TPP is a small-scale business unit located in Northern Italy. The sphere of business of the company includes retail selling of the oriental carpets, repairing, washing, restoring and dry cleaning thereof.
Several customers of the targeted company operate in the region, and although the scale of their business is bigger, in contrast to TPP, they do not provide post-sale services, and it is not possible to pay there electronically.
No website is operated as a means of advertising; therefore, the only means of attracting customers is direct advertising. The repairing services are provided both to the individuals and to the business entities which subcontract their orders to TPP.
The suppliers of TPP are located in the Middle East, and they procure the targeted business unit with the carpets and necessary repairing materials.
Global economic recession 2007-2010 has exercised a tremendous impact on the business. The demand was considerably reduced while the suppliers decided to increase the import prices by 30% by various reasons, the increase in weavers’ salary and petroleum prices in particular.
In 2009, the company website was developed, and it helped to attract the new customers majorly those who inhabit the remote areas and cannot be attracted to purchase the commodities visually. Delivery and collection system within the region of operation was also installed. The discussed operation combined gave a 15% growth in the revenues accrued.
Although the website of the company is not technically sophisticated, the company believes that 10% of the entire amount of the order enquiries is made by means thereof.
Taking into account the opportunities available under further expansion and development of the information and communication technologies, the company is now considering 20 000 investment to this sector. In order to substantiate this necessity the following report was compiled.
Market Demand and Supply
The demand-supply economic model is utilized by the business analysts in order to calculate the most optimal amount of the goods for sale which meet current expectations of the prospective customers. At the same time, the model is used by the business units in order to find out the price which is suitable for the market. While determining the volumes of supply and demand for a particular commodity, several important assumptions are to be considered by the researchers:
With the uncontrolled increase of demand, and unchanged nature of supply, deficit of a specific commodity arises and the prices are increased
With the uncontrolled rise in supply and lowered or unchanged nature of demand, the price for a commodity is reduced
With the unchanged nature of demand and rise in supplies the price is reduced
With the unchanged demand volumes and reduction in supplies, the price is reduced.
The supply values are determined by the various micro and macroeconomic country. Apart from taking into consideration the general business and investment climate of the country, the following issues shall be taken into consideration:
Costs of sales of the commodities. With regard to the present case study, the costs of the carpet raw materials (wool and others can be attributed to this category), the salary of the different employee groups involved in the process.
The aspects of the technology. These issues highly affect the production sphere and the availability of the certain commodity for the customers since the discussed website of the company falls under the scope of this category. With the investments into this sector, the supply may be increased due to the simplifications in the technological process and possible reduction in the Costs of Sales category.
The general market situation and the anticipation of the future operations. This section is not entirely dependent on the activities promoted by a separate business unit since it is significantly affected by the macroeconomic components, as well.
The availability of the suppliers. This limitation shall be always highly taken into account by the management of the company since it is ubiquitously considered by the researchers as one of the most determinative factors. If the problematic issue arises in the abovementioned components, it can be eradicated by the consideration of the available alternatives while this component is indeed completely indispensable.
The leading economists define demand as the willingness and readiness of the consumers to purchase specific good or service. With regard to the present discussed case study, the demand is the number of orders for carpet purchase, repairing, washing or dry cleaning.
The following factors are considered as major determinants affecting the demand of the commodities:
The income of the purchasers. The desire and willingness to buy a specific commodity is not sufficient, financial resources must be available in order to accomplish this goal. This factor is especially relevant for the present case study since the market state is post-crisis, and the financial capacities of the prospective customers are limited and are to be carefully evaluated.
The preferences of the community. This facet of the demand is characteristic to the commodities which are produced for the needs of the individuals since the raw materials are almost often in demand and are not dictated by the cultural preferences of the targeted purchasing community.
Prices for the associated commodities and services. Some commodities of services are purchased due to the fact that they are the necessary components of the production cycle of other services or commodities.
The Availability of the consumers base. The demand is also formed by the number of the customers ready to buy the proposed goods.
The Equilibrium Price and Equilibrium Quantity
The economic nature of the equilibrium price and quantity is the situation when the amount of the supplied commodities equals the markedly demanded ones. Graphically, it can be depicted as the intersection of the supply and demand curves as shown at the aforementioned graph.
The major determinants that shape the price and quantity equilibriums are the vacillations in supply and demand of the targeted commodities or services. Since these values are increased, the equilibrium price changes accordingly as shown at the graph. The practical value of the equilibrium price and quantity for the needs of TPP is immense since the determination of this value will help to determine the most optimal quantity of the ordered carpets and repairing supply materials. Considering the small scale of the business and, therefore, its limited financial resources, this factor is of great importance.
Elasticity of Supply and Demand
Elasticity of Demand
The economic value of these figures is to demonstrate the way the demand is affected if the price per unit of a specific commodity is changed. Generally, the increase of the price leads to the reduction in demand, except for the specific groups of the commodities detected by Veblen. Our commodities are not in this group; therefore, this assumption will not be considered in this report.
With regard to the present case study, the supply can be characterized as elastic since the increase in prices inevitably leads to the increase in amount of the supplied commodities.
Costs and Revenues
With the installation of the web-site and alternative means of advertising, it can be assumed that the volumes of the sold production and number of the repairing and adjacent orders will be significantly increased. The costs of sales for the discussed commodities and services are assumed to remain the same or to be slightly increased because of the costs spent on the development and maintenance of the website.
Perfect Competition Issue
It shall be additionally accentuated that this business report has been compiled on the assumptions that perfect market situation conditions do exist. In particular, it is assumed that the number of the suppliers and the consumers is infinite in its nature, and the entry and exit barriers are zero in their values, as well as the transaction costs. Moreover, perfect informational area is also a must for the perfect competition to be present.
Recommendations for the Managers
Having regarded current economic positions of the company, it shall be accentuated that a number of initiatives is to be launched. First and foremost, the initiative to launch a web-site for the advertising needs indeed must be implemented. Secondly, the suppliers of the company must be under conditions diversified due to the fact that hereby, the elasticity and the pricing value can be altered for the favor of the TPP Company.