Management Economics - Ferrari: Business Overview, Products & Services, and Factors Influencing Demand

This document provides an overview of Ferrari as a selected business, including its products & services range. It also discusses the factors that influence the demand for Ferrari's sports cars and the price elasticity of demand.

MANAGEMENT ECONOMICS - 1

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
1. Define the selected business and its products & services range..............................................1
2. Describe the factors which influence the demand...................................................................2
3. Factors that influence the Price Elasticity of Demand.............................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Management economics can be described as the implementation of various forms of
economic theories and principles that really can help to solve many of the problems that even an
entity is struggling with (Agyapong, Ellis and Domeher, 2016). When aiming to achieve
such long-term business targets, it would be really essential for all organisations to ensure that
they concentrate on economic proposals and resources because it will help identify the right
approach for all market problems. Effective implementation of management economics provide
the growth and business development which can be acquired. Ferrari Company selected for the
better understanding of this management economic concepts. It was established in 1939 by Enzo
Ferrari and it is automobile sector organization. Headquarter of selected organization based on
the Italy and this brand comes under the one of luxury sports car manufacturing organization.
This assessment covers several topics such as overview of organization along with its
products & services, background, market research where it operates, and analysis of whether or
not the organization had functioned under different market sector. Besides that, there are several
factors influencing demand and how the price of demand elasticity affected.
MAIN BODY
1. Define the selected business and its products & services range
Overview of Company:
Ferrari is an international Italian manufacturer of luxury sports cars based at Maranello,
Italy. Established in 1939 by Enzo Ferrari as Auto Avio Costruzioni out of Alfa Romeo's race
division, the organization manufactures its first vehicle in 1940. Even so, the corporation's
founding as an automaker is usually acknowledged in 1947 when the very first Ferrari badged
car has been finished (Ferrari S.p.A, 2020). Fiat S.p.A. bought 50 per cent shares of Ferrari in
1969 and raised its interest to 90 per cent in 1988. Fiat Chrysler Vehicles N.V. in October 2014.
(FCA) declared its plan to split Ferrari S.p.A. from FCA; FCA owned 90 per cent of Ferrari as of
the declaration.
The division began with a consolidation in October 2015 which formed Ferrari N.V. (A
firm incorporated in the Netherlands) as that of the new standing steady of the Ferrari group and
eventual selling by FCA of 10% of the securities in the IPO and corresponding listing of ordinary
stock on the (NYSE) New York Stock Exchange. The organization has been notable during its
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existence for its continuing presence in automotive, particularly in Formula One, where that's the
older and most active racing team, winning far more constructors titles and producing the highest
amount of car title wins. Ferrari racing tires are normally used as a sign of size, elegance and
richness.
Product and services:
The first vehicle is to be made under the title Ferrari was the 125 S. It was mainly a style
of athletics / cycling. The 166 Inter were launched in 1949 representing the major push of the
corporation into grand touring road automotive market (Czetwertyński, 2017). The very first 166
Inter was indeed a berlinetta four seat (2 + 2) coupe built by Carrozzeria Touring Superleggera
with bodywork. Racing cars were rapidly becoming the majority of Ferrari's sales. Usually, the
initial Ferrari cars displayed bodywork engineered and customized by autonomous coachbuilders
like Zagato, Pininfarina, Vignale, Scaglietti, Bertone. Beginning with the LaFerrari throughout
the early 2010s, the emphasis was changed to what would be the norm, Ferrari focusing on
Centro Stile Ferrari in-house architecture. Ferrari constructed 2 + 2 editions of its engined V8
cars for a moment. Even though those who started to look very distinct from their equivalents in
2-seat positions, both the GT4 and Mondial have been tightly linked to the 308 GTB. The firm
has also built many front-engined 2 + 2 cars, resulting in the new Lusso V12 and V8 versions
Roma, Portofino and Lusso T. California is associated with the introduction of the iconic V8
front-engined 2 + 2 grand tour luxury sports cars range.
2. Describe the factors which influence the demand
In a business environment, there are several economic factors which influence the demand
of customers which affect the overall supply and profit margin of the organization (Kludacz-
Alessandri, 2016). In order to boost their market demand, organizations need to understand such
factors and make formulate strategies which help in improving overall product demand. It further
helps in maximising production as well as profitability or able the firm to achieve their business
goals & objectives. Below mentioned factors affect the demand of Ferrari’s sport car, which are
as follow:
Price of substitutes: It is the factor which influences the demand of products & services of
particular organizations. When price of substitute products is increases than demand of existing
products also increases. For example: Price of Ferrari’s sports car increases than demand of its
competitors products also increases and vice versa. On the other side, Ferrari offers luxury cars
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that comes under the luxury items and consumer’s demand does not affected due to change in
price level because it represent living status of high class people, so they can afford it at any
price.
