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CHAPTER 21 - MARKETING ANALYSIS - Coggle Diagram

- - - - FORMULA FOR PED = PERCENTAGE CHANGE IN QUANTITY DEMANDED/ PERCENTAGE CHANGE IN PRICE
        
        STEPS OF PED =
        01 - CALCULATE THE CHANGE IN QUANTITY DEMANDED
        FOR EX --> THE OUTPUT WAS 300 AND BECOME 270 MEANING 30 WAS THE CHANGE IN OUTPUT DIVIDED BY THE ORIGINAL OUTPUT = 30/300 X 100 = 10% IS THE PERCENTAGE CHANGE IN THE QUANTITY DEMANDED
        STEP 02 - PERCENTAGE CHANGE IN PRICE =
        FOR EX THE PRICE INCREASED FROM $4 TO $5 OF A PRODUCT SO AN INCREASE OF $1 CHANGE THAT WE DIVIDED WITH THE ORGINAL PRICE WHICH WAS $4 = 1/4 X 100 = 25% WAS THE CHANGE IN PRICE
        LASTLY CALCULATE THE PED = CHANGE IN QUANTITY DEMANDED = 10%
        CHANGE IN PRICE = 25%
        10/25 = -0.4 (THE REASON WHY ITS NEGATIVE BECAUSE WHEN THE PRICE FALLS, THE DEMAND OF THE QUANTITY DEMANDED IS POSITIVE)
        
        KEY FACTS ABOUT PED
        
        01 - The value of PED is often negative because a fall in price (-ve) means a response in rise in demand (+ve)
        
        02 - similarily a increase in price (+ve) leads to a fall in quantity demand as a response (-ve)
        
        HOW TO EXPLAIN THIS RESULT =
        01 - A PED OF -0.4, MEANS THAT DEMAND CHANGES BY 0.4% FOR EVERY 1.0% CHANGE IN PRICE
        02 - IF IT IS NOT LESS THAN 1 IT IS CONSIDERED TO BE INELASTIC
        03 - CUSTOMERS DO NOT RESPOND GREATLY TOWARDS A PRICE CHANGE OF THIS PRODUCT
        04 - AN INCREASE IN PRICE WILL RAISE THE FIRMS REVENUE BUT A PRICE REDUCTION - BECAYSE DEMAND WILL CHANGE LITTLE - WILL REDUCE REVENUE
        
