Factors Influencing Demand and Price Elasticity of Tesco Plc

This assignment discusses the factors that influence the demand and price elasticity of Tesco Plc, a UK-based retail organization. It covers an overview of the company, its products and services, and factors that affect demand. It also explores the factors that influence the price elasticity of demand and how selected products and services are affected.

Management Economics-1

INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
1. Overview of Selected Company and its products & services..................................................1
2. Identify factors which influence the demand and evaluate that factors indicate that demand
increases or decreases..................................................................................................................3
3. Factors that influence the Price Elasticity of Demand and describe that how selected
products & services affected........................................................................................................4
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Management economics perform with applying economic principles, assumptions, methods,
and techniques to address realistic market problems (Aini, 2019). Management economics, in
many other terms, is the synthesis of economic principles and management theory. It allows the
managers to make effective decision and take necessary actions to make connection between
theory and practices. It might be known as a business economy, and is an environmental branch
that relates micro-economic assessment to corporate decision methodologies and perhaps other
staff attitudes. Organizations need to understand the market situations and it further affect the
demand of their products & services, so managers need to evaluate market effectively and ensure
that taken actions will helps in maximising overall product demand. For this, organization needs
to understand economic principles and theories for better strategic decisions.
Tesco Plc is selected for this assignment which is UK based retail sector organization and its
headquartering based on Welwyn Garden City and it was founded in 1919. This assessment
covers several topics such as description of company along with the products & services which
they offer. In addition, factors which influence the overall demand of consumers and leads to
increase or decrease the overall demand. Along with it, it includes the substitution effects on
product demand along with pricing policies which can be followed by the organizations.
MAIN BODY
1. Overview of Selected Company and its products & services
Tesco plc investing in stock market as Tesco, which is a multinational British grocery store
and retail businesses with headquartered in London, England, UK. This organization is globe's
3rd largest store that measured by gross sales and the world's 9th largest according to sales. It has
outlets in 7 nations throughout Europe and Asia and is the industry leader in grocery stores in the
UK (market share of almost 28.4 per cent), Ireland, Hungary and Thailand. Jack Cohen
established Tesco as a collection of street markets in Hackney, London, in 1919. The brand of
Tesco first emerged in 1924, when Cohen had bought a delivery of tea from T.E.
Stockwell then merged to those initials with their surname's initial two letters, and the very
first shop of Tesco opened in Burnt Oak, Barnet, in 1931. His business grew exponentially, with
over 100 Tesco stores around the nation by 1939 (Ainslie, 2016). Since before the early 1990s
Tesco expanded internationally with operational activities in 11 other major countries. The
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organization dropped from the US in 2013 but is still seeing success elsewhere as from 2018.
Tesco has been diversifying into fields such as book online retail, clothes, electronics, furniture,
toys, gas, tech, banking technology, telecommunications companies, and network infrastructure
since the 1960s.
Tesco offers a wide variety of products including range of foods, electronic items,
appearance, financial services etc. Product line expanded in order to addresses consumers'
every desire & need and has therefore expanded to include the online marketing as well. In
addition to some other 40,000 or so product categories which its retail stores sell, it provides
food delivery options or free digital music. Tesco also offer a large variety of alternatives inside
each segment, varying from brand, regional produce, category, foreign food cuisine as well as
other options that do not consider leaving the client missing when it needs to come to selection.
Below mention graphs help the individual to understand market position of Tesco Plc and
its competitors. Tesco is one of the leading organization in grocery market with highest market
shares.
Figure 1 Market Shares of top Grocery's firm, 2019.
This figure reflects above is the market share percentage of Great Britain's supermarkets
from Aug 2012 to Aug 2019. Market shares of Tesco peaked at 27% in twelve months to
Aug 11, 2019 (Chang, McAleer and Wong, 2018). Tesco has gradually reduced its share relative
to a similar timeframe in past years, because as Aldi and Lidl discount stores have now added
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share last year during the similar 12 week spans. Once the discounters became popular, the 'big
four' retailers ruled the food store market and these are Tesco, ASDA, Sainsbury's and
Morrison’s. Nevertheless, buying behaviour has changed in favour of cheaper options and
discount retailers on the basis of global stagnation and inflation. The eventually results 'price
wars' have led grocery stores to drop their product costs, and Europe's highest spend on
marketing to maximise their sales volume. Probably more importantly, this has led to increased
uncertainty on the retail grocery industry and, as of Jan 2017, Aldi has overtaken the co -
operative to be the UK's 5th biggest grocery store.
