marketing 1 chapter 3 marketing begins with economics 3-1scarcity and private enterprise...

MARKETING

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Chapter 3

MARKETING BEGINS WITH ECONOMICS

3-1 Scarcity and Private Enterprise

3-2 Observing the Law of Supply and Demand

3-3 Types of Economic Competition

3-4 Enhancing Economic Utility

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SCARCITY AND PRIVATE ENTERPRISE

GOALSIdentify the basic economic problem.Describe how America’s private

enterprise economy works.

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The Importance of Economic Understanding

Effective marketing relies on the principles and concepts of economics

Knowledge of economics & decisions improve marketing decision making & results in increased customer satisfaction & higher profits for the company

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Basic Economic Problem

Wants and needs are unlimited – people seldom feel completely satisfied

Conversely resources are limited – never enough available to meet everyone’s needs and wants

EX- Producing a car Producing a car requires a variety of resources: glass, rubber, steel,

plastic Each of those resources is in limited supply They are also used to produce other items in addition to cars In turn, there might not be enough to make as many cars as people

want

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Basic Economic Problem

Scarcity – unlimited wants and needs, combined with limited resourcesCreates difficult problems for societyChoices must be madeWho makes the decision determines the

economic system a society has

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Who Makes the Decisions

An economy is designed to facilitate the use of limited resources to satisfy the individual and group needs of people in the economyAll economies must answer three questions

1. What goods and services will be produced

2. How will they be produced

3. For whom will they be produced

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Types of Economies

Controlled EconomyThe government answers all three

economic questionsIt attempts to own & control important

resources and make decision on what is produced and consumed

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Types of Economies

Free Economy (AKA Market Economy)Resources are owned by individuals rather

than the governmentThe market provides answers to the 3

questions above No Government involvement

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Types of Economies

Mixed EconomySome goods and services are provided by

the government and some by private enterprise

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Types of Economies

America’s Private Enterprise Economy (Capitalism)Private Enterprise is based on independent

decisions by businesses and consumers with only a limited government role regulating

Resources and production are owned by individualsProfit motive – obtain the greatest profitValue – individual view of the worth of a product or

service

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America’s PrivateEnterprise Economy

CharacteristicsProfit MotiveValueConsumersProducersGovernment

Economic forces

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America’s PrivateEnterprise Economy

Profit Motive – is the use of resources to obtain the greatest profit.

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America’s PrivateEnterprise Economy

Value – is an individual view of the worth of a product or service.Comparing the cost of something they are

considering purchasing to other available alternatives.

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America’s PrivateEnterprise Economy

Consumers – individuals who purchase products and services to satisfy needs.Demand – is a relationship between the

quantity of a product consumers are willing and able to purchase and the price.

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America’s PrivateEnterprise Economy

Producers – businesses that use their resources to develop products and services.Supply – is a relationship between the

quantity of a product that producers are willing and able to provide and the price.

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America’s PrivateEnterprise Economy

Government – gets engaged when consumers or producers are at a disadvantage and will not receive fair treatment, or society will be harmed.Enacts laws and regulations

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America’s PrivateEnterprise Economy

Economic forces

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OBSERVING THE LAW OF SUPPLY AND DEMAND

GOALSExplain microeconomics and the

concept of consumer demand.Identify factors that affect supply and its

relationship to demand.

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Economics

Economics attempts to understand and explain how consumers and producers make decisions concerning the allocations of their resources.

Divided into 2 main levelsMacroeconomicsMicroeconomics

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Macroeconomics

Macroeconomics studies the economic behavior and relationships of an entire society.Looks at the BIG pictureDetermines if society’s resources are being used

as effectively and efficiently as possibleStudies the decisions of all consumers and

producers and the effects on society

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Microeconomics

Microeconomics is the study of relationships between individual customers and producers.Looks at SMALL parts of the total economyStudies how individuals make decisions

about what to produce & consume

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Microeconomics andConsumer Demand

Factors affecting demandAnalyzing demand curves

Demand curveLaw of demandEconomic market

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Microeconomics andConsumer Demand

Factors affecting demandImportance or strength of your need or

want…ex. baseball gameAvailable supply of products and services

to satisfy your needs…ex. Farmers marketAvailability of alternative products that

consumers believe will satisfy their needs…ex. entertainment

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Microeconomics andConsumer Demand

Economist try to determine how much consumers are willing to pay for various quantities of products and services.