        VALUE OF PED AND WHAT IT MEANS
        01 - ZERO - PERFECTLY INELASTIC - the same amount is demanded, no matter what the price is, in reality there is not product that would have this PED
        02 - BETWEEN 0 AND 1 - INELASTIC DEMAND - The percentage change in demand is less than the percentage change in price - this means very little responsiveness to the demand when the price changes. if a product has this elasticity of demand, a price increase will lead to a smaller proportinate change in demand and revenue will rise, however, as price continues to rise, demand will start to become more elastic
        03 - UNITARY - UNIT ELASTICITY - this means the percentage change of quantity demand and the percentage change in price are equal so any price change will lead to an equal change in quantity demand and the total revenue will remain constant. when PED =1 sales revenue will be maximised
        04 - BETWEEN 1 AND INFINITY - ELASTIC DEMAND = the percentage change in quanitity demand is greater than the percentage change in price, this means demand is very responsiveness to the change in price. if price is reduced there will be a bigger proportionate increase in demand revenue will increase
        05 - INFINITY = PERFECTLY ELASTIC DEMAND = an infinitely large amount is demanded and if any decrease/increase in price will make the demand fall to 0 evenn by the smallest amount, there is no product that would have this PED
      - FACTORS THAT DETERMINE PRICE ELASTICITY OF DEMAND =
        01- HOW NECESSARY IS THE PRODUCT - THE MORE CONSUMERS FIND THE PRODUCT NECESSARY, THE LESS LIKELY THEY ARE TO REACT TO PRICE CHANGES. THIS LEADS ITS DEMAND TO BE INELASTIC AS IT IS THE CASE WITH COOKING OIL
        02 - NUMBER OF CLOSE COMPETITORS - IF THEY ARE MANY COMPETITORS, THEN THEY ARE A LARGE NUMBER OF SUBSITUTES. CONSUMERS CAN EASILY SWITCH TO ANOTHER BRAND IF THE PRICE OF ONE PRODUCT INCREASES ( EX --> FRUIT BEING SOLD BY ONE SELLER IN LARGE STREET MARKET) ANY REDUCTION IN THE NUMBER OF CLOSE COMPETITORS WILL MAKE THE PRODUCT LESS ELASTIC
        03 - CUSTOMER LOYALTY - IF A BUSINESS HAS ESTABLISHED BRAND LOYALTY SUCH AS COCO COLA, CONSUMERS WILL OFTEN CONTINUE TO PURCHASE THE PRODUCT EVEN WITH PRICE RISE. ANOTHER EXAMPLE IS DESIGNER CLOTHES. CONSISTENT DEMAND FROM HIGH INCOME CONSUMERS, EVEN WITH PRICES RISE. ALL BUSINESS ATTEMPT TO INCREASE THEIR BRAND LOYALTY WITH INFLUENTIAL ADVERTISING AND PROMOTIONAL CAMPAIGNS AND MAKING THEIR PRODUCTS MORE DISTINCT. THIS IS CALLED PRODUCT DIFFERENTIATION.
        04 - PRICE OF THE PRODUCT AS A PROPORTION OF CONSUMERS INCOME - A CHEAP PRODUCT THAT TAKES UP A SMALL PROPORTION OF CONSUMERS INCOMES, SUCH AS MATCHES AND BATTERIES, IS LIKELY TO HAVE INELASTIC DEMAND, AS CONSUMERS ARE NOT MUCH AFFECTED BY A 10-15% PRICE INCREASE
      - PED = A measure of the responsiveness of demand for a product following a change in price
      - IMPACT OF PRICE ELASTICITY OF DEMAND ON BUSINESS DECISIONS
        TWO WAYS PED COULD IMPACT BUSINESS DECISIONS -
        01 - PRICING DECISIONS =
        
        If a bus service operator is considering changing its prices, then knowing the PED on different routes will help
        01 - it could raise prices on routes with low PED (inelastic demand) and reduce prices in high PED routes (elastic demand)
        
        these decisions could increase the revenue for the bus operator
        
        this kind of analyssis also underpins the pricing strategy
        
        02 -WAGE INCREASE DECISIONS -
        
        if PED for the products of a business is low (inelastic) then a demand for wage also increases from employees is more likely to be accepted if PED was high (elastic)
        
        this is because if the business increases wages, costs will rise but the marketing manager could increase product prices with little impact on demand
        
        if PED was high, then a wage increase could not easily be passed on the form of higher prices
    - - INCOME ELASTICITY OF DEMAND FORMULA= PERCENTAGE CHANGE FOR DEMAND FOR THE PRODUCT/ PERCENTAGE CHANGE OF CONSUMER INCOMES
      - INCOME ELASTICITY OF DEMAND - A measure of responsiveness of demand for a product following a change of consumer incomes
      - KEY FACTS OF INCOME ELASTICITY OF DEMAND -
        01 - the same elasticity principles can be applied to changes in variables other than price
        02 - when a consumer income changes for example the demand for most products will increase
      - EXAMPLE OF INCOME ELASTICITY OF DEMAND = Following a reduction in consumer incomes of 5% the demand for a supermarkets own label breakfast cereal increased by 10%. the demand for an expensive well known branded cereal fell by 10%, the demand for salt hardly changed just a small reduction of 1%
        
        01 - OWN LABEL CEREAL = -2 INCOME OF ELASTICITY OF DEMAND
        (PERCENTAGE +VE BECOMES A NEGATIVE FIGURE)
        02 - BRANDED CEREAL = 2 INCOME ELASTICITY OF DEMAND
        03 - SALT = 0.2 INCOME ELASTICITY OF DEMAND
        
