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Economics Role in Marketing Strategy

Factors Involved In Marketing Strategies

Economics For Developing Firm

Developing a good marketing strategy is as important as developing a quality product which is accepted in the market. Marketing strategy can be defined as that enables the organization to optimally allocate its resources in such a manner that the company attains its goals and objectives of increasing its sales and get competitive edge over its peers in the market. There are many factors on which the marketing strategy of the product depends. Out of all the factors, micro and macro economics concepts plays very important role in developing an effective marketing strategy (Deepashree, 2006).

Micro economics can be defined as a branch of economics which focuses on the consumer behavior and on the organization in order to understand the factors on the basis of which any firm or household makes decision. Basically it focuses on the concept of demand and supply which plays major role in determining the price of a product. Further, it also helps the business houses to identify the quantity in which they must produce and the price at which they must sell the products so as to reap maximum benefits (Tucker, 2010).

On the other hand, macro-economic can be defined as a branch of economics which study the aggregate behavior of the entire economics. Under this, different factors such as national income, unemployment, gross domestic product, price levels, inflation, rate of growth, etc are considered by the firm for designing any marketing strategy or any other kind of strategy. Although, both the branches consider different parameters, still both macro and micro economics significantly influence each other (Gupta,Mandal and Gupta, 2008).

In the present report different macro and micro economics concepts will be considered to define different features of 5 series or 3 series car manufactured by the company BMW which sells its product in both domestic and international market. Further, it will also highlight how these macro and micro economics concepts plays significant role in developing a marketing strategy of the cars.

Cost of Production

When the economy is doing well: In situation, when the economy is doing well and there is prosperity all over, in such case both the macro and micro economic factors will be favorable for BMW and the individual looking at the macro economic factors, in a prosperous economy, there is lot of employment opportunities and chances of unemployment are very less. Therefore, the most important cost of production that is, labor is easily available to the company and at very reasonable cost. Thus, the cost of production goes down. Similarly, in good economic condition, suppliers of auto components to BMW will easily provide the auto-parts needed for the production of Series 5 and Series 3 at lower rate, thus again the cost of production will go down. In a prosperous economy, inflation will be very low; therefore, the company can purchase utilities services such as energy at very cheap price which again will decrease the cost of production of the company (Hitchcock,Schubert and Thomas, 2003).

On the other hand, if micro economic factors are considered, in that case if the economy does well, people have good income, and if people have good income, demand of the cars will increase. And in the economics concept, whenever the demand of a product is higher as compared to the supply, its price automatically goes high. Thus, if the economic condition remains well in the second half of 2011, BMW will benefit from it as demand of both the car series will be high in the market and cost of production will be low (Seggie and Griffith, 2008).

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Types of Goods

In economics, goods can be of several types such as necessary goods, normal goods and luxury or superior goods. Apart from this, there are giffen goods also which are, most of the time considered as inferior goods. Since BMW is the manufacturer of luxury cars, its goods are considered as luxury goods or superior goods. Among all the goods, normal goods, luxury goods and necessary goods are responsive to the change in income, while the giffen goods or inferior goods are responsive to the change in price (Morton and Goodman, 2003).

Since the cars Series 5 and Series 3 manufactured by BMW fall in the category of luxury products therefore their income elasticity of demand is greater than +1. Which show, demand of the product increases more as compare to the change in the income of the consumers. Luxury items are those, which are not necessarily required by the consumers, and during the time of low income of falling consumer confidence, people can do without them. On the other hand, when there is rise in consumer confidence and rise in the income of the consumers, in that case the demand of the luxury goods goes high as now people are able enough to afford those items. On the other hand, at the time of recession, luxury items are the one which experience fall in demand since people are more interested in curtailing their expenses and rebuild saving so as to strengthen their household balance sheet (Jain and Ohri, n.d).

Luxury products are also price elastic. Since, with the rise in the price of any luxury product, its demand in the market will decrease as less people will like to buy it as they can do without it. Therefore, the Series 5 and Series 3 are both price elastic and income elastic.

