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SUPPLY AND DEMAND INTRODUCTION Supply and demand are two important concepts in economy. They are related each other, because when one increases, the other decreases. They are related too with quantity of products and with equilibrium in price. We are going to study some aspects of these topics. Price $35

Demand: it refers to the desire, ability, and disposition of consumers to buy any product.

$30 $25 $20 $15

Demand

$10 $5 $0

0

10

20

30

40

50

60

Quantity

80 (In thousands)

70

Price $35

Supply

$30

Supply: it is related to the ability and disposition of producers to offer products for sale.

$25 $20 $15 $10 $5 $0

0

10

20

30

40

50

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70

Quantity

80 (In thousands)

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In words of Janeen R. Adil, “Supply is the amount of goods and services there are to buy. Demand is how many people want to buy those goods and services” (2006, p. 4).

1. Tastes or preferences

WHAT DO YOU TAKE INTO ACCOUNT TO DETERMINE THE DEMAND?

Consumers may demand for an item one year and ignore it the next. 2. Number of consumers A large quantity of buyers carries to an increase in demand; a small quantity of buyers carries to a decrease (Franny Chan website). 3. Income When income rises, the quantity demanded will rise too. When income falls, the demand of that product will fall too (Franny Chan website). 4. Consumer expectations Purchasers are interested in satisfying their consumption regarding quality as the most important factor. Likewise, the lead price has an effect on the potential increase of the consumer´s final decision. 5. Price of related goods There are two kinds of related goods that can affect the demand: substitutes (for example, butter and margarine) and complementary (toys and batteries).

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WHAT FACTORS DETERMINE SUPPLY?

1. Price of goods The more expensive it will increase the amount that companies are willing to offer, the same way, the cheaper the product is, the lower the quantity supplied.

2. Production costs

3. Business objectives

It depends on

It’s not the same to produce for a market with higher expectations than produce for a market with lower ones. As greater the expectations are, the greater will be the offer from the companies.

Cost of production factors

Technology

Laws of supply and demand According to David Besanko and Ronald R. Braeutigam, (2010, p. 37), the next are the laws of supply and demand:

1. Increase in demand + unchanged supply curve = higher equilibrium price and large equilibrium quantity 2. Decrease in supply + unchanged demand curve = higher equilibrium price and smaller equilibrium quantity 3. Decrease in demand + unchanged supply curve = lower equilibrium price and smaller equilibrium quantity 4. Increase in supply + unchanged demand curve = lower equilibrium price and large equilibrium quantity

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Marketing mix Supply and demand are two essential aspects in the market. Because the market is dynamic, marketing specialists use a variety of tools in order to achieve the goals of the company through combination or mixture (mix). These tools are known as the “Marketing Mix”, which refers to the kinds of marketing variables Remember: Marketing Mix sets out the marketing variables that your business needs to understand and control in order to achieve your overall business objectives.

The four Ps of marketing mix PRICE

PRODUCT

Sizes Design Quality Returns Features Servicies Packaging Warranties Brand name Product variety

Payment period Credit terms Allowances Price list Discounts

Marketing mix variables (4P)

PROMOTION

Direct marketing Public relations Sales promotion Sales force Advertising

PLACE

Assortments Transport Locations Channels Coverage Inventory

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However, according to Larry Steven Londre (2007, pp. 5-9), the marketing mix has many variations and is formed by the 9PS (increasing marketing of 4ps by McCarthy). The next figure shows the nine Ps fo marketing mix:

PASSION Feeling Emotions Devotion

PRICE

Payment period Credit terms Allowances Price list Discounts

PRESENTATION

PRODUCT

Sizes Design Quality Returns Features Servicies Packaging Warranties Brand name Product variety

PARTNERS Contract Suppliers Negotiations Alliances

PROMOTION

Marketing mix variables (9Ps)

PLACE

Assortments Transport Locations Channels Coverage Inventory

Direct marketing Public relations Sales promotion Sales force Advertising

PEOPLE/PROSPECT

Community Individual characteristics Region or zone

DISTRIBUTION

Distribution Channel Coverage Assortments Locations Inventory

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The four Ps of marketing mix VARIABLES Product

MEANING It´s the tangible object or service that can be offered to a market for acquisition, use or consumption that might satisfy a want or need.

