The GAPP is a specialty retailer offering apparel, accessories and personal-care products for men, women, children and babies. The company has its operations spread throughout North America, Europe, the Middle East, Australia, and Asia, and the company has its headquartered in San Francisco, CA. The GAPP currently employs 82,000 people and has stores in 50 countries. A couple years ago The GAPP launched kids’ apparels and accessories intended for kids age 3-10.
GAPP has maintained strong profit margins compared with its competitors, but for the past three years, they have not seen a strong profit from their kids’ apparel line of business. Based on SWOT analysis, one of its strengths of The GAPP is having kid’s products line in their business, but no solid profit has been spotted since the launch of their kids’ apparels and accessories. For the past three years, GAPP has been having difficulty pricing their kids’ products. Since GAPP is famous for their affordable price, the management is trying to figure out what the affordable price is for kids’ apparel is so that GAPP can increase next year’s revenue. Therefore, the management team invited a statistician to give recommendation of what needed to be done to increase profit.
Statistic comes to the rescue
Below is GAPPkids regression from their data for the past three years.
GAPPkids
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.89
R Square
0.79
Adjusted R Square
0.75
Standard Error
15.75
Observations
36
ANOVA
df
SS
MS
F
Significance F
Regression
2
39634.9
19817.45
81.81
0.00
Residual
47
11385.02
242.23
Total
49
51019.92
Coefficients
Standard Error
t Stat
P-value
Lower 95%
Upper 95%
Intercept
128.31
24.29
5.28
0.00
75.77
173.15
Price
-0.78
0.56
-1.39
0.18
-1.96
0.38
Income
7.25
0.59
12.29
0
6.27
8.63
From the above table, we can estimate the demand equation of GAPPkids for the past three years: Q = 128.31 – 0.78 P + 7.25 From this equation we can conclude that
1) Income elasticity of demand for GAPPkids product is 7.25
Income elasticity of demand measures the responsiveness of the demand for a good to changes in consumer income (Baye, Managerial Economics and Business Strategy).
A positive income elasticity of demand greater than 1 means that the GAPPkids product is a luxury good.
The demand for luxury goods increases as income increases, and the demand for it will decline as income declines
$1000 increase in income will lead to an increase in quantity demanded by 7.25 units.
2) Price elasticity of demand for GAPPkids product is -0.78
Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to a change in the price of that good (Baye, Managerial Economics and Business Strategy).
Price elasticity of demand between 0 and -1 means that demand is relatively inelastic.
Relatively inelastic demand means the percentage change in quantity demanded is smaller than percentage change in price. In other words, quantity demanded is not very responsive to the change in price.
$1 increase in price will lead to a decrease in quantity demanded by 0.78 units
If the curve is drawn, it will show a very steep, almost vertical line.
Relatively inelastic demand tells us that there are very few substitute products, which also means that regular buyers will not switch to the substitutes products unless the price gets too high.
What does t-statistic tell us?
Since the t-statistic associated with income is well over than 2, the income is statistically a significant factor in determining quantity demanded.
Since the t-statistic associated with price is less than the absolute value of 2, the price is not a statistically significant factor in determining quantity demanded.
What does R-squared tell us?
The R-squared 0.79 is high, suggesting that this model explains 79% of the total variation in the demand for GAPPkids apparels and accessories. In other words, 79% of the future outcomes are likely to be predicted by this model.
What does F-statistic tell us?
The F-statistic of zero tells us that the overall regression using the variables of price and income has significantly high joint relationship.
What does P- value tell us?
The Income P-value of 0 suggests that high level of significance shows strong correlation between level on income and the quantity demanded for GAPPkids apparels and accessories.
The Price P-value of 0.18, suggests that very high level of significance shows weaker correlation between changes in price and the quantity demanded.
Recommendation From the regression analysis presented above, the statistician and GAPP strategic management team came up with a recommendation to help GAPPkids to increase their revenue in the following year.
