BMW Demand and Supply - Case Study Example

?BMW Automobiles BMW Demand and Supply Introduction The BMW launched the production of the BMW 3 series in 1975 as a successor of the 02 series, which later became the premium compact car brand. The company went ahead to produce five different generations of the BMW 3 Series which has sold over twelve million units to date. This has remained to be the marquee brand of the BMW group, which is also the most profitable to the company. This article looks at the micro and macro-economic analysis of the BMW 3 Series as well as possible solutions to the company in order to boost supply for their car brand. Microeconomic Analysis Demand is the willingness and the ability of consumers to buy a certain product for a certain price at a particular period. While other factors are held constant, the prices of goods and services increase as its demand increases and vice versa. Supply is the willingness of the manufacturer or the company producing then goods or services to sell the products at a given price at a given period. While other factors are held constant, the supply of goods and services will increase at an increase in price. Various demand and supply factors affect the production and sale of BMW 3 series vehicles (Flaschel, 2010, p.1). The first factor is affecting BMW’s demand and supply is consumer taste and preference. Different consumers have a varied taste and preference for the product. BMW 3 series is a mid-level luxury performance sedan. The car is also a bench marker in the market. It has played a great role in influencing the competitor’s in trying to achieve its class. The consumers also have their taste, which varies with the individual. The taste and preference of this car by some individual consumers is predominantly affected by its price in the market, the performance both on road and on off roads modes, the cars ability to perform, and the fuel consumption. The BMW 3 series has a relatively high fuel consumption capacity as compared to its competitors and it is better in performance than its competitors are. Secondly, consumer income affects the demand of the BMW 3 series. Consumer income is the amount that the consumer has which they are willing to invest on that commodity. The BMW 3 series retail price varies depending with the model. The lowest price for the BMW 3 series is $32,400. This price may not be affordable to many consumers. The consumer income is the greatest determiner of the demand for this product both in America and outside the American market (Flaschel, 2010, p.1). Additionally, price of substitutes and other complementary vehicles affects the demand of the BMW 3series cars. BMW, being a luxury mid-level vehicle, has many substitutes and complementary vehicles. An example of these substitutes is the Audi A3, Infiniti G35, Cadillac CTS, and the Acura TL. These substitutes have a relatively low price and perform equally with the BMW 3 series. The availability of these substitutes has greatly affected the consumers’ decision in determining the best car available for them. The availability of these substitutes also influences the ability of the consumer to save in comparison to what they would have used if they purchased the BMW 3series. Additionally, the BMW 3 series has been affected by the complementary goods. Complementary goods are the goods that are used alongside the product. The BMW 3 series is a relatively high consumer if gasoline in comparison to its competitors. This has hugely influenced the demand of this car (Hortacs, et al, 2010, p.1). The forth factor that has influenced the demand of this car is the consumer expectations. The BMW 3 series car has largely met the consumers’ expectations. BMW is actually an envy of many people, which has also increased the demand of this vehicle. The BMW 3 series is a great performer both on road and on off road modes. This has enabled it to have an innovative over the others in the market. The BMW also produces high quality vehicles that are not prone to damages as compared to its competitors. Recent statistics have shown that the BMW is one of the vehicles that hardly need repairs as compared to competitors such as Acura, Ford, and Toyota. The dominant factor affecting supply is the price of the product. When the price of the product is high, the seller of the commodity will be willing to sell the product at the highest price. This will help achieve the prime goal of every business, which is to maximize profits. The second factor is the cost of inputs. Inputs relates to the materials that are needed to produce a given commodity. The price of the inputs is directly related to the price of the output. An increase in input price will relate to an increase in output price. BMW acquires various inputs from various sources. This includes labor costs, other cost of production such as overhead costs, and production costs. Thirdly, availability of technology affects BMW’s supply. Technology has now become the principle factor of modern developments. The BMW 3 series car has undergone through various technology revolutions. It is produced through the latest technology thus making it safer to drive, and more efficient economically. In addition, the availability of technology to the different markets has enabled the consumer gain access to the information about the car thus developing likeness of the product. This helps in creating awareness by the producer through marketing (Hortacs, et al, 2010, p.1). Fourthly, the number of sellers in the market determines the supply of the product. The luxury mid-level market has very few market players. This determines the number of vehicles that BMW ought