Example Of Research Paper On Elasticity Of Demand For Refrigerators

Introduction

Price elasticity of demand is an important aspect of market research. This importance arises from the fact that the price elasticity of a product determines how far a price reduction or a price increase will affect the earnings of a firm. We know that by the law of demand there is negative relationship between the price of a product and its price. But to what extent the demand is affected by the price varies across products due to various reasons like product characteristics, consumer preferences, market structure and many others. The extent to which the demand for a product responds to the changes in its price is the price elasticity of demand. In precise mathematical terms we can say that price elasticity of demand is the percentage change in the quantity demanded of a product due to one per cent change in its price. If a one percent fall in the price leads to a 2.7 per cent rise in the quantity demanded we say that the price elasticity is 2.7. If the price elasticity is more than 1 we say that the good is price elastic. If the price elasticity is less than 1 it is price inelastic.
In the present analysis we have conducted a survey on the price and quality of different brands of refrigerators at four different stores. Then we have analyzed the data to find the qualitative price elasticity of refrigerators and the relative price elasticity of a particular brand of refrigerator. From the analysis we have suggested a possible pricing strategy for our chosen brand that can lead to a better position for the firm in terms of earnings and market share.
The survey has primarily revealed that the market for refrigerators is competitive in nature. There are a number of brands. More new brands are entering the market. The features of the different brands are also somewhat similar. There is very little scope of product variations for any particular size and description. So the products are to some extent similar except for minor differences. To keep uniformity in the comparison we have considered the market for compact refrigerators whose size vary from 3.2 cubic feet to 4.5 cubic feet. Most of the refrigerators we have studied have a size of 4.4 cubic feet. We have conducted our survey at four different stores, Costco, eZone, Home Depot and Best Buy. The brands on which we have based our survey on are Danby, Daewoo, Whirlpool, Kenmore, Frigidaire, Nostalgia, and Igloo. We have made the analysis with respect to our chosen brand that is Danby and our chosen store Costco.
In the first section of our report we present the price of these 7 brands from the four different stores mentioned above. In Section II we have presented the qualitative features of the 7 brands. We have analysed the differences in the price in terms of the variations in the features. In the final section , that is section III we presented the conclusion of our analysis where we have made suggestions for the possible pricing strategy for our chosen brand.

Section I: Relative Price Comparison

The prices of the 7 brands at the four different stores have been presented in the table below. There are variations in prices across the various brands as well as across the stores but the variations are not too large. They are only moderate differences in the prices.
All the brands are not available in all of the stores. Only our selected brand Danby is available in all four stores. Daewoo is available only in Costco while Igloo features only in Best Buy. Kenmore is also available only in one of the stores that is eZone. We can see from the table that our store Home Depot offers the lowest price for Whirlpool refrigerators but charges the highest for Danby refrigerators among the four stores. At Home Depot and Best Buy the Danby refrigerators are the most expensive among the brands whereas at Costco and eZone it is the cheapest among all the brands of refrigerators available. Let us now compare the features of these brands in the next section.