From the income elasticity of demand point of view: Since the economy has shown signs of recovery and since income plays a major role of quantity demanded, GAPPkids needs to act fast to find a target for their market entry or expansion move in more upscale areas. According to the research service MasterCard Advisors Spending Pulse. In July 2011, the luxury segment had an 11.6 percent increase, the biggest monthly gain in more than a year. Finding the right locations to place their stores will provide the rich a more convenient way to shop for their kids’ needs. According to Bassolino and Smith whom took China for example, given the rapid pace of development throughout China, many companies find that negotiating a successful brand launch in a first-tier city is no longer a sufficient market entry or expansion move. More than 50 percent of the richest Chinese live outside traditional centers of wealth. Given current macroeconomic trends that support broad-based growth across the country, growth in China’s middle class and wealthy consumer groups over the next five to seven years will occur primarily outside the traditional first tier cities. These customers have the desire and ability to consume branded products. They are also able to allocate a larger share of their income to these products because the cost of living in second- and third-tier cities is generally lower.
From the price elasticity of demand point of view: High-end business like GAPPkids will be able to mark up rather than discount. By doing so, they will attract customers who compare price with the quality of the product. Since P-value and t-statistics have shown that price increase will have low correlation with quantity demanded, maintaining the high price of the goods will actually have no impact on quantity demanded. The rich will not easily notice the price increase in their kids’ apparel prices. Maintaining the luxury brand image, opening more stores in strategic areas, offering no discount, and expanding globally will be a strategic movement for GAPP to increase the revenue of its GAPPkids product line.
Work Cited
Baye, M. Managerial Economics and Business Strategy. 7. McGraw-Hill/Irwin, 2009. Print Bassolino, F., & Smith, M. (2010). Find First-Tier Consumers -- in Hundreds of Cities. China Business Review, 37(6), 16-42. Dickson, V. (2010). Cost pass-through elasticities, concentration and productivity growth. Applied Economics Letters,17(7), 663-666. doi:10.1080/13504850802297962 Graves, P. E., & Sexton, R. L. (2009). CROSS PRICE ELASTICITY AND INCOME ELASTICITY OF DEMAND: ARE YOUR STUDENTS CONFUSED?. American Economist, 53(2), 107-110. Goel, R. K., & Ram, R. (2004). QUANTILE-REGRESSION ESTIMATES OF CIGARETTE DEMAND ELASTICITIES FOR THE UNITED STATES. Journal Of Economics & Finance, 28(3), 413-421. Reekie, W. (1976). The price elasticity of demand for evening newspapers. Applied Economics, 8(1), 69.
QUIZ QUESTION:
1. The demand for which of the following commodities is likely to be more price inelastic?
Answer: FOOD
Since food is more of necessity goods then normal goods
2. If there are few close substitutes for a good, demand tends to be relatively
Answer INELASTIC
This case is a perfect example of relatively inelastic goods, since there are only a few substitutes.
3. You are the manager of a popular shoe company. You know that the advertising elasticity of demand for your product is .15. How much will you have to increase advertising in order to increase demand by 10%?
Answer66.7%
Since the elasticity is the percentage change in quantity demanded divided by the percentage change in price of the good.
4. Since most consumers spend very little on salt, a small increase in the price of salt
Answer will not reduce quantity demanded by very much
Since salt does not cost much, increase in price will not affect quantity demanded.
5. A price elasticity of zero corresponds to a demand curve that is:
Answer VERTICAL
Perfectly inelastic demand occurs when buyers have no option to choose from or no substitute, so no matter what the price is, buyers will still buy it, such as cigarette.
WEEKLY POST
WEEK 1:
Company profile
The GAPP is a specialty retailer offering apparel, accessories and personal-care products for men, women, children and babies under. The company has its operations spread in North America, Europe, Middle Eastern, Australia, and Asia. It is headquartered in San Francisco, CA and currently employs 82,000 people and has stores in 50 countries. A couple years ago The GAPP launched kids’ apparels and accessories intended for kids age 3-10.
