Forrester Case

As a sales manager for WidgeCorp I have just been informed that we are considering branching out into the cold beverage world. Unfortunately, I have been asked to come up with a regression model in order to help forecast monthly sales of all cold beverages for the next year. Therefore, I will be analyzing several variables that will help me determine if there is a relationship between any dependent variables as well as one or more independent variables. Although, this is something new for our company we are planning on selling these beverage in the South, Southeast and some northern states north of North Carolina but not past Delaware because we feel that this will be our best marketing area for this new beverage. Furthermore, I have found that we can better determine how our sales are for the area as well as if there will be a need to push our new beverage out to other areas because the sales we forecast were better than expected which means it will bring in more money if we extend the sales range.

In economics, the cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good, ceteris paribus. This suggests that we can analyze or forecast the increase or decrease in demand, of another product, when the price of certain product is increased or decreased. This method is used to comprehend and forecast the affect, of increase/decrease in price, on the demand of the other

Elasticity is a measure of the responsiveness of demand to changes in the price of a good or service. In the case of Steam Scot, when the price rises from 4 to 5, demand falls from 60,000 to 40,000 units. The original equilibrium market price of 4 pounds resulted in demand of 60,000 units and this generated revenue of 240,000 pounds. When the prices increased to 5 pounds the resulting demand is 40,000 units, and this generates total revenue of 200,000 pounds. When market price changes from 4 pounds to 5 pounds 40,000 pounds of revenue are lost in this indicates an elastic price elasticity of demand.

Based on the above description, forms of elasticity will affect business decisions and pricing strategies differently depending on the nature and type of products or services being offered. Business organizations whose product offerings have elastic and perfectly elastic price elasticities of demand should not attempt to raise prices of their products because it will cause the quantity demanded and consequently total revenues to drop drastically. Businesses can there use the price elasticities of demand to determine whether the proposed changes in their prices will raise or reduce their total revenue. The following expression may be useful in helping business organizations to determine the impacts of elasticities on their total revenues based on the suggested price changes.

The Forest Hill Paper Company (FHPC) is a small, closely held paperboard manufacturer that produces “parent rolls” which are then distributed to converters for further processing. Due to their small size in comparison to many of their competitors in the industry, FHPC would be classified as a niche company as stated in the case. Part of FHPCs strategy, which will be looked at further below, is to create a niche based on service and rapid customer response that the larger manufacturing companies are too large to be able to do successfully.

In January 2008, gasoline prices were $3 a gallon with an increase of 33 percent price of gasoline was $4 a gallon in June 2008. Between the January and June 2008 time period the quantity of gasoline purchased decreased by 3 percent. After gathering the required information, the second step is to calculate the price elasticity of demand (PEoD) for gasoline is to calculate the percentage change in price which is done by using the following formula. [Price New-Price Old] / Price Old. The numbers plugged into the equation is [4-3] / 3=.3333 or 33 percent. The percentage change in price equals 33 percent. The third step is to calculate the percentage change in quantity demanded. This is done by using the following equation [Demand New-Demand Old] / Demand Old. The information provided above states that the percent change in quantity demand is 3 percent, which means that there is not a need to calculate the percent change in quantity demand. The final step of calculating the price elasticity of demand is done by completing the following formula of PEoD = (% Change in Quantity Demanded) / (% Change in Price). When the numbers are plugged into the equation it is 3% / 33% =.0909 or 9 percent. The price elasticity of demand for gasoline is 9 percent.

How we calculate our prices will affect the impact we will have for sales and marketing. We will have to look at the elasticity demand for our cable service because lowering cost will generate more total revenues (Kotler & Keller, 2012, pg.392). According

If Wal-Mart were to increase the price of their products then the demand for them would likely decrease and the demand for the competitor’s merchandise would likely increase, where if the price of the products drops at Wal-Mart then the demand will likely increase at Wal-Mart and decrease at the competitor’s stores. If Wal-Mart increased to match the prices then the demand would be perfectly elastic.

T 's Jean Shop sells designer jeans. The latest trend setter has been Capri cuffed blue jeans. The demand for the Capri jeans has been very high with teenagers and young women. The business has increased its supply of Capri jeans due to the high demand. The owner, Terri Johnson, contemplates increasing the price from $9.00 to $10.00. Ms. Johnson needs to know the response of the consumers to the increased price. According to McConnell and Brue (2004), the Price Elasticity of Demand measures the rate of response of quantity demanded due to a price change (p. 1).

Ep equal to neg 1.19 (absolute 1.19) implies that in the short run, the demand is price elastic. Thus a 1% increase in price will decrease demand by 1.19%. However, in the long term, consumers will find substitutes if the price continues to increase.

The demand for a product is price elastic and the product 's price is decreased by X%. What might be the expected change in quantity demanded and revenue?

We expect to see demand decrease with an increase in price, but there was a significant increase in demand for the S5 despite a 3% price increase. This only applies in the short run. While a small increase in price has little effect on demand in the short run, fewer consumers would opt to purchase

2. Implications for each of the computed elasticities for the business regarding short-term and long- term pricing strategies.

Income-elasticity is 1.62. This indicates that a 1% rise in the average area income will boost the quantity demanded by 1.62%. In this aspect, the product is elastic and the company can make the decision to raise the price if the average income rises.

Since the value is less than one we can say that PS3s are elastic. This means that an increase in price of 1% will lead to a greater than 1% change in demand.