Tag Archive for: demand planning

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Market And Demand Formation

Tesla is here to stay and keep fighting for the electric car revolution.
Elon Musk

How do markets form?  What happens when they do?  Let’s look.

The modern mass-produced electric car market began in 2009.  As Figure A displays, there was a sole entrant then, the Mitsubishi i-MiEV.  By 2012, in Figure B, many more entrants came into play.  Three years later, with Figure C, prices for most models fell, and they attracted more customers.  Producers were able to drop prices because their production lines displayed learning curve effects.  They benefited from lower costs from more efficient workers, standardization, economies of scale, and other factors.

Figure D shows us that by 2018, many new models moved into the market.  Several models (all Teslas, marked with the yellow dots) combined to form the market’s Demand Frontier.  That line is highly correlated (adjusted R2 95.4%, P-value 5.04E-04) and relatively flat, with a slope of -0.36.

In 2019, electric car sales fell about 10% from 2018, despite Tesla’s Model 3 success.  Given the flattish Demand Curve, that suggests buyers would be eager for a high-range vehicle with a price lower than the Model 3.  All competitors priced less than the cheapest Model 3 have less range than it does.

#demand #marketanalysis #marketformation #demandformation #demandplanning #curve

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Missing Price Targets

Businesses frequently set price goals. What does it mean not to hit them?

In A, we predict 1, the price of a barrel of oil. When the forecast date arises, the actual price, 2, varies, resulting in a one-dimension Error Line. We know by how much we missed, but nothing else.

B shows us what it means to be off-target in archery. If we aim at 1 and land on 2, we create an Error Triangle. That’s a two-dimensional error, in elevation (up and down) and azimuth (left to right).

In C, where every blue diamond stands for a business jet, we propose a new one. We set our target quantity and price, as 1, on the Demand Frontier, the line through the market’s outermost quantity-price points, in yellow. If we can’t put in enough features to support that price, we’d make a plane fetching less money, as 2. Moving from 1 to 2, we make a Demand Error Triangle.

But, in D, we find as prices fall, we might be able to sell more models. Analysts should find the Demand Frontier Slope to ascertain the amount of revenue available at market limits. That will be the areas under the curves, the green rectangle for 1, the orange one for 2.

What does it mean to miss price targets in Value Space? Find out in my next post.

#prices #demand #demandplanning #demandforecasting

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Demand Is Not Hypothetical

Virtually all economics textbooks treat Demand hypothetically.  They strike a line to show how prices would theoretically fall as quantities increase.

In the real world, market Demand manifests itself as a series of points, with quantities (here, of bomber models) on the horizontal axis, and prices (as bomber prices) on the vertical axis, as shown below.  Note the limiting values for this market, shown in open circles.  Collectively, what do these circles represent? (Answer in next post)

#demand #demandplanning #demandforecasting