Marketing analysis Flashcards
PED
PED = percentage change in quality demanded/ percentage change in price
Impact of PED on business decisions
- Low PED (inelastic demand) - raise prices —> small change in demand and revenue will rise
- Elastic demand - reduce prices —> increase in demand and revenue increases
Impact of income elasticity on business decisions
• During a period of economic growth and rising consumer incomes, businesses are likely to focus on increasing output of income-elastic products such as luxury goods. New product launches should be for products that are likely to have a high income elasticity of demand.
• During an economic recession when incomes for most consumers fall, the reverse will be the case.Businesses will focus on producing more basic versions of their products, which can be sold at a lower price. Businesses that sell inferior goods may have to increase output to cope with the expected increase in demand.
Interpreting promotional elasticity of demand
Increased promotion spending nearly always results in increased demand for the product. This means the result of promotional elasticity of demand is positive. If the result is above 1 then demand increases by a higher proportion than the increase in promotional spending.
If the result is below 1 then demand is inelastic following increased promotion.
Evaluation of PED
• PED assumes that nothing else has changed. If Business A reduces the price for a product by 10%, it will expect sales to rise because of this. However, if, at about the same time, a competitor leaves the industry and consumer incomes rise, the resulting increase in sales of Business A’s product may be very substantial, but not just because of the price reduction.
• A PED calculation, even when nothing but price changes, quickly becomes outdated. It may need to be recalculated often, because consumer tastes change over time and new competitors will introduce new products
• It is not always easy or possible to calculate PED. The data needed for working it out might have come from past sales results following previous price changes. This data could be quite old and market conditions might have changed.
Evaluation of income elasticity of demand
- The results can be affected by other variables changing at the same time as consumer incomes rise or fall. For example, an increase in consumers’ incomes might not lead to an expected increase in demand for a brand of mobile (cell) phone if, during the same period, a competitor launches a superior product.
Evaluation of promotional elasticity of demand
- If, for example, competitors launch a more effective promotion or if any of the external economic constraints change, the results of sales comparisons with data before the campaign might be misleading.
Importance of new product development
In many fast-changing markets, there is a constant need to develop new products. If this is not successfully undertaken, then a business will find itself trying to market products that are perceived as being out-of-date,
Importance of R&D
- Effective R&D is essential to gain a competitive advantage
- New product innovations allow businesses to survive and grow in rapidly changing marketplaces.
- Innovative products may give a considerable unique selling point over rivals so that the business can charge premium prices, thus earning higher profit margins
Evaluation of R&D
- A fully researched and developed product may reach the commercialisation stage and fail due to inaccurate market research.
- A business’s success will not be guaranteed by spending more and more on it. Some inventions will simply not be commercially successful.
Benefits of moving average method
- Useful for identifying average seasonal variations for each time period and can assist in planning for each quarter in future.
- It can be accurate for short term forecasts in reasonably stable economic conditions.
Evaluation of moving average
• Forecasts further into the future become less accurate as the projections made are entirely based on past data. External environmental factors can change so that past results become an unreliable indicator of the future.
• The moving average method does not take qualitative factors into account. Forecasting for the longer term may require the use of more qualitative methods that are less dependent on past results.
Benefits of time series analysis
- TS is a quantative technique and provides a more scientific approach to forecasting and is therefore useful when making decisions about how many employers are needed for production.
- TSA enables planning inventory holding which will delay cash outflow for purchasing inventory and therefore improve liquidity.
The need to forecast sales
- Preparing other resources needed by the business, such as supplies of materials and capital equipment levels, requires sales forecasts.
- Decisions about price changes and promotion partly depend on sales forecasts. If demand is predicted to decline, then it might be decided to reduce prices or finance a new promotion campaign.
Qualitative sales forecasting
- Sales force composite - Frequent contact with customers means sales representatives are able to develop an insight into market trends and potential demand. They are quick and cheap.
- Delphi method - a panel of anonymous experts are sent detailed questionnaires asking for their judgement of about possible future events such as demand levels or tech changes that could affect consumer tastes.
- Jury of experts - The Jury of experts uses senior managers within the business who meet and develop forecasts based on their knowledge of their specific area of responsibility. This is quicker and cheaper than the Delphi method. However it lacks the external view of market conditions and consumer trends the Delphi method offers.