        INTERPRETING INCOME ELASTICITY RESULTS
        01 - the own label ceral is the example of an inferior good. it has a superior branded alternative. the quantity of demand for inferior goods rises when incomes falls, and fall when income rise. for products like these, income elasticity is negative
        02 - the expensive branded product has positive income elasticity. it is referred to as a normal good. we should expect that the demand for most products would fall if consumers has less income to spend, and would rise if incomes increased. if income elasticity is above 1 demand is income elastic - this suggests the product is a luxury good which has inferior subsitutes. demand changes by a higher proportion than change in income.
        03 - salt is a necessity and has very low positive income elasticity. demand is income inelastic. most consumers will continue to buy almost the same quantity of salt even if incomes rise. if incomes fall , as salt is a necessity, almost the same quantity is demanded
      - IMPACT OF INCOME ELASTICITY ON BUSINESS DECISIONS =
        
        TWO MAIN WAYS INCOME ELASTICITY COULD INFLUENCE BUSINESS DECISIONS:
        
        01 - DURING A PERIOD OF ECONOMIC GROWTH - RISING INCOMES AND BUSINESSES ARE LIKELY TO FOCUS ON INCREASING OUTPUT OF INCOME-ELASTIC PRODUCTS SUCH AS LUXURY PRODUTS THAT ARE LIKELY TO HAVE A HIGH INCOME ELASTICITY OF DEMAND
        02 - DURING AN ECONOMIC RECESSION - CONSUMER INCOMES FALL AND REVERSE WILL BE THE CASE WHERE THEY PREFER GETTING INFERIOR GOODS SO BUSINESSES FOCUSES ON PRODUCTING 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 INCREASES IN DEMAND. NEW PRODUCT LAUNCHES WILL FOCUS ON AFFORDABLE PRODUCTS RATHER THAN THOSE WITH AN EXCLUSIVE IMAGE AND EXPENSIVE FEATURES
    - - FORMULA OF PROMOTIONAL ELASTICITY OF DEMAND = PERCENTAGE CHANGE OF DEMAND OF THE PRODUCT/PERCENTAGE CHANGE IN PROMOTIONAL SPENDING
      - PROMOTIONAL ELASTICITY OF DEMAND = a measure of the responsiveness of demand for a product following a change in the amount spent on promoting
      - KEY FACTS ABOUT PROMOTIONAL ELASTICITY OF DEMAND-
        01 - if the result is greater than 1, then the demand for the product is responsive or elastic following a change in promotional spending
        02 - if the result is less than 1, then the demand is inelastic following a change in promotional spending
        03 - there mgiht be little point in increasing promotional expenditure when promotional elasticity is low
        
        ex --> a business increases it advertising spending on two of its products by 10%. product A has 2% increase in sales, but product B sales record a 12% increase. the promotional elasticities of demand are =
        01 - 2/10 = 0.2 product A
        02 - 12/10 = 1.2 product B
        
        INTERPRETING PROMOTIONAL ELASTICITY OF DEMAND -
        01 - Increased promotional spending nearly always results in increased demand for the product
        02 - this means the result of promotional elasticity of demand is positive
        03 - if the result is above 1 (product B) then the demand increases by a higher poropertion than the increase in promotional spending - demand is elastic
        04 - if the result is low (product A) then demand is inelastic following increased promotion - promotional elasticity is very rarely negative, if the campaign uses songs and images that cause great offence to many people, then demand could fall following these promotions
        
        IMPACT OF PROMOTION ELASTICITY OF DEMAND -
        
        promotional elasticity of demand demands greatly on the effectiveness of a promotional campaign
        
        a promotion that costs 2 million and yields only a low increase in sales might be due to being poorly designed and focused on a inappropriate group of consumers
        
        this does not mean all promotion for that product should end
        
        perhaps make a more effective promotional campaign can increase sales by a larger amount so reasons for a low promotional activity of demands needs to be investigated first before final decisions can be made about how much to spend on promoting each product
  - - - For ex → if, competitors launch a more effective promotion or if any of the external economic constraints change, the results of the sales comparison with data before the campaign might be misleading. It is possible that an increase in sales after a campaign would have occurred anyway due to favourable economic conditions. However, especially if a similar elasticity result is obtained on more than one occasion, the marketing manager should have some useful data on which to base future promotional spending decisions.
- - - - PROCESS STAGE OF NEW PRODUCT DEVELOPMENT
        
        01 - IDEA GENERATION
        
        COMPANIES OWN R AND D DEPARTMENT (expensive process and all businesses not have an R&D department)
        
