To study whether Kellogg’s Corn Flakes is a product with price elastic of demand or price inelastic of demand, the following are some of the vital determinants that can be relied on:
Determinants that affect demand of elasticity
a) Number of availability of substitute
In general, the bigger the number of substitute goods that are available, the greater the price elasticity of demand. In such event, there are various brands of similar goods available in the market which is basically suitable for consumers to consume as a replacement product for one another, making the demand for the particular brandbecomeshighly elastic.(McConnell, Brue, & Flynn, 2012)
b) Proportion of income
According to Lau, L.S (2014), when an item represents only a relatively little part of the total budget, consumers tend not to focus too much on its prices. Hence, the price elasticity of the item becomes inelastic for buyers.
c) Time
Goods tend to have more elastic demand over longer time horizons as the longer the time period involved, the flexible is the adjustments that consumers can make (Lau, L.S, 2014). Consumer often takes time to adjust with the changes in prices. For instance, when the price of a product increases, consumers need time to look for and experiment with other products to see whether they are suitable and acceptable. (McConnell, Brue, & Flynn, 2012)
d) Necessity versus luxury
Basically, the more that a good is considered to be a “luxury” rather than a “necessity”, the greater the price elasticity of demand will it be. By definition, it can be described as something that can be forgone easily. The consumption of electricity is one of the best examplesin reality. People find it difficult to get along without the supply of electricit...
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...keted in more than 30 countries in the world. Therefore, we can conclude that Kellogg’s Corn Flakes is a product with price inelastic demand although Nestlé, the world famous food and beverage companycould be the major rival for Kellogg’s in the market. However, by comparing the selling price of corn flakes produced by the two companies, we find out that the difference of price range between the two products (by comparing corn flakes with equal supplement) is not more than one Ringgit.
Thus, we believe that with the similar price level of both the corn flakes set by Kellogg’s and Nestlé company, consumers would not be affected by the small changes in prices on the products as both the companies have their own supporters, unless one day there is a drastic changes in prices on the product from any of the companies. That will be an economic event with different story.
In order to fully understand the island of Tap’s market for corn, the broad term market structure must be defined. Market structure exists as the makeup of companies operating in a specific market. The two basic types of structures remain as perfectly competitive markets and monopoly markets. These exist as the two most basic and opposite forms of market structure, many other forms exist in between these two. Applying these two forms of structure to the corn market in Tap, results in different outcomes of both quantity of corn produced and price at which corn sells. The examination and application to Tap’s corn market will correspond with the two forms.
The analysis of the Kellogg’s case is presented in this chapter and will contribute to answer the research question. The case are evaluated and compared to the literature presented in the previous chapters and will support the conclusion of this paper.
If the price for one good increases, consumers will turn to a different good to satisfy their needs (Substitute Goods, n.d.), thereby decreasing demand for the original good and increasing the demand for the substitute good.
This company is known to be a monopolistically competitive, because there are still many firms and consumers, just as in perfect competition, but they still have control over what price they charge in their company, because Ben and Jerry's ice cream is differentiated from the other ice cream companies and they provide a lot of non price competition which will be mentioned later in the paper.
However, because of its demographic it was losing a high customer base because of its prices. The text book Chapter 10 emphasized the importance of pricing and creating profit. The investor Marcus Lemonis showed the owners how to evaluate demand and the price sensitivity of their products. He introduce product that could be brought in with lower price points that would compete with their competitor and still crate the high-end prestige the company wish to create. Taking advantage of the income statues of the company’s customer with in their demographic. One major problem the company had was the price point of a bag of dog food was around $100 per bag that was a high price for the consumers within the area. By bring in a brand that had high quality and prestige at a price point of $20 allowed for a greater customer
Although United Cereal’s products are diversified into many different types of foods and beverages, its main source of revenue remains the breakfast cereals market. The real challenge of this market is clearly seen in the European market, where the national tastes and breakfast traditions vary between countries. As a result, its approach in Europe is more complex than in the United States, which causes higher costs and slower processes.
