Factors Influencing Demand and Price Elasticity of Boeing Products

This article discusses the factors that influence the demand for Boeing products and the price elasticity of their products. It also provides an analysis of Boeing's financial performance.

MANAGEMENT ECONOMICS - 1

Table of Contents
1. Description or background of company..................................................................................3
2. Determine demand and the market equilibrium along with the factors that influence demand
of the product and services..........................................................................................................3
3. factors influencing price elasticity of the demand..................................................................5
REFERENCES ...............................................................................................................................8

1. Description or background of company
Boeing is world's leading aerospace company and the foremost manufacturer of the
commercial Air transportation. It is the largest producer of the military aircraft, space vehicles,
missiles, helicopters standing significantly with firm's acquisition of aerospace & defensive units
of the Rockwell multinational corporation in year 1996 and its respective merger with the
McDonnell Douglas company in year 1997. Formally Boeing company assumed its present name
in the period 1961 for reflecting its expansion in fields beyond the manufacturing of aircraft. Its
headquarters were in the Seattle since 2001, when the company is being relocated into Chicago.
Company was founded by the founder William E. Boeing in the year 1916. Turnover of the
company was 7,656 Cr. USD in 2019. Current CEO of Boeing is Dave Calhoun. Company
generally has 161133 number of employee in the organization. They generally used to help the
company in carrying out the different activity way smoothly in the organization in the long run.
The company's constituent units of business are been organized across 3 group of the service &
products that includes military aircraft, commercial air-planes, communications & space. The
company produces 7 different families of the commercial aircraft that are been assembled in two
facilities that is Everett & Renton in the Washington district and in California. Boeing business
aircraft, a joint venture of firm with the general electrical company which makes & market the
business jets on the basis of 737 to 700 airliner along with VIP versions of 747,777 and the 787
airlines. Boeing have varieties of different sort of subsidies in general namely Aviall Inc., Boeing
Commercial Airplane etc.
2. Determine demand and the market equilibrium along with the factors that influence demand of
the product and services
There are various factors that influence the demand of particular product & services of
the company that are as follows-
Price of the substitutes- It means as the product that could be used in place of other for
satisfying the wants of customers. The substitute product for Aircraft is helicopter which states
that increase in the price of Aircraft results to rise in demand for helicopter (Henchion and et.al.,
2017). However, decrease in price of airline ticket, demand for travelling through helicopter will
decline. So from the example it is clear that price of substitute product shares the positive
relationship with the demand of the product hence price of substitute product used to bring good
sort of impact on the demand of different product of the company in the long run.

Complementary product price- Such goods means are been used together for satisfying
needs and desire of customers. A rise in price of the complementary item leads to the decline in
demand for the given commodity. As consumer will not able to consume the other product also
due to same hence consumer will look to have any other product who's complementary product
price is also low. On the other side, decline in price of the complement goods, demand for the
product increases. As consumer looks to consume more number of the unit at the same price
which was spent by them in the past for the product (Labandeira, Labeaga and López-Otero,
2017). For example- An increase in prices of jet engines, demand for airline travel declines,
however. Fall in the prices of aircraft engines, the demand for travelling by aeroplane increases
as people have to pay less.
Consumer income- Demand for the product also impacts consumer income, however,
effect of the changes in disposable income on the demand mainly depends on nature of goods
under a consideration (Singh and Verma, 2017). In case the product is normal, then rise in the
income results lets to rise in demand of product while decline in income leads to reduction in
demand. For instance- As Boeing product is counted as normal so an increase in the consumer
income leads to rise in the demand for Air travel. Reason behind the same is identified that as
the income will increases consumer will look for more efficient and comfortable way of transport
i.e. Air transport. However, with fall in income, consumer prefer less to travel by air and would
go for some other means of transport in order to travel from one place to the other such as
railway, bus, helicopter etc, this ultimately means that the demand of the Boeing product will see
fall in the demand of the consumer product in the long run.
Taste and preferences of customer- It is the most important factor that directly
influences demand for the particular commodity. It involves change in habits, customs and
fashion. As all the consumer generally used to consumer different product in the market on the
basis of the taste preference of them in the market. In case if the commodity is trending or is
highly preferred by consumers then the demand for such good increases. As consumer generally
has the trend to spent little bit more for the product which they are preferring to have or consume
in general. On other side, demand for commodity decline, in condition if the consumers has no
taste for that particular commodity (Song, Safari and Mansori, 2016). For example- Travelling
by air is counted as trending and consumers gives priority in travelling by air as it saves time so

