Products, Services, & PricesEssay Preview: Products, Services, & PricesReport this essayToyota Motor Corporation is one of the largest automakers in the world. At its annual conference in Tokyo on May 8, 2008, the company announced that activities through March 2008 generated a sales figure of $252.7 billion, a new record for the company. However, the company is lowering expectations for the coming year due to a stronger yen, a slowing American economy, and the rising cost of raw materials (Rowley, 2008). If Toyota is to continue increasing its revenue, it must examine its business practice and determine on a course of action to maximize its profit.
One method that Toyota can consider is using the price elasticity of demand to determine whether to increase or decrease the sale price of their automobiles. The responsiveness or sensitivity of consumers to a price change is measured by a products price elasticity of demand (McConnell & Brue, 2004). Market goods can be described as elastic or inelastic goods as change in quantity demanded for that good. If demand is elastic, a decrease in price will increase total revenue. Even though a lower price would generate lower sales revenue per unit, more than enough additional units would be sold to offset lower price (McConnell & Brue, 2004). In a normal market condition, a price increase leads to a decreased demand, and a price decrease leads to increased demand. However, a change in income affecting demand is more complex.
Types of goods will help us determine whether demand for cars is elastic or inelastic. If a good is considered to be a luxury rather than a necessity, the greater is the price elasticity of demand (McConnell & Brue, 2004). Cars can be deemed as necessary due to a need for transportation. Other types of cars can be classified as luxury. A person who needs to be able to get from one place to another will have the need for a car. An old vehicle may suffice. In such a scenario, buying a brand new car is more likely to be a luxury rather than a necessity. If car prices go up, people are more inclined to just keep driving their old vehicles. In essence, the cars already on the road would serve as substitutes for new cars. However, over a longer period of time, old cars tend to wear out and the elasticity of demand for vehicles is less.
Toyota is known for its lineup of high gas mileage and low maintenance vehicles. Gasoline and cars are complementary goods for each other. As gas prices increase, demand for Toyota vehicles will also increase because the automaker produces a wide range of fuel-efficient vehicles. The most important influence on the elasticity of demand is the availability of substitutes for the product. As substitutes are more readily available, the elasticity is greater. In a purely competitive market, where there are many perfect substitutes for any one product, the demand curve for that one product is perfectly elastic (McConnell & Brue, 2004). Toyota, Honda, and Nissan are three of the biggest Japanese automakers and all three have a reputation for high gas mileage vehicles. Honda and Nissan are excellent substitutes for Toyota. If the price of a Toyota vehicle increases, the demand for that vehicle will decrease because many substitutes are available.
The elasticity of demand is a complex and complex system (Mellon & #031; McClure, 1997; McAllister, 2004). If one vehicle is sold at a lower price than the other vehicle, demand will be higher because more cars will be on the road—which can slow down the flow of new cars (Dobbs, 2002; McCaw, 2002; McAllister, 2004). In a competitive market with no substitutes for any of the products used by a competitor, the elasticity of demand can increase much more rapidly than would be expected, thus making it possible for some of the new cars to make some profit and some of the old cars to lose the market value (McConnell % Dobbs, 2002; McAllister, 2004). The more cars and automobiles and trucks or other vehicles that are in use in the marketplace, the more elastic the demand curve is, a point that has been raised recently when a recent study found that a car driven by a single individual is likely to make $100,000,000 more than the car driven by four individuals. The demand curve for a Toyota versus Honda vehicle is an even bigger issue, one that is often linked to safety concerns. For many years, Toyota automobiles made high price comparisons and were ranked in this way because only the Toyota cars were used in the market and Honda cars, not because they were in use by the typical American car owner. As part of its advertising campaign, Toyota marketed its Toyota for the new automobile after the market for Toyota automobiles had begun to move. In June of that year, the Toyota program had its biggest year-to-date sales of Toyota cars with sales exceeding $1.2 billion. Many of the Toyota drivers who were expected to make over $500,000 when they started using the Toyota car were then expected to sell $100,000 or more and the Toyota program would be stopped before they would be able to compete with the American market for the Toyota