The two series manufactured by the BMW are automobiles, so their complimentary product will be diesel and petrol. Therefore, when the demand of the cars will increase, the demand for its complimentary goods will also increase and vice versa. On the other hand, substitute goods of luxury cars are cheaper cars, two wheelers and bicycle. If the price of the BMW cars will increase, its demand will decrease and demand for its substitute product will increase. Thus, complimentary goods have negative cross price elasticity of demand and substitute goods have positive cross price elasticity of demand (Jha and Nagarajan, 2000).

Market Segment and Pricing Strategies

Market segmentation states about the bifurcation or dividing large number of market setup into smaller segments. It can be done on any of the following basis such as:

  • The level of Competition: To determine the right price of the product, prices of competitors should be analyzed properly.
  • Perceived value of product: Before fixing the price of product, there should be balanced between the price and perceived value of product.
  • Product development cost: All the cost related to the development of cost should be considered like material cost, labor cost and other expenditures
  • Level of market demand: In business economics demand and supply of products affect the prices, if demand exceeds supply the prices of product increases and vice versa.
  • Income level group: Marketers divide the consumers into small segments as per their income. It can be divided into three parts: high income group, mid Income Group and low Income Group (Kumar, 2009).

BMW should mainly follow niche marketing strategy and continue its differentiation strategy. As the target customers of the company are mainly high income groups, the income level segmentation will not entirely serve the purpose. Instead BMW must sell different variants of its cars based on demographic features of its target population. For instance, the business class will prefer a lavish sedan car; while on the other hand, youngsters and sports persons will prefer SUVs. However, among the high income classes, the company can introduce different variants of the cars.

Pricing strategy can be followed on the basis of variants and features of the car which will decide the exact price of cars and helps to move forward in compare to other rivalries. Higher variant of car can be priced at higher price with new and extra features to higher income level group, average variant of car can be priced at average price with new features to mid income level group and lower variant of car can be priced at normal price with minimum features. Successful pricing strategies involve effective balancing of demand and supply because better pricing strategy helps to fight with the competitors and by which huge profits can be earn (Maddala, 2004).

Factors Affecting Demand of Product

Different markets have different economic and political conditions which affects demand of a product. Suppose, a product which has international demand may experience fall in demand in the domestic market because of poor economic condition, on the other hand, if the economic condition in the foreign market is good, there demand for the product will be high. Moreover, the demand of the product will be affected by the recession. If there is recession in the market, it means the economy is not doing well and there is lot of unemployment. Now, as the cars are luxury good, so at the time of recession people will prefer to save more rather than buying these cars. thus, its demand will decrease. Moreover, government policies also do affect the demand of product. Suppose, if foreign government starts charging higher taxes on imported goods in that case its price will increase and demand will decrease and vice versa (Casey, Sumner and Packer, 2006).

Currency Market and price Competitiveness

Currency market plays very important role in determining price of a product. If the home currency appreciates as against other currency, in that case the cars of series 5 and 3 will be considered to be costly in other markets as with the appreciation in the currency the foreign customers will have to pay more to buy the cars. This in turn can decrease its demand in the foreign market. On the other hand, if the home currency depreciates ass against the currency of other countries, in that case foreign customers will finds it cheap to purchase the cars and thus its demand in the international market will increase (Arize, Malindretos and Christoffersen, 2003).

Conclusion

After working on the above case it can be concluded that both macro and micro economic factors play very important role in developing a marketing strategy of a product. Both management and marketing team must consider these factors while drafting marketing strategies as these factors helps in determining whether the product will be demanded in the market or not, and different parameters will affect its demand.

References

  • Casey, K. M., Sumner, G. and Packer, J., 2006. REIT capital structure: is it market imposed?. Managerial Finance. 32(12). pp.981 – 987.
  • Deepashree. 2006. Microeconomics And Macroeconomic Environment For Ca Pe I. Tata McGraw-Hill Education.
  • Gupta, K. R., Mandal, R. K. and Gupta, A., 2008. Macroeconomics. Atlantic Publishers & Dis.
  • Hitchcock, J. E.,Schubert, P. E. and Thomas, S. A., 2003. Community health nursing: caring in action. Cengage Learning.
  • Ingenbleek, P. T. M. and Van Der Lans, I. A., 2013. Relating price strategies and price-setting practices. European Journal of Marketing. 47(1/2). pp.27 – 48.
  • Jain, T. K. and Ohri, V. K. n.d. Introductory Microeconomics and Macroeconomics. FK Publications.

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