Price

It´s is the amount a customer pays for the product. it includes Retail price/wholesale, discounts, quantity discounts, credit terms, sales and payment periods.

Place/distribution

It represents the location where a product or service can be purchased and the distribution channel. coverage, assortments, locations, inventory and transportation of the product or service.

Promotion

This refers to all of the communications that a company uses to increase knowledge about the product or service in addition to persuade the consumer to purchase (target segment).

Passion

Emotion, feelings. The emotions as distinguished from reason, a strong taste or devotion for some activity.

Presentation

It refers to the performances of presenting any of the 9P’s to your suppliers, customers, clients, or partners. A descriptive or persuasive account (Set forth for the attention of mind).

People/prospect

A product focusing on a specific target market based on demographic, geographic, psychographic and behavioral characteristics. Once the target market is chosen, the company can develop its marketing strategies to target this market.

Partner

The legal relationship between two parties, having specific rights and responsibilities as a common company.

Planning

To transform and develop marketing objectives to marketing strategies.

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To conclude about the marketing mix, 9ps are an extension of the 4ps, so we will continue to be based on the 4ps.

BENCHMARKING Benchmarking is the procedure of determining who the best one is. It is an amount of the quality of company’s products, policies, programs, tactics, etc., and their contrast with standard measurements, or similar amounts of others. It is, also, the continuous systematic process for evaluating the companies that are recognized as best-in-class, for the following purposes: • • •

Establishing priorities, target, goals Developing product and process objectives Meeting or surprising industry best practices

Objectives of benchmarking • To define where and what improvements are requested • To investigate how other organizations reach their high performance levels • To use this information to improve the measurement of the results

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Process of benchmarking 1. Planning It is the plan for running the benchmarking investigation.

2. Analysis

3. Integration

4. Action

After analyzing the information, it obtains a basis for comparison.

Develop aims and incorporate them into the benchmarked process.

It refers to the action plans necessary to achieve the objetives decided in step 3.

Competition and its main aspects In benchmarking, it is necessary to take into account the next aspects:

Product

It is the thing produced by labor or effort.

Price

It refers to the quantity of payment or compensation given by one party to another in return for goods or services.

Sales systems

It is a set of principles, processes, strategies and tools that are put into place to bring the company results day-in and day-out.

Payment systems

It is used for transferring money include debit cards, credit cards, and e-commerce payment systems.

Advertising Promotion Location

It is a form of communication used to encourage or persuade an audience to continue or take some new action. It refers to the communications with the public in an attempt to influence them toward buying your products and/ or services. It is a place where something is or could be located.

Organization

It is a social unit of people systematically structured and managed to meet a need or to pursue collective goals on a continuing basis.

Planimetry

It is the measurement of plane surfaces; for example, the determination of, angles, horizontal distances and areas on a map.

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REFERENCES

Adil, J. (2006). Supply and demand. Retrieved on May 20 2013, from http://books.google.com.co/books?id=8SxgIqc4BlcC&printsec=frontcover& dq=Janeen+r+adil&hl=es&sa=X&ei=ed6jUZ-jFY3m8gTMrYG4CQ&ved=0CEEQ 6AEwAw Besanko, D., and Braeutigam, R. (2010). Microeconomics. Reetrieved on May 8 2013, from http://books.google.com.co/books?id=978PKop7Cp8C &pg=PA37&dq=Laws+of+supply+and+demand&hl=es&sa=X&ei=OY2KUeX7B 6PO0gH04oCQBw&ved=0CE4Q6AEwBg#v=onepage&q=Laws%20of%20supply%20and%20demand&f=false Chan, F. (s/f). Determinants of demand. Fullerton College: Franny Chan website. Retrieved on May 18 2013, from http://staffwww.fullcoll.edu/ fchan/Micro/1determinants_of_demand.htm Londre, L. (2007). Several concepts. Retrieved on May 9 2013, from http://www.londremarketing.com/documents/LondreMarketingConsultingNinePs.pdf

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