SUPPLY AND DE MAND

INTRODUCTION

Supply and demand are two important concepts in economy. They

are related each other, because when one increases, the other
decreases. They are related too with quantity of products and with
equilibrium in price. We are going to study some aspects of these
topics.

Price
$35

$30

Demand: it refers to the de- $25

sire, ability, and disposition of
consumers to buy any $20

product. $15

$10
Demand

$5

$0 Quantity
0 10 20 30 40 50 60 70 80 (In thousands)

Price
$35

Supply
$30

Supply: it is related to the ability $25

and disposition of producers to $20

offer products for sale. $15

$10

$5

$0 Quantity
0 10 20 30 40 50 60 70 80 (In thousands)

Servicio Nacional de Aprendizaje - SENA. Reservados todos los derechos 2012.

In words of Janeen R. Adil, “Supply is the amount of goods and ser-
vices there are to buy. Demand is how many people want to buy those goods and
services” (2006, p. 4).

1. Tastes or preferences

Consumers may demand for an item one year and

ignore it the next.
WHAT DO YOU TAKE INTO ACCOUNT TO

2. Number of consumers
A large quantity of buyers carries to an increase in
DETERMINE THE DEMAND?

demand; a small quantity of buyers carries to a de-

crease (Franny Chan website).

3. Income
When income rises, the quantity demanded will rise
too. When income falls, the demand of that product
will fall too (Franny Chan website).

4. Consumer expectations
Purchasers are interested in satisfying their consump-
tion regarding quality as the most important factor.
Likewise, the lead price has an effect on the potential
increase of the consumer´s final decision.

5. Price of related goods

There are two kinds of related goods that can affect
the demand: substitutes (for example, butter and mar-
garine) and complementary (toys and batteries).

Servicio Nacional de Aprendizaje - SENA. Reservados todos los derechos 2012.

 WHAT FACTORS DETERMINE SUPPLY?

1. Price of goods 2. Production costs 3. Business

The more expensive
it will increase the
amount that com-
panies are willing
to offer, the same
way, the cheaper the
product is, the lower
the quantity supplied.
objectives
It depends on It’s not the same to
produce for a mar-
ket with higher ex-
pectations than pro-
duce for a market
Cost of with lower ones. As
production Technology greater the expecta-
factors tions are, the greater
will be the offer from
the companies.

Laws of supply and demand

According to David Besanko and Ronald R. Braeutigam, (2010, p. 37),

the next are the laws of supply and demand:

1. Increase in demand + unchanged supply curve = higher equilibrium

price and large equilibrium quantity
2. Decrease in supply + unchanged demand curve = higher equilibrium
price and smaller equilibrium quantity
3. Decrease in demand + unchanged supply curve = lower equilibrium
price and smaller equilibrium quantity
4. Increase in supply + unchanged demand curve = lower equilibrium
price and large equilibrium quantity

Servicio Nacional de Aprendizaje - SENA. Reservados todos los derechos 2012.

 Marketing mix
Supply and demand are two essential aspects in the market. Because the
market is dynamic, marketing specialists use a variety of tools in order to
achieve the goals of the company through combination or mixture (mix).
These tools are known as the “Marketing Mix”, which refers to the kinds of
marketing variables

Remember:

Marketing Mix sets out the marketing variables that your

business needs to understand and control in order to
achieve your overall business objectives.

The four Ps of marketing mix

PRICE
Payment period
Credit terms
Allowances
Price list
Discounts
PRODUCT
Sizes
Design PROMOTION
Quality Marketing Direct marketing
Returns mix Public relations
Features variables Sales promotion
Servicies (4P) Sales force
Packaging Advertising
Warranties
Brand name
Product variety PLACE
Assortments
Transport
Locations
Channels
Coverage
Inventory

Servicio Nacional de Aprendizaje - SENA. Reservados todos los derechos 2012.

However, according to Larry Steven Londre (2007, pp. 5-9), the marketing
mix has many variations and is formed by the 9PS (increasing marketing
of 4ps by McCarthy). The next figure shows the nine Ps fo marketing mix:

PASSION PRICE
Feeling Payment period
Emotions Credit terms
Devotion Allowances PRESENTATION
Price list
Discounts

PRODUCT
Sizes PROMOTION
Design Direct marketing
Quality Public relations
Returns Marketing mix variables (9Ps)
Sales promotion
Features Sales force
Servicies Advertising
Packaging
Warranties
Brand name
Product variety PLACE
Assortments PEOPLE/PROSPECT
Transport Community
Locations Individual characteristics
Channels Region or zone
Coverage
PARTNERS Inventory
Contract
Suppliers DISTRIBUTION
Negotiations Distribution Channel
Alliances Coverage
Assortments
Locations
Inventory

Servicio Nacional de Aprendizaje - SENA. Reservados todos los derechos 2012.

