Generic Strategies Price Elasticity of Demand

Question: Discuss about theGeneric StrategiesforPrice Elasticity of Demand. Answers: Introduction Price elasticity of demand is defined as the percentage change in quantity demanded due to one percent change in price, while other things remaining unchanged. Here the price elasticity of demand is -.8 Therefore, P/Q*dQ/dP = -.8 110/Q*(dQ)/ 10 =-.8 110/Q*dQ=-8 dQ= -(8Q/100) Therefore, the percentage change in quantity demanded will be 8%. The first and foremost advantage that a first moving company in the market enjoys is that it acquires a position in the market that its competitors will not be able to match. As the total demand for the product is increasing at a steady rate, in the first year the demand for the product was 100000 and in the next year it became 104500. From this it has been calculated that the growth rate is 4.5%, [(104500-100000)/2] = 4.5%. In the next year it again increased to 109200 and from this the growth rate is calculated to be 4.5% again, [(109200-104500)/104500] = 4.5% approximately. Thereby, keeping this growth rate constant in can be predicted that next year the demand for the product will be 114114. Now, order to gain 32% market share in this year the amount of units that are needed to be sold will be equal to, 36516.48. The main theme underlying the suggestions on the ways to decision making errors arising out of group discussion activities will be Engage in consensus building activities. If the long run average cost of a firm increases by 15% because of 8% increase in the production level, it is quite evident that the firm is experiencing diseconomies of scale. As in this case with the increase in the level of output long run cost is increasing at a greater rate. Year Calculation Cash Flow(In/ Out) 2004 32*20 -640 2005 0 0 2006 0 0 2007 0 0 2008 .50*20 10 2009 .50*20 10 2010 .50*20 10 2011 .50*20 10 2012 1.10*20 22 2013 1.10*20 22 2014 1.10*20 22 2015 82.80*20 1656 Now, the calculated internal rate of return (IRR) is calculated to be 10%. Sales Description Costs measured in dollars Sales Price (per unit) EPRA 105 Sales Price (per unit) HPRA 73 Sales Volume (per period) EPRA 713000 Sales Volume (per period) HPRA 2139000 Total sales amount (EPRA) 74865000 Total sales amount (HPRA) 156147000 Variable costs Cost per unit (EPRA) 77.4 Cost per unit (HPRA) 49.2 Forecasted sales of (HPRA) 2139000 Forecasted sales of (EPRA) 713000 Cost of EPRA 55186200 Cost of HPRA 105238800 Contribution per unit (EPRA) 27.6 Contribution per unit (HPRA) 23.8 Units in million Dollar Sales Sales Price (per unit) EPRA 105 Sales Price (per unit) HPRA 73 Sales Volume (per period) EPRA 713000 Sales Volume (per period) HPRA 2139000 Total sales amount (EPRA) 74865000 Total sales amount (HPRA) 156147000 Variable costs Cost per unit (EPRA) 77.4 Cost per unit (HPRA) 49.2 Forecasted sales of (HPRA) 2139000 Forecasted sales of (EPRA) 713000 Cost of EPRA 55186200 Cost of HPRA 105238800 Contribution per unit (EPRA) 27.6 Contribution per unit (HPRA) 23.8 Fixed Costs Advertising EPRA 7.5 Advertising HPRA 6 EPRA RD 5 HPRA RD 4 Process investment 9 Sales rep. expenditure 5.5 Shipping and warehouse 11.5 Administration expense 4 Fixed cost of EPRA 12.5 Fixed cost of HPRA 10 Total cost HPRA 105238810 Total cost EPRA 55186213 Margin of HPRA 50908190 Margin of EPRA 19678788 Cost of the HPRA is much lower than that of the EPRA; however the amount of forecasted sales of HPRA is much higher than that of the EPRA. Hence, I will focus more on producing and selling more of the HPRA products. The race to be the first mover may lead to a situation like Prisoners Dilemma in the Cornell Management Business Case. Achieving differentiation through a sustainable competitive advantage will help the organization to avoid situations like Prisoners Dilemma.