appealing design of the vehicle, Fusion’s characteristic fuel economy has attracted more buyers. Apparently, people prefer to purchase vehicles that are fuel-efficient and green. The economic concept of complimentary goods is also in play. Mukherjee (2002, 108) observed that complimentary goods are those products that are used together. In that case, the type of vehicle and fuel used are complimentary goods such that if price of fuel goes up, people will demand less of that type of car. Similarly, a vehicle whose fuel consumption rate is very high will meet low demand in the market. There is no doubt therefore that Fusion car and fuel are complimentary goods. The expectation is that with an efficient engine, there will be a rightwards shift in demand curve. This economic principle matches with the situation faced by Fusion in that Ford’s research on electric and plug-in vehicles fits well with Obama’s campaign towards sale of green car. Ford’s production of a car that uses standard gasoline engine in addition to other electric components indicate a move towards orienting complimentary good to attract customers and ultimately make more sales. Briefly, an increase in demand for fuel efficiency and green energy implies that demand for Fusion vehicle will shift outwards. Notwithstanding the fact that Ford has been selling Fusion at a premium, the company has managed to outshine the long-standing competitors including Toyota Camry and Honda Accord. While studying various pricing available to a company, Vithala (2009, 32) states that premium pricing focuses on customers who value features of a product hence willing to pay a higher premium. Fusion’s positive image coupled up with improved features has enabled the company to maintain high sales under premium pricing. Premium pricing at Ford can be viewed as a tactic to inform the consumers that a highly priced good is more efficient and carries value for money. Trudell (2013, n.p) reiterates that even if the Ford reduced the price by some percentage, the price of Fusion will not face degradation. It is therefore obvious that quality of Fusion is the main feature propelling the sale of the vehicle. Future expectation is another component affecting demand. As production increase, Ford anticipates that price of Fusion might decline consequently shifting demand to the right. However, demand for Fusion remained steady even at a high price level. The observation that demand increased when the product is priced at a premium is a feature of Veblen good. The demand for Fusion is therefore for quality, efficiency, and prestige. This characteristic of a Veblen good can be illustrated in a diagram shown in figure 2. The price elasticity of such a good is inelastic and positive (Gillespie, 2001, 5). Figure 2: Veblen good In a research by inelastic demand for Ford Fusion means that consumers are not affect largely by upwards trend in price. The diagram shows that with an increase in price from P1 to P2, consumers still demanded for more Ford Fusion represented by change from Q1 to Q2. The economics of supply is also visible in the case study. Sullivan and Steven (2003, 112) outlines several factors that can shift supply curve. Some of these factors include price of resources, technology, prices of other goods, expectations, and government restrictions. Improvement in technology and training of new workers in manufacturing plant located in Flat Rock reinforced production hence supply of Fusion in Los Angeles, San Francisco, and Miami has improved. This can be illustrated by an outward shift in supply curve. Figure 3: Shift in supply Apart from rightwards shift in supply curve caused by improved technology and manufacturing efficiency, Ford predicts a steady price. Succinctly, increased production from Flat Rock would not water down the price of the car but there will be more profits even when supply has increased. Conclusion It is obvious from the analysis that Ford Fusion succeeded in selling at a premium price mainly because of features that satisfy customer needs. Ford is aware that rival companies continue to supply innovative products especially in the mid-size sedan market segment. To remain relevant in such a competitive market, Ford continues to invest in research and development. The graphs that have been used to support this analysis visibly demonstrate the success of Ford Fusion. Reference List Boyes W.J., and M. Melvin. 2007. Economics. Ohio: Cengage Learning. Gillespie, A. 2001. Advanced Economics Through Diagrams. Oxford: Oxford University Press. Mukherjee, S. 2002. Modern Economic Theory. New Delhi: New Age International. Sullivan, A., and M.S. Steven. 2003, Economics: Principles in action. New Jersey: Pearson Prentice Hall. Trudell, C. (2013). Ford Fusion Output Boost Tests $2,300 Premium Over Camry. Bloomberg L.P, Aug 27. Vithala , R. 2009. Handbook of Pricing Research in Marketing. Northampton, MA: Edward Elgar Publishing. Read More