 The four Ps of marketing mix

VARIABLES MEANING

It´s the tangible object or service that can be offered

Product to a market for acquisition, use or consumption that
might satisfy a want or need.

It´s is the amount a customer pays for the product. it

Price includes Retail price/wholesale, discounts, quantity dis-
counts, credit terms, sales and payment periods.

It represents the location where a product or service

can be purchased and the distribution channel. cover-
Place/distribution
age, assortments, locations, inventory and transporta-
tion of the product or service.

This refers to all of the communications that a com-

pany uses to increase knowledge about the product or
Promotion
service in addition to persuade the consumer to pur-
chase (target segment).

Emotion, feelings. The emotions as distinguished from

Passion
reason, a strong taste or devotion for some activity.

It refers to the performances of presenting any of the

9P’s to your suppliers, customers, clients, or partners.
Presentation
A descriptive or persuasive account (Set forth for the
attention of mind).

A product focusing on a specific target market based

on demographic, geographic, psychographic and behav-
People/prospect ioral characteristics. Once the target market is chosen,
the company can develop its marketing strategies to
target this market.

The legal relationship between two parties, having spe-

Partner
cific rights and responsibilities as a common company.

To transform and develop marketing objectives to mar-

Planning
keting strategies.

Servicio Nacional de Aprendizaje - SENA. Reservados todos los derechos 2012.

 To conclude about the marketing mix,
9ps are an extension of the 4ps, so we
will continue to be based on the 4ps.

BENCHMARKING

Benchmarking is the procedure of determining who the best one is. It

is an amount of the quality of company’s products, policies, programs,
tactics, etc., and their contrast with
standard measurements, or similar amounts of others.

It is, also, the continuous systematic process for evaluating the compa- nies that
are recognized as best-in-class, for the following purposes:

• Establishing priorities, target, goals

• Developing product and process objectives
• Meeting or surprising industry best practices

Objectives of benchmarking

• To define where and what improvements are requested

• To investigate how other organizations reach their high perfor-
mance levels
• To use this information to improve the measurement of the re-
sults

Servicio Nacional de Aprendizaje - SENA. Reservados todos los derechos 2012.

Process of benchmarking

1. Planning 2. Analysis 3. Integration 4. Action

After analyzing the Develop aims and It refers to the action
It is the plan for run-
information, it obtains incorporate them into plans necessary to
ning the benchmark-
a basis for compari- the benchmarked achieve the objetives
ing investigation.
son. process. decided in step 3.

Competition and its main aspects

In benchmarking, it is necessary to take into account the next aspects:

Product It is the thing produced by labor or effort.

It refers to the quantity of payment or compensation given

Price
by one party to another in return for goods or services.

It is a set of principles, processes, strategies and tools that

Sales systems are put into place to bring the company results day-in and
day-out.

It is used for transferring money include debit cards, credit

Payment systems
cards, and e-commerce payment systems.
It is a form of communication used to encourage or
Advertising persuade an audience to continue or take some new
action.
It refers to the communications with the public in an at-
Promotion tempt to influence them toward buying your products and/
or services.
Location It is a place where something is or could be located.

It is a social unit of people systematically structured and

Organization managed to meet a need or to pursue collective goals on
a continuing basis.
It is the measurement of plane surfaces; for example, the
Planimetry determination of, angles, horizontal distances and areas on
a map.

Servicio Nacional de Aprendizaje - SENA. Reservados todos los derechos 2012.

 REFERENCES

Adil, J. (2006). Supply and demand. Retrieved on May 20 2013, from

http://books.google.com.co/books?id=8SxgIqc4BlcC&printsec=frontcover&
dq=Janeen+r+adil&hl=es&sa=X&ei=ed6jUZ-jFY3m8gTMrYG4CQ&ved=0CEEQ 6AEwAw

Besanko, D., and Braeutigam, R. (2010). Microeconomics. Reetrieved on May 8

2013, from http://books.google.com.co/books?id=978PKop7Cp8C
&pg=PA37&dq=Laws+of+supply+and+demand&hl=es&sa=X&ei=OY2KUeX7B
6PO0gH04oCQBw&ved=0CE4Q6AEwBg#v=onepage&q=Laws%20of%20sup-
ply%20and%20demand&f=false

Chan, F. (s/f). Determinants of demand. Fullerton College: Franny Chan

website. Retrieved on May 18 2013, from http://staffwww.fullcoll.edu/
fchan/Micro/1determinants_of_demand.htm

Londre, L. (2007). Several concepts. Retrieved on May 9 2013, from

http://www.londremarketing.com/documents/LondreMarketingConsulting-
NinePs.pdf

Servicio Nacional de Aprendizaje - SENA. Reservados todos los derechos 2012.