2. Identify factors which influence the demand and evaluate that factors indicate that demand
increases or decreases
There are so many economic forces in a market environment that impact the customer
demands which influence the company's overall demand and profit margin (Deming, 2018). To
strengthen their market opportunity, companies need to understand such elements and implement
strategies that help to improve actual demand for the goods & services. This also lets the
organization meet its corporate targets and objectives in increasing efficiency as well as
productivity or capacity. The factors listed below influence Ferrari's sport car market, which are
as follows:
Substitute price: It is the aspect that determines the market of individual
organization's goods & services. As the price of substitutes increases, so does the demand for
current products decreases. For instance: Price of Tesco's products rises as the demand for its
rivals goods also rises, and likewise. Product price and consumer demand has positive relation,
when price of substitute product increases than demand of their goods also increases.
Price of complements: When the value of a commodity which supplements a product
decreases, then it increases the quantity demanded from one demand from another
(Czetwertyński, 2017). When the price of substitute goods falls, the quantity needed for that
commodity increases while the volume of demand for both the good that substitutes it begins to
decline. Because as price of rivalry goods increases in the case of Tesco Group, demand of their
products & services immediately grows.
Consumer Income: This aspect affects the total demand as consumer income rises then
the capacity to purchase also rises and motivates users to purchase more (Knoke, 2018).
Likewise, when the revenue of the client decreases, the expenditures also decrease which
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minimizes the entire product demand of company. When person's income rises in comparison to
Tesco Plc than demand for their retail products also rises, and then when average incomes
decline, the demand for the goods also declines.
Consumer tastes & preferences: Selection of products is defined as influencing the
personal taste & preferences of consumers once they have bought them, defined by their
satisfaction with those items. That value is often called usefulness. As to if client usefulness
differentiates from one product to another will evaluate market value. Tesco demand would
improve as they launch their variety of features according to customer taste & expectations to
suit their needs. On the other hand, demand decreases if the products sold are not according to
client preferences. Companies need to understand the needs of clients, and present their
products to maximize their productivity and profitability.
Price preferences of consumers: Customer expectations based on the potential price of
goods & services. The observations sellers have over the commercial users of a good that is
assumed to be stable when constructing a supply curve. Decline in supply expected to be higher
price than supply decreases. When producers are make the market smaller then demand
decreases (Koo and Yang, 2018). Also decreases if output increases in the future that current
commodity demand. Organization reduces the current production of the products in the sense of
the Tesco plc as the potential price of their goods will increase and current demand will grow at
this same point. On the other hand, if demand reduces, firm will reduce supply, because sales are
expected to grow in the future.
Demographic: This factor affects the overall demand of organization, when number of
consumer’s increases than demand for particular products also increase. In context of Tesco Plc,
this organization deals in retail sector which offer food items, clothing, financial services etc.
Foods & cloths are the essential stuff, so higher the consumers will leads to increase the demand.
When number of consumers increases than automatically increases and vice versa. In order to
boost their overall demand, they need to target huge populated demographic areas to increase
their product demands.
3. Factors that influence the Price Elasticity of Demand and describe that how selected products
& services affected
Substitution effect:
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Luxury good demand elasticity is very weak and as it increases it can just go up, don't
even fall. Luxury products price rates do not decrease, as there are no market raising practices,
this does not impact their customers' appetite and behaviour (Munandar, 2018). Top economists
see that retail sector products have high elastic demand because they are several alternatives
available. So, there are many alternatives open to customers and competition in this retail sector
where demand is elastic. Its potential could have a significant impact on the Tesco Plc and
as business continually modifies their prices and decreases sales as the purchaser opts to
purchase items out the front of their level of income. This indicates that there is growing high
competition for the Tesco where improvements in the cost of producing goods have decreased.
There are several replacements of this category on the marketplace that catch customer attention
and impact Tesco Plc sales. The alternatives are the Sainsbury's, Aldi, Asda, Wal-Mart etc.
Necessary goods like milk, medication, crops and important items don't hold elastic
materials. The reason that came forth is people's survival, for a human cannot survive without
those facets. Tesco's offer necessary goods which are elastic in demand, so change in price will
defiantly change in the demanded quantity. Material specifications are still fairly stable, but
retail values are expected to adjust quickly (Myers, 2019). In one of the other hand, if it is
addressed to all finished goods directly applicable to life convenience such as refrigerator,
vacuums and more, costs remain elastic because prospective buyers may delay the whole
purchase cycle because it falls far below comfort level. Luxurious goods and services are luxury
cars, highly customized boutique hotels, smart phones and advanced gadgets, and so on,
becoming generally more durable than utility-related objects, since a person overlooks them for a
longer period.
Price of products affects the demand of necessary goods because price and quantity has
opposite relation. People required these goods which are basic necessity which getting affected
because of change in product price. On the other side, price does not affect the luxury items
demand because these are far from basic needs.
