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

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 Chapter 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. Chapter 3

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 Chapter 3

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 Chapter 3

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 Chapter 3

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 Chapter 3

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 Chapter 3

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 Chapter 3

Types of Economies Mixed Economy Some goods and services are provided by the government and some by private enterprise Chapter 3

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 Chapter 3

America’s Private Enterprise Economy Characteristics Profit Motive Value Consumers Producers Government Economic forces Chapter 3

America’s Private Enterprise Economy Profit Motive – is the use of resources to obtain the greatest profit. Chapter 3

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. Chapter 3

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. Chapter 3

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. Chapter 3

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 Chapter 3

America’s Private Enterprise Economy Economic forces Chapter 3

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. Chapter 3

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 Chapter 3

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 Chapter 3

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 Chapter 3

Microeconomics and Consumer Demand Factors affecting demand Analyzing demand curves Demand curve Law of demand Economic market Chapter 3

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 Chapter 3

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 Chapter 3

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 Chapter 3

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 Chapter 3

Supplying the Product Handling the competition Analyzing supply curve Law of supply Chapter 3

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 Chapter 3

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 Chapter 3

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 Chapter 3

Intersecting Supply and Demand Supply curve Demand curve Market Price – the point where supply and demand are equal Chapter 3

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 Chapter 3

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 Chapter 3

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 Chapter 3

TYPES OF ECONOMIC COMPETITION 3-3 TYPES OF ECONOMIC COMPETITION GOALS Define pure competition and monopoly. Explain the characteristics of oligopolies and monopolistic competition. Chapter 3

Marketing Matters With a partner complete marketing matters on page 72. Chapter 3

All-Out Competition or No Competition At All Pure competition Monopoly Chapter 3

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

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

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

Demand Curve for One Company in Pure Competition Price Quantity Chapter 3

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

Demand Curve for a Monopoly Price Quantity Chapter 3

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

Demand Curve for One Company in an Oligopoly Price Quantity Chapter 3

Demand Curve for the Industry in an Oligopoly Price Quantity Chapter 3

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

Between the Extremes Oligopolies Monopolistic competition Understanding the competition Chapter 3

Demand Curve for Monopolistic Competition with Few Product Differences Price Quantity Chapter 3

Demand Curve for Monopolistic Competition with Greater Product Differences Price Quantity Chapter 3

ENHANCING ECONOMIC UTILITY 3-4 ENHANCING ECONOMIC UTILITY GOALS Define four types of economic utility. Explain how marketers use utility to increase customer satisfaction. Chapter 3

Utility Means Satisfaction Economic utility Form utility Time utility Place utility Possession utility Chapter 3