GAPP has maintained strong profit margins compared with its competitors, but for the past three years, they have not yet seen a strong profit from their kids’ line of business. Based on SWOT analysis, one of its strength is having kid’s products line in their business, but no solid profit has spotted since the launch of their kids’ apparels and accessories. For the past three years, GAPP has been having difficulties pricing their Kids’ products. Since GAPP is famous for their affordable price, the management is trying to figure out what the affordable price is for kids’ apparels in order for GAPP to increase next year revenue. Therefore, the management team invited a statistician to give recommendation of what needed to be done to increase profit.
WEEK 2:
Regression statistics and ANOVA table
GAPPkids
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.89
R Square
0.79
Adjusted R Square
0.75
Standard Error
15.75
Observations
36
ANOVA
df
SS
MS
F
Significance F
Regression
2
39634.9
19817.45
81.81
0.00
Residual
47
11385.02
242.23
Total
49
51019.92
Coefficients
Standard Error
t Stat
P-value
Lower 95%
Upper 95%
Intercept
128.31
24.29
5.28
0.00
75.77
173.15
Price
-0.78
0.56
-1.39
0.18
-1.96
0.38
Income
7.25
0.59
12.29
0
6.27
8.63
WEEK 3:
Reading textbooks and try to figure out what the statistics numbers mean. Find some good sources: CROSS PRICE ELASTICITY AND INCOME ELASTICITY OF DEMAND: ARE YOUR STUDENTS CONFUSED? - GRAVEL QUANTILE-REGRESSION ESTIMATES OF CIGARETTE DEMAND ELASTICITIES FOR THE UNITED STATES. – GOEL The price elasticity of demand for evening newspapers - Reekie
From the above table, we can estimate the demand equation of GAPPkids for the past three years:
Q = 128.31 – 0.78 P + 7.25 M
From this equation we can conclude that
Income elasticity of demand for GAPPkids product is 7.25
· Income elasticity of demand measures the responsiveness of the demand for a good to changes in consumer income (Baye, Managerial Economics and Business Strategy).
· A positive income elasticity of demand greater than 1 means that the GAPPkids product is a luxury good.
· The demand for luxury goods increases as income increases, and the demand for it will decline as income declines
· $1000 increase in income will lead to an increase in quantity demanded by 7.25 units.
Price elasticity of demand for GAPPkids product is -0.78
· Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to a change in the price of that good (Baye, Managerial Economics and Business Strategy).
· Price elasticity of demand between 0 and -1 means that demand is relatively inelastic.
· Relatively inelastic demand means the percentage change in quantity demanded is smaller than percentage change in price. In other words, quantity demanded is not very responsive to the change in price.
· $1 increase in price will lead to a decrease in quantity demanded by 0.78 units
· If the curve is drawn, it will show a very steep, almost vertical line.
· Relatively inelastic demand tells us that there are very few substitute products, which also means that regular buyers will not switch to the substitutes products unless the price gets too high.
WEEK 4:
What does t-statistic tell us?
· Since the t-statistic associated with income is well over than 2, the income is statistically a significant factor in determining quantity demanded.
· Since the t-statistic associated with price is less than the absolute value of 2, the price is not a statistically significant factor in determining quantity demanded.
What does R-squared tell us? The R-squared 0.79 is high, suggesting that this model explains 79% of the total variation in the demand for GAPPkids apparels and accessories. In other words, 79% of the future outcomes are likely to be predicted by this model.
What does F-statistic tell us? The F-statistic of zero tells us that the overall regression using the variables of price and income has significantly high joint relationship.
WEEK 5: What does P- value tell us?
· The Income P-value of 0 suggests that high level of significance shows strong correlation between level on income and the quantity demanded for GAPPkids apparels and accessories.
· The Price P-value of 0.18, suggests that very high level of significance shows weaker correlation between changes in price and the quantity demanded.
WEEK 6:
Recommendation
From the regression analysis presented above, the statistician and GAPP strategic management team came up with a recommendation to help GAPPkids to increase their revenue in the following year.
