Toshiba Copier Toner

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May 19th, 2007 admin Leave a comment Go to comments

Toshiba Copier Toner

INTRODUCTION:

Most of us make an economic decision every day. It may be as simple as purchasing a box of Corn Flakes over a box of Shredded Wheat at the grocery store. Executives from major corporations also make economic decisions, perhaps what we will pay for a product. Initially, we will look at the Elasticity of Demand model, the opportunities that it presents, risk factors and mitigation, as well as additional information which may be needed..

PROBLEM:

Toshiba Office Products, a manufacturer and distributor of high end copiers-scanners-fax machine combinations for today's office environment needs to increase revenue. (This is the mandate of the company president)

BACKGROUND:

- The sales staff which covers the entire United States "is already working as hard as it can." (UCLA Economics 1, Lecture 4)

- Additional money to hire and train additional staff has not been budgeted.

- A base level copier-scanner-fax machine is priced at $1,000.00

Revenue = $1,000.00 x 1,400 units = $1,400,000.00

- Price Sensitivity of office copiers-scanners-fax-machines

Office copiers-scanners-fax machines are an inelastic demand as they are a business necessity and there are many competitors in this market. At the same time, the demand for this product is elastic as it takes a long time from the time when the need to purchase is recognized, to the issuance of a purchase order from a retailer or distributor. From this example, we can make the assumption that office copiers-scanners-fax machines are price sensitive or elastic meaning that "the buying and selling responses to price change"

(Mc Connell,2004)

HOW THIS PROBLEM CAN BE TURNED INTO AN OPPORTUNITY:

The only way that revenue can be increased is by utilizing this opportunity to manipulate pricing (raise or lower). This is not as simple as it may seem. The "elasticity of demand for a firm's product is critical in pricing policies" (UCLA, Economics 1, Lecture 4). If we raised the price of this commodity to $2,000.00, using the demand curve previously provided, this is what our revenues would look like.

$2,000.00 x 800 units = $1,200,000.00 There would be no change in revenue.

Suppose this scenario was viewed not only as an opportunity to increase revenue and the price were lowered to $800.00 per unit, but also move inventory, according to the demand curve, 1,600 units would be sold. This is how the company's revenue would look.

Revenue = $800.00 x 1,600 units = $1,280,000.00

Considering that as the demand increases as the price is lowered for copier-scanner-fax machines, the opposite is true for complementary goods such as paper, service contracts, and toner cartridges. The demand of these goods increase as the price of their complementary product decreases. This would be a great opportunity to suggestively sell these products and further increase profits.

WHAT ARE THE RISKS ?

The most important risk to this strategy would be the increased burden on the supply chain. The materials, human resources and plant capacity must be available to support this effort. Timing is also an important factor to consider. Skilled labor may not be available due to vacations in the summer months. Some of the components used to build the machine might be proprietary or originate off shore and require longer than usual lead times.

Competitors may also lower their prices. They may offer substitutions with similar features at a similar price. The elasticity of demand model is limited in this regard as understanding customer preferences and why they purchase a specific brand over the next is a very inexact science.

THE NEED FOR INFORMATION:

More information about consumer behavior will be needed. It can be obtained by using carefully crafted questionnaires. Some surveys may look at income level or change in it as it relates to buying behavior. Statistical tools would be helpful in analyzing the information gathered in great detail. Financial statements such as a firm's income statement can give us data on revenue coming into the company.

CONCLUSION:

In the study of economics, the elasticity of demand model has given us the tools to know that decreasing a product's price under specific circumstances is a means to increase revenue. There are limits to this strategy as a competitor may offer reduced pricing on similar goods. With the future use of computers and statistical tools more accurate data will be obtained on consumer income and buying behavior.

McConnell, Campbell R. and Brue, Stanley L. Economics-Principles, Problems and Policies. (2005). Introduction to Economics and the Economy. 16th ed. McGraw-Hill. New York

Gannon. University of California Los Angeles. Economics I, Lecture 4. Retrieved on July 27, 2006 from http:www.sscnet.ucla.edu / ssc /labs / Gannon.