Price of complements: If price of a product that complements a commodity declines, then
it raises the amount demanded from one demand the other (Park and Song, 2019). As that of the
price of replacement good decreases, the amount required for that product rises, but the demand
quantity for the good that replaces it declines. In case of Ferrari Company, when price of rivalry
products increases than demand for their products automatically increases.
Consumer Income: This factor affects the overall consumer demand because when
consumer income increases than spending power also raises which motivated individuals to
spend more on their consumptions. Similarly, when customer’s income reduces, expenses also
reduce which minimise the overall demand of the products. In relation to Ferrari Company, when
individual income increases then demand of their sports car also increases and other wide, when
income level reduces then demand of Ferrari cars also decreases.
Consumer tastes & preferences: Customer choice is characterized as the affects
customers' personal desires, determined by their comfort with certain products after they have
purchased them. That satisfaction is also called utility. Whether customer utility differs among
different products will determine market value. Demand of Ferrari cars will increase if they
introduce their cars range as per the taste & preferences of consumers to satisfy their needs. On
the other side, demand reduces if offered products are not as per the requirement of customers.
Organizations need to consider consumer’s need and introduce their cars accordingly to
maximise their production and profitability.
Consumer expectations of price: Expectation of consumers based on the price of
products & services in the future (Tang and et.al, 2018). The assumptions that sellers have for a
good's potential demand, which is believed to be constant when building a supply curve. If
sellers demand a higher price than supply would be decrease. If suppliers set the economy to be
smaller, then production rises. If price increases in future than current demand of products also
increases and vice versa. In context of Ferrari Company, organization increases the current
supply of their cars if the future price of their sports cars going to rise and demand will be
increases on that time. On the other side, firm reduces the production if demand decreases
because in future it is expected to increase the demand.
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Demographics: The majority of people that own a Ferrari are male, 98 percent. The main age
range for Ferrari holders is between the ages of 35 and 55, with the majority coming in at the age
of 51. And, those individuals are mainly self-employed. More than 80 percent of Ferrari holders
are currently their own bosses. Many Ferrari holders are wealthy individuals found in the classes
of ages 25-49 and 50 +. In their mid-fifties the average owner of Ferrari is presumably male.
Since the customer wants a guided munition, almost no Ferrari would be bought; in reality most
Ferraris are only the second and third car operated in a family. Not many Ferrari holders fall into
the category of younger crowd. It is primarily because of the incredibly high premium of the
cars. In contrast, a team of male professional car drivers are prejudiced, most of their cars are
held as leisure vehicles to be propelled on race courses or on weekend nights. Obviously this is
not a rare phenomenon, each of which makes complete sense as most people who are buying a
Ferrari don't save every little bit of money to manage it, but prefer they did upwards of sufficient
income to satisfy a way of living like that (Paha, 2017).
3. Factors that influence the Price Elasticity of Demand
Purchasers of luxury cars are growing. Also are they increasing fast, but a greater number is
female, and many would like to show off their wealth with an eco-friendly set of tires. Although
that means a increasing number of buyers from Aston Martin and Ferrari to Rolls-Royce and
Bentley for luxury brands, it also presents major challenges. This year's profits can be huge,
Ferrari booked a profit of $80,000 on every car model and the businesses need to adjust with the
order to prevent them. This is mostly due to the incredibly hefty premium of the vehicles. In
relation, a team of men's sports car manufacturers are prejudiced, vast majority their cars are held
as leisure vehicles to be motivated on race courses or on weekend evenings.
• Substitute availability: even in given firm, where it is simple to say that even if the threat from
substitutes is small, the price elasticity will also remain much stronger and the explanation given
is small in nature, corresponding to the number of replacements. It could be controlled better
with a prime example of the Ferrari Corporation, where if something increases the cost of its
mobile it will boost the value of the company of General Motor (Kludacz-Alessandri, 2016)
Annually, most Ferrari owners are making about $500,000 and have an amount of net worth
million. They should view the median as more than a standard amount of people who purchase
Ferraris although they also shouldn't. And if you're not worth 5 million or more and people make
half a million a year, can not get a Ferrari.
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It's very difficult to generalize about luxurious goods: a luxurious New York apartment, a tailor-
made ship, and a Ferrari would certainly have different cost elasticity from a top-notch whisky or
Luxury perfume and so forth. From an economics perspective, luxury goods are usually
beneficial for Veblen in order to make items more competitive as their price increases.
