Trigger 5

Learning objective 1. How does Supply and Demand (S&D) Affect Prices?

To understand the mechanism on how S&D affects prices in a market, the following concepts should be understood:

1. Supply = the quantity of goods or services that producers are able to provide
2. Demand = the quantity of goods or services that buyers are willing to purchase

A key element that completes this S&D mechanism is the Price. If we add the price in the S&D definitions:

1. Supply = the quantity of goods or services that producers are willing to provide at a certain price
2. Demand = the quantity of goods or services that buyers are willing to purchase at a certain price

Changes in S&D for a good or service affect the selling price, and generally we can say:
- the lower the price, the higher the demand
- the higher the price, the lower the demand

There are more variables in the S&D equation, I only list here several:

• as low as price can be, a man might never buy women cosmetic products
• as low as price may be, beef cans may never sell in India
• psychological price: a man may not buy a 5€ T-shirt from market place, but would buy instead the same product from a branded store selling it for 20€ - possibly trust was a factor in the buyer decision, but the decision must have been based on thoughts like: "this is quite expensive, must be of good quality".

More views on pricing I present in Learning Objective 3, below.

Sources:

1. John J. Wild, Kenneth L. Wild - International Business, The Challenges of Globalization, 8th Edition

Learning objective 2. What Kind of Different Markets Exist in Perspective of S&D?

A set up where two or more parties engage in exchange of goods, services and information is called a market. In a market, the seller sells goods and services to the buyer in exchange of money. There has to be more than one buyer and seller for the market to be competitive.

Monopoly - a condition where there is a single seller and many buyers at the market place. In a monopoly market, the seller decides the price of the product or service and can change it on his own.

Monopsony - a market form where there are many sellers but a single buyer. In such a set up, since there is a single buyer against many sellers, the buyer can exert his control on the sellers.

Types of Markets

• Physical Markets - Shopping malls, department stores, retail stores are examples of physical markets where the buyers can physically meet the sellers.
• Non Physical Markets/Virtual markets - In such markets, buyers purchase goods and services from sellers through internet without physical interaction.
• Auction Market - In an auction market the seller sells his goods to one who is the highest bidder.
• Market for Intermediate Goods - Such markets sell raw materials (goods) required for the final production of other goods.
• Black Market - A black market is a setup where illegal goods or services are sold.
• Knowledge Market - Knowledge market is a set up which deals in the exchange of information and knowledge based products.
• Financial Market - Market dealing with the exchange of liquid assets (money) is called a financial market. Financial markets types include: Stock Market, Bond Market, Foreign Exchange Market.

Market segmentation is a marketing concept which divides the complete market set up into smaller subsets comprising of consumers with a similar taste, demand and preference.

Basis of Market Segmentation

• Gender
• Age Group
• Income
• Marital Status
• Occupation
• Psychographic segmentation - based on the lifestyle of the individuals.
• Behaviouralistic Segmentation - individuals loyal towards a particular brand.
• Geographic Segmentation

Sources:

1. MSG - Management Study Guide - Definition and Different types of Markets, http://www.managementstudyguide.com/what-is-market.htm

Learning objective 3. What Other Factors than S&D Affect Prices?

Internal factors

• cost - influenced by the good or service production expenses
• credit policies, promotions - price could be higher if an appealing credit policy is provided to the buyers, or price could be lower during the promotions

External factors

• government controls - by laws and regulations (i.e. subsidies)
• resellers and intermediaries - entities that usually will increase the selling price by adding their own commisions.

Sources:

1. Factors Affecting Pricing Product: Internal Factors and External Factors, article shared by Smriti Chand - http://www.yourarticlelibrary.com/marketing/pricing/factors-affecting-pricing-product-internal-factors-and-external-factors/32313/