demand for aircraft is seen as rising. This is good sign for Boeing as company will find that
demand of their product will always be high in the market.
Consumer price expectation- In case price of the certain commodity is been expected to
rise in the near future then people would be buying more of commodity than what it normally
purchases. There present direct relationship between an expectation of changes in price in
coming periods and changes in the demand for current period. For instance – If it is expected that
in future the price of Airline ticket would be increasing then people will prefer to book the
tickets in current period (Sandrin, 2016). This type of cases generally do not impact the Airline
industry organization as price of the ticket of the Airline do not see a sudden rise in the price of
the Airplane due to high and tough level of the competition which is available in the market. On
other state, in case it is expected that in future the price of air ticket will decline the consumers
will chose not to book tickets at present as in future they can purchase the ticket at lower price. It
can be simply regarded as a future forecasting of the price of the product also used to bring good
sort of impact on the demand of the product and services of the company in the market.
Demographics- Segmenting the market by making use of this factor allows the firms in
determining size of its potential market. Use of the demographics enables in identifying whether
the products or the services are been targetted to firm's most crucial consumers. If the market
segment is having large target audience then the demand for the company's product will be
increasing, however, if its contains small number of target consumers then demand for its goods
decreases. For example- A market where high proportion is of youth and old age people, it leads
to rise in the demand for air travel (Chironi and et.al., 2017). As they are more attracted toward
the same. Also if there is good number of businessmen in the demographic it also used to
increase the demand of Air travel, as they are more concern about saving the time resources and
preferred Air travel more as compare to other form of transport. Moreover, in high income class
market also the demand for Boeing products will be seen as increasing as they would prefer air
travelling. At the same time in the country which is developing is not having that high number of
high class individual, Boeing will eventually see that demand of their product are falling very
drastically.
Economic Condition: Consumer preference or perception of the economic generally used
to impact consumer propensity to consume in the market. As if consumer in the market are
secure or sure about their job they are more than likely to spent money in the market, at the same

time if they are not clear about their future they generally hesitate before making any sort of
decision. This is called the consumer confidence, regarded as consumer feeling in regards of the
economic condition which is prevailing in the market.
3. factors influencing price elasticity of the demand
Substitution effect- It refers to an effect which reflects that decline in the sales for the
product which could be attributed to the consumers switch to cheap alternatives in case when its
price go up. If the price for luxury goods increase then the demand for necessary products rises
while decline in price of luxurious goods, demand for necessary goods decreases. This shows
that necessities tend to having inelastic demand, however, luxuries goods deemed to have more
of elastic demand (Kushwaha and Kumar Sharma, 2017). For example- Boeing product that is
Aircraft is seen as luxurious goods which means that demand for its goods is elastic as it changes
with decrease or increase in the amount price charged.
Nature of Commodity: Nature of the product or community used to influence the
elasticity of demand in the market. As if nature of the commodity is of necessity type then its
demand in the market is generally inelastic in nature. At the same time if commodity of the
product falls in the comfort nature demand of the product will be elastic in nature. Same way if
commodity of the product generally fall in luxury nature that demand will be more elastic as
compare to demand of comfort in market (Ampofo, 2017).
Postponement of Consumption: Urgency of the product also used to impact the elasticity
of the product. As it has been identify that product which are not required on the urgent basis in
the organization, do not have the highly elastic demand as consumption of this sort of
commodity in the market can be postpone if price increases of such product. At the same time
commodity with urgent demand have inelastic of demand as they are generally required for the
urgent basis.
Time Duration: Price elasticity of Demand is also depended upon the time period. Time
period can be day, week, month or year. As it has been identified that the demand is generally
inelastic in regards to the short period. As it used to get difficult for the consumer to change their
habit in shorter period as compare to in longer period in which price elasticity of demand is more
elastic in general.