From the income elasticity of demand point of view:
Since the economy has shown signs of recovery and since income plays a major role of quantity demanded, GAPPkids needs to act fast to find a target for their market entry or expansion move in more upscale areas. Find some interesting article
According to the research service MasterCard Advisors Spending Pulse. In July 2011, the luxury segment had an 11.6 percent increase, the biggest monthly gain in more than a year. Finding the right locations to place their stores will provide the rich a more convenient way to shop for their kids’ needs. According to Bassolino and Smith whom took China for example, given the rapid pace of development throughout China, many companies find that negotiating a successful brand launch in a first-tier city is no longer a sufficient market entry or expansion move. More than 50 percent of the richest Chinese live outside traditional centers of wealth. Given current macroeconomic trends that support broad-based growth across the country, growth in China’s middle class and wealthy consumer groups over the next five to seven years will occur primarily outside the traditional first tier cities. These customers have the desire and ability to consume branded products. They are also able to allocate a larger share of their income to these products because the cost of living in second- and third-tier cities is generally lower.
WEEK 7:
From the price elasticity of demand point of view:
High-end business like GAPPkids will be able to mark up rather than discount. By doing so, they will attract customers who compare price with the quality of the product. Since P-value and t-statistics have shown that price increase will have low correlation with quantity demanded, maintaining the high price of the goods will actually have no impact on quantity demanded. The rich will not easily notice the price increase in their kids’ apparel prices. Maintaining the luxury brand image, opening more stores in strategic areas, offering no discount, and expanding globally will be a strategic movement for GAPP to increase the revenue of its GAPPkids product line.
WEEK 8:
Citation work
Work Cited
Baye, M. Managerial Economics and Business Strategy. 7. McGraw-Hill/Irwin, 2009. Print
Bassolino, F., & Smith, M. (2010). Find First-Tier Consumers -- in Hundreds of Cities. China Business Review, 37(6), 16-42.
Dickson, V. (2010). Cost pass-through elasticities, concentration and productivity growth. Applied Economics Letters,17(7), 663-666. doi:10.1080/13504850802297962
Graves, P. E., & Sexton, R. L. (2009). CROSS PRICE ELASTICITY AND INCOME ELASTICITY OF DEMAND: ARE YOUR STUDENTS CONFUSED?. American Economist, 53(2), 107-110.
Goel, R. K., & Ram, R. (2004). QUANTILE-REGRESSION ESTIMATES OF CIGARETTE DEMAND ELASTICITIES FOR THE UNITED STATES. Journal Of Economics & Finance, 28(3), 413-421.
Reekie, W. (1976). The price elasticity of demand for evening newspapers. Applied Economics, 8(1), 69.
5 SUMMARY OF PEERS' PAPERS:
1. Amy Kitzman:
Amy described her definition of monopoly, sources that encourage monopoly power, examples of monopoly and how to prevent monopoly. Her examples of diamond as a monopoly market, I find it very intriguing.
2. Melissa Wagner:
Melissa defined signaling, screening, asymmetric information, adverse selection, moral hazard and give an example of each of them.
3. Amy Urbanski: Amy discussed about Risk- mean, variance, standard deviation, risk aversion, risk neutral, risk lover, optimal search their definition and how you can use them in real life to analyze data.
4. Jason Young: Jason talked about property right, government intervention, tragedy that can be caused by violating property right and how to prevent it. His real life examples of property right are very insightful.
5.Kristin Westerfield: Kristin talked about different types of auction, such as: english auction, first price sealed bid auction, second price sealed bid auction, dutch auction, and the disadvantages and disadvantages of each auction and how buyers reacted on each auction.
GAPPkids Pricing Decision
Company Profile
The GAPP is a specialty retailer offering apparel, accessories and personal-care products for men, women, children and babies. The company has its operations spread throughout North America, Europe, the Middle East, Australia, and Asia, and the company has its headquartered in San Francisco, CA. The GAPP currently employs 82,000 people and has stores in 50 countries. A couple years ago The GAPP launched kids’ apparels and accessories intended for kids age 3-10.
GAPP has maintained strong profit margins compared with its competitors, but for the past three years, they have not seen a strong profit from their kids’ apparel line of business. Based on SWOT analysis, one of its strengths of The GAPP is having kid’s products line in their business, but no solid profit has been spotted since the launch of their kids’ apparels and accessories. For the past three years, GAPP has been having difficulty pricing their kids’ products. Since GAPP is famous for their affordable price, the management is trying to figure out what the affordable price is for kids’ apparel is so that GAPP can increase next year’s revenue. Therefore, the management team invited a statistician to give recommendation of what needed to be done to increase profit.
