Supply and Demand Dynamics: Case Study of Polo Mints in the UK Economy

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Economics for Business
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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................4
Conclusion.....................................................................................................................................13
Reference List................................................................................................................................14
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Introduction
Economics for an organisation operating in the business environment refer to the financial
attributes that ensure the organisation’s functionality in the market economy. It allows
companies to determine the pricing strategy that should be adopted within the company to attain
profitability. Economics of the business operations allow companies to determine the quantity of
products that would be manufactured in order to satisfy the demands of the consumers.
Economics ensure the organisations are able to identify the supply, demand and equilibrium that
exists within the market economy. Supply and demand of a product allows an organisation to
determine the production rate of an item and the price for the product. An appropriate analysis of
supply and demand rate for products within a market economy enables a business organisation to
gain profit from their sales process.
The following essay will identify the supply demand attributes that enable Polo mints to develop
their business in the UK market economy.
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Discussion
Main factors that determine the price of Polo mints in the UK using supply demand
analysis
Polo mints are a popular mouth freshener develop by Nestle, UK. The company functions in the
UK market economy as a subsidiary of the parent company Nestle Waters Pvt Ltd. Nestle is a
global brand headquartered at Switzerland (Nestlé Professional, 2019). The UK economy branch
of the company started operating from 1988 when it was established in the UK. The company
develops products in order to address the needs and demands of the target consumer
demographic.
The term ‘economics’ of a business context refer to the process of transaction that a company
participates in a market economy through the tactics of product development, distribution and
consumption. It enables the management of the company to identify the situation of the market
and develop products accordingly. Studying the economic condition of a region enables an
organisation to develop a brief understanding of the type of products that would be successful if
launched in the market economy. It is essential for organisations operating in a competitive
market economy to recognise the aspects of the region such as the supply and demand of a
certain product in the business environment in order to determine the success of the organisation
in the market economy (Baker, 2016).
By studying the economics of the business environment, the organisation would be able to
identify the demand of products and decide the production quantity of the products in order to
satisfy the demand rate with the necessary supply of the product. The production and distribution
process for a business entity is based on the demand existing within the market economy. The
success of an organisation in business context relies on the ability of the organisation to satisfy
the demand of the consumer demographic. It is essential for the company to perform an elaborate
market analysis in order to develop their production strategy and pricing tactics for fulfilling the
business objectives. An appropriate market analysis is done through a proper understanding of
the demand and supply rate within the market economy.
In an economic context, ‘demand’ refers to the ability of the consumers to purchase a certain
product (Kirschen and Strbac, 2018). It also determines the presence or absence of the product in
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the market economy. Demand for a product among the consumers is based on several aspects of
the product. The uniqueness of the product, price, benefits and several other attributes relevant to
the product determines the demand customers may develop for the product.
The following figure displays the nature of the demand curve that allows business organisations
to develop a production and distribution strategy for their products.
Figure 1: Demand aspect within a market
(Source; Basu and Bundick, 2017)
According to business economics, ‘supply’ refers to the process of making products available in
the market economy. Supply is created by business organisations according to the demand of the
products in the market economy (Witjes and Lozano, 2016). Supply of a product in the market
depends on the type of demand that exists for the product in the market economy. Businesses
refer to the demand of the product in order to generate supply for it through strategic distribution
in the competitive market economy.
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Figure 2: Supply aspect within a market
(Source: Romer, 2015)
The supply and demand curve within a market economy fluctuates according to the economic
growth of the region. The supply curve and demand curves are in direct relation to each other
within the business environment. In a competitive business environment there arises situations
when the supply and demand for a certain product are equal. Such a situation refers to market
equilibrium and in conditions, no external element can influence the market situation. An
equilibrium is achieved within the market economy through an exact amount of supply against
the demand the market presents in the business environment (Schumpeter, 2017).
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Figure 3: Equilibrium point in a market economy
(Source: Bénassy, 2016)
A market economy is influenced by several economic elements that affect the demand curve of
the business environment. It is essential for business entities to recognise these economic factors
and align their business objectives according to the economic factors that affect the sales process
for the organisation.
 Inflation within the economy reduces people’s buying power as it increases the price of
daily necessities and reduces income level within the market economy (Muldrew, 2016).
Inflation affects the demand curve of the market as it reduces the demand for a product
while the supply remains stable.
 Behavioural aspect of consumers influence the demand of products within a market
economy (Baxter, 2016). The technological advancement of a market economy
influences the behavioural change within the consumers as it increases awareness among
the customers.
 Rate of interests play a significant role in determining the purchasing power of the
people. The customers’ behaviour towards certain product changes according to the credit
interest rates within the economy (Black, 2017). The demand for the product is affected
with fluctuating interest rates within the market economy.
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‘Inflation’ within a business environment reduces the purchasing ability of the customers due to
various economic factors (Bernanke et al., 2018). This is a major issue for business organisations
as it reduces the demand for products as well as the purchasing power of customers. It affects the
distribution procedures followed by business organisations since the production performance of
the company is also influenced with the presence of reduced demand for the product.
‘Deflation’ in a business environment refers to the exact opposite situation of inflation
(Dabrowski, 2018). The market situation when purchasing power of the customers are high is
identified as deflation situation in a competitive market economy. Deflated economy results in
increased production and distribution procedures, which are performed in order to satisfy the
growing demands of the consumer economy.
