Lecture Notes: Elasticity of Demand and Business Strategy

Elasticity of Demand

• Elastic Demand: A situation where a small change in price leads to a large change in demand.
• Inelastic Demand: A situation where a change in price does not significantly affect demand.
• Key Factors Affecting Elasticity:
  • Desire and consumer need.
  • Ability of a consumer to delay acquisition.

Business Strategy and Operations

• Importance of running a business efficiently, even when dealing with elastic products.
• Difference between elastic and inelastic products:
  • Elastic products can easily lose customers to competitors if service is poor or prices are not competitive.
  • Inelastic products maintain demand despite price changes or service issues.

Market Strategy for Inferior Products

• Options When Facing an Aggressive Marketplace:
  • If holding a large market share: Buy up the competition.
  • If not: Reduce price to increase market share.
    • This assumes low operation costs to avoid losses.
    • Risk: As prices drop, product may lose consumer credibility.

Case Study: WorldCom

• Faced with a large fraud case, the new CEO proposed a name change to distance from negative associations.

Practical Application: Street Business Tactics

• Changing Brand Perception:
  • Change the product's brand or name to refresh market image.
  • Employ tactics like altering product appearance (e.g., changing cap colors).
  • Create competition among different "brands" owned by the same entity to maintain consumer interest.

Conclusion

• The lecture ties together economic principles of supply and demand with real-world business strategies.
• Emphasizes the importance of understanding market dynamics and consumer perception in maintaining a competitive edge.