• Delay of usage: such are said to be the commodity that can be anywhere from soft drinks,
sweets, and so on that does not actually fit into the items required or emergency. It can then be
commonly believed that these goods primarily bear large market elastic properties. This can be
stopped by customers primarily if there is a change in the cost of such goods.
Given the above facts, it's simple to conclude that Ferrari mainly offers high-priced cars as well
as other electronic gadgets items to consumers. Here it can be assumed that unpriced responsive
consumers will be showing less confidence in such goods. Thus supply curve would be much
smaller (Duda and Wozniak, 2018)
The price of a product may be calculated in various ways, but the organization must have agreed
on its approach for the commodity and this is, nevertheless, a great measure of its intended
audience and marketing strategy which is ability to update on its market position. The figure
below shows the matrix for pricing structures.
Price Skimming: This strategy is applying due to considerable strategic edge, a higher price is
paid, and the value will be first rendered small, which provides an excellent potential
profitability to compensate for high production expenses. When it's a new company with a
strategic advantage then buyers will certainly pay high prices to really get the product that
provides outstanding performance.
Premium Pricing: A 'premium approach' uses a higher cost, but delivers better product/service
in return. It is done where there is a major comparative benefit and higher pricing is fixed due to
the commodity or service's exclusiveness. Ferrari's exclusivity in quickest car model adds to its
luxury business model.
Economy Pricing: It is also recognized as the no-frills, it is a cheap price strategy where
manufacturing and marketing costs are held to the weakest level, that is to say the goods or
services will be priced at its lowest rate. Pricing strategy reflects a systematic relatively cheap
technique. Nonetheless, it is important to determine the position / market share before product
release (Brania and Gurgul, 2015)
.
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Penetration Pricing: This is the value for a good or product is set very low in everyone to get a
competitive advantage to achieve a wide market share for brand recognition. When deep
profitability penetration is reached, the consumption will rise. Ferrari vehicle does not use this
pricing approach as per our study.
Versioning / Price discrimination: This tactic pays specific prices for goods and services for
much the same product / service. Sellers classify their customers in terms of their various
characteristics and pay a higher price to each category. This relates to the different vehicle
models developed by Ferrari to fulfill the client's search for any version (Cline, Walkling and
Yore, 2018)
CONCLUSION
As per the above assessment of the management economics indicated that the firm should
use basic tenets and theories to make effective marketing advancements. A company can assess
that environmental circumstances affect its earnings and market price, and make the necessary
changes so if trying to introduce restrictions on production and prices of goods and services.
Business economies pointed out via the context of the automobile industry that the industry plays
an important role in strengthening the local by selling millions of vehicle each year. In reality,
large corporations also lead to the reduction of unemployment that inevitably leads to better
development.
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REFERENCES
Books & Journals
Agyapong, A., Ellis, F. and Domeher, D., 2016. Competitive strategy and performance of family
businesses: moderating effect of managerial and innovative capabilities. Journal of Small
Business & Entrepreneurship. 28(6). pp.449-477.
Czetwertyński, S., 2017. Importance of copyrights in online society. Managerial
Economics. 18(2). pp.147-163.
Kludacz-Alessandri, M., 2016. Non-financial dimensions of measurement and assessment in the
performance model for hospitals. Managerial Economics. 17(1). pp.93-121.
Park, S. Y. and Song, Y., 2019. The effect of managerial ability on a firm's dividend policy:
Evidence from Korea. International Journal of Entrepreneurship. 23(1). pp.1-15
Tang, M. and et.al, 2018. Green innovation, managerial concern and firm performance: An
empirical study. Business Strategy and the Environment. 27(1). pp.39-51
Brania, K. and Gurgul, H., 2015. The impact of estimation methods and data frequency on the
results of long memory assessment. Managerial Economics. 16(1). pp.7-37.
Cline, B. N., Walkling, R. A. and Yore, A. S., 2018. The Market Price of Managerial
Indiscretions. Journal of Applied Corporate Finance. 30(4). pp.78-88.
Duda, J. and Wozniak, M., 2018. Bank policies towards SME sector in Poland and selected
countries worldwide. Managerial Economics. 19(1). p.25.
Kludacz-Alessandri, M., 2016. Non-financial dimensions of measurement and assessment in the
performance model for hospitals. Managerial Economics. 17(1). pp.93-121.
Paha, J., 2017. Antitrust Compliance: Managerial Incentives and Collusive
Behavior. Managerial and Decision Economics. 38(7). pp.992-1002.
Wang, Y. and et.al, 2016. Overinvestment, inflation uncertainty, and managerial overconfidence:
Firm level analysis of Chinese corporations. The North American Journal of Economics
and Finance. 38. pp.54-69.
Online
Ferrari S.p.A, 2020. [Online]. Available Through:
<https://www.ferrari.com/en-IN>
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