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Assignment briefs about the concept of elasticity helps in determining the demand of Coca cola

Home, - Demand, Supply, Elasticity and Sales of Coca-Cola

Introduction: The market demand and supply of Coca-Cola

The study will fulfil the demand and supply of Coca-Cola according to market. The marketing strategies involve the analysis of demand of the product in the market as well as the supply of the product according to the change in consumer behaviour depending on the increase and decrease of the Coca-Cola prices. The study will also analyze the effect of market forces on the demand and supply of the product. The study will also focus on the different sales strategies of the product and the factor influencing the market sales of Coca-Cola.

Background

Coca-Cola, which is popularly known as Coke serves the popular carbonated soft drink across the globe through the stores, vending machines, and restaurants. The company is one of the major commercial brands across the world. The company was established in the year 1886 in the US, though according to the data, the company generates about 60% of the profit and more than 80% of the operating profits from the countries other than US, where about 95% of the world population known to the Red & White logo of Coca-Cola.

Demand & Supply

The terms demand and supply is the basic concept of economics and the market is dependent on these two terms, which act as the backbone of the economics. The term demand gives a clear view of a product that buyers want to purchase. The price of the demanded product refers to the amount that the people have desires to pay for the product; this forms a relationship between the product price and demanded quantity of the product, which is known as demand-relationship (Scott et al., 2018). On the other hand, supply refers to the market capability of the product, which is offered to the people to satisfy their demand. (Ganji et al., 2017). The quantities of the product supplied depend on the price of the consumer willing to pay for the product. The relationship, that defines the price and supply known as the supply relationship.

Demand

“Demand means desire to purchase a commodity to which consumer has the power to purchase”. The demand is categorized into two factors viz. The purchasing desire and power of purchasing.

Law of demand: “An economic law stating that as the price of a good or service increases, the quantity demanded decreases and vice versa”. This law can be explained as the relationship between the product’s price and the quantity of the demanded product. For example, if the price of the Coke increases, fewer people will demand the product, as it is over the capacity of the consumer and when the price of the Coke decreases, more people will opt for the product, as it is under the capacity of the consumer.

Demand Curve

The demand curve refers to the relationship between the product or services price and the quantity of product demanded over a given period of time, and this curve is represented by a graphical representation, where along the vertical axis price is marked and along the horizontal axis, quantity is marked (Bas et al., 2017).

The price of the product has an indirect relationship with the quantity demanded. The curve shows that as the price was at P1, the quantity of the product demanded was at Q1, which shows less price of the product has an effect on the purchasing power of the consumer and thus the demand is higher. However, when the price was P0, the quantity of the demanded product was Q0, which shows that when product price increases people lose the capacity of buying the product and thus demand of the quantity decreases.

Factors Affecting Demand

 Price of relative goods : The demand for the product is greatly affected by the pricing changes of the relative goods. In the case of the product, Coke, in this case, has a huge number of substitutes available across the market. So, if Coke’s price increases then the market demand switch to other substitutes and thus the demand of the Coke falls down (Wei et al., 2017).

Consumer’s Income

The demand for the product is greatly influenced by the income or the purchasing power of the consumer. Since Coke falls under the category of consumer goods, now if the income or the purchasing power of consumption increases, they will tend to buy more products and vice-versa.

Product preference and taste : Demand has a relationship with the taste and preference of the product, which influence the consumer to choose Coke from other consumer goods (Cooper et al., 2018). If the consumer likes the taste of Coke, then with the increase in the price of the product, the consumer will tend to prefer the same product over the others. On the other hand, if the consumer does not like the taste of Coke, then they will tend to switch to other products. Policies of Governments : When few samples of the Coke were discovered with the content of pesticides, a great number of consumers were shifted to other carbonated drinks and thus the demand of Coke affected greatly.

Time

The demand of Coke is also affected by the time, during the summers the demand increases. Population Age: The demographics have a huge influence on the product. Coke is mainly preferred by the age group between 13- 65, and when the population increases eventually the demand of the product increases.

Demand Curve Shift

The factors other than price also influence the demand curve, which shifts the curve in two directions, viz. Upward and Downward. Upward Shift When the demand increases, the curve has a tendency to shift towards the right or called upwards shift of the demand curve (Jones and Comfort, 2018). When the demand increases, consumers pay more prices for the product and thus the upward shift occurs. The other determinants like the taste, preference, income, and expectation have a direct effect on the demand curve and people will shift to Coke.