        ADAPTION OF COMPETITORS IDEAS - ( important not to infringe on the patents law, if a product is developed and similar to competitors products, consumers may prefer the original one -brand/consumer loyalty)
        
        MARKET RESEARCH - FOCUS GROUPS - ( can be used to stimulate discussion about new customers to see what they would like on the market)
        
        EMPLOYEES - (encouraging employees to participate in generating new product ideas gives businesses two benefits. employees have direct contact with existing products and consumers and the second is employee participation can lead to increase motivation)
        
        SALES EMPLOYEES - (close contact with final consumers and may suggest improvements on exisitng products or come up with completely new ones)
        
        BRAINSTORMING IN GROUPS - project teams can generate new ideas by memebers of the group proposing new ideas beyong the level achieved by individuals working seperately (matrix structure)
        
        02 - IDEA SCREENING -
        
        purpose of this stage to eliminate those ideas that stand the least chance of being commercially succesful
        
        it can be very expensive to develop and market new products so care should be taken
        
        doing these screenings should ask:
        
        01 - how will the customers in our target markets benefit from this product
        02 - is it technically feasible to manufacture this product
        03 - will the product be profitable enough at the price we are likely to be able to charge customers for it
        
        03 - CONCEPT DEVELOPING AND TESTING -
        
        Takes the product idea a step further by asking key quetions about what features the product should have, the likely cost of these to manufacture and who the consumers are likely to be
        
        the questions need to be asked of how much the final consumer is likely to be prepared to pay for the product
        
        following points need to be discussed:
        01 - who is likely to be the consumers of the product?
        02 - what product features should be incorporated?
        03 - what specific benefits will this product provide ?
        04 - how will the customers react to it ?
        05 - what will it cost to produce
        
        04 - BUSINESS ANALYSIS-
        
        This stage considers the likely impact of a new product on company's costs, sales and profits
        
        an estimate price is set for the product based on consumer feedback from concept testing and competitors data
        
        05 - PRODUCT TESTING-
        
        concerned with technical performance of the product and whether it is likely to meet consumer expectations
        
        product testing includes, developing a prototype of the product, testing the product in typical use conditions, using focus group to gather opinions about the products and adapting the product as required after testing and focus group feedback
        
        1 more item...
- - - - ex - ICE CREAM SALES -
        the moving average is used in a table to analyse the relation to ice cream sales
        01 - once they have been identified, then short-term sales forecasts can be made
        POINTS TO NOTE-
        A) - The moving average involves calculating moving totals from a number of sales figure.- Each total in the column FOUR QUARTER AVERAGE is made up of 4 results because the data varied consistently over this length of time. ex --> if sales figure for ice cream daily figures were to be calculated then a 7 period total might have been used, because the regular variations in sales would have been over 7 days.
        B)- if the quarter four moving total was divided by 4 in order to calculate the average, the result is not going to lie alongside one quater, it would not make any sense to have a result which does not belong to any one time period. so now the problem to overcome is to center the average so it lies alongside one actual quarter and to do this we need to add the two four quarter moving totals together. this is divided by 8 to give the quarterly moving average (trend)
        C) - that is known as the trend of the data which is the underlying movement of the data that has been identified by averaging out the regular seasonal fluctuations
        d) - the diference between the actual sales and this trend must have been larely due to seasonal fluctuations
        e)- season fluctuations or seasonal variations = sales revnue - moving average trend
        ex --> seasonal fluctuations = 220 - 167.5 = 52.5
        f)- if the results are native that means that quarters are usually below the trend, or average for seasonal reasons
        g) - AVERAGE SEASONAL VARIATION - ASV - is caculated by adding up all the seasonal variations for each quarter and dividing by the results
        ex --> for quarter 3 ASV is = (43.25 + 52.5 + 58.75 ) divide by 3 = 51.67 is the average seasonal variation
        
        FORECASTING USING THE MOVING AVERAGE METHOD-
        
        now we can use this table to make short term forecasting
        
        plot the trend (moving average) results on a time series graph
        
        extrapolate this into the future - short term extrapolations are likely to be more accurate
        
        read off the forecast trend result from the graph for the period under review
        
        then adjust this by the average seasonal variation for that quarter
        
        ex --> quarter 2 2022 has not been provided so we would have to forecast it in the moving average table
        so now for quarter 2 in the year 2022 we take the extrapolatated trend which is $208 000 and add to the ASV which is negative $4600 to get the total of $203,400 is the actual forcast of that period
        
