Demand, supply and market equilibrium

Price in a market is determined by supply and demand forces.

The needs of producers and consumers are best met at a point called the market equilibrium. Market equilibrium occurs when the supply and demand for a product are equal and the prices charged for the product are relatively stable. The market equilibrium is established by combining the supply and demand curves for a product on the same graph. The point at which these two curves intersect is called the equilibrium point.

The demand for a product is the amount of a good that people are willing to buy over a given time period at a particular price. For most goods and services the amount that consumers wish to buy will increase as price falls.

The desired demand is the information showing the amount of the product that consumers are willing to buy at different prices - not what they actually do buy. The demand for a product is not only influenced by price. An individual may be influenced by factors such as personal tastes, the size of income, advertising and the cost and availability of credit. The total market demand will be affected by the size and age distribution of the population and government policy.

States of Demand

Marketing managers might face any of the following states of demand.

Negative demand. Marketers must analyse why the market dislikes the product, and whether product redesign, lower prices, or more positive promotion can change the consumer attitudes.

No demand. Target consumers may be uninterested in the product. The marketer must find ways to connect the product's benefits with the market's needs and interests.

Latent demand. Consumers have a want that is not satisfied by any existing product or service. The marketing task is to measure the size of the potential market and develop effective goods and services that will satisfy the demand.

Falling demand. Sooner or later, every organization faces falling demand for one of its products. The marketer must find the causes of market decline and restimulate demand by finding new markets, changing product features, or creating more effective communications.

Irregular demand. Demand varies on a seasonal, daily, or even hourly basis, causing problems of idle or overworked capacity. Marketers must find ways to change the time pattern of demand through flexible pricing, promotion, and other incentives.

Full demand. The organization has just the amount of demand it wants and can handle. The marketer works to maintain the current level of demand in the face of changing consumer preferences and increasing competition. The organization maintains quality and continually measures consumer satisfaction to make sure it is doing good job.

Overfull demand. Demand is higher than the company can or wants to handle. The marketing task, called demarketing is to find ways to reduce the demand temporarily or permanently. Demarketing involves such actions as raising prices and reducing promotion and service. Demarketing does not aim to destroy demand, but only to reduce it.

Demand is concerned with the buying side of the market. Supply is concerned with the firm's or producer's side of the market. Unlike demand, the quantity supplied of a good will increase as price rises.

Production decisions are affected by the costs of production and productivity. In figuring the costs of production, business owners are concerned with fixed costs and marginal costs.

Supply

The supply of a product is not only influenced by price. Supply will be affected by anything that helps or hinders production or alters the costs of production.

The prices of goods and services are continually changing and so is the amount that is bought and sold. In winter the price of tomatoes tends to be a lot higher than in the summer and fewer tomatoes are bought in the winter. Similarly, the price of turkey tends to increase at Christmas and so too does the number of turkeys bought. These changes can be explained by an increase in demand. To show the effect of an increase in demand on the market equilibrium consider what happens if there is a successful advertising campaign which increases demand by 20 units per week at each and every price.

Changes in the market equilibrium can also come about as a result of a decrease in demand, an increase in supply or a decrease in supply.

Changes in the costs of production can affect the supply of goods. Producers must pay the cost of production, which may change over time.

Production Costs

Production costs are generally divided into fixed costs, variable costs, and total costs. Producers also calculate the average total costs and marginal costs of production. Analyzing these costs of production helps producers determine production goals and profit margins.

Fixed costs. The costs that producers incur whether they produce nothing, very little, or large quantities are their fixed costs. Total fixed costs are called overhead. Fixed costs include interest payments on loans and bonds, insurance premiums, local and state property taxes, rent payments, and executive salaries. The significance of fixed costs is that they do not change as output changes.

Variable costs. The costs that change with changes in output are variable costs. Unlike fixed costs, which are usually associated with such capital goods as machinery, salaries, and rent, variable costs are usually associated with labor and raw materials. Variable costs reflect the costs of items that businesses can control or alert in the short run.

Total costs and average total costs. The sum of fixed and variable costs of production is the total costs. At zero output, a firm's total costs are equal to its fixed costs. Then as production increases, so do the total costs as the increasing variable costs are added to the fixed costs.

Producers are equally concerned with their per unit production costs. The average total costs of production are the sum of the average fixed costs and the average variable costs. Each of these average costs is calculated by dividing the cost by the total units produced.

Marginal costs. One final measure of costs is marginal costs, i. e. extra costs incurred by producing one more unit of output. Marginal costs are an increase in variable costs because fixed costs do not change. Marginal costs allow the business to determine the profitability of increasing or decreasing production by a few units.

Many economic factors affect the supply of a product. The major influence, however, is price because the quantity of a product offered for sale varies with its price. Profit is the key consideration when producers determine a supply schedule.

