In today’s society, families have less time to spend together. It is very hard to get everyone together for family meals due to sports, long work hours, and other obligations. Many parents have become more and more dependent on fast foods or microwaveable dinners. These dinners have been the go to for thousands of hungry people. When customers buy these meals, they are looking for something fast, tasty, and affordable. Banquet has been very successful because of their low-cost meal options.
The company will need to decide if they want to reduce prices to gain even more success. It wouldn’t make sense if the numbers don’t support the change. In order to figure out what a company like this should do, we must perform the proper analysis. One way a company can figure out the next steps is by using demand analysis. Demand analysis is a helpful tool management can use to see how much consumer demand there is for a particular product. This analysis will help a company determine where they stand against its competition as well.
Another tool that can be used is price elasticity. According to About. Com, price elasticity measures the rate of response of quantity demanded due to a price change. In order for us to figure out if Banquet will benefit from a price change, we must figure out the elasticity for each independent variable. The regression equation is equal to Q = – 5200 – APP + POX + 5. 21 + . AAA + . MM. Using the following values as the independent variables below, we will be able to compute the elasticity for each independent variable.
Once the quantity demanded is found, we will be able to find the elasticity of each variable. The equation to find the elasticity of price would be of price = coefficient * price/q. If we plug the numbers into the equation we would have a total of -1. 19 for the elasticity of price (P). The total for (POX) would be 20*(600/17650) = . 68. We would have a total of 1. 62 for the equation of (l), was 5. 2*(5500/17650). Variable (A) would be equal to 0000/17650) = . 11. Lastly, the equation for (M) was . Which was . 07. Now that we have the numbers we can analyze what this all means. There are three main types of elasticity of demand.
You have the price elasticity, income elasticity, and the cross elasticity. Since the price is elasticity is -1. 19, it shows to be negative and elastic. That means that in order to increase revenue the price would need to be cut. If the Banquet was to increase their cost by 1% then their quantity demanded will drop by 1. 19. When you compare Banquet’s cross elasticity to the competition, it was . 68. Because it is a positive number, it means that the two brands are substitutes. If Banquet were to go up on prices than the demand for the competing brand would go up. Lastly, we take a look at how income could affect demand.
According to Competitiveness. Com, when the income of a person increases, his demand for goods also changes depending pond whether the good is a normal good or an inferior good. It also mentions if a good has an income elasticity of less than 1 it is called an inferior good. Banquet’s elasticity was 1. 62. That means if consumer’s income was to increase than the demand of the product would increase as well. Recommendations In my opinion, it would be smart for Banquet to lower prices. There are a lot of working parents that would be the meals if they were cheaper than the competition. The consumers are always looking for a deal.
I know I am always looking for the biggest bang for my buck. But looking at the numbers and the analysis, it proves that if Banquet lowers their prices there will be an increase in demand. And when there is more demand there is more money being made. It goes on and on. It won’t hurt Banquet if they were to drop their prices but if they were to increases prices it could be harmful. Our analysis shows that if they were to raise prices the demand of the competition would rise. This would be a gain for the competition and a loss for Banquet. It also looks like they are holding up pretty strong in the market.