There are some factors which influence the price elasticity of demand, in context of
Tesco; demand is elastic because there are multiple alternatives available. Below mention factors
affect the elasticity of products.
Substitute availability: The elasticity of prices is affected to a certain extent. The key
explanation for the market elasticity for a difference in the price of such products is the supply of
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offering alternatives to its closest rivals (Rahmawati and Moeljadi, 2019). The higher the sum of
relatively close-alternatives found for a commodity on the market, the higher the elasticity of the
product. A most contemporary comparison of the substitute goods are tea or coffee. If consumer
find the more suitable options than they choose to purchase from themselves.
Consumer Income Level: Statistics as a consideration shaping market level elasticity.
When a consumer has high income than demand for commodities becomes inelastic. A rise in the
amount of each product, for example, does not affect the appetite of the items purchased.
Improved customer incomes result in increased demand for Tesco and, likewise, reduced
spending power often decreases the usage of people which reduces demand.
Generally, the price elasticity of demand for Tesco Plc is elastic because company deals
in retail market where lot of competitors or substitute products available. So, consumers can
easily shift to another commodity if they find it more beneficial or cost effective in comparison
to Tesco's products. Some people can pay whatever amount organization charge because they
belong to upper class or they are related to high income level group. Moreover, replacement
products also influence demands of relative products.
Pricing policy:
Companies can gain advantage of various pricing policy when selling goods and services.
The price is determined for maximizing profitability by each unit sold or from entire economy
(Sauer, Rodgers and Becker, 2018). It could be used to protect new competitors from an
established market, to gain more market share in an industry or to entering new markets. Some of
the strategies are as follow:
Competitive pricing strategy: This method almost always makes it appear to be aware
of market price of a company which they currently used for their product or service which offer
to consumers. This tends to take into account the nature of the goods or services or consumer
demand. To optimize productivity, the business must set a sales price under rivals and raise the
market.
Price plus price strategy: This approach relies primarily on the potential costs of
generating a product and services. That is also known as value selling technique, because firms
that use "mark up" their goods depending on what they'd like to buy. Distributors who sell
physical goods normally use this pricing structure. This approach is not the perfect choice for
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service based companies, since their product value is extremely higher than manufacturing
expenses.
High-low pricing approach: This technique can be used by some companies that first sell
high-priced commodity on the market to achieve high revenues then lower the price as
competition is reduced. This strategy is often considered to be discounting (Xue, Yang and Yao,
2018). It is widely used by retail businesses offering seasonal or ever-changing items such as
clothes, internet stores, accessories, and decoration. Users prefer expecting coupons and promo
codes, so there is just so much discounts days such as Black Friday, seasonal discount etc.
Above discussed pricing strategies are used by the organizations, in relation to Tesco Plc
company adopted several pricing policies such as competitive strategy on regular basis to
maintain their consumer base. In addition, high or low pricing policy where company gives
discount offers to maximise their sales at particular time. Company can change their pricing
strategy anytime as per the requirement of market or need to fulfil their goals & objectives.
CONCLUSION
From the above discussion it has been analysed that management economics help the
organizations to understand and implement economic practices to evaluate market trends or
maximise their demand in the market. Demand of particular product can be changed any time
due to several factors such as income level, price of substitute, demographic area, and expected
price in future etc. Due to this, price elasticity of demand affected and it further leads to increase
or decrease the overall demand of commodities.
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REFERENCES
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motivational?. Managerial and Decision Economics. 37(4-5). pp.261-273.
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finance, marketing, management, and psychology: connections. Journal of Risk and
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Czetwertyński, S., 2017. Importance of copyrights in online society. Managerial
Economics. 18(2). pp.147-163.
Deming, W. E., 2018. The new economics for industry, government, education. MIT press.
Knoke, D., 2018. Changing organizations: Business networks in the new political economy.
Routledge
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downwardly sticky investment: evidence from Korea. Emerging Markets Finance and
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Munandar, A., 2018. The Impact Of Managerial Ownership, Size, And Growth Rate On Capital
Structure. Jurnal Riset Terapan Akuntansi. 1(2). pp.84-88.
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Rahmawati, A. and Moeljadi, M., 2019. The effects of managerial ownership, leverage, dividend
policy in minimizing agency problem.
Sauer, S. J., Rodgers, M. and Becker, W. J., 2018. The Effects of Goals and Pay Structure on
Managerial Reporting Dishonesty. Journal of Accounting, Ethics and Public
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Xue, L., Yang, K. and Yao, Y., 2018. Examining the effects of interfirm managerial social ties
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