Downward shift

The decrease in the product’s demand shit the demand curve to its left or in the downward direction. The consumer demand for the smaller quantity of the product, when there is a decrease in demand. As the demand decreases, consumers do not pay the same price of the product which they used to pay earlier for the same product (Jabbarzadeh et al., 2017). The demand for Coke decreased at a high rate when people discovered pesticides inside Coke samples.

 

Supply

“A total number of consumer goods or services available to the consumers”, an increase in the price of the product has a direct impact on the producer’s revenue, thus the producers of the goods and services supply more services and goods to the market. When the price of the product decreases, the producers will face a reduction in the revenue, hence the supply of products decreases.

Law of supply

“The law of supply is the microeconomic law that states that all other factors being equal, as the prices of a good or service increases, the number of goods or services that suppliers offer will increase, and vice- versa”.

Supply Curve

The cost of the goods and services is related to the supplied quantity over a period of time, which is represented by supply curve graphs (Mello, 2015). The graphical representation of the supply curve shows price on the vertical axis and the supplied quantity on the horizontal axis. The price of the quantity has a direct relationship supplied quantity. When the price is P1, the supplied quantity is Q1, on the other hand, the P2 directly resembles Q2. Hence, the graph shows that suppliers are more willing to produce goods when the price of the product increases. In case of Coke, as the price increases there are chances that supply also increases, but for the long run if the producers increase the prices then demand could fall as there are other options available for the consumers exists.

Factors affecting supply

Technology

Advancement of technology has a direct effect on the supply; Coke is being produced with new innovative technology, now suppliers could supply more products at the same price.  Consumer’s population

As the population of the consumer increases, the quantity of supplied products increases. Input prices

When the prices of the inputs like labour wages, transportation costs and cost of raw material decreases, it reflects on the price and thus suppliers can supply more products.

Supply Curve Shift

The shift in the supply curve defines the constant price while the change in other factors, which affect the quantity, supplied (Bragg et al., 2018).

Upward Shift

When the producer or the supplier is able to market the product at a less price, defines the upward shift (Kipnis and Broderick, 2017). For example, when the price of the sugar increased, there was a scarcity is sugar supply, which decreases the production and thus supplies decreases.

Downward shift

The cost of production of Coke decreases due to the advancement of technology, which helps the suppliers to supply more products at the same price, thus generate revenue.

The concept of Elasticity of Demand

The demand for a product may increase or, decrease. The quality of demand increasing or, decreasing with the increase or, decrease in price is termed as Elasticity of Demand. Elasticity means responsiveness or, sensitiveness of demand to the price change. The sensitivity change in the change in responsiveness may be high or, low. The demand can be elastic or, inelastic. For example, the fall in the price of Salt may not increase its demand while if the price falls for apples, the demand for the same may increase. The product’s demand becomes elastic when a small change made in the price brings a great change in the demand. Demand becomes inelastic or, less elastic when with a big change in price do not induce any change in the product or, service demand. A perfectly elastic or, inelastic demand cannot exist (Colchero et al., 2015)

Types of Elasticity:

Price Elasticity The increase or, decrease in the responsiveness of demand with the change in price, is termed as Price Elasticity. Income Elasticity The increase or, decrease in the responsiveness of demand with the change in the income of consumer is termed as Income Elasticity. Cross Elasticity the increase or, decrease in the demand of a commodity influencing the change in another commodity’s price is termed as the Cross Elasticity. It means if the demand for a product changes, it may influence the price of a different product or, commodity. Coca-Cola is specialized in making a carbonated soft drink. Production is done by the company of Georgia, Atlanta. The product sometimes referred to as Coke which is a registered trademark of the company in the United States. The formula for the Coca-Cola remains as the secret trade formula for others in the market; although a variant of other soft drinks, creations have been introduced in the market.

 

The concept of price elasticity may influence the strategies to increase sales of Coca-Cola.

