Advanced Managerial Decision Making
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1. What factors cause a marketing textbook to lose value during the period of one semester? It is not unusual for a student to receive less than one-half of the purchase price when he or she sells the book at end of the semester?
The analysis below presents issues surrounding marketing textbook use. The analysis focuses on microeconomic principles surrounding demand and supply, and focuses on smaller individual units, since marketing textbook use is best analyzed within that realm, rather than the broader aggregates that macroeconomics would explore (Miller, 2006, p. 3).
Economics refers to how best to use limited resources to satisfy unlimited once, and centers on the issue of scarcity. That is, because there are limited resources, individual have to make choices, by making choices, there are trade-offs, the cost of the next best alternative after a choice is made, is called the opportunity cost of that particular action (Miller, 2006, p. 2). Using marketing textbooks and then reselling them will cause them to lose value and as such we expect the demand to be highly elastic at that stage, that is, consumers overall are very responsive to price changes, since using marketing textbooks second hand means that there are other options. Many sources exist from which to buy used textbooks (even more so than brand new textbooks) which makes it have many substitutes and increases the elasticity. Marketing textbook prices decrease due to a drop in value when it is resold at a later date. The general view is that lower prices for marketing textbooks imply people will buy more of it (this is the law of demand); however, prices will be even lower with a used textbook.
As rational beings, individuals pursue actions that satisfy their own self-interest (Miller, 2006, p. 4), this is not to be confused with selfishness, but helps with the economic analysis of marketing textbooks. Figure one below shows the textbook market, and equilibrium prices represented by the intersection of demand and supply and how reselling at a later date means that demand is lower and supply is possibly higher which will lead to a reduction in price – hence the textbook is worth less (loses value) at the end of the semester.
Also illustrated is how increases in price form P1 to P2, cause the equilibrium quantity of marketing textbooks to fall from Q1 to Q2. It is interesting to note that at the end of the semester an increase in supply causes price to drop even further to P0. These actions will cause the value and price to drop at the end of the semester.
It is worthwhile to mention the idea of utility to the marketing textbook use model presented above. Utility refers to the satisfaction an individual gets from consuming a specific good or service. The analysis was somewhat difficult to conceptualize for marketing textbook demand. Diminishing marginal utility theory, states that as consumers consume more of a particular good, then the additional satisfaction gained from those good declines (Miller, 2006, p. 469). This theory along with the income and substitution effect explains why the marketing textbook is worth less at the end of the semester
Marketing textbook consumption, like any other good, exist in a market that is determined by the interaction of demand and supply, special tools or concepts may need to be applied, since it is based on an action that explains how the book is losing value at the end of the semester.
2. If two nearly identical wristwatches – except for brand name – have different prices, consumers generally conclude that the higher priced watch is of higher quality. What factors led to this conclusion?
Brand building is often synonymous with many marketing and advertising tactics; however it is not seen as an element of strategic planning and development in many arenas. As noted by the example analyzed with watches, brand building is an important aspect of the strategic development of retailers.
There are seven main factors that have to be taken into consideration when building a brand. They include quality, positioning, repositioning, communications, first mover advantage, long term perspective, and internal marketing. The watch example highlights how differences in prices, effective advertising, and branding can be indicative of quality via price differences. An integration of these factors can lead to profits for a firm, or more importantly, lead to expansions in profit and production, that was only achievable after successful brand building.
Ideally,