1 The Economics of Marketing 2 Natural (Land Resources) … everything on earth in its natural state RESOURCES…All things used in producing goods and.

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The Economics The Economics of Marketingof Marketing

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The Economics of The Economics of MarketingMarketing

NaturalNatural (Land (Land Resources) …Resources) …everything everything on earth in its natural stateon earth in its natural state

RESOURCES…All things used in producing goods and services.

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HumanHuman (Labor Resources) (Labor Resources) …all people who work in the …all people who work in the economyeconomy

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The Economics of The Economics of MarketingMarketing Capital Capital

… …money needed to start and money needed to start and operate a business, as well as operate a business, as well as materials needed to produce materials needed to produce finished goodsfinished goods

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SCARCITY…Insufficient supply of goods, services or resources.

The concept of scarcity recognizes that there is not enough resources to go around (supply is less than demand).

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ECONOMICS…The way a nation chooses to use its productive resources to produce, market, and consume goods and services.

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An Economic Problem…

Consumers have UNLIMITED wants and needs but LIMITED resources!

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Basic Economic Decisions

Every economic system must answer 3 basic questions:

1. WHAT should be produced?

2. HOW should it be produced?

3. WHO should share in what is produced?

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What happens if the GOVERNMENT answers the 3 questions?

Planned/Command Economy… resources and industries are owned by the government

Examples: Cuba, China, Russia

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The Economics of The Economics of MarketingMarketingPolitical Systems...

1. Democratic Socialism…

government answers most of the economic questions

government owns/controls important economic resources & industries

Examples: Holland, Spain, New Zealand, Norway, Ireland, Australia

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Political Systems…

2. Communism…

a single political party controls all resources & industries

the government answers ALL of the economic questions

Examples: North Korea, Vietnam

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The Economics of The Economics of MarketingMarketingWhat happens if the PEOPLE answer the 3 questions?

Market Economy…(Private Enterprise System, Free Enterprise System or Capitalism)…

Consumers, business, & government answer the economic questions

Example: United States, Japan

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Political System...

1. Democracy…

usually more than one political partygovernment representatives are elected

Example: United States…Democrats & Republicans

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Basic Economic Freedoms in a Private Enterprise System…

1. Freedom of Ownership2. Freedom to Compete3. Freedom to Make a Profit4. Freedom of Choice

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1. Freedom of Ownership…

land, natural resources, buildings, tools,

equipment

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2. Freedom to Compete…

Competition is the STRUGGLE between companies for customers

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Effects of Competition…

1. Reasonable prices2. Quality Products

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Types of Competition...

1.Price…everyday cost on

merchandise.(if all things are equal, customers will

buy the LOWEST priced item.)

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The Economics of The Economics of MarketingMarketing2. Non-price…business has chosen to compete on the basis of other factors that are not related to price.

Examples: quality of products, services offered,

financing offered, reputation of firm

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3. Freedom to Make a Profit…

NOT a guarantee!Can be risky!

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RISK…the potential for LOSS OR FAILURE

in a business

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Types of Business Risk

Property damageFireFloodAuto damageTheftFraudPersonal injury

Insurable UN-Insurable

Customer buying habitsChanges in weatherChanges in business conditions

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4. Freedom of CHOICE…

products career elected representatives

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The Role of OUR Government…

1. Regulator2. Promoter of Growth & Development3. Protector4. Competitor5. Supporter

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1. Regulator…

Food & Drug Administration (FDA)Federal Trade Commission (FTC)Consumer Product Safety Commission

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The Economics of The Economics of MarketingMarketingThe Role of OUR Government…

2. Promoter of Growth & Development…

Small Business Administration (SBA)Federal Trade Commission (FTC)Urban Renewal

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The Economics of The Economics of MarketingMarketingThe Role of OUR Government…

3. Protector…

CopyrightsPatentsTrademarks

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4. Competitor…

U.S. Post OfficeAMTRACKCity – Public Works Department

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5. Supporter…

Loans to businessesSubsidies for farmers

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The Role of the Consumer…

Each of us has an economic VOTE.

How you spend your money determines who (companies, brands, and products) will stay in the ECONOMY (business/market) and who will not.

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Lower Prices…producers would like to offer FEWER products for sale.

The Laws of SUPPLY...

The amount of goods producers are willing to make and sell.

Higher Prices… producers would like to offer a LARGER quantity of products for sale.

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Supply Curve…upward sloping curve representing how much of a certain product a producer will supply at various prices.

The Laws of SUPPLY...

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The Economics of The Economics of MarketingMarketingThe Laws of DEMAND...

Higher Prices…the consumer demand for a product usually DECREASES.

Lower Prices… the consumer demand for a product usually INCREASES.

Consumers willingness & ability to buy products.

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Demand Curve…downward sloping curve representing correlation between different prices and the quantity people will buy at each price.

The Laws of DEMAND...

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Supply and demand interact to determine the price customers are willing to pay for the number of products producers are willing to make.

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Surplus...

Occurs when SUPPLY exceeds DEMAND

When this happens businesses will LOWER their prices.

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Shortage...