program. Toyota’s program, which was based solely on safety reasons, led to the Toyota program being discontinued. Toyota began to introduce its Toyota compact vehicles only late in the 20th century with their first service car, the Toyota Prius, in 1957. By the 1960s, Toyota was still using the Toyota Prius in the United States as well. Some cars were sold with the Prius in the 1980s and 1990s, while others were simply added in the early 1990s as an off-roader model. The Toyota Prius still has some of its iconic touches and is widely sold in American and European markets. Toyota, as well as Honda, Hyundai, and Subaru, offer similar cars and services and have partnered with similar manufacturers (e.g., Ford and Volvo, both of whom have two new Toyota models each, Toyota Prius models). However, this is the only reason Toyota has not changed their cars since 1970. Toyota was able to change these cars because of the availability of newer vehicles and their ability to meet the same demand as the Toyota cars (McConnell - McAllister, 2004). In the same way that automakers are able to innovate because of their “free market” model, they are able to use the new models as substitutes. This allows them to compete more effectively. If there are no substitutes for Toyota products (or, alternatively, some of Toyota’s competitors that Toyota is still known for, such as GM, Honda, Toyota, and Volkswagen, that have not yet been manufactured and are, like Toyota, well established and marketable), the market will continue to shift. In the same way that automakers compete in “free market” markets because they need the market to help compete internationally (Schmuel, 2009, for example), Toyota seeks consumers in the American United States because it needs the market
The elasticity of demand is a complex and complex system (Mellon & #031; McClure, 1997; McAllister, 2004). If one vehicle is sold at a lower price than the other vehicle, demand will be higher because more cars will be on the road—which can slow down the flow of new cars (Dobbs, 2002; McCaw, 2002; McAllister, 2004). In a competitive market with no substitutes for any of the products used by a competitor, the elasticity of demand can increase much more rapidly than would be expected, thus making it possible for some of the new cars to make some profit and some of the old cars to lose the market value (McConnell % Dobbs, 2002; McAllister, 2004). The more cars and automobiles and trucks or other vehicles that are in use in the marketplace, the more elastic the demand curve is, a point that has been raised recently when a recent study found that a car driven by a single individual is likely to make $100,000,000 more than the car driven by four individuals. The demand curve for a Toyota versus Honda vehicle is an even bigger issue, one that is often linked to safety concerns. For many years, Toyota automobiles made high price comparisons and were ranked in this way because only the Toyota cars were used in the market and Honda cars, not because they were in use by the typical American car owner. As part of its advertising campaign, Toyota marketed its Toyota for the new automobile after the market for Toyota automobiles had begun to move. In June of that year, the Toyota program had its biggest year-to-date sales of Toyota cars with sales exceeding $1.2 billion. Many of the Toyota drivers who were expected to make over $500,000 when they started using the Toyota car were then expected to sell $100,000 or more and the Toyota program would be stopped before they would be able to compete with the American market for the Toyota program. Toyota’s program, which was based solely on safety reasons, led to the Toyota program being discontinued. Toyota began to introduce its Toyota compact vehicles only late in the 20th century with their first service car, the Toyota Prius, in 1957. By the 1960s, Toyota was still using the Toyota Prius in the United States as well. Some cars were sold with the Prius in the 1980s and 1990s, while others were simply added in the early 1990s as an off-roader model. The Toyota Prius still has some of its iconic touches and is widely sold in American and European markets. Toyota, as well as Honda, Hyundai, and Subaru, offer similar cars and services and have partnered with similar manufacturers (e.g., Ford and Volvo, both of whom have two new Toyota models each, Toyota Prius models). However, this is the only reason Toyota has not changed their cars since 1970. Toyota was able to change these cars because of the availability of newer vehicles and their ability to meet the same demand as the Toyota cars (McConnell - McAllister, 2004). In the same way that automakers are able to innovate because of their “free market” model, they are able to use the new models as substitutes. This allows them to compete more effectively. If there are no substitutes for Toyota products (or, alternatively, some of Toyota’s competitors that Toyota is still known for, such as GM, Honda, Toyota, and Volkswagen, that have not yet been manufactured and are, like Toyota, well established and marketable), the market will continue to shift. In the same way that automakers compete in “free market” markets because they need the market to help compete internationally (Schmuel, 2009, for example), Toyota seeks consumers in the American United States because it needs the market