Elasticity is the responsiveness of demand or supply to the changes in prices or income. There are various formulas and guidelines to follow when trying to calculate these responses. For instance, when the percentage of change of the quantity demanded is greater then the percentage change in price, the demand is known to be price elastic. On the other hand, if the percentage change in demand is less than then the percentage change in price; Like that of demand, supply works in a similar way. When the percentage change of quantity supplied is greater than the percentage change in price, supply is know to be elastic. When the percentage change of quantity supplied is less then the percentage change in price, then the supply then demand is known to be price inelastic.
For commodity goods, consumers are more inelastic to price changes. As commodities are at affordable price, the price differences are rather small. Therefore, lowest price is not a main concern for most consumers.
When demand is elastic as with Coca Cola products price changes affect total revenue. When the price increases revenue decreases and when the price decreases revenue increases. For Coca Cola if they notice a decrease in revenue they would offer products at a discount to increase revenue. They do this quite often with sales such buy 2 20 oz. bottles for $3 instead of the normal $1.89 each price
Price changes affect demand for various foods. According to the economic theory, consumption of a certain product falls as the price of that item rises...
When I think about Kellogg’s target market for their classic corn flakes to me the marketing is simple. A wholesome product for your family, a breakfast staple for many homes for many years. In recent years Kellogg has marketed corn flakes to the average American family of 4 or more with middle and upper middle class income, and a busy lifestyle. A big opportunity for them has been the fact that this generation of US consumers are concerned more than ever about healthy food, we also have very hectic lives. So touting corn flakes as a healthy breakfast that is quick is a perfect way to appeal to a variety of families. In 2012 they launched a campaign geared towards reminding consumers about the simplicity of the ingredients in their oldest brands, one of them corn flakes with only 4 ingredients. Jogging the memories of consumers that they have always been a healthy, easy delicious choice for breakfast. Reiterating that this is not a new concept for Kellogg’s, but one they have been valuing for 100 years. Communicating to families that they know the modern family has a busy life and not much time for a healthy breakfast, corn flakes satisfies that need. The colors they use on their corn flakes box even accentuate this idea. The three colors green, red and yellow all represent different things to consumers. Green represents the environment, nature and organics. Red indicates energy, and a sense of urgency. Lastly, yellow signifies sunshine energy and happiness (Coffin, 2011). They also subtly target children with these three bright colors in a simple almos...
... Also important is the price of complements, or goods that are used together. When the price of gasoline rises, the demand for cars falls.
Once the product is accepted the organisation would experience a high growth rate. For example, PAX Yogurt Company which originates on Mount St. Benedict, is a local company which developed seven different flavours of yogurt into the market, they are: almond, guava, passion fruit, pineapple, soursop, strawberry, natural (plain) and vanilla. The primary objective was to meet the customers’ needs with a good quality product at an affordable price in order to return high sales and profitability for the company. It is imperative at this stage, that particular attention should be placed on creating strategies for pricing, place or distribution and promotion so as to establish a market presence and create a suitable demand for the product. Pricing strategies include price skimming and price penetration. It is advisable at this stage to employ the price skimming strategy for example, pricing the product at the highest point possible. Prices can then be lowered when demand starts to
One method that Toyota can consider is using the price elasticity of demand to determine whether to increase or decrease the sale price of their automobiles. The responsiveness or sensitivity of consumers to a price change is measured by a product's price elasticity of demand (McConnell & Brue, 2004). Market goods can be described as elastic or inelastic goods as change in quantity demanded for that good. If demand is elastic, a decrease in price will increase total revenue. Even though a lower price would generate lower sales revenue per unit, more than enough additional units would be sold to offset lower price (McConnell & Brue, 2004). In a normal market condition, a price increase leads to a decreased demand, and a price decrease leads to increased demand. However, a change in income affecting demand is more complex.
...ises. Therefore, In the case of competing with another student on the market of ice-cream, it is clear that the price of ice-cream on our campus will falls from 1.50 to the new price and the quantity of ice-cream available will rises while the level of demand will stay unchanged.