Occurs when DEMAND exceeds SUPPLY

When this happens businesses will RAISE their prices

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Equilibrium...

When the amount of product being SUPPLIED is EQUAL to the amount of product in DEMAND.

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Buyer’s Market

Small Demand

Large Supply

Lower Prices

Seller’s Market

Large Demand

Small Supply

Higher Prices

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Elasticity of Demand“The EXCEPTION to the Law”

Elastic Demand...

A slight change in price creates a LARGE change in demand.

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Inelastic Demand…

A change in price has little effect on demand.

Elasticity of Demand“The EXCEPTION to the Law”

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The Economics of The Economics of MarketingMarketingFactor #1 to determine inelastic or elastic demand...Are substitutes available?

If yes, elastic…McDonald’s prices go up, so you go to Wendy’s or Hardee’s.

If no, inelastic…you will still buy gasoline even if the price goes up.

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The Economics of The Economics of MarketingMarketingFactor #2 to determine inelastic or elastic demand...

Is the price relative to your income?

If the price is a large part of your income, elastic…vacationing

If the price is small in comparison to your income, inelastic… potato chips

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The Economics of The Economics of MarketingMarketingFactor #3 to determine elastic or inelastic demand...

Is the product a luxury?

If yes, elastic…hot tubs

If no, inelastic…underwear

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The Economics of The Economics of MarketingMarketingFactor #4 to determine inelastic or elastic demand...

Is the purchase an emergency?

If no, elastic…new CD

If yes, inelastic…medication

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Law of Diminishing Marginal Utility...

People will only buy a limited amount of a product no matter how low the price drops.

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Business…

All the activities of an individual or group involved in producing and distributing goods and services to customers.

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Entrepreneur…

A person who takes the RISK and provides capital to start and operate their own business.

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Characteristics of an Entrepreneur...

willing to take risks able to make and follow goals able and willing to work long & hard confident in their success creative and imaginative sound knowledge of business reliable and dependable self-disciplined

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chance to earn BIG profits freedom to be independent recognition for a successful business you are your own BOSS personal pride

PROS for being in business for yourself...

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CONS for being in business for yourself... risk of losing everything legal responsibility hard work & long hours humiliation of business failure sorrow of letting others down

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Sole Proprietorship…

A business owned by one person

70% of all businesses in the U.S. fall into this group

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Partnership…

A business owned by 2 or more people.

Least common, only 10% of total business in the U.S. fall into this category

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Corporation…

A business organization with many owners under a government charter.

Charter…a legal document granted by the state or federal government setting forth the rules of operation.

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Franchise…

An agreement between a well-known corporation and an independent individual or group who wish to operate the business locally.

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Franchisee…the person buying the franchise

Franchiser…the company selling the franchise

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Franchise Fee…the price paid for the right to

operate a franchise

Royalty…an ongoing fee (a % of sales, 3-10%) paid to the franchiser

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Advantages of a Franchise...

Instant name recognition Nationwide advertising Standardized products Training programs Reduced risk of failure

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Disadvantages of a Franchise...

Franchise fee Share profits with franchiser Need to comply with franchise rules Contribution to advertising (1-2% of annual sales) Restricted in what you may sell

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When prices rise.When prices rise.

1-5% increase is good -- shows the 1-5% increase is good -- shows the economy is growing.economy is growing.

More than 10% increase hurts the More than 10% increase hurts the economy-- the dollar buys less.economy-- the dollar buys less.

Inflation...

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The Business Cycle...

Economists have identified 4 phases that comprise the business cycle:

1. Prosperity2. Recession3. Depression4. Recovery

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Prosperity…a period of economic GROWTH.

Nationwide there is… low unemployment an increase in goods/services available high consumer spending

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Recession…a period of economic SLOW DOWN.

Nationwide there is… a rise in unemployment fewer goods/services are produced consumer spending decreases

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Depression… a period of prolonged and deep recession.

Nationwide there is… very HIGH unemployment very LOW production of goods/services very LOW consumer spending


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The Economics of The Economics of MarketingMarketingThe Business Cycle...

Expansion (recovery)…a period of renewed economic growth

Nationwide there is… REDUCED unemployment MODERATE expansion of business INCREASED consumer spending

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Utility of MarketingUtility of Marketing

Utility...is the usefulness of a good/serviceto a consumer. (Added Value)

5 Types of Utility

4. Possession5. Information

1. Form2. Time3. Place

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1. FORM Utility…increases the usefulness of a product to a consumer by causing change in the basic material through production.

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2. TIME Utility…increases the usefulness of a product by making it available to the customer at the right time of the year and most convenient time of day.

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3. PLACE Utility…Increases the usefulness of products because of the location of the product.

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4. POSSESSION Utility…The ability of marketers to aid a customer in owning goods/services.

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5. INFORMATION Utility…Increases the usefulness added to a product through communication. Informing customers of benefits, availability, and prices of products.

1 The Economics of Marketing 2 Natural (Land Resources) … everything on earth in its natural state RESOURCES…All things used in producing goods and.

Documents

economics of marketing2

economic questionsexamples

natural resources

limited resources

productive resources

private enterprise system1

freedom of ownershipland

freedom of ownership2