INSTRUCTION:

ANSWER ALL QUESTIONS.

_____________________________________________________________

THIS PAPER CONSISTS OF FOUR (3) PRINTED PAGES

INCLUDING THIS PAGE
Case 1

It has been a tough year in the poultry business with supply outpacing
demand while poultry feed prices rising substantially. However, producers are hoping
that changes in the market will occur once the Muslim fasting month sets in and the
Hari Raya celebration comes by. The seasonal upswing in chicken consumption,
along with the anticipated leap in spot-market poultry prices, could bring some relief
to producers whose profit margins have been slashed by surging chicken feed costs.
Rising chicken feed price have mainly been caused by the diversion of corn, an
important ingredient in chicken feed formulation to ethanol production as car fuel
have raised the cost of producing live chicken by as much as 65 percent over the
last two years. Three factors make poultry market analyst more optimistic:

a. Companies are cutting production,

b. Weekly egg-set numbers are declining [egg sets are fertile eggs placed in
incubators for producing chicks],
c. Prices are responding positively to the decreasing supply.

The production decline was a response to the rise in feed prices. Profit margins at
producers will not improve unless spot market prices increase fast enough to cover
cost of feed for the chicken flocks. Production cutbacks and seasonal demand have
helped fuel a 20 percent increase in boneless, skinless breast meat prices RM7 per
kg. Prices are expected to reach at least RM9.00 per kg by the festive season this
year.

2
1) Use demand and supply analysis to explain the changes in chicken prices
[10 Marks].

Demand is the functional relationship between the price of a good or service

and the quantity demanded by consumers in a given period of time, all else held
constant. Whilst supply is the functional relationship between the price of a good or
service and the quantity supplied by producers in a given time period, all else help
constant in order to perfectly understanding the relationship of demand and supply in
economics, the manager will learn through graphical curve from both activities. It is
important to know that the demand curve is the relationship between the price of a
good or service and the quantity demanded by consumers of the good or service.
There are three types of demand curve, which are demand curve determination
(price and quantity relation holding everything else constant), change in quantity
demanded (quantity demanded falls when price rises vice versa) and Role of Non-
Price Variables (change in non-price variables will define a new demand curve).
The price of the chicken are solely based on the demand and supply available.
Both of his factors will control the market price which is known as the market
equilibrium. This is where, when quantity demanded and quantity supplied are
equal.  The corresponding price is the equilibrium price or market-clearing price, the
quantity is the equilibrium quantity. It is clear that there are other non-price factors
that can influence demand in business. There are, tastes and preferences, income,
prices of goods related in consumption and future expectations and number of
potential consumers.

3
2) Describe what has happened in the corn market and how it has influenced
the chicken market. [5 Marks]

The corn, which previously known as the main ingredients in chicken food had been
innovate into ethanol production as an alternative to car fuel. This is where the
technology came in action and disrupt the chain of supply in chicken business. The
producer of corn had notified a better income in producing ethanol rather than
chicken food and they turned into it. This technology development had dragged the
supply curve in corn producer and create the shortage disequilibrium; where the
quantity demanded exceeds the quantity supplied there exists a shortage in that
market at that price, the price is raised. As the food supply of the chicken is the main
part of the business capital, the raised price of the food will give direct influence to
the selling price of the chicken.

3) Describe what are the non-price factors and which and how does it
influence the chicken market in the above case.[25 Marks]

The chicken market situation are solely based on the demand and supply problems.
There are factors that are not price based for both main components in market.

a. Non-price factors of demand

1) Income
 As far as changes in demand go, consumer income expectation is
one of the most important things to keep an eye on. When consumers
expect their income to increase, companies will see an increased demand
for goods, products, and services. Likewise, when consumers expect their
income to decrease or cease entirely, they are less likely to be in the
market for products, goods, and services, thereby decreasing the
demand.
 It is worth noting, however, that the effect over income on demand
varies depending upon the product being sold. While the demand for
expensive luxury food items may fall when consumer income falls,
companies that sell low-quality, high-fat ground beef may see a sudden

4
 uptick in demand for their product, given the fact that the meat is
inexpensive and filling.
 These types of goods are called inferior goods. Although inferior
goods are not always low-quality, they are generally the types of goods
that will see an inverse relationship between customer income and
product demand.

2) Price of Related Goods

 Another important non-price factor that determines demand is the
price of related goods. Substitute goods affect the demand of related
goods when the supply increases or decreases. Because substitute goods
are used one in place of another, rather than together, the demand for
one will always decrease when the demand for another increases. For
example, if a company manufactures rubber products and there is a huge
uptick in the availability of natural rubber, the demand for synthetic rubber
(natural rubber’s substitute) will inherently decrease.
 Unlike substitute goods, however, complementary goods affect the
demand for related goods on an inverse scale. Because complementary
goods are used together rather than separately, the demand for
complementary goods tends to increase in a side-by-side fashion. For
example, a drastic decrease in gas prices will lead to an increase of cars
on the road. This, in turn, will lead to an increased demand for gasoline,
coolant and engine oil, complimentary products to the gasoline itself.

3) Tastes and Preferences

 Consumer tastes and preferences play a large part in determining
the level of demand for a given product. As trends, fads and styles
change, consumer preference does, too. This means that changing
hairstyle preferences among women will also change the demand for
related products, such as hairstyling equipment, products, accessories,
and colours.

