EMPERICAL TESTING OF PRICE ELASTICITY OF DEMAND for NESCAFE ORIGINAL COFFEE

By SAMIA SHAMSI (09109003) SUBMITTED TO MR. EHSAAN ULLAH

GIFT UNIVERSITY SCHOOL OF BUISSINESS SCHOOL

Submitted in Partial Fulfillment of the Requirement of the Degree of Masters of Business Science 2009 i

I WANT TO DEDICATE MY PROJECT TO MY PARAENTS

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Acknowledgement
I want to thank ALLAH first of all who gave me the ability to perform this task and after that I would like to thank my teacher Mr. Ehsaan ullah who have told me how to manage my project as teacher he has fulfilled his task then I would like to thank my elder sister as she is my helping hand and without her I could not be able to do this project after that my friends they all helped me a lot in doing and completing this project because I have done such kind of work first time in my life so they were proved to be very helpful for me in managing and organizing this project.

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FORWARD
My project is about Nescafe original coffee. I have made a survey in the market about the demand of the Nescafe original coffee. And from that survey I have gathered some qualitative and quantitative data that how the demand of people changes when there is a change in the price of coffee or may be in the prices of substitutes and complementary goods of coffee. Here in this survey I have also focused the change in demand of coffee when there is a change occur in the other factors like weather income etc so as I have collected too many views I am going to change these raw views in to a shape of real calculation that what is the market demand of Nescafe original coffee now a days and which factors effects its demand the most at which percentage.

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CHAPTER#1 INTRODUCTION

1.1 LAW OF DEMANDS:

All else equal, consumers buy more of a good during a given period the lower its opportunity cost (relative price) and vice versa. Edition: 5th Writer: Ralph t. byrns and Gerald w. stone Chapter # 3: Demand and Supply Page#58 Publisher: Addison Wesley

1.2 PRICE ELASTICITY OF DEMAND:

The price elasticity of demand (sometimes simply called price elasticity) measures how much the quantity demanded of a good changes when its price changes. The precise definition of price elasticity is the percentage change in quantity demanded divided by the percentage change in price. Writer: samuelson, nordhaus v

Chapter #4: Application of Supply and Demand Page#66 Publisher: ..

1.3 DEMAND CURVE:

The demand curve represents the maximum price that an individual will pay for the various quantities of a good the individual will Happily pay

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Writer: David c. colander Chapter#2: Supply and Demand Page#39

1.4 INCOME ELASTICITY OF DEMAND:

Income elasticity of demand shows the degree of responsiveness of quantity demanded of goods to a change is the income of the consumers. To put it more precisely, the income elasticity of demand is defined as the ratio or proportionate change in the purchase of a goods to the proportionate change in income. Writer: Dr. M.M. parsad Chapter#4: elasticity of demand Page#56 Publishers: Educational publishers.

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1.5 DEMAND:
A schedule of how much of a good or service people will purchase at any price during a specified time period other things remain constant. Writer: roger Leroy miller Page 46 Chapter#3: demand and supply Publisher: Addison Wesley.

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1.6 MARKET DEMAND:

Market demand which represents the sum of total of all the individual demands .The market demand curve is found by adding together the quantities demanded by all individuals at each price. Edition: 15th Writer: William nordhaus Paul a. samuelson Publisher: McGraw hill. Inc

1.7 SHIFT OF DEMAND:

If the prices of goods remain constant but some other influences on buyers plan changes, there is a change in demand for that good. Chapter#4: Demand and Supply

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Edition: 5th Writer: Michael parkin Publisher: Addison Wesley publishing company

Page#67 1.8 INCOME ELASTICITY OF DEMAND:

In economics, the income elasticity of demand measures the responsiveness of the demand of a good to the change in the income of the people demanding the good. It is calculated as the ratio of the percent change in demand to the percent change in income

Reference: Wikipedia the free encyclopedia URL: http://en.wikipedia.org/wiki/Income_elasticity_of_demand_(YED)

1.9 TOTAL REVENUE TEST:

Total Revenue Test is a means for determining whether demand is elastic or inelastic. If an increase in price causes an increase in total revenue, then demand can be said to be inelastic, since the increase in price does not have a large impact on quantity demanded. If an increase in price causes a decrease in total revenue, then demand can be said to be elastic, since the increase in price has a large impact on quantity demanded. Reference: Wikipedia the free encyclopedia. URL: http://en.wikipedia.org/wiki/Total_revenue_test

1.10 QUANTITY DEMANDED:

A term used in economics to describe the total amount of goods or services that are demanded at any given point in time. The quantity demanded depends on the price of a good or service in the marketplace, regardless of whether that market is in equilibrium. The quantity demanded is determined at any given point along a demand curve in a price vs. quantity plane. xi

Reference: Investopedia URL: http://www.investopedia.com/terms/q/quantitydemanded.asp