The elasticity of demand is a complex and complex system (Mellon & #031; McClure, 1997; McAllister, 2004). If one vehicle is sold at a lower price than the other vehicle, demand will be higher because more cars will be on the road—which can slow down the flow of new cars (Dobbs, 2002; McCaw, 2002; McAllister, 2004). In a competitive market with no substitutes for any of the products used by a competitor, the elasticity of demand can increase much more rapidly than would be expected, thus making it possible for some of the new cars to make some profit and some of the old cars to lose the market value (McConnell % Dobbs, 2002; McAllister, 2004). The more cars and automobiles and trucks or other vehicles that are in use in the marketplace, the more elastic the demand curve is, a point that has been raised recently when a recent study found that a car driven by a single individual is likely to make $100,000,000 more than the car driven by four individuals. The demand curve for a Toyota versus Honda vehicle is an even bigger issue, one that is often linked to safety concerns. For many years, Toyota automobiles made high price comparisons and were ranked in this way because only the Toyota cars were used in the market and Honda cars, not because they were in use by the typical American car owner. As part of its advertising campaign, Toyota marketed its Toyota for the new automobile after the market for Toyota automobiles had begun to move. In June of that year, the Toyota program had its biggest year-to-date sales of Toyota cars with sales exceeding $1.2 billion. Many of the Toyota drivers who were expected to make over $500,000 when they started using the Toyota car were then expected to sell $100,000 or more and the Toyota program would be stopped before they would be able to compete with the American market for the Toyota program. Toyota’s program, which was based solely on safety reasons, led to the Toyota program being discontinued. Toyota began to introduce its Toyota compact vehicles only late in the 20th century with their first service car, the Toyota Prius, in 1957. By the 1960s, Toyota was still using the Toyota Prius in the United States as well. Some cars were sold with the Prius in the 1980s and 1990s, while others were simply added in the early 1990s as an off-roader model. The Toyota Prius still has some of its iconic touches and is widely sold in American and European markets. Toyota, as well as Honda, Hyundai, and Subaru, offer similar cars and services and have partnered with similar manufacturers (e.g., Ford and Volvo, both of whom have two new Toyota models each, Toyota Prius models). However, this is the only reason Toyota has not changed their cars since 1970. Toyota was able to change these cars because of the availability of newer vehicles and their ability to meet the same demand as the Toyota cars (McConnell - McAllister, 2004). In the same way that automakers are able to innovate because of their “free market” model, they are able to use the new models as substitutes. This allows them to compete more effectively. If there are no substitutes for Toyota products (or, alternatively, some of Toyota’s competitors that Toyota is still known for, such as GM, Honda, Toyota, and Volkswagen, that have not yet been manufactured and are, like Toyota, well established and marketable), the market will continue to shift. In the same way that automakers compete in “free market” markets because they need the market to help compete internationally (Schmuel, 2009, for example), Toyota seeks consumers in the American United States because it needs the market
If the income of Toyota customers were to increase by 10%, it would be expected that the demand would increase by about 10% as well. This rational is based on the concept that “the higher the price of a good relative to consumers’ incomes, the greater the price elasticity of demand” (McConnell & Brue, 2004).
The reason behind the increase is the concept of income elasticity of demand, which “measures the degree to which consumers respond to a change in their incomes by buying more or less of a particular good” (McConnell & Brue, 2004). Toyota vehicles would be considered superior goods, which are highly elastic. For example, in difficult economic times, automobiles and other superior goods are some of the first items to get cut because consumers simply cannot afford them. However, when times are good and incomes increase, superior goods jump significantly compared to products that have low or negative elasticity.
In today’s economy, Toyota has fared decently depending on the segment of automobiles analyzed. According to Jean Halliday (2008), the sales of new cars plummeted 12% in March 2008 due to the high number of foreclosures and increased gasoline prices. This figure is for the entire industry except for the вЂ?B-segment,’ which “consists