Analyzing demand curvesDemand curve Law of demandEconomic market

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Microeconomics andConsumer Demand

Analyzing demand curvesDemand curve – the relationship between

price and the quantity demandedLaw of demand – as prices increase

demand decrease, as prices decrease demand increases

Economic market – all consumers who will purchase a particular product or service

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Price$10.50

9.00

7.50

6.00

4.50

3.00

1.50

1,000Quantity

2,000 3,000 4,000 5,000 6,000 7,000

Demand Curve for Movies

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Supplying the Product

Handling the competitionAnalyzing supply curve

Supply curveLaw of supply

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Supplying the Product

Handling the competitionBusiness will try to offer products that can make

moneyCompetition is intense – fewer opportunities for

success Companies differentiate their product

Economic resources – classified as natural resources, capital, equipment, and labor

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Supplying the Product

Analyzing supply curveSupply curve – the relationship between

price and quantity suppliedLaw of supply – as prices increase supply

increase, as prices decrease supply decrease

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Price$105

90

75

60

45

30

15

10,000Quantity

20,000 30,000 40,000 50,000 60,000 70,000 80,000

Supply Curve for Cell Phones

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Intersecting Supply and Demand

Supply curveDemand curveMarket Price – the point where supply

and demand are equal

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Demand Curve for Notebook Computers

Price

$2,100

1,800

1,500

1,200

900

600

300

100Quantity (in 000s)

200 300 400 500 600 700 800

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Supply Curve for Notebook Computers

Price

$2,100

1,800

1,500

1,200

900

600

300

100Quantity (in 000s)

200 300 400 500 600 700 800

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Price

$2,100

1,800

1,500

1,200

900

600

300

100Quantity (in 000s)

200 300 400 500 600 700 800

Market Price for Notebook Computers

Demand Supply

Market Price

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TYPES OF ECONOMIC COMPETITION

GOALSDefine pure competition and monopoly.Explain the characteristics of

oligopolies and monopolistic competition.

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Marketing Matters

With a partner complete marketing matters on page 72.

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Types of economic competition

Two characteristics are important to determine the type of economic competition in a specific market

The number of firms competing in the marketThe amount of similarity between the products of

competition business

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Types of economic competition

There are four forms of economic competitionPure CompetitionMonopolyOligopolyMonopolistic Competition

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Four Forms of economic competition

1. Pure competition- few markets with a large # of suppliers with similar productso Consumers have a great deal of control over choices and priceso Because businesses are unable to offer products that

consumers view as unique, they must accept the prices that

consumers are willing to pay, or the consumer will buy from

another business o Some examples include: agricultural products such as corn, rice, wheat,

and livestock

o Each producers products are just like every other producerso There are many producers so consumers will have no difficulty

finding a business that will sell the product

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Price

Quantity

Demand Curve for One Companyin Pure Competition

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Four Forms of Economic Competition

2. Monopoly- a type of market in which one supplier offers a unique product o In this market, the supplier has almost total control, and the consumers

will have to accept the suppliers priceo This occurs because of lack of competitiono Governments attempt to control monopolieso Examples are: utility companies that supply electricity, gas or watero There is only 1 supplier of each product and it would be very inefficient

to have several companies extend gas & water lines to every homeo Once a home is supplied with utilities it would be easy for them to raise

the price, and the consumer would have to pay the higher price – so the

government agencies regulate the prices that can be charged

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Price

Quantity

Demand Curve for a Monopoly

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Four Forms of Economic Competition

3. Oligopolies- few businesses offer very similar products and services

o Ex- The airline industry – there are only a few large airlines

competing for national travel in the USo One airline will not succeed in increasing prices aloneo If the airline industry wants higher prices, competing companies

need to cooperate in raising their prices as well o Depending on the industry the government may attempt to

regulate that type of activity, by making it illegal for businesses to

work together to control priceso Price fixing- is an agreement between business competitors to sell

the same product or service at the same price

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Demand Curve for the Industry in an Oligopoly

Price

Quantity

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Four Forms of economic competition

4. Monopolistic Competition- many firms compete

with products that are somewhat differento With more competitors and only minor differences, businesses

will have very limited controlo When you have choices as a consumer, you usually select the

one providing the most satisfaction at the best value o Examples include: restaurants, movie theaters, shopping malls,

and athletic storeso If your products are similar with other businesses you have to

follow the status quo, but if your product is new and unique then

you have more freedom to do as you wish

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Demand Curve for Monopolistic Competition with Greater Product Differences

Price

Quantity

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ENHANCINGECONOMIC UTILITY

GOALSDefine four types of economic utility.Explain how marketers use utility to

increase customer satisfaction.

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Utility Means Satisfaction

Economic utilityForm utilityTime utilityPlace utilityPossession utility