to produce in order to meet the demand. The availability of small numbers of suppliers means they have a greater influence in determining the price of their product. The fifth factor is the profitability of other goods. BMW Company produces a numbers of different models of vehicles. These are the 5 series, 7 series, X series and bikes. Among these models, the 3 series and the 5 series have been the most profitable. This has played a great role in the decision making process of BMW company as the best car for them to supply in the market (Rudman, 1991, p. 5). BMW Market Structure BMW Company operates under a perfect market structure. This means that there are many suppliers of similar products and many consumers of these products. The market is a perfect market, which is a situation in which all firms in the market are price takers. This is because they do not have the ability to influence the market price. They therefore accept the ruling the ruling market price for their product. I have included an ideal structural representation of the perfect market structure (Sattora, 2009, p.7). Where P represents the price of BMW 3 Series $ represents the price value in dollars Q is the equilibrium point O is the origin The Y-axis represents the price while the X-axis represents quantity demanded. What BMW can do to Retain Market Command? BMW Company needs to make an increase in the perceived value of its products. This can be done by improving its efficiency so that to attract more buyers. Secondly, BMW can influence an increase in the demand of its products through a decrease of the complementary goods that it uses. This can be achieved through improvement in the fuel consumption such as gasoline and oil consumption. An improvement in technology will lead to the company producing more of the same product at a lower cost, thus supplying the product to the consumer at a cheaper price. Technology efficiency will also enable the cost of production to reduce thus making the final product cheaper and helping in shifting the supply cove to the right. The forth factor is a decrease in the profitability of producing other goods. This can happen when the production of 5 series, 7 series and X series becomes less profitable. This will make the company to concentrate on producing the more profitable model and boost its supply in the market (Sattora, 2009, p.7). Elasticity Concepts That Can Influence Pricing Strategy and Competitiveness Elasticity of demand is the responsiveness of buyers to changes in price. The demand curve of the BMW Company is a highly elastic curve since it responds quickly to changes in price. It is also affected by the elasticity of supply. This is the responsiveness of output to changes in the price. As the price of the products move up, the supply decreases (Stonebraker, 2011, p.6). Efficiency of BMW BMW is using its resources effectively. This has enabled the company to become a market leader in vehicle production. Economic growth is the short-term increase in the growth of a company. An improvement in economic growth will result to an increase in the demand of the product. Increases in demand will also trigger an increase in supply of the commodity (Rudman, 1991, p. 8). Macroeconomic Analysis Unemployment will directly affect the supply. If there are a huge number of unemployed people, this means the income is low and therefore low demand. This triggers a low supply of the product. Unemployment will also cause the companies to use more resources to influence the kind of labor used. This is mainly done by the shift of technology from employee-focused technology to low labor-intensive technology. This on the other hand reduces the cost of production. Inflation is the rapid increase in price of a commodity. If inflation increases, this means the consumers will spend more to buy the same product. An increase in inflation will cause an increase in the amount circulating in the economy hence little level of unemployment. Business cycle is the cyclical movements that are caused by changes in inflation, investments, and unemployment. Unemployment will mean little savings, little investments, therefore low demand, and low supply of BMW products. Below is a diagram that analyzes the business cycle. Balance of payment is the accounting records of all financial trades between a nation and the rest of the world. An improvement in balance of payment will trigger more demand therefore improved supply of the product (Stonebraker, 2011, p.7). Conclusion The analysis of micro and macroeconomics can be seen in two approaches. It has the theoretical importance and the practical importance. This analysis has enabled the BMW 3 Series to identify the function of a free enterprise economy. It has also enabled company to realize how millions of consumers and hundreds of producers in an economy take decisions on the allocation of productive resources. In addition, it has enabled the company to formulate economic policies so that it can calculate and formulate efficiency in production and the welfare of its customers. Works Cited Flaschel, P 2010, Topics in Classical Micro- and Macroeconomics: Elements of a Critique of Neoricardian Theory, Springer, London. Hortacs, A Matvo, G Syverson, C Venkatarama, S 2010, Are Consumers Affected by Durable Goods Makers’ Financial Distress? The Case of Auto Manufacturers, Viewed, 26, March 2011, Rudman, J 1991, Introductory Micro- And Macro-Economics, National Learning Corp, New York. Sattora, R 2009, AP Microeconomics and Macroeconomics Research & Education Association, New York. Stonebraker, R 2011, The Joy of Economics:  Making Sense out of Life, viewed, 26, March 2011, Read More