4) Expectations Of Future Price

5
  When consumers expect the price of a given good to drop in the
future, it is likely that the demand for said product will stall until the
aforementioned drop occurs. Likewise, when the price of a product is
projected to go up, the demand for that product will increase in
anticipation of the increase.

5) Seasonal Considerations
 The seasonal environment drastically affects the demand for given
products throughout the year. For example, there is a greater demand for
Christmas lights in December than there is in June, there is an increased
demand for candy in October than there is during other months and there
is an increased demand for raincoats in the spring than there is in the
summer.
 These seasonal considerations can easily be factored into marketing
strategy in order to ensure a company is providing its customers with in-
demand products at the appropriate times of the year.

6) Population
 When it comes to non-price factors affecting demand, population is a
large consideration. Population does not simply mean the number of
people living in a certain area, though. Population, from a marketing
standpoint, indicates the number of buyers in any given market. When the
number of buyers in a market increases, there is a subsequent increase in
the demand for products, goods and services. Likewise, when the number
of buyers in a market decreases, the demand for the aforementioned
products, goods and services also decreases.
 When more buyers enter the market, the amount of product
consumed on the large scale experiences a drastic uptick. The amount of
consumers in the market can vary based upon a university being in
session or not, a housing boom, the creation of new jobs in particular area
and any number of other factors.

b. Non price factors supply

6
 1) Cost of Production:
 Cost of production is the amount of money used in producing a
good. It might change due to the changes in the price of any of the factors
of production

2) Improvement in the Technology:

 Use of latest technology in production would improve the productivity
and hence cost of production per unit would decrease and producers
would be able to supply more of that product.

3) Taxes:
 Tax: a payment given to the government
 Indirect tax: tax imposed on goods and services

4) Subsidies:
 Subsidy: a payment given by the government, to encourage the
production or consumption of a product.
 A subsidy given to a producer provides a financial incentive for them
to supply more as producers would have more capital to produce.

5) Weather Conditions:
 They affect particularly agricultural products.
 If the weather is good around harvest the supply of that crop would
be more and vice versa if the weather is bad around harvest the supply of
that crop would be less.

Case 2

7
The following case describes the recent changes in the strategy of the Parker Pen
Company.
Although the consumer interest in fine writing instruments in the United States seem
very discouraging Parker Pen Company which is owned by Newell Rubbermaid
Company, developed a strategy to build its presence in China where there is
increased income and strong preference for fine writing pens as of China’s gift giving
culture. Executives in other parts of the world may have substituted smart phones
and tablets for expensive pens, but Chinese professionals are willing to spend
thousands of dollars for them. In response, Parker Pen Company has darkened its
pen’s ink to appeal to writers of Chinese characters and in addition, added a special
Chinese character that carry the meaning of prosperity and good luck to the pen’s
heads. These changes have increase sales from 30 percent to 50 percent in many of
Chinese department stores.
The number of Chinese earning a household income of more than a million Yuan of
$150,000 per year increased by 20 percent in 2010 to 2011. Pens are an affordable
luxury, but also serve as a means of people to display their newfound wealth. Parker
pen sales have been declining in USA and Europe. So, the company turned to China
and adopted a higher pricing policy to emphasize the status of the pens. Parker pens
contribute significantly to the overall sales growth for Newell Rubbermaid Company.

a) Discuss the role of consumer demand in influencing Parker Pen

Company’s strategy.[10 Marks]

A consumer is an individual who buys products or services for personal use

and not for manufactured or resale. A consumer is someone who can make a
decision whether or not to purchase an item at the store and, someone who can be
influenced by marketing and advertisements. Any time someone goes to a store and
purchase a toy, beverage or anything else, they are making that decisions as a
consumer. The consumer dictates so much in the economic system and their role is
significant. They determine the demand of the product. This become essential for
without the consumer, issues of supply are thrown into a complete limbo as there is
a lack of direction. Additionally a consumer ability to spend helps to determine the
cost. Businesses don’t do themselves any favours when price control are
8
constructed without taking the consumers ability to spend into account. Through the
consumer’s purchasing power, the entire notion of business is accomplished and
without the consumers, the important aspect of the exchange of goods and services
are lacking.
In this situation, the Parker Pen Company had identified the significant user in
China as the number of Chinese earning a household income of more than a million
Yuan of $150,000 per year increased by 20 percent in 2010 to 2011 and pens are an
affordable luxury, but also serve as a means of people to display their newfound
wealth. Through this marketing strategy the company manage to increase their profit
up to 50%.

b) Do you think that Parker Pen Company will be able to maintain its market
power in China? Please Discuss. [10 Marks]

In theory, no business can maintain a position in a market and grow without

innovation. Even if a business offers a unique product that is desirable by all, that
market will eventually become smaller and smaller as more and more people buy the
product. As the market for a product decreases in size, a company must either
innovate or enter new markets.
This theory applies equally to small companies and to large multinationals.
Smartphone manufacturers, for example, are constantly improving their device to
crease new demand for their product. If they didn't innovate like this, the demand for
their product would reduce. Large companies with the available capital are also
expanding on their markets. In addition to moving into developing markets, mergers
and acquisitions are also common for these companies. They offers these
companies different products to offer to markets, which thus diversifies their revenue
streams to maintain their position. Even large companies know they cannot be
sustainable without innovation and diversification.
Through continuous R&D the company should know the pattern and the
demand from the customer in China. Improvements and innovation will help them
determine the market demand. As the ability of the company to improvise their
product to suit the market demand like darken the ink in appeals to the Chinese

9
character. This situation shows that they are able to make the required modification
to maintain the sales.

10