Demand curve for product A

This relationship between price changes and the size of the resulting change in demand
is known as price elasticity of demand (PED).
PED= % change in quantity demanded / % change in price
% change in quantity demand
QN= 270
QI=300
270-300/300*100=-10

% Change in Price
PN= 5
PI=4
5-4/4*100=25

PED= -10/25 = -0.4

 FACTORS THAT DETERMINE PRICE
ELASTICITY OF DEMAND
• How necessary the product is
• Number of close competitors
• Consumer loyalty.
• Price of the product as a proportion of consumers’
incomes.
 LIMITATIONS OF THE MEASURES
OF ELASTICITY
• PED assumes that nothing else has changed.
• Last year’s PED calculation may be very different to the one
calculated today, if market conditions have changed in the
meantime.
• It is not always easy or possible to calculate PED
NEW PRODUCT
DEVELOPMENT
 THE PROCESS OF NEW PRODUCT
DEVELOPMENT
1. Generating new ideas: sources of new ideas for product
development
• Company’s own research and development department
• Adaptation of competitors’ ideas
• Market research, such as focus groups
• Employees
• Sales employees
• Brainstorming in groups
 THE PROCESS OF NEW PRODUCT
DEVELOPMENT
2. Idea Screening
• Eliminate ideas which stand the least chance of being commercially successful
• Make sure the idea has a reasonable chance to succeed before moving forward
3. Concept development and testing
• Ask key questions about the features of the product, cost to make, who are its target market,
how much will consumers pay, etc
4. Business analysis
• Consider the likely impact of the new product on costs, sales and profits
• Set an estimated price for the product
• Identify the estimated sales volume and market share, break-even point
 THE PROCESS OF NEW PRODUCT
DEVELOPMENT
5. Product testing
• Involves checking the technical performance of the product
• Whether or not customer expectations will be met
• Develop a prototype
• Test in typical conditions
• Use focus group opinions
• Adapt the product from results
 THE PROCESS OF NEW PRODUCT
DEVELOPMENT
6. Test marketing
• Small market must be a representative of a larger market
• Actual consumer behaviour can be observed
• Consumer feedback can be taken
• Reduce the risk associated
• Identify any weaknesses
• Maybe expensive
• Competitors can identify a firm’s intentions and create a copy
 THE PROCESS OF NEW PRODUCT
DEVELOPMENT
7. Commercialisation
• Full scale launch of the product
• Introduction stage of the PLC
• Filled up distribution channels
• Crucial time in the PLC
 RESEARCH AND DEVELOPMENT

It is the scientific research and technical

development of new products and processes.
 SIGNIFICANCE OF R&D AND
POSSIBLE BUSINESS STRATEGIES
• It allows businesses to survive and grow
• Having a USP gives them a chance to charge premium prices
• It is a risky investment
• No accuracy
• No R&D strategy – copy other businesses
• Offensive R&D strategy is to lead the rest of the industry with innovative products.
Aims to gain market share & monopoly power
• Defensive R&D strategy is to learn from initial innovators mistakes and weaknesses.
Aims to improve original products
 GOVERNMENT ENCOURAGEMENT FOR RESEARCH & DEVELOPMENT

• Provide legal security by allowing them to patent/register

• Provide financial assistance
 FACTORS THAT INFLUENCE THE LEVEL OF
R&D EXPENDITURE BY A BUSINESS

• Nature of industry
• R&D plans of competitors
• Business expectations
• Risk profile/culture of the business
• Government policies towards R&D
 R&D – EVALUATION
• New ideas fail due to design defects/manufacturing errors
• Products may fail due to:
• Inadequate market research
• Poor marketing mix
• Changes in technology
• Competitor’s product is more suited
• Firms still continue as they take the long term view
• Long run benefits > short run costs
 SALES FORECASTING –
POTENTIAL BENEFITS
• Reduced risks
• The production department is aware of the number of units required
• The marketing department is aware of the number of units to be distributed
• Accurate workforce planning
• Accurate cash flow forecasts and planning
• Forecasts may not be completely accurate due to the dynamic business
environment.
• Based on market research – primary and secondary
• Existing products – ask expert opinion/use past sales to forecast future
 SALES-FORCE COMPOSITE
• Add individual predictions of future sales of all sales representatives in the business
• Sales force representativeness are required to keep close contact with consumers –
retails, wholesalers
• Allows them to understand market trends and estimate future demand
• Quick
• Cheap
• Ignores macro-economic changes/developments
• Sales maybe overestimated
 DELPHI METHOD
• Long range of qualitative forecasting which obtains forecasts from a
panel of experts
• They are anonymous
• Facilitator collects and coordinates with experts
• Several questionnaires round maybe done
• Delphi method increases chances of accuracy
 CONSUMER SURVEYS
• Questions maybe quantitative or qualitative
• Better accuracy – sample must be large, represent the target market
• Time-taking
• Can use an agency, expensive but accurate
 JURY OF EXPERTS

• It uses senior managers who meet and develop forecast based on

their knowledge and experience
• Cheaper
• Quicker
• Lacks external viewpoint
 QUANTITATIVE SALES
FORECASTING METHODS
Correlation – establishing causal relationships
• Relations between sales and other factors maybe identified and used to make predictions
• Establishing correlation doesn’t indicate cause or effect
• Doesn’t consider other factors of change
Time-series analysis
• Based on sales data
Extrapolation
• Basing future predictions on past results
• Results plotted on a time-series graph, extending the line to identify future trends
• Assumes sales patterns are stable
• Not accurate
• Doesn’t consider other factors
 QUANTITATIVE SALES
FORECASTING METHODS
Moving averages
• Helps identify the underlying factors which are expected to influence sales:
o Trend
o Seasonal fluctuations
o Cyclical fluctuations
o Random fluctuations
•Four quarter moving total – add sales revenue of
4 quarters
•Eight quarter moving total – add 2 four quarter
totals
•Quarterly moving average – eight quarter total/8
•Seasonal variation – sales revenue – quarterly
average
•Average seasonal variation = add seasonal
variation of different years in the same quarter
divided by number of years
 MOVING-AVERAGE SALES FORECASTING
METHODS – EVALUATION
• Useful to identify and apply seasonal variation to predictions
• Reasonably accurate for short-term forecasts in stable economic
conditions
• Assists planning for each quarter in the future
• Complex
• Less accurate, external environment changes
• In the long run, qualitative data is more accurate