Posts tagged elasticity

Elasticity: Hovis Case Study

bread

News Article: Click Here

Premier Food’s Hovis has experienced some significant decline in its bread sales. This is mainly because of

  1. Increase in price of bread.
  2. Rival companies keeping the low price.

Hovis’ increase in price of bread was said to be inevitable. They simply could not maintain the price as the production cost were exceeded the selling price. Consumers have turned their back on Hovis for following reasons.

  1. Whenever there is an increase on price of a product, the demand decrease. It’s the law of demand. (The degree of its decrease is determined by its elasticity). So the consumers started to buy less of their bread.
  2. Usually, bread are told to be inelastic. However, in the article it reported that there are 2 other rival companies selling bread. This has made a substitution effect for Hovis’ bread. Therefore, it has made the bread elastic.

It’s simple. There are other companies selling low-price bread, but Hovis rose its price. No consumer would leave a cheap bread to the side and buy Hovis’ expensive bread.

Advertisements

Comments (1) »

Data Response: “Cheap Flights – Europe”

ryanair-Irish-budget-airline

a) In the article, it suggested that European air travel’s price are getting elastic due to the global economic recession. It has introduced British Airway, which aimed for high price and inelastic part of the service to gain profit. However, as the demand for high price seats went down, they tried switching their plans to aim for low price and elastic part of the service. So this suggests that European air travel price are getting elastic.

b) Ryanair used to aim for low price seats in order to gain a lot of travelers in their aircraft. The low price seats are usually very elastic. Therefore, if Ryanair lowers the price by just a little, there are tremendous increase in amount of demand. As the global economy went through recession, lots of travelers wanted low price seats for airlines. So the Ryanair has become the most profitable airline by the tremendous increase in demand for low price seats.

c) Ryanair was able to offer seats on some flights for under 10 pounds because of their unique plan. Ryanair had an unique plan in minimizing costs included in a flight service. The airline provider has only one kind of aircraft, the Boeing 737, that minimizes the service costs. It only landed on minor cities, where it cost less than in major cities. Also, they can fly two times than the ordinary airline because their airline gets their aircrafts back into the sky only 20-25 minutes after it has landed. Also, as they covered the cost for the flight, they lower the price for an empty seat right before take off. This has really helped lower the price for seats.

Comments (1) »