Determinants of Demand Example

Introduction

When Kellogg's stopped producing Pop-Tarts, the Jiffy Wiffy Company suddenly found themselves with a large market share in the United States for breakfast pastries. Their domestic success has made them consider expansion into Australia and Europe. In addition, they have also recently developed Power-Tarts, an energy bar that has superior taste than Power-Bars, the industry leader.

The Jiffy Wiffy Company is determining the demand for their products to forecast performance in the United States and abroad. To do this, demand variables must be identified and their effect on the overall demand established.

Demand Relationship of Pop-Tarts and Power-Tarts

The largest consumers of Pop-Tarts are children. The next largest are young adults with little time for breakfast and who enjoy junk food. In contrast, the main consumers of Power-Tarts would be health-conscious and actively athletic adults. For the most part, these two groups are exclusive. Since they have different target markets, the demand for each of them should be treated separately.

English: S'mores Pop-Tarts.

Target Marketing

Pop-Tarts

Demand Variables

Several variables must be considered when analyzing the demand for Pop-Tarts or Power-Tarts.

Price

Price is a very important factor in the demand of a product, and the demand curve is generally expressed as a function of the price (Hall & Lieberman, p. 55). Since the demand curve slopes downwards with price, there is an inverse relationship between price and demand.

Target Market Income

In conjunction with the price, the income of the target market is a factor in the demand. Higher customer income will mean that more people will buy the product at any given price.

Target Market Taste Preference

The target market taste preference is the amount that the flavor of the product coincides with the predominant flavor preferences of the target market. These preferences are often cultural in nature.

Product Quality

The product...