Marketing

• Elasticity


  Measures the effect of a change in a variable on demand
• Elasticity


  • The sign shows the direction of movement
  • The size of the number (ignoring the sign) shows the percentage change in demand compared to the percentage change in the variable
• Elastic


  If the answer is bigger than 1, demand changes more than the variable (in percentages)
• Inelastic


  If the answer is less than 1, demand changes less than the variable (in percentages)
• If demand is inelastic, it does not change at all when the variable changes
• Income elasticity of demand (YED)


  Measures the degree of responsiveness of demand for a good to a change in consumers' income, with all other factors unchanged
• Normal product


  Demand and income are moving in the same direction
• Inferior product


  Demand and income are moving in different directions
• Income elastic


  Percentage change in quantity demanded is more than percentage change in income
• Income inelastic


  Percentage change in quantity demanded is less than percentage change in income
• Promotional elasticity of demand (PrED)

  Measures the degree of responsiveness of demand for a good to a change in promotional spending, with all other factors unchanged
• Promotion-elastic


  Change in promotional spending results in a more than proportionate change in demand
• Promotion-inelastic


  Change in promotional spending results in a smaller than proportionate change in demand
• Cross-price elasticity of demand (XED)


  Measures the degree of responsiveness of demand for a product to a change in the price of another product, with all other factors unchanged
• Substitutes


  Positive XED, increase in price of one leads to more demand for the other
• Complements


  Negative XED, increase in price of one leads to less demand for both
• Elastic


  Percentage change in quantity demanded is greater than percentage change in price of another product
• Inelastic


  Percentage change in quantity demanded is less than percentage change in price of another product
• The different elasticities are calculated assuming one variable changes but everything else stays the same
• Elasticities are usually calculated based on past data, so conditions may have changed
• Product development


  Creating new or different products that provide customers with new benefits and added value
• Product development process


  1. Consider existing products and market threats/opportunities

  2. Create new ideas

  3. Develop the idea

  4. Final testing

  5. Post launch monitoring
• Sources of new product ideas

  • Customer complaints
  • Market research
  • Research and development
  • Existing patents
  • Employees
  • Universities
• Few initial ideas become selling products
• Research and development (R&D)


  The generation and application of scientific knowledge to create a new product or develop a new production process
• Importance of R&D


  • Improve existing products
  • Lead to new products to generate more sales
  • Develop new processes to improve efficiency
• Ways to protect new product ideas

  • Copyright
  • Patent
  • Trademarks
• Patents provide legal protection for an innovative product idea for 20 years in the UK
• Copyrights automatically protect the work of artists, writers and musicians
• Trademarks protect designs and logos
• Copyright


  Automatically protects the work of artists, writers and musicians; copyrights do not have to be registered
• Patent


  Provides legal protection for an innovative product idea; in the UK, the holder of a patent has the right to be the sole user of a process or the sole manufacturer of a product for 20 years after it is registered
• Trademark


  Designs and logos can be protected by registering a trademark
• Laws vary in different countries to protect new product ideas
• The owner of a patent may sell the right to produce the product or to use the process to others
• Benefits of having a patent for a new product


  • Provides legal protection for the innovative product idea
• Sales forecasting


  Estimating the future volume or value of sales
• Impact of sales forecasting on business decisions

  • Affects required production levels, staffing requirements, cash flows and profits
• Forecast of higher sales

  May mean investment to increase capacity, recruitment of staff, higher dividends for investment
• Forecast of lower sales in the future

  Can impact business decisions