Words and Expressions

alter v — изменять(ся); менять(ся); видоизменять

availability of credit - размер кредита, разрешенного к получению

curve n — кривая (линия); дуга

demand curve - кривая спроса

falling demand - понижающийся спрос

fixed costs - фиксированные расходы

full demand - полноценный спрос

graph n - график, диаграмма

hinder v - задерживать, затруднять, мешать, препятствовать

incur costs - нести издержки

insurance premium - страховые взносы

intersect v - пересекаться; перекрещиваться

irregular demand - неравномерный спрос

latent demand - скрытый спрос

marginal costs - предельно высокая себестоимость

market equilibrium - равновесие рынка

negative demand - отрицательный спрос

overfull demand - завышенный спрос

overhead costs - накладные расходы

profit margin - размер прибыли

property tax - налог на доход с недвижимого имущества

short run - короткий период времени

supply curve - кривая предложения

supply schedule - схема/график предложения

total costs — валовые/суммарные издержки

variable costs - переменные издержки на единицу продукции

Семестр

BUYER BEHAVIOUR

CONSUMER BUYER BEHAVIOUR

The marketer needs to know what people are involved in the buying decision and what role each person plays. For many products, it is fairly easy to identify the decision-maker. Men normally choose their own shoes and women choose their own make-up. However, other products and especially new ones may well involve a decision-making unit of more than one person.

Consider the selection of a family car. The initial suggestion might come from the oldest child — he or she would be the initiator; a friend or colleague might advise the family on the kind of car to buy — he or she would be the influencer; the husband could be the one to choose the make while the wife might have a definite opinion regarding the car's style — they would be the deciders; the husband may well be the one actually to buy — the buyer; the wife might end up using the car more than her husband — she'd be the user.

A company needs to identify who occupies these roles because they affect product design and advertising message decisions. The car manufacturer in this case might be wise to include all the above participants in an advertisement.

The more complex buying decisions are likely to involve more buying participants and more buyer deliberation. There are three types of buying behaviour.

Routine response behaviour occurs when consumers buy low-cost, frequently purchased items. They know a lot about the product class and major brands and they have fairly clear brand preference. The goods in this class are often called Low-involvement goods. A household detergent would fall into this category. Marketers of products that consumers buy routinely have two tasks. First, they must satisfy current customers by maintaining consistent quality, service and value. Second, they must try to attract new buyers — break them out of the routine of buying competing products — by introducing new features and using point-of-purchase displays and price discounts.

Buying is more complex when buyers confront an unfamiliar brand in a familiar product class. Limited problem-solving is involved when the consumer is fully aware of the product class but is not familiar with all the brands and their features. Buying a tennis racket might fall into this bracket. Marketers must design a communication programme that will help buyers understand the company's brand and give them confidence in it.

Sometimes buyers face complex buying decisions for more expensive, less frequently purchased products in a less familiar product class in these situations, buyers use extensive problem-solving to find out about the product class and the brands available. Buying a new stereo system might fall into this category. Marketers of products in this class need to help buyers learn about important buying criteria and persuade them that their brands rate high in terms of important features and benefits.

 

CONSUMER RIGHTS (Защита прав потребителей)

In their role as consumers, ordinary EU citizens are key players in the Union’s new frontier-free single market. The Union has in fact incorporated as the basis of its consumer policy the protection of the five fundamental rights which lie at the heart of national policies. These are:

v The protection of consumers’ health and safety.

Only products, which will not endanger health or safety, may be put on the market. This means setting safety requirements providing full information about potential risks, protecting consumers against physical injury.

v The protection of consumers’ economic interests.

There is for example a general ban on misleading advertising and unfair terms in contracts with consumers.

v Consumer rights to information and education.

Consumers need to be put in a position where they can make an informed choice among goods and services offered. This includes objective information on the features and price of the items available. Consumers also require proper information about their efficient and safe use.

v The right to redress.

Consumers have the right to receive advice and help when seeking redress for faulty products or for injury or damage resulting from the use of goods and services. There need to be simple, affordable and rapid procedures for settling complaints and claims.

v Consumer representation and participation.

Representatives of consumers need to be present in decision-taking procedures on issues of concern to them at local, national or EU level. At Union level, this covers not only specific consumer issues but also other relevant policy areas like food laws, transport, competition policy, financial services, environment and the like.

When the Union adopted its first consumer program in 1975, it focused on the practical application of the five principles. As a first result, a number of directives were adopted over the next 10 years covering among other things the safety of cosmetic products, the labelling of foodstuff, misleading advertising, consumer rights in door-step selling, product liability and the provision of consumer credit.

DISTRIBUTION AND SALES

Words and Expressions

buy retail – покупать в розницу

buy wholesale – покупать оптом, осуществлять оптовые закупки

commission – комиссионное вознаграждение

customer facilities – сервисное обслуживание потребителей

customer services – выполнение заявок клиентов

direct selling – продажа без посредников

distribution – распределение, распространение

distribution channels – каналы распределения

distribution costs – издержки обращения

distribution network – распределительная сеть, сеть распространения

diverse – многообразный, разнообразный, разнотипный

diversity – разнообразие; многообразие; разнородность

household products – хозяйственные товары

link – (связующее) звено; звено цепи, связь

lorry – грузовой автомобиль, грузовик

mass-produce – вести массовое производство

perishable – скоропортящийся

perishables – скоропортящийся товар/груз

Public Relations – связь с общественностью (пресса, потребители, клиенты и т.д.)

