Due to factors like sporting events, extended working hours, and other commitments, families in today’s society have fewer chances to bond. As a result, many parents opt for fast food or microwaveable meals as a convenient substitute. These meals are preferred by numerous individuals who desire quick, delicious, and budget-friendly options. Banquet has gained significant success with their range of affordable meal choices.
The company must consider whether to lower prices in order to increase its success. The decision should be based on the supporting numbers. To determine the best course of action, a thorough analysis is necessary. Utilizing demand analysis is one approach for a company to ascertain its next steps. This tool allows management to gauge consumer demand for a specific product, thereby helping the company evaluate its position relative to competitors.
Another tool that can be used is price elasticity. Price elasticity measures the rate of response of quantity demanded due to a price change, according to About.com. To determine if Banquet will benefit from a price change, we need to calculate the elasticity for each independent variable. The regression equation is Q = – 5200 – APP + POX + 5.21 + .AAA + .MM. Using the values below as the independent variables, we can compute the elasticity for each independent variable.
After determining the quantity demanded, we can calculate the elasticity of each variable. The formula for computing price elasticity is price = coefficient * price/q. Substituting the values into the equation gives us a price (P) elasticity of -1.19. For (POX), the total would be 20*(600/17650) = 0.68. The equation for (l) would result in a total of 1.62, which is equal to 5.2*(5500/17650). Variable (A) equals 0000/17650) = 0.11. Lastly, the equation for (M) was .07.
Now that we have these figures, we can analyze their implications on demand elasticity, which can be categorized into three primary types.
There are various types of elasticity including price elasticity, income elasticity, and cross elasticity. Price elasticity is -1.19, suggesting a negative and elastic relationship. This implies that lowering the price is necessary to boost revenue. If Banquet were to increase their cost by 1%, the quantity demanded would decrease by 1.19. By comparing Banquet’s cross elasticity with that of its competition, we find it to be 0.68, a positive value indicating substitutability between the two brands. Raising prices for Banquet would lead to an increase in demand for the competing brand. Lastly, we consider the impact of income on demand.
According to Competitiveness.Com, the impact of income on a person’s demand for goods varies depending on whether the good is classified as normal or inferior. The article indicates that a good with an income elasticity of less than 1 is considered inferior. Banquet’s elasticity is calculated at 1.62, indicating that an increase in consumer income would result in increased demand for the product. In my opinion, it would be wise for Banquet to lower prices given that there are many working parents who would purchase these meals if they were more affordable compared to competitors. Consumers are always searching for great deals.
In my search for the most cost-effective option, I have found that reducing prices for Banquet will lead to a significant increase in demand. This increased demand will ultimately result in higher profits. On the other hand, raising prices could have a negative impact on Banquet. Our analysis indicates that if prices were raised, our competitors would benefit from an increase in demand and this would harm Banquet. Despite this potential risk, Banquet seems to be thriving in the market.
