1. Marketing Begins with Economics
Unit 3

2. Economic Understanding
The marketing process is scientific
Relies on the principles and concepts of economics
Knowledge of economics and economic decisions:
Improves marketing decision making
Increases customer satisfaction
Increases profits for the company

3. Basic Economic Problem
Peoples wants and needs are unlimited
Wants and needs are never completely satisfied
Resources are limited
There is never enough available to meet everyone’s wants and needs
Unlimited wants and needs, combined with limited resources, results in scarcity
Choices must therefore be made
Scarcity is the basic economic problem

4. Economic Questions All economies must answer 3 questions:
What goods and services will be produced?
How will they be produced?
For whom will they be produced?
An economy organizes the use of limited resources in a way that will satisfy the individual and group needs of people in the economy

5. Economic Systems
Economies are organized into different economic systems based on how those questions are answered
The type of economic system determines who owns the resources
Also determines how decisions are made regarding:
The use of resources
Which needs are satisfied
How resources are distributed

6. Economic Systems Cont.
Command Economy: the gov’t answers the 3 questions
It attempts to own & control important resources
Free Economy: also known as market economy or capitalism, resources are owned by individuals rather than the gov’t
No attempt at gov’t regulation or control
Mixed Economy: some goods and services are provided by the gov’t and some by private enterprise
The U.S. economy and the economies of most other nations in the world are mixed economies

7. Private Enterprise Economy
Private Enterprise: based on independent decisions by businesses & consumers with only a limited gov’t role
Businesses have much independence
Decisions made will determine whether they succeed or fail

8. Characteristics of Private Enterprise
Resources of production are owned & controlled by individual producers
Producers use the profit motive to decide what to produce
Individual consumers make decisions about what will be purchased to satisfy needs
Consumers use value in deciding what to consume
Gov’t stays out of exchange activities between producers and consumers
Profit motive: refers to the use of resources to obtain the greatest profit
Value: is an individual view of the worth of a product or service

9. Consumers & Private Enterprise
Consumers determine what products and services will be successful in an economy
Consumers create demand for products and services
They select the ones that will provide the greatest satisfaction for the price
They gather information about available products and services
Consumers: individuals who purchase products and services to satisfy needs
Demand: a relationship between the quantity of a product consumers are willing and able to purchase and the price

10. Producers & Private Enterprise
Producers create a supply of products and services
Supply: a relationship between the quantity of a product that producers are willing and able to provide and the price
Producers gather info. About the types of products & services consumers want so they can provide those that are most likely to be purchased
Producers: businesses that use their resources to develop products and services
Gathering info. example: athletic shoe manufacturer determines based on research of popular athletic activities that they will sell more cross-training shoes

12. Micro vs. Macroeconomics
Economics operates on two levels:
Macroeconomics: studies the economic behavior in the economy
Big picture
Microeconomics: examines the relationships between individual consumers and producers
looks at small parts of the total economy
Marketers are most concerned about microeconomics
Looks at supply, demand, and the level of individual product prices
Macroeconomics helps to determine if society’s resources are being used as effectively and efficiently as possible
studies the decisions of all consumers and producers and the effects of those decisions on the economy
Microeconomics studies how individuals make decisions about what to produce and what to consume

13. Demand of a Product Factors affecting demand:
If a need/want is particularly important/strong, consumers may be willing to spend more $$$
The amount of the product or service available
If a large amount of product is available, consumers will usually place a lower value on it
The availability of alternative products that consumers believe will satisfy their needs
If several options seem to be equally satisfying, consumers are more careful about how much they pay

14. The Demand Curve
Law of Demand: when the price of a product is increased, less will be demanded When the price is decreased, more will be demanded
Demand Curve: shows the relationship between price and the quantity demanded

15. Elasticity = (% change in quantity / % change in price)

16. Product Supply
Factors influencing what & how many products/services a business will produce:
The possibility of profit
The amount of competition
The capability of developing & marketing the products/services
Businesses use the resources available
Economic Resources: natural resources, capital, equipment, and labor

17. The Supply Curve
Law of Supply: when the price of a product is increased, more will be produced. When the price is decreased less will be produced

18. Intersecting Supply & Demand
What would happen if the price was greater than or less than $10
If the price is greater than $10, say $20:
The quantity demanded = 210 and the quantity supplied = The result would be a huge surplus of 490 pizzas produced with no one willing to buy them for $20.
If the price is less than $10, say $5:
the quantity demanded = 650 and the quantity supplied = The result would be a shortage of 350 pizzas.

19. Economic Competition
Two characteristics help determine the type of economic competition in a specific market:
The number of firms competing in the market
The amount of similarity or difference between the products of competing businesses

20. 4 Forms of Economic Competition
Pure Competition: many suppliers offer very similar products
Consumers have high control over choices & prices
Prices are very competitive
Pure competition: agricultural products like corn, rice, wheat, livestock; low-priced consumer products: milk, bread, paper clips, bottled water

21. 4 Forms of Economic Competition
Monopoly: one supplier offers a unique product
The supplier has almost total control and the consumer will have to accept what the suppliers offers at the price charged
There is a lack of competition
There is a fixed demand
Gov’ts attempt to control monopolies
Examples (though few): utility companies that supply communities with electricity, gas, or water
Geographic monopolies

22. 4 Forms of Economic Competition
Oligopoly: a few businesses offer very similar products or services
The demand curve for 1 business resembles that of pure competition
The demand curve for all of the business combined in an oligopoly resembles that of a monopoly
Oligopoly examples: airline industry, automobile manufacturers, insurance companies, interstate delivery services, computer manufacturers, internet service providers.
Local level examples: taxi services, movie theaters, banks, and hospitals

23. 4 Forms of Economic Competition
Monopolistic Competition: there are many firms competing with products that are somewhat different
Most common
The fewer the differences between products, the less control the business has
The fewer the number of competitors and the greater the differences among the competitors’ products/services, the greater the control each firm will have in the market
Examples: restaurants, automobile dealerships, athletic shoes, consumer electronics, cosmetics.

24. Understanding the Competition
A business in pure competition will not be able to exercise much control in the market
One in a monopoly will have almost total control
Businesses in an oligopoly must pay careful attention to the actions of competitors
Those in monopolistic competition must understand the importance of the differences between competing products

25. Economic Utility
To analyze how people make choices among competing products, we use Economic Utility
Products that provide great satisfaction have a higher economic utility
Businesses use economic utility to increase the chances that consumers will buy their products

26. How to Increase Economic Utility
Form Utility
Results from changes in the tangible parts of a product/service
Time Utility
Results from making the product/service available when the customer wants it
Place Utility
Making products/services available where the consumer wants them
Possession Utility
Results from the affordability of the product/service
Form: one product may be constructed better or have features consumers want; a hair stylist may be more skilled than another
Time: a bank that stays open in the evening and a cable tv service that provides movies on demand
Place: a convenient location
Possession: there are ways to make the product more affordable without cutting price; credit, leases (think cars), renting (think tuxedos)
Economic Utility can be a particularly effective marketing tool when a business focuses on the unique needs and characteristics of each target market
Marketers need to determine what changes customers would like to have in products/services in order to develop an effective marketing mix