Statistic comes to the rescue
Below is GAPPkids regression from their data for the past three years.
From the above table, we can estimate the demand equation of GAPPkids for the past three years:
Q = 128.31 – 0.78 P + 7.25
From this equation we can conclude that
1) Income elasticity of demand for GAPPkids product is 7.25
2) Price elasticity of demand for GAPPkids product is -0.78
What does t-statistic tell us?
What does R-squared tell us?
The R-squared 0.79 is high, suggesting that this model explains 79% of the total variation in the demand for GAPPkids apparels and accessories. In other words, 79% of the future outcomes are likely to be predicted by this model.
What does F-statistic tell us?
The F-statistic of zero tells us that the overall regression using the variables of price and income has significantly high joint relationship.
What does P- value tell us?
Recommendation
From the regression analysis presented above, the statistician and GAPP strategic management team came up with a recommendation to help GAPPkids to increase their revenue in the following year.
From the income elasticity of demand point of view:
Since the economy has shown signs of recovery and since income plays a major role of quantity demanded, GAPPkids needs to act fast to find a target for their market entry or expansion move in more upscale areas. According to the research service MasterCard Advisors Spending Pulse. In July 2011, the luxury segment had an 11.6 percent increase, the biggest monthly gain in more than a year. Finding the right locations to place their stores will provide the rich a more convenient way to shop for their kids’ needs. According to Bassolino and Smith whom took China for example, given the rapid pace of development throughout China, many companies find that negotiating a successful brand launch in a first-tier city is no longer a sufficient market entry or expansion move. More than 50 percent of the richest Chinese live outside traditional centers of wealth. Given current macroeconomic trends that support broad-based growth across the country, growth in China’s middle class and wealthy consumer groups over the next five to seven years will occur primarily outside the traditional first tier cities. These customers have the desire and ability to consume branded products. They are also able to allocate a larger share of their income to these products because the cost of living in second- and third-tier cities is generally lower.
From the price elasticity of demand point of view:
High-end business like GAPPkids will be able to mark up rather than discount. By doing so, they will attract customers who compare price with the quality of the product. Since P-value and t-statistics have shown that price increase will have low correlation with quantity demanded, maintaining the high price of the goods will actually have no impact on quantity demanded. The rich will not easily notice the price increase in their kids’ apparel prices. Maintaining the luxury brand image, opening more stores in strategic areas, offering no discount, and expanding globally will be a strategic movement for GAPP to increase the revenue of its GAPPkids product line.
Work Cited
Baye, M. Managerial Economics and Business Strategy. 7. McGraw-Hill/Irwin, 2009. Print
Bassolino, F., & Smith, M. (2010). Find First-Tier Consumers -- in Hundreds of Cities. China Business Review, 37(6), 16-42.
Dickson, V. (2010). Cost pass-through elasticities, concentration and productivity growth. Applied Economics Letters,17(7), 663-666. doi:10.1080/13504850802297962
Graves, P. E., & Sexton, R. L. (2009). CROSS PRICE ELASTICITY AND INCOME ELASTICITY OF DEMAND: ARE YOUR STUDENTS CONFUSED?. American Economist, 53(2), 107-110.
Goel, R. K., & Ram, R. (2004). QUANTILE-REGRESSION ESTIMATES OF CIGARETTE DEMAND ELASTICITIES FOR THE UNITED STATES. Journal Of Economics & Finance, 28(3), 413-421.
Reekie, W. (1976). The price elasticity of demand for evening newspapers. Applied Economics, 8(1), 69.
QUIZ QUESTION:
1. The demand for which of the following commodities is likely to be more price inelastic?
Answer: FOOD
2. If there are few close substitutes for a good, demand tends to be relatively
Answer INELASTIC
This case is a perfect example of relatively inelastic goods, since there are only a few substitutes.
