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Title: Price/Income Elasticity and Market Segmentation
Description: AQA AS Business detailed notes on price and income elasticity as well as market segmentation and targeting.
Description: AQA AS Business detailed notes on price and income elasticity as well as market segmentation and targeting.
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Business Section 3 (LP) ~ 17-19
Elasticity
measures the extent to which demand for a product changes when there is
a change in a variable such as price or consumer incomes
...
For example, a PED of -2 suggests that for every 1%
change in price, demand will move by 2% in the opposite direction
...
For example, Look magazine is largely the same as other fashion
magazines, so readers may read something else if the price increases
...
The higher the product differentiation, the lower the price elasticity
...
Therefore the
brand owner can push the price up without losing too many customers
...
Strong brand names with strong brand images create customers who buy out
of loyalty
...
Producing a sales forecast will make possible accurate production,
personnel and purchasing decisions
...
Pricing Strategy:
There are many external factors that determine a product’s demand and its
profitability
...
Price elasticity information can be used alongside internal
cost data to forecast the impact of a price change on revenue
...
This means that the
percentage change in demand is greater than the percentage in price
...
This is because
the extra revenue gained from the increased sales volume is greater than the
revenue lost from the price cut
...
Price Elastic Product
Price Inelastic Product
Undifferentiated from competitors
Many rivals within the market
Sales rise sharply when price is cut so
revenue rises
Sales rise when price is cut but not by
much, so revenue falls
PED = between -1 and -5 or more
PED= between -0
...
99
Sales fall sharply when prices rise, so
revenue falls
Differentiated from rivals
Smaller market
Sales fall when price rises, but not by
much, so revenue rises
...
This means that the
-
h
percentage change in demand is less than the percentage change in price
...
This may be because consumers feel a sense of brand loyalty, the product is a
necessity or because it is fashionable
...
This means the majority of customers
will continue to purchase the product despite its higher price
...
Income Elasticity (YED) = change in demand
%
--------------------------------------------------------------
change in real incomes (incomes after inflation)
%
Products can be placed into three different categories:
1) Normal Good = Positive income elasticity and YED of between 0
...
5
(people get better off and buy more of the product)
2) Luxury Good = Very positive income elasticity of more than 1
...
Inferior goods do well during recessions so it is helpful for a company to have both
inferior goods and luxury goods
...
5% per year, normal and luxury goods are the most important part of a
long-term strategy
...
Market analysis should look at the market’s longer-term trends
...
It later sold off other businesses such as David Lloyd
Health Clubs and TGI Friday’s to focus on where it thought the growth was - in
coffee bars especially
...
- Harvey Nichols saw the opportunity for a branch in Leeds, in an era when there
was plenty of money in the North
...
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Market Analysis is rooted in a deep understanding of customers
...
Unilever, for example, has set up a Knowledge Management Group to ensure that
their insights can be spread around the business and achieve its strategic objectives
...
Quantitative research:
- Obtaining feedback from staff who deal with customers
- Monthly surveys on customer usage and attitudes
...
Consumer profile:
A statistical breakdown of the people who buy a particular product or brand
...
This may cause a complete rethink of the business’ marketing
strategy
...
In trying to give the brand a classier image, they’ve
begun to attract older customers
...
Segmentation, Targeting + Positioning:
Segmentation -
Finding ways to divide a market up to identify new opportunities
(among older generations, for example)
...
The acknowledgement by businesses that not all customers are the same
...
Segmentation is key for new, small businesses as it helps them to find gaps within an
existing market
...
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The Process of Segmentation
1) Conduct research into the different types of customer within a market (age,
gender, region etc etc)
2) See if they have common tastes/habits
...
3) Identify the segment the business wants to focus on and conduct research into
customer motivations and psychology
4) Devise a product designed not for the whole market but for a particular
segment
...
----------------------------------------------------------------------------------------------------------
Market Segmentation:
The Value of Market Segmentation:
1) Improved sales volumes
- Instead of targeting young men, Nintendo’s Wii
identified a market demand for a family console which lead to a new,
differentiated mass-market product
...
They enjoy 97% usage year-round and made £20million profits
in 2013/2014
...
2) Geographic
(by region or country)
3) Income
(because income distribution is more unequal than it was previously,
businesses have to think hard about which social classes they want to target)
4) Behavioural
(for example: dividing the games market into “shoot em ups” and
strategy games)
----------------------------------------------------------------------------------------------------------
Targeting:
After analysing the market and segmenting it down, the business has to choose
which segment to target
...
-
T
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Behavioural Segmentationidentifying and reacting to the different ways in
-
which people live and spend
...
Title: Price/Income Elasticity and Market Segmentation
Description: AQA AS Business detailed notes on price and income elasticity as well as market segmentation and targeting.
Description: AQA AS Business detailed notes on price and income elasticity as well as market segmentation and targeting.