1. MARKETING BEGINS WITH ECONOMICS
CHAPTER 03
4/25/2017
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
Chapter 3
MARKETING

2. Chapter 3 Focus Questions:
Does the use of a Chinese language headline increase or decrease your interest in the advertisement?
What is the key message Morgan Stanley is trying to communicate?
Offer examples of how the growth of the economies in other countries around the world affects U.S. businesses and consumers.
©MORGAN STANLEY
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3. SCARCITY AND PRIVATE ENTERPRISE
3-1
SCARCITY AND PRIVATE ENTERPRISE
GOALS
Identify the basic economic problem.
Describe how America’s private enterprise economy works.
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4. 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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5. 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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6. Basic Economic Problem
Scarcity – unlimited wants and needs, combined with limited resources
Creates difficult problems for society
Choices must be made
Who makes the decision determines the economic system a society has
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7. 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 economy
All economies must answer three questions
What goods and services will be produced
How will they be produced
For whom will they be produced
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8. Types of Economies Controlled Economy
The government answers all three economic questions
It attempts to own & control important resources and make decision on what is produced and consumed
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9. Types of Economies Free Economy (AKA Market Economy)
Resources are owned by individuals rather than the government
The market provides answers to the 3 questions above No Government involvement
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10. Types of Economies Mixed Economy
Some goods and services are provided by the government and some by private enterprise
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11. 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 individuals
Profit motive – obtain the greatest profit
Value – individual view of the worth of a product or service
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12. America’s Private Enterprise Economy
Characteristics
Profit Motive
Value
Consumers
Producers
Government
Economic forces
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13. America’s Private Enterprise Economy
Profit Motive – is the use of resources to obtain the greatest profit.
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14. America’s Private Enterprise 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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15. America’s Private Enterprise 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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16. America’s Private Enterprise 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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17. America’s Private Enterprise 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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18. America’s Private Enterprise Economy
Economic forces
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19. OBSERVING THE LAW OF SUPPLY AND DEMAND
3-2
OBSERVING THE LAW OF SUPPLY AND DEMAND
GOALS
Explain microeconomics and the concept of consumer demand.
Identify factors that affect supply and its relationship to demand.
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20. Economics
Economics attempts to understand and explain how consumers and producers make decisions concerning the allocations of their resources.
Divided into 2 main levels
Macroeconomics
Microeconomics
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21. Macroeconomics
Macroeconomics studies the economic behavior and relationships of an entire society.
Looks at the BIG picture
Determines if society’s resources are being used as effectively and efficiently as possible
Studies the decisions of all consumers and producers and the effects on society
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22. Microeconomics
Microeconomics is the study of relationships between individual customers and producers.
Looks at SMALL parts of the total economy
Studies how individuals make decisions about what to produce & consume
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23. Microeconomics and Consumer Demand
Factors affecting demand
Analyzing demand curves
Demand curve
Law of demand
Economic market
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24. Microeconomics and Consumer Demand
Factors affecting demand
Importance or strength of your need or want…ex. baseball game
Available supply of products and services to satisfy your needs…ex. Farmers market
Availability of alternative products that consumers believe will satisfy their needs…ex. entertainment
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25. Microeconomics and Consumer Demand
Economist try to determine how much consumers are willing to pay for various quantities of products and services.
Analyzing demand curves
Demand curve
Law of demand
Economic market
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26. Microeconomics and Consumer Demand
Analyzing demand curves
Demand curve – the relationship between price and the quantity demanded
Law 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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27. Demand Curve for Movies
Price
$10.50
9.00
7.50
6.00
4.50
3.00
1.50
1,000
Quantity
2,000
3,000
4,000
5,000
6,000
7,000
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28. Supplying the Product Handling the competition Analyzing supply curve
Law of supply
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29. Supplying the Product Handling the competition
Business will try to offer products that can make money
Competition is intense – fewer opportunities for success
Companies differentiate their product
Economic resources – classified as natural resources, capital, equipment, and labor
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30. Supplying the Product Analyzing supply curve
Supply curve – the relationship between price and quantity supplied
Law of supply – as prices increase supply increase, as prices decrease supply decrease
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31. Supply Curve for Cell Phones
Price
$105 90 75 60 45 30 15
10,000
Quantity
20,000
30,000
40,000
50,000
60,000
70,000
80,000
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32. Intersecting Supply and Demand
Supply curve
Demand curve
Market Price – the point where supply and demand are equal
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33. Demand Curve for Notebook Computers
Price
$2,100
1,800
1,500
1,200
900
600
300
100
Quantity (in 000s)
200
400
500
700
800
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34. Supply Curve for Notebook Computers
Price
$2,100
1,800
1,500
1,200
900
600
300
100
Quantity (in 000s)
200
400
500
700
800
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35. Market Price for Notebook Computers
$2,100
1,800
1,500
1,200
900
600
300
100
Quantity (in 000s)
200
400
500
700
800
Demand
Supply
Market Price
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36. TYPES OF ECONOMIC COMPETITION
3-3
TYPES OF ECONOMIC COMPETITION
GOALS
Define pure competition and monopoly.
Explain the characteristics of oligopolies and monopolistic competition.
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37. Marketing Matters
With a partner complete marketing matters on page 72.
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38. All-Out Competition or No Competition At All
Pure competition
Monopoly
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39. 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 market
The amount of similarity between the products of competition business

