1. Identifying what consumers want and need (Demand) AS Business Unit 1

2. Lesson Objectives
To be able to identify the factors that affect demand in a market
To be able to discuss in the interaction between supply and demand
To be able to draw diagrams which illustrate the interaction between supply and demand
To be able to discuss the benefits of market orientation
To be able to answer a past paper question based on the theory

3. Starter
When you go to the shops to buy something – what changes your mind about what to buy?
Weather? Trends?
LO: To be able to identify the factors that affect demand in a market

4. Answers to starters? What affects your demand as a consumer?
Maybe you said weather, personal circumstances (pregnant need baby clothes), but how about trends?
Loom bandz the current trend, but will it be popular next year?
LO: To be able to identify the factors that affect demand in a market

5. Definition of demand
Demand is the amount of goods and/or services a consumer is willing to buy at a given price.
LO: To be able to identify the factors that affect demand in a market

6. Section 1 – factors affecting demand

7. Factors affecting demand - population
Population structure is an important determinant of demand
Current aging population what kinds of new products and services might be demanded?
Off=peak holidays
Retirement living – homes
Care homes
Zimmer frames / Motability scooters
Medicines
Services such as gardening, cleaning, cooking etc
LO: To be able to identify the factors that affect demand in a market

8. Factors affecting demand - tastes
Tastes – discuss how mobile phone market is influenced by taste.
Consider ages of children having phones – has this created new demand with new social norms?
When you are a parent do you intend to give your child a phone?
LO: To be able to identify the factors that affect demand in a market

9. Factors affecting demand - substitutes
If you wanted coffee from a machine but that was broken you would then maybe want tea. If the tea was also broken you would have hot chocolate because you want a hot beverage and these goods are substitutes for each other.
LO: To be able to identify the factors that affect demand in a market

10. Factors affecting demand – complimentary goods
If you buy this blue ray player….
You need to buy the disks for it
And you may wish to buy other
Goods to go with it…
LO: To be able to identify the factors that affect demand in a market

11. Factors affecting demand – non price competition
This is where companies seek to get competitive advantage over a rival company (Pepsi vs Coke) by using anything other than price (Why? Price war?) Companies want to stimulate demand AND enjoy healthy profit margins
Quality
Innovation
Differentiation
Promotion
LO: To be able to identify the factors that affect demand in a market

12. Factors affecting demand - incomes
You get paid – which is nice
Then you have to pay your bills like rent and food (can you think of any other regular bills?)
What is left is called disposable income
As your disposable income rises you will demand more NORMAL goods and some LUXURY goods
As your disposable income gets lower you will demand more INFERIOR goods
LO: To be able to identify the factors that affect demand in a market

13. Factors affecting demand (anything other than price; tastes, population etc)
Quantity
Price D
At D1 there has been a shift in the demand curve to the right - say for example population growth
At D2 there has been a shift to the left = say for example when a product goes out of fashion (flares, crocs) D1 D2

14. Factors affecting demand - price
Ever been in a sales frenzy?
Ever queued for the next sale? Was it worth it?
Ever waited until an item was discounted until you bought it?
Daily mail article about sales frenzy

15. Factors affecting demand - price
Demand curve
As price falls then demand increases
Quantity

16. Section 2 – interaction between supply and demand

17. Supply The quantity of goods supplied will rise as the price rises.
The market is a profit signalling mechanism – as profits are made new companies enter the market and supply to customers
Making goods that are demanded is the best way to make a profit

18. Supply
Quantity
Price
Supply curve

19. More profit – more producers enter the market:
Price s s1
At line s1 good profits so there are more producers willing to supply at the same price so the curve shifts to the right. Should there be lower profits or higher costs the curve would shift to the left.
Quantity

20. Equilibrium point Price P1 P P2 Q Quantity
Point Q where supply meets demand this is the equilibrium point
At P is the equilibrium point
At P1 there is excess supply in the market
At p2 there is excess demand in the market
Any changes may cause a shift in the demand curve or the supply curve which will mean a new equilibirum point. P2 Q
Quantity

21. Quiz Changes in demand and supply does curve go right or left?
A Fall in supply
A fall in demand
A Rise in supply
A Rise in demand
1 Left
2 left
3 right
4 right

22. Section 3 – benefits of market orientation (progress)

23. Benefits of market orientation?
Product orientated
Company produces what they are good at producing and hopes that the customer will buy
Model T ford – all same, all black
Market orientated
Company produces what it thinks that the customers want and need, based on their specific demands
Modern car companies, new cars can be ordered in a rainbow of colours and features

24. Sample question 1

25. Answer question 1
Answer is A Defines Market orientation is showing a sensitivity to customers’ requirements (1 mark) - Such as producing fuel efficient cars/cars with technology (1 mark) - Which therefore increases the likelihood of a sale (1 mark) Up to 2 of the marks above can be achieved alternatively by explaining distracters, e.g. - D will cause costs/prices to increase, which will reduce production/demand. (1 mark)

26. Sample question 2

27. Answer question 2
Answer C Defines demand as the amount consumer are willing and able to but at a given price (1 mark) - If a young adult returns to their parental home they would not have a home of their own (1 mark) - Which would mean that they would not be using as much electricity/ a share of an increased overall electricity bill would be now used (1 mark) Up to 2 of the marks above can be achieved alternatively by explaining distracters, e.g. - Moving back home might actually give them more disposable income (1 mark), which might increase demand for alternative products such as clothing/computer games (1 mark) - Clothing is a necessity so demand is unlikely to fall (1 mark)

28. Sample question 3
From second half of the paper after cup cake case study Explain two factors that could affect demand for Anna’s Cakes [6]

29. Answer question 3
Knowledge 2, Application 2, Analysis 2 Knowledge: up to 2 marks are available, e.g. for describing what is meant by demand/demand factors – the amount of product/service which people are willing and able to buy at a given price, at a given time OR lists factors such as income, taste, fashion, demographics, marketing aspects (location, product, advertising), price of substitutes/complements OR refers to data in chart Application: up to 2 marks are available for relating the above to Anna, e.g. the number of weddings (reference to fig 1), Anna’s reputation for baking delicious cakes, growing number of corporate events, endorsement by Vogue magazine. Analysis: up to 2 marks are available for providing reasons/causes/consequences, etc. e.g. if there is a recession, then typically incomes fall and the demand for luxury products like cakes tend to fall. Fewer marriages may mean fewer receptions which may lead to a decline in the demand for her wedding cakes. Both factors needed for full marks (max 3 marks for one factor explained)