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Use and application of economic models in real life situations
The fundamental theory that the study of economics is based on can be considered as the theory
of demand and supply within a market economy. The concept of demand and supply in economic
relates the fact that changes in supply or demand of a product are interrelated and one affects the
other in a direct way. The theory of supply and demand within an organisational context provides
the information that if the demands for a product changes the supply and production procedures
of the product are affected which in turn affects the organisation operating in the market
economy (Schwab, 2017). The basic ideology of the theory of demand and supply is that if the
supply of a product is greater than the demand for the product, the sale and price of the product
reduces in the market economy. In response to the falling product demand, price and sales, the
value of the product is also diminished in the competitive market economy.
Considering the sale of Polo mints in the UK economy, it is viewed that the sales of the product
has reduced. Following the demand supply theory of economics, it can be stated that the demand
for polo mints have reduced in the UK market hence the production and sales of the product
reduced as well. Several factors is responsible for the low demand of Polo mints in the UK
business environment. The major issue that resulted in the reduced demand for the mints is the
behavioural change in the consumer economy (Kagermann, 2015). People simply do not enjoy
the sour after taste that Polo mints provide. The demand of the mints reduced and brought a
falling rate on the pricing of the product. The UK market has a large number of Polo mints in the
market economy but reduced demand for the product resulted in falling prices and reduced
production of the product. Due to the fluctuation in demand, the company faced loss from
developing too much quantity of the products. The following graph presents a brief overview of
the financial situation Nestle faces due to low demand of Polo mints.
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Figure 4: Changing situation for Polo mints in the UK market economy
(Source: Created by the learner)
The situation proves that the demand for Polo mints have reduced in the competitive UK
economy due to various external reasons, which influenced the sales of the product. The current
situation of the product provides an understanding of the financial situation the company
experiences regarding the sale and profitability of the product. The reduced demand of the
product among the consumer results in the increased supply and production of the product in the
competitive market economy. This results in reduced price for the product and a reduction in the
production need for the product. The price fall in combination with the reduced demand for the
product reduces the need for producing more Polo mints in the market economy.
A possible outcome from this situation within the UK business environment could be
achievement of equilibrium by Nestle regarding their production, supply and pricing of the Polo
mints. Equilibrium within the business environment is achieved through the strategic production
process the company could implement to develop the state of equilibrium in the market economy
regarding their product in the competitive market economy. The company could achieve
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equilibrium of the business environment efficiently by adjusting the price and supply of Polo
mints according to the demand of the market. This will allow the company to moderate their
production process within the market economy according to the demand the product possess in
the UK business environment. The successful implementation of appropriate pricing strategy
would encourage the development of the product’s demand in the consumers’ consciousness.
However, a careful analysis of the market situation for the polo mints provide an understanding
that the production and price of the product would not develop equilibrium condition in the
economy. The company would have to reduce the price of the product or stop production of the
product for the demand to rise and develop the state of equilibrium in the business environment.
An equilibrium market state is the desire for any organisation as it provides the business
organisation with a constant scope of profitability from their sales process. A steady demand for
their product results in constant production of the desired products. The prices can be modified
as possible since the demand for the product along with the supply remains the same throughout
the market economy.
The equilibrium state of the UK market economy could be beneficial for Nestle, as it will
provide them with an improved opportunity to generate better concepts for polo mints. As
observed from the falling demand of polo mints, the company would achieve a chance to identify
the issues of diminishing popularity of polo mints. This market analysis would allow the
company to redesign their product or develop certain innovative tactics that would increase the
popularity and demand of the product. The company could also develop a strategy such as
adjusting the supply of the product according to the demand of the product in the market. The
Polo mint is one of the oldest product Nestle had developed before the World War 2.
The diminished demand for the product could result in Nestle experiencing loss from supplying
excess Polo mints to the UK market. Instead, the company should develop strategies to modify
the old formulation of the Polo mint that could increase the curiosity of the consumers and
enhance the demand for polo mints again in the business environment. The success of the
company in retaining their profits from the supply of Polo mints to the UK market economy is
based on the production strategy the company implements in order to align the supply of Polo
mints in the market as per the demand of the consumers.
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Analysis of hypothetical and / or real life situations that occur in UK economy
The demand and supply of products within a competitive business environment is based on the
external control of governing authorities especially in the UK market economy during current
times. The instability of the UK economy due to Brexit and other entities in the business
development procedures. The governing authorities’ primary concern is to develop a free market
with no trading barriers and unlimited competition among businesses. A free market can be
observed as a hypothetical context within the business idea of the governing ideas as it would
provide unlimited benefit to the consumers but develop increasing stress on the business
organisations (Steger, 2017). A hypothetical situation regarding the market economy could also
present equal quantity of demand and supply. Constant equilibrium could be availed as a
hypothetical situation since it is impossible for businesses to retain the exact supply for the
demand within a business environment.
A hypothetical situation in the market economy could be developed where the buyers and sellers
are equal in numbers. The sellers would have the opportunity to develop the price of products
exactly as per their wish. Such a market situation would be considered as a form of equilibrium
with little to no scope of intervention from external bodies (Hanley, 2016). This situation allows
the brand to develop products according to the market wish and maintaining the supply demand
equilibrium.
The real UK market economy is different from the hypothetical scenario. Hence, Nestle is
suffering from losses that influence the business growth of the company. The ideal way Nestle
could redevelop the diminished demand for Polo mints is by creating new packaging, pricing and
flavour of the products. The production cost of the old polo flavour has increased due to the
increasing price of raw materials and labour. Hence, Nestle has to generate better marketing
strategy and production procedure to revamp the Polo mint and revive the demand of the
product.
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