retail – розничная продажа, розничный торговец

retail buying – покупка товаров в розницу

retail buyer n retail chains – розничные магазины, принадлежащие одной компании

retail outlet – розничная торговая точка

retailer n = retail dealer – розничный торговец

retailer – розничный, продающий в розницу

sales force – продавцы, работники торговых предприятий, торговые агенты

sell goods wholesale – продавать товары оптом

sell retail и – продавать в розницу

storage – хранение, база, склад, хранилище

storage costs – складские издержки

trade fair – ярмарка

warehouse – товарный склад

warehouse – помещать в склад; хранить на складе

wholesale – оптовый

wholesale n = wholesale business – оптовая торговля

wholesaler – wholesale dealer – оптовый торговец оптовик

 

The term "distribution" is not confined to the physical distribution of goods from the producer to the consumer, e.g. road and rail transport. In the business context it also refers to the distribution channels, i.e. the sort of retail outlets that the goods and services are sold in.

Many industrial products and services are sold directly to the consumer or user, e.g. aircraft and lathes. Most consumer products are usually distributed through retail organizations. By tradition many manufacturers sell their products to a wholesaler who warehouses the goods until they are required by the retailer. This so-called full chain of distribution offers advantages to both the manufacturer and retailer. The manufacturer can mass-produce the goods, get the money for the goods straight away, and does not have to worry about storage and distribution costs. The retailer can order goods from the wholesaler and does not-have to worry about holding large stocks. The full chain of distribution has disadvantages for the manufacturer and the retailer. The wholesaler does not have any particular incentive to promote the sale of the manufacturer's goods, and the retailer will have to pay a higher price for the goods from the wholesaler than if they were bought directly from the manufacturer. Some industries have cut the "middle-man" (wholesaler), and the manufacturer sells directly to the retailer. In other industries the wholesaler may sell the goods directly to the customer and no retailer is involved. Finally, the manufacturer may sell directly to the customer without a wholesaler or retailer being involved.

Full Chain of Distribution

This tends to be used when the producer makes a limited range of products, storage costs are high and the product is perishable.

No Wholesaler

The wholesaler is eliminated in industries where the producer makes a number of standard products that it sells to similar kinds of retail outlets. Frozen-food firms and large bakeries tend to have their own distribution network and their own fleet of delivery lorries.

No Retailer

There has been a growth in the case of wholesalers, which sell directly to the general public. These large discount stores sell furniture and other household products in warehouse-style buildings with relativelypoor customer facilities. Mail order companies such as Great Universal Stores, where local selling agents run a catalogue for orders, are a good example of distribution without a retailer. These local agents work on a commission basis and deal with the ordering of goods and the means of payment.

Direct Selling

Direct selling to the customer is typically found in the sale of services, e.g. insurance and double glazing. In the case of industrial products such as chemicals and manufacturing machines, firms generally employ a full-time sales force to try and sell products to other firms. Such sales teams may be organized on a regional basis, with specific areas of the country to cover, e.g. North West, East Midlands and South Wales. The sales team is a very important part of the marketing function. Although its major role is to sell the company's product, it may also be source of important market research information, e.g. salesmen can find out customers' reactions to products and can find out their future requirements. They can also find out what competitors are doing and supply this information back to the company. The sales team may also be the first link that a customer has with the company, and so the presentation of a good image may be important.

Retail Outlets

There are various retail outlets through which manufacturer can decide to sell a product. In 1984, it was estimated that there were 343,153 retail outlets controlled by 230,787 organizations – which indicates that the vast majority are "one-shop" operation.

Organizing the Sales Force

When deciding the problem how sales effort is to be organized three main approaches may be used:

1. Organize geographically. Consequently, there may be a Midwest, a Southern, a New England, and a West Coast district or region. Most firms organize in this way.

2. Organize by product. When a firm has diverse products that require specialized technical or applications knowledge, it may be necessary to organize the sales force according to major product categories.

3. Organize by customer. Where a firm faces rather diverse types of customers, organizing by major customer categories leads to better servicing and understanding of customers' needs. Consequently a firm may have a separate sales force for calling on retail chains, on department stores, on wholesalers, and on certain industrial and contract customers.

Selling Jobs

Today, selling furnishes employment for many. Selling jobs are so dissimilar as to require a diversity of competence, education, and special skills and training. The newsboy is a salesperson as is the auctioneer and the stockbroker. The number of persons engaged in selling is about 6 million, and this is some 30 times as many as employed in advertising.

Here are some job titles of selling jobs: Sales engineer, Account executive, Communications consultant, Sales consultant, Area manager, Industrial representative, Industrial account manager, Marketing representative, Customer service representative, Key account supervisor, General agent, Executive representative, Territory manager, Field representative. The variety of titles of selling jobs proves that most sales jobs involve a maximum of creativity and a minimum of routine.

Many of these people work behind the scenes, virtually unknown by the average consumer, as they sell to industrial, wholesale, and retail buyers and purchasing agents.