40. Types of economic competition
There are four forms of economic competition
Pure Competition
Monopoly
Oligopoly
Monopolistic Competition

41. Four Forms of economic competition
Pure competition- few markets with a large # of suppliers with similar products
Consumers have a great deal of control over choices and prices
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
Some examples include: agricultural products such as corn, rice, wheat, and livestock
Each producers products are just like every other producers
There are many producers so consumers will have no difficulty finding a business that will sell the product

42. Demand Curve for One Company in Pure Competition
Price
Quantity
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43. Four Forms of Economic Competition
2. Monopoly- a type of market in which one supplier offers a unique product
In this market, the supplier has almost total control, and the consumers will have to accept the suppliers price
This occurs because of lack of competition
Governments attempt to control monopolies
Examples are: utility companies that supply electricity, gas or water
There is only 1 supplier of each product and it would be very inefficient to have several companies extend gas & water lines to every home
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

44. Demand Curve for a Monopoly
Price
Quantity
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45. Four Forms of Economic Competition
3. Oligopolies- few businesses offer very similar products and services
Ex- The airline industry – there are only a few large airlines competing for national travel in the US
One airline will not succeed in increasing prices alone
If the airline industry wants higher prices, competing companies need to cooperate in raising their prices as well
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 prices
Price fixing- is an agreement between business competitors to sell the same product or service at the same price

46. Demand Curve for One Company in an Oligopoly
Price
Quantity
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47. Demand Curve for the Industry in an Oligopoly
Price
Quantity
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48. Four Forms of economic competition
4. Monopolistic Competition- many firms compete with products that are somewhat different
With more competitors and only minor differences, businesses will have very limited control
When you have choices as a consumer, you usually select the one providing the most satisfaction at the best value
Examples include: restaurants, movie theaters, shopping malls, and athletic stores
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

49. Between the Extremes Oligopolies Monopolistic competition
Understanding the competition
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50. Demand Curve for Monopolistic Competition with Few Product Differences
Price
Quantity
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51. Demand Curve for Monopolistic Competition with Greater Product Differences
Price
Quantity
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52. ENHANCING ECONOMIC UTILITY
3-4
ENHANCING ECONOMIC UTILITY
GOALS
Define four types of economic utility.
Explain how marketers use utility to increase customer satisfaction.
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53. Utility Means Satisfaction
Economic utility
Form utility
Time utility
Place utility
Possession utility
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