As per the Law of Demand, when the price of a commodity goes higher, the quantity of demand faces a downfall. Practically, when the price goes through decline stage, the more consumers tend to buy the product and thus the demand increases subsequently. It means, if the price of Coca-Cola decreases, the demand for the soft drink will rise. The various reasons stated about the inverse relationship of the quantity demanded with price are available. For example, the direct relationship between the consumers demands and income is practical. It means, the effect of income with a change in price can affect the demand for the Coca-Cola. As the Coca-Cola is a famous brand hence the income of the consumer's increases, it will increase the demand for the product. In the same way, if Coca-Cola increases its price, the demand will go down. Consumers may not purchase in the same quantity further. Preference and taste of people for Coca-Cola may not influence the demand of the product. Consumers going with taste and preference over the product, have greater demand no matter whether the price is increasing or, decreasing . In terms of Price elasticity of Coca-Cola, Coca-Cola measures the “responsiveness of the quantity demanded” with a change in price compared to the estimated change in the quantity demanded with a change in price. Hence, the degree of demand for price elasticity is related to the curve of slope for demand. The degree of price elasticity in terms of demand has five types- perfectly elastic, perfectly inelastic, unit elastic, elastic and inelastic. If it is elastic for Coca- Cola, the change in price will increase the demand by more than 10%, If inelastic the rise in demand for Coca-Cola rises but with less than 10%, when perfectly elastic, the price diminishes the cost and in unit elastic where the price falls, the demand of quantity rise by 10%.

 

The concept of cross elasticity may influence the strategies to increase sales of  Coca-Cola.

Coca-Cola, the soft drink brand has a secret formula which is still not disclosed. However, there are various products in the market such as Pepsi, Mountain Dew contracting the marketing for Coca-Cola. As per the Cross Elasticity of Demand, Cross elasticity of Demand measures the responsiveness of the quantity demanded Coca Cola when the price of Pepsi or, Mountain Dew changes. The measurement for the demand is calculated as follows, dividing the change in percent demanded of Pepsi by a change in the percentage of the price of Coca-Cola. Thus, in terms of formula calculation, it can be taken as- The cross elasticity of demand for Pepsi or, Mountain Dew is generally positive because the demand for Coca-Cola will increase if the price of Pepsi or, Mountain Dew increases. It means if there is an increase in the Pepsi’s price, the quantity of Coca-Cola will increase as the consumer will switch to a less expensive product in the same category and look for the alternative product. It can be reflected in the Cross Elasticity of Demand, as both numerator and denominator go high by showing a positive result. Items that have a coefficient of 0 will be u unrelated and independent to each-other too. If the cross elasticity of demand is low, the product will be considered as a weak substitute (Yen et al., 2004). Pepsi is a good substitute for Coca-Cola which will have a stronger cross-elasticity of demand. If we take another substitute instead of Pepsi, the cross elasticity demand may not be stronger. In terms of complementary products of Coca-Cola, the cross elasticity of demand becomes negative if the demand for Coca-Cola goes down because fewer people will buy the product and thus the related product will be less in demand too.

The concept of income elasticity may influence the strategies to increase sales of Coca-Cola.

Coca-Cola is a consumer product, if in any case the income of the consumers will rise, the demand for the product will rise subsequently. There is a direct relationship between the demand and the income of consumers. As per the Income Elasticity of demand, the sensitivity for the quantity in demand for Coca-Cola changes with the income of the consumer while the demand for other things remains constant. Income elasticity of demand shows the responsiveness for the demand of Coca-Cola with respect to a change in the income of consumers. The calculation for income elasticity can be done as mentioned below- Income Elasticity =the change in the percentage of quantity demanded/ the change in the percentage of Income.

The higher goes the income of consumers, the better responsiveness they show for the product with demand in their habit. The purchasing habit of the customer changes if the change is done in their real income. It means the consumers who get a better salary or, get better income will tend to buy more Coca-Cola products. Depending on numerous values of demand, Coca-Cola can be categorized in terms of normal goods and the other available goods. The income elasticity of demand will have a positive effect on normal goods of Coca-Cola if the income of consumers rises. The demand for Coca-Cola main product will increase at each level. The other product of Coca-Cola which has the income elasticity of demand as one or, zero are the goods with the necessity of consumers which will have no effect in the demand regardless of price change. Other determinants also can affect the demand of the product such as level of income of the consumers, time period, the necessity of the product versus luxurious demand of the product, size of purchase done by them and definition of an available market (Zheng et al., 2018).

Conclusion

Coca-Cola is a product of daily demand. The concept of elasticity helps in determining the demand of the product if the changes are made in terms of the price of the product, in consumers’ income and change in the price of other alternative products in the market. The elasticity of demand shows how the demand for the company’s product rises at each level with the changes occurring in three different terms. Coca-Cola can get the idea of product supply to the market by knowing these terms to increase the revenue for the company. A proper analysis done over the factors can help the company in understanding the market competition and to supply its product accordingly. Coca-Cola can determine the number of products to be manufactured for supply by considering all these terms here.

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