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CHAPTER#2 RESEARCH METHEDOLOGY

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CHAPTER#3 ANALYSIS

1.Primary reason for using

1 coffee

taste customer service

75%

25%

2. Do you use substitutes

yes no

60% 40%

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3. People say that they want to change the price of Nescafe coffee

yes no

65% 35%

4. People take coffee in a day

1 time 2times 3times

65% 30% 5%

5. Time period since people are using Nescafe coffee

1year or more 5years or more 10 years or more more

50% 35% 15%

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6. Satisfaction of people from Nescafe coffee

satisfied not satisfied

80% 20%

7. As compared to other products Nescafe coffee is much better 70% 30 same %

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8. People purchase tin pack bottle sachet 35% 50% 15%

9. When complimentary goods price changes the effect on the demand of coffe of people is:

demand decreases demand remains the same 70% 30%

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10. Availability of coffee in the market is:

easily available not easily available 20% 80%

11. In which season people use coffee most

winter summer rainy

70% 15% 15%

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12. People satisfied with the services of company

agree neutral Disagree

75% 25% 0%

13. People use sustitutes of coffee:

coffee of other brands black coffee 10% 90%

14 people expect that prices should be low yes 55% no 25% may be 30%

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15. How did people firstly discover Nescafe coffee

Advertisem ent friends told them 40% 60%

16. People want to replace Nescafe coffee in future

yes no

80% 20%

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17. People think that the taste of Nescafe coffee can become better than yet:

yes no

65% 35%

18. People says that Nescafe coffee is the best available coffee in the market:

90 yes % 10 no %

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Qua ntit y De 19. man Price ded 355 105 380 90 390 75 400 60

Qd=a +bp 453.1 07(35 0.97() 5) 109 Qd=a +bp 453.1 00.97(3 80) 85 Qd=a +bp 453.1 00.97(3 90) 74.8 Qd=a +bp 453.1 00.97(4 00) 65.1

Qu ant ity de ma Pric nd e ed

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NAME ..

PROFESSION

Tick marks the best answer. Following is the survey of Nescafe original coffee that what effect can be caused if the following situation will be faced by the customers of Nescafe coffee:
Q#1: What is the primary reason of using Nescafe original coffee? a) Price b) Taste c) Customer service d) Other (give reason) Q#2: Do you use substitutes of coffee like? a) Cold coffee b) Black coffee c) Tea d) Dont use substitutes Q#3: What will you do if the prices of Nescafe original coffee will increases from Rs.355 to Rs. 380? a) Your demand will remain the same b) Your demand will increase c) Your demand will decrease. Price 355 380 demand .. ..

Q#4: If you could change something about Nescafe original coffee what would it be? a) Its taste xxvi

b) Its price c) Other thing (give reason) Q#5: How did you first discover Nescafe original coffee was available for purchase? a) Advertising TV, newspaper, magazine, radio b) Friends/Family/Someone told me about It c) Saw it in the store/Browsing in store Q#6: How many times in a day you take coffee? a) 1 time b) 2 times c) 3 times Q#7: How long have you been using Nescafe coffee? a) 1 year or more. b) 5 years or more. c) 10 years or more. Q#8: How satisfied are you with Nescafe coffee? a) Just satisfied b) Unsatisfied c) Very unsatisfied d) Extremely satisfied. Q#9: Compared to other [PRODUCT CATEGORY] that are available, would you say that Nescafe coffee is: a) Much better b) Same c) Worse xxvii

Q#10: What would you like to tell [COMPANY] about your satisfaction with the Nescafe coffee? Q#11: What would you purchase for fulfilling the requirement of coffee? a) Tin pack. b) Bottle. c) Sachet. Q#12: What will you do if the prices of the substitutes of coffee will fall? a) Your demand for coffee will increase. b) Demand for coffee will increase. c) Demand for coffee will remain same. Price 350 345 340 330 demand

Q#13: What will you do if the milk price will increase? a) Your demand for coffee will increase. b) Your demand for coffee will decrease. c) Your demand for coffee will remain the same. Q#14: If you are not satisfied with Nescafe coffee tell the reason briefly: xxviii

Q#15: Do you think that Nescafe original coffee is easily available in the market? a) Always available b) Sometime available c) Sometime not available d) Always not available Q#16: In which season you use coffee most? a) Winter season b) Summer season c) Rainy season Q#17: Consider the total package of Nescafe coffee including customer service, features and benefits, and cost. How satisfied are you with the product? a) Agree b) Disagree c) Neutral Q#18: If the (Company Product) were no longer available, what would you replace it with? Q#19: All things remains the same, over the next 12 months how likely are you to replace Nescafe coffee? a) High chances b) Low chances c) Certain d) Not sure

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Q#20: Do you think there should be a change in price? a) Yes b) No c) Doesnt effect THANKS FOR YOUR CO-OPERATION

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