3. You are the manager of a popular shoe company. You know that the advertising elasticity of demand for your product is .15. How much will you have to increase advertising in order to increase demand by 10%?
Answer66.7%
Since the elasticity is the percentage change in quantity demanded divided by the percentage change in price of the good.
4. Since most consumers spend very little on salt, a small increase in the price of salt
Answer
will not reduce quantity demanded by very much
Since salt does not cost much, increase in price will not affect quantity demanded.
5. A price elasticity of zero corresponds to a demand curve that is:
Answer VERTICAL
Perfectly inelastic demand occurs when buyers have no option to choose from or no substitute, so no matter what the price is, buyers will still buy it, such as cigarette.
WEEKLY POST
WEEK 1:
Company profile
The GAPP is a specialty retailer offering apparel, accessories and personal-care products for men, women, children and babies under. The company has its operations spread in North America, Europe, Middle Eastern, Australia, and Asia. It is headquartered in San Francisco, CA and currently employs 82,000 people and has stores in 50 countries. A couple years ago The GAPP launched kids’ apparels and accessories intended for kids age 3-10.
GAPP has maintained strong profit margins compared with its competitors, but for the past three years, they have not yet seen a strong profit from their kids’ line of business. Based on SWOT analysis, one of its strength is having kid’s products line in their business, but no solid profit has spotted since the launch of their kids’ apparels and accessories. For the past three years, GAPP has been having difficulties pricing their Kids’ products. Since GAPP is famous for their affordable price, the management is trying to figure out what the affordable price is for kids’ apparels in order for GAPP to increase next year revenue. Therefore, the management team invited a statistician to give recommendation of what needed to be done to increase profit.
WEEK 2:
Regression statistics and ANOVA table
WEEK 3:
Reading textbooks and try to figure out what the statistics numbers mean.
Find some good sources:
CROSS PRICE ELASTICITY AND INCOME ELASTICITY OF DEMAND: ARE YOUR STUDENTS CONFUSED? - GRAVEL
QUANTILE-REGRESSION ESTIMATES OF CIGARETTE DEMAND ELASTICITIES FOR THE UNITED STATES. – GOEL
The price elasticity of demand for evening newspapers - Reekie
From the above table, we can estimate the demand equation of GAPPkids for the past three years:
Q = 128.31 – 0.78 P + 7.25 M
From this equation we can conclude that
Income elasticity of demand for GAPPkids product is 7.25
· Income elasticity of demand measures the responsiveness of the demand for a good to changes in consumer income (Baye, Managerial Economics and Business Strategy).
· A positive income elasticity of demand greater than 1 means that the GAPPkids product is a luxury good.
· The demand for luxury goods increases as income increases, and the demand for it will decline as income declines
· $1000 increase in income will lead to an increase in quantity demanded by 7.25 units.
Price elasticity of demand for GAPPkids product is -0.78
· Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to a change in the price of that good (Baye, Managerial Economics and Business Strategy).
· Price elasticity of demand between 0 and -1 means that demand is relatively inelastic.
· Relatively inelastic demand means the percentage change in quantity demanded is smaller than percentage change in price. In other words, quantity demanded is not very responsive to the change in price.
· $1 increase in price will lead to a decrease in quantity demanded by 0.78 units
· If the curve is drawn, it will show a very steep, almost vertical line.
· Relatively inelastic demand tells us that there are very few substitute products, which also means that regular buyers will not switch to the substitutes products unless the price gets too high.
WEEK 4:
What does t-statistic tell us?
· Since the t-statistic associated with income is well over than 2, the income is statistically a significant factor in determining quantity demanded.
· Since the t-statistic associated with price is less than the absolute value of 2, the price is not a statistically significant factor in determining quantity demanded.
What does R-squared tell us?
The R-squared 0.79 is high, suggesting that this model explains 79% of the total variation in the demand for GAPPkids apparels and accessories. In other words, 79% of the future outcomes are likely to be predicted by this model.
What does F-statistic tell us?
The F-statistic of zero tells us that the overall regression using the variables of price and income has significantly high joint relationship.
WEEK 5:
What does P- value tell us?
