The price elasticity of demand for supermarket own produced strawberry jam is likely to be elastic. This is because there are a very large number of close substitutes (both in jams and other preserves), and the goodis not a necessity item. Therefore, consumers can and will easily respond to a change in price.
Q.2 A company is selling a particular brand of tea and wishes to introduce a new flavor. How willthe company forecast demand for itAns -
methods, such as educated guesses, and quantitative methods, such as the use of historical
sales dataor current data from test markets. Demand forecasting may be used in making
pricing decisions, inassessing future capacity requirements, or in making decisions on whether
to enter a new market. Oftenforecasting demand is confused with forecasting sales. But, failing
to forecast demand ignores twoimportant phenomena. There is a lot of debate in demand-
planning literature about how to measure andrepresent historical demand, since the historical
demand forms the basis of forecasting. The main questionis whether we should use the history
of outbound shipments or customer orders or a combination of the twoas proxy for the demand.
The effects that inventory levels have on sales. In the extreme case of stock-outs, demand coming into your store is not converted to sales due to a lack of availability. Demand is also untapped when sales for an itemare decreased due to a poor display location, or because the desired sizes are no longer available. For example, when a consumer electronics retailer does not display a particular flat-screen TV, sales for thatmodel are typically lower than the sales for models on display. And in fashion retailing, once the stock level of a particular sweater falls to the point where standard sizes are no longer available, sales of that itemare diminished.Market response effectThe effect of market events that are within and beyond a retailer’s control. Demand for an item will likelyrise if a competitor increases the price or if you promote the item in your weekly circular. The resultingsales increase reflects a change in demand as a result of consumers responding to stimuli that potentiallydrive additional sales. Regardless of the stimuli, these forces need to be factored into planning andmanaged within the demand forecast.In this case demand forecasting uses techniques in causal modeling. Demand forecast modeling considersthe size of the market and the dynamics of market share versus competitors and its effect on firm demandover a period of time. In the manufacturer to retailer model, promotional events are an important causalfactor in influencing demand. These promotions can be modeled with intervention models or use aconsensus to aggregate intelligence using internal collaboration with the Sales and Marketing functions.
3. Explain production function. How is it useful for business?