Marketing Begins with Economics

Marketing

Chapter 3

Warm-Up

Using the worksheet tell what you know about economics and what you want or need to learn about it. LEAVE the THIRD COLUMN Blank.

The Importance of Economic Understanding

The basic economic problemScarcity

Unlimited wants/needs with limited resources

Economic SystemA collection of laws, institutions and activities

that provide a framework for economic activity

Who makes the decisions?

Controlled (Command) economy government

Regulated economyShared between government and individuals

Free (Market) economyindividuals

America’s Private Enterprise Economy

Profit MotiveUse of resources toward the greatest profit for

the producers

CharacteristicsConsumers (demand)Producers (supply)Government (regulate)

Answer the following:

What if the U.S. Economy was strictly a free/market economy and not regulated by government? Predict how the lack of government regulations might affect the environment, consumers, and workers.

OBSERVING THE LAW OF SUPPLY AND DEMAND

SupplyQuantity of product the producer is willing and

able to provide for a price

DemandQuantity of products consumers are willing and

able to purchase for a price

What’s So Special About a Rose?

Gather therefore the Rose,Whilst yet is prime,

For soon comes age,That will her pride deflower;Gather the Rose of Love,

Whilst yet is timeEdmund Spenser

1552 - 1599

What’s in a name?

That which we call a rose

By any other name would smell as sweet

William Shakespeare

1564 - 1616

O, my Luve is like a red, red rose,

That’s newly spring in June.

O, my Luve is like a melodie,

That’s sweetly played in tune.

Robert Burns

1759 - 1796

Determinants of Demand

Number of ConsumersMore buyers = more demand

Consumer Tastes and PreferencesWhen this changes so will demand

Consumer IncomeMore income = more demand

Prices of Related Goods If the substitute has a better price the demand for the

other product will decreaseConsumer Expectations

When consumers expect something about the future it can change demand for a product

Demand Curve for Movies

Price

$10.50

9.00

7.50

6.00

4.50

3.00

1.50

1,000Quantity

2,000 3,000 4,000 5,000 6,000 7,000

Determinants of Supply

Number of Producers More producers = more supply

Resource Prices Higher cost of resources = less supply (unless they can make

the cost up in the increase of price)Technological Changes

Better productivity = more supplyPrices of other Products of the business

If one product’s price raises supply increases but could cause a decrease of supply of another product

Producer Expectation Expectations of future changes could decrease current supplies

Supply Curve for Notebook Computers

Price

$2,100

1,800

1,500

1,200

900

600

300

100Quantity

200 300 400 500 600 700 800

Market Price for Notebook Computers

Price

$2,100

1,800

1,500

1,200

900

600

300

100Quantity

200 300 400 500 600 700 800

DemandDemand SupplySupply

Macroeconomics

MacroeconomicsMacroeconomics studies the economic behavior and relationships of the entire society.

Microeconomics

MicroeconomicsMicroeconomics is the study of relationships between individual customers and producers.

Warm-Up

Why is an understanding of economics more important to marketing now than it was in the past?

All-Out Competition or No Competition At All

Pure competitionLarge number of suppliers offering very similar

products

MonopolyOne supplier offering a unique product

Between the Extremes

OligopoliesFew businesses offering very similar products

Monopolistic competitionMany firms competing with products that are

somewhat different

Understanding the competitionMust know what type of competition to

maximize profits

Warm-Up

How does the marketing concept relate to the concept of economic utility.

Utility Means Satisfaction

Economic utility Economic utility (the amount of satisfaction a (the amount of satisfaction a consumer receives from the consumption of a consumer receives from the consumption of a product)product)

Form utility – changes in tangible parts of product

Time utility – available when customer wants it

Place utility – available where the customer wants to buy it

Possession utility – affordability of the product