· The Income P-value of 0 suggests that high level of significance shows strong correlation between level on income and the quantity demanded for GAPPkids apparels and accessories.
· The Price P-value of 0.18, suggests that very high level of significance shows weaker correlation between changes in price and the quantity demanded.
WEEK 6:
Recommendation
From the regression analysis presented above, the statistician and GAPP strategic management team came up with a recommendation to help GAPPkids to increase their revenue in the following year.
From the income elasticity of demand point of view:
Since the economy has shown signs of recovery and since income plays a major role of quantity demanded, GAPPkids needs to act fast to find a target for their market entry or expansion move in more upscale areas.
Find some interesting article
According to the research service MasterCard Advisors Spending Pulse. In July 2011, the luxury segment had an 11.6 percent increase, the biggest monthly gain in more than a year. Finding the right locations to place their stores will provide the rich a more convenient way to shop for their kids’ needs. According to Bassolino and Smith whom took China for example, given the rapid pace of development throughout China, many companies find that negotiating a successful brand launch in a first-tier city is no longer a sufficient market entry or expansion move. More than 50 percent of the richest Chinese live outside traditional centers of wealth. Given current macroeconomic trends that support broad-based growth across the country, growth in China’s middle class and wealthy consumer groups over the next five to seven years will occur primarily outside the traditional first tier cities. These customers have the desire and ability to consume branded products. They are also able to allocate a larger share of their income to these products because the cost of living in second- and third-tier cities is generally lower.
WEEK 7:
From the price elasticity of demand point of view:
High-end business like GAPPkids will be able to mark up rather than discount. By doing so, they will attract customers who compare price with the quality of the product. Since P-value and t-statistics have shown that price increase will have low correlation with quantity demanded, maintaining the high price of the goods will actually have no impact on quantity demanded. The rich will not easily notice the price increase in their kids’ apparel prices. Maintaining the luxury brand image, opening more stores in strategic areas, offering no discount, and expanding globally will be a strategic movement for GAPP to increase the revenue of its GAPPkids product line.
WEEK 8:
Citation work
Work Cited
Baye, M. Managerial Economics and Business Strategy. 7. McGraw-Hill/Irwin, 2009. Print
Bassolino, F., & Smith, M. (2010). Find First-Tier Consumers -- in Hundreds of Cities. China Business Review, 37(6), 16-42.
Dickson, V. (2010). Cost pass-through elasticities, concentration and productivity growth. Applied Economics Letters,17(7), 663-666. doi:10.1080/13504850802297962
Graves, P. E., & Sexton, R. L. (2009). CROSS PRICE ELASTICITY AND INCOME ELASTICITY OF DEMAND: ARE YOUR STUDENTS CONFUSED?. American Economist, 53(2), 107-110.
Goel, R. K., & Ram, R. (2004). QUANTILE-REGRESSION ESTIMATES OF CIGARETTE DEMAND ELASTICITIES FOR THE UNITED STATES. Journal Of Economics & Finance, 28(3), 413-421.
Reekie, W. (1976). The price elasticity of demand for evening newspapers. Applied Economics, 8(1), 69.
5 SUMMARY OF PEERS' PAPERS:
1. Amy Kitzman:
Amy described her definition of monopoly, sources that encourage monopoly power, examples of monopoly and how to prevent monopoly. Her examples of diamond as a monopoly market, I find it very intriguing.2. Melissa Wagner:
Melissa defined signaling, screening, asymmetric information, adverse selection, moral hazard and give an example of each of them.3. Amy Urbanski:
Amy discussed about Risk- mean, variance, standard deviation, risk aversion, risk neutral, risk lover, optimal search their definition and how you can use them in real life to analyze data.
4. Jason Young:
Jason talked about property right, government intervention, tragedy that can be caused by violating property right and how to prevent it. His real life examples of property right are very insightful.
5.Kristin Westerfield:
Kristin talked about different types of auction, such as: english auction, first price sealed bid auction, second price sealed bid auction, dutch auction, and the disadvantages and disadvantages of each auction and how buyers reacted on each auction.
WEEK 16:
Finding quizzes to add.
WEEK 16:
DONE!