` Income effect- It means as change in the demand for the product and service that is been
caused through changes in purchasing power resulted from modification in real income. The
products that has higher percentage of the income would have more of elastic demand and vice
versa (Cant, Wiid and Sephapo, 2016). For example- As airline generates higher level income,
this means that the demand for the Boeing company goods is elastic as it keeps on changing with
the level of consumer's income within the market.
Particul
ars 2015 2016
Change
% 2017 2018
Change
% 2018 2019
Change
%
Revenue 96114 94571 -1.61% 93392 101127 8.28% 101127 76559 -24.29%
Cost 82088 80790 -1.58% 76066 81490 7.13% 81490 72093 -11.53%
Profits 5176 4895 -5.43% 8197 10460 27.61% 10460 636 -93.92%
Interpretation- From the above analysis, it has been interpreted that current the company
is incurring loss due to decline in its revenue with a greater value with less amount of decrease in
cost. Therefore, Boeing need to focus on increasing its profitability by taking corrective
measures like increasing its sales by improving its promotional strategy and offering more
discounts and offers so that large customers can attract towards the brand which leads to
07/07/1905 08/07/1905 09/07/1905 10/07/1905 11/07/1905
0
20000
40000
60000
80000
100000
120000
96114 94571 93392
101127
76559
82088 80790 76066 81490
72093
5176 4895 8197 10460
636
Revenue
Cost
Profits

increased travel and airline booking (Zhu and et.al., 2018). Company can also look to reduce the
amount of the cost incurred by the company, as by reducing the amount of the cost incurred
company will able to increase the profit margin in the market. This may prove crucial for the
company in seeing good sort of the out come in term of seeing increase in revenue of the
company in long run. This sort of solution will take time to give the desire outcome for the
company in long run. As reducing cost is not that easy task in the initial stage organization also
has to invest the resources to see outcome from the market. Moreover, the company should
increase its prices with ensuring proper control over its cost so that it could be able to earn large
amount of profits which in turn improves its financial performance and position in overall market
and economy. Increasing price will help the company in increasing the profit margin of the
company in the long run. At the same time amount or level of competition will also increase in
the organization which may impact the organization in the long run as well.
In terms of pricing policy, Boeing must use Surge pricing strategy within which it would
be setting up flexible prices for its products or the services on the basis of present market
conditions and demand. In order to increase its sales or revenue, the firm must opt for penetration
pricing strategy in which it would charge low price in beginning for gaining customer loyalty
and after sometime the high price would be charged for increasing profits by enjoying non-
switching of customers (Morlotti and et.al., 2017). Moreover, it should also use competitive
based pricing policy as it is facing intense level of competition which help the firm in setting the
price lower than its rivalry so that it could capture large market share within the industry and
could achieve a growing success in airline industry. For gaining competitive advantage, it can
also use cost leadership strategy which specifically benefits when the price acts as the major
factor of changing market. This leads the company towards increased profitability and the
revenue along with effective & efficient control on its cost. Thus, by adopting these pricing
strategies, Boeing can improve its financial health and performance in overall economy or the
industry. There are variety of different sort of the pricing strategy which can also be consider by
the organization in the long run such as screaming pricing method, penetration pricing method
but out of the all pricing method Surge and Competitive pricing method will be the best one for
the organization looking at the situation which is prevailing in the market in the current scenario
(Tempesta and Vecchiato, 2019).

REFERENCES
Books and journal
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Ampofo, J., 2017. Factors that influence the demand for packing and removal services: a case of
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Labandeira, X., Labeaga, J. M. and López-Otero, X., 2017. A meta-analysis on the price
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