Section II: Analysis

The features, like the prices, are not a too widely variant aspect. Let us first discuss the features of each brand and then we can go onto the comparison of the features. Daewoo is high efficiency refrigerator offering compressor cooling. It also has a low noise level. It provides a full range temperature control. Whirlpool is energy star qualified. It has a simulated stainless steel door which it claims that it won’t show any fingerprints. Kenmore offers removable shelves, a rack for 2 liter bottles as well as an easily accessible can rack. It has s separate chiller compartment for frozen foods. The reversible door helps in adjusting space. It has a clean back that can fit against the wall . Frigidaire offers mechanical temperature control. It has two glass shelves. It offers store more crisper and store more door bins. Bottle retainer, hanging can rack and reversible door are the usual features. It has a 15 watt interior light and a 0.7 cubic feet freezer compartment. Nostalgia also has a full range adjustable thermostat like Daewoo It has a separate freezer compartment, a fruit and vegetable crisper two removable shelves. There is a can dispenser and 2 liter bottle storage like most of the other brands. It has a bright interior lighting with retro design. Igloo offers analog control, adjustable thermostat, slide out glass shelves. It also has a built-in door can and bottle holders. The reversible door provides space utility. It also has a ice cube tray. It boasts of a flush-back design. Danby uses eco friendly R600a refrigerant. It has an independent Freezer section and provides the facility of manual defrost. It offers ‘can store’ beverage dispenser.
Studying the features of the 7 brands of refrigerators we can find that most of the features are common among all the brands like the separate freezer, can dispenser and temperature control and such others. Only Whirlpool boasts to be energy star qualified. That means it is highly energy efficient. Danby has unique quality which none of the seven brand have. It is an eco-friendly refrigerator that uses a refrigerant that is emissions safe. If we compare the price now we will find that Whirlpool and Danby available at higher prices compared to the other five brands. It is clear that the energy saving feature of Whirlpool is its unique feature that makes it stand apart and ask for a premium for the quality it offers. Similarly Danby is the only refrigerator which is eco-friendly and thus demands a premium for this uniqueness.
The price elasticity estimates of refrigerators in general shows that refrigerators are somewhat inelastic in demand with respect to price with the price elasticity being around -0.48. The elasticity with respect to relative to relative price has also been estimated by Dale and Fujita. In case of relative price the increase price with respect to the consumer’s income is also taken into account. Thus relative price = Product’s Price/Income. The relative price elasticity is also low for refrigerators. The value of relative price elasticity of refrigerators for households is -0.40. The low elasticity indicates that the demand would not be affected much with the change in the price. That means a rise in the price will not reduce the demand for refrigerators significantly. A rise in the price of refrigerator by 1% will reduce the demand by only 0.48%. If the relative price rises by 1% the demand will fall by 0.4%.
The elasticity of demand for refrigerators is general have been found to be low. But we need frame an idea about the elasticity demand for the refrigerator of our chosen brand Danby with respect to the elasticites of the other six brands. We have noted from our analysis here that most of the brands have similar features. Only two brands, Whirlpool and Danby have a distinguishing characteristic each which gives them room for more consumer preference than the rest of the brands in our study. So there is justification in believing that Danby as well as Whirlpool has even lower elasticities compare to the five other brands. With respect to our findings from the survey and the consequent analysis that we have presented here we can now make suggestions about the pricing strategy that Home Depot can take with respect to Danby compact refrigerators. We present our recommendations about the price of Danby in the following section.

Section 3: Conclusion

Our survey report, analysis and subsequent discussions presented in section one and two above provides us with some important insights about the market structure for refrigerators and the possible strategy options. We have seen that the brands have almost the same characteristics in terms of temperature regulations, internal lightings, shelf positions, presence of freezer compartments, and such others. There are also a number of brands available in the market. This suggests that the market is competitive in nature. Though the goods are not homogeneous in nature there are few insignificant differences. The products have variations only in their external characteristics. The brand name can off course be a differentiating factor. Other than that, there is not much monopolistic element in the market. The price reflects this uniformity in the features. But Danby is an exception in this respect as it has unique feature to offer that differentiates this brand from the rest. It is an eco-friendly refrigerator as it uses a refrigerant that does not harm the atmosphere. In today’s age of environmental awareness such refrigerators are more popular. People find more value in buying such refrigerators as it promises a safe environment. So the demand for Danby will be more inelastic than the other brands. We can say that the demand is highly inelastic for Danby refrigerators.
Now coming to the pricing policy of Home depot we find that it charges somewhat lower price for Whirlpool and Frigidaire compared to the other stores but a higher price for Danby compared to the other three stores. Given the inelastic nature of the demand for Danby refrigerators as revealed by our study such pricing is quite justified. But it should also be noted that the same brand is available at a lower price in the other stores. Home Depot can do better if it can lower the price a bit to a level closer to Best Buy, may be around $249.00 and at the same time project the eco-friendly characteristics of Danby to increase the sales.

Works Cited

Amazon. http://www.amazon.com/Whirlpool-WAR488BSL-cu-ft-capacity-fridge/dp/B004H1MDXU. n.d. English. 24 April 2015.
Dale, Larry and K Sydny Fujita Fujita. An Analysis of the Price Elasticity of Demand for Household Appliances. Research Report. Berkeley: Energy Analysis Department, University of California, 2008. English.
Koutsoyiannis, A. Microeconomics. Pulgrave Macmillan, 2003.
Pindyck, Robert and Daniel Rubinfield. Microeconomics. 7th. Prentice Hall, 2009.
www.kenmore.com. http://www.kenmore.com/kenmore-4.4-cu-ft-compact-refrigerator-stainless-steel/p-04699783000P?prdNo=1&blockNo=1&blockType=G1. n.d. English. 24 April 2015.