        BENEFITS OF THE MOVING AVERAGE FORECAST =
        01 -method is useful to identifying the seasonal variations and applying it to predictions
        02 - it can be reasonably accurate for short-term forecasts in reasonable stable economic environments
        03 -it identifies the average seasonal variations for each time period and this can assist in planning for each quarter in the future
        
        LIMITATIONS OF MOVING AVERAGE METHOD-
        01 - forecasts further into the future become less accurate as the projections are entirely based on past data. external influences can change so past results are then an unreliable indicator for the future
        02 - the moving average period does not take into account qualitative factors into account, so forecasting for the longer term may require the use of more qualitative methods that are less dependent on past results.
  - - - 03 - JURY OF EXPERTS
        
        A method that uses the specialists within a business to make forecasts for the future
        
        referred to as the jury of executive opinion as well
        
        01- quicker and cheaper method of Delphi method, but it lacks external view of market conditions and consumer trends that the Delphi method offers
        02 - delphi method uses expert not directly employed by the business
        03 - jury of experts are senior managers within the business, who meet and develop forecasts based on their knowledge of their specific area of responsibility
      - 02 - DELPHI METHOD
        
        a long range forecasting technique that obtains forecasts from a panel of experts
        
        01 - with the delphi method, a facilitator collects opinions from a panel of experts who are sent detailed questionnaires asking for their judgement about possible future events, such as consumer taste and demand levels
        02 - the experts fo not meet and are anonymous to each other
        03 - after each round of questionnaire results have been collected, they are summarised and sent back to all the experts on the panel
        04 - a further questionnaire is then sent out to see if the experts have change their minds after reading the results of the first round of questionnaires
        05 -in this way, any extreme responses from the experts are often amended and moderated so that, eventually a consesus is reached that represents the most accurate forecast
        06- this may take several rounds of questionnaires to acheive
        07.- tests have proven that the Delphi Method is more accurate than an unstructured group of experts giving their opinions and forecasts
      - 01 - SALES FORCE COMPOSITE
        
        a method of sales forecasting that adds together the individual predictions of future sales representatives working for a business.
        
        01 - sales force representatives have the task of keeping in contact with employees
        02 - there are usually not the final consumers, but the retail businesses that purchase and stock the product for sale to consumers
        03 - frequent contact with customers means sales representatives develop a real insight into market trends and potential future demand
        04- an overall sales forecast can be obtained by asking all sales staff for their individual estimates of future sales to their customers and adding all the estimates together
        05 - the sales force compostive method has an advantage of being quick and cheap to adminster
        06 - however sales representative may not be aware of macroeconomic objectives or competitors actions, which could have a substantial impact on future sales
        07 - customers may over estimate the number of products they may hope to sell in the future in hope of getting a favourable arrangment with the supplying business
      - THE IMPACT OF SALES FORECASTING ON BUSINESS DECISIONS
        01 - The main purpose of sales forecasting is to enable a business to make better-informed business decisions and plans for growth
        02 - decision within all major functional department areas can be improved by detailed sales forecasts
        ex --> assume sales forecasts are showing a downturn or downward trend in sales.
        the following decisions could be based on this prediction:
        a)- MARKETING - reduce price, increase promotional spending, widen or extend channels of distributions, or undertake market development in countries with positive sales forecasts
        b)- OPERATIONS - reduce the risk of excess capacity by rationalisation, keep inventory levels low, or aim for flexible operations to switch to other products
        c)- FINANCE - seek short-term financing if net cash flows become negative, reduce cash outflows when possible, or seek long term finance to develop new products
        d) - HUMAN RESOURCES - make plans for flexible employment contracts, plan for redundancies or cut back on recruitment for vacant posts
        
        03 - THE LIMITATION OF PREDICTED SALES FORECASTING DATA - is that this should not be the only factor that determines decisions
        04 - however, when sales forecasts indicate a sharp increase or decline in sales, the benefits of operating a flexible and adaptable organisation, which is able to make speedy decisions become clear