Based on the price elasticity matrix given below: ....................... aqufre

Question

Based on the price elasticity matrix given below:

.......................aqufresh....... colgate........crest........ mentadent

quafresh........black 1.... ......blank 2........0.8...... ........2 .0

colgate ............1.2..................-3.5.............1.5.............. 1.5

crest ................1.0 ..................2.5 ...........-3.2.............. 1.8

mentadent.......1.8.................. 1.2.............1.3...............4.0

1. Assume that Aquafresh own price elasticity is -1.5 and that the Colgate cross price elasticity of demand with respect to Aquafresh price change is 1. How do you interpret the own and cross price elasticities?<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

2. Which brand is Aquafresh mainly competing with? Explain using cross price elasticities in the price elasticity matrix.

3. Aquafresh main competitor: Explain :

4. Which brand has the highest brand equity/power? Explain using Clouts and Vulnerabilities of the four toothpaste brands.

5. Brand with the highest equity/power : Explain:

Explanation / Answer

1. Aquafresh own price elasticity is -1.5. It's negative value indicate that increase in price will result in reduction in quantity demanded.Price elasticity is greater than one (in absolute value) which means demand is elastic and changes in price have a relatively large effect on the quantity demanded.

Colgate cross price elasticity of demand with respect to Aquafresh price change is 1. This means that Colgate and Aquafresh are substitutes(competitors). X% increase in price of Aquafresh will result in eual x% change in demand of Colgate.

2. Main competitor is mentadent because it has the highest cross cross price elasticity. Mentadent has the highest value of price elasticity of demand with respect to Aquafresh.

PEoD = (% Change in Quantity Demand for Good X)/(% Change in Price for Good Y)

A high positive cross-price elasticity tells us that if the price of one good goes up, the demand for the other good goes up as well. A high value ( positive) tells us that there is large relation between the two goods.

3. Aquafresh main competitor: mentadent

4. Vulnerabilities for Aquafresh = 1.2+1+1.8 =4.0

Vulnerabilities for Colgate = 1+2.5+1.2 =4.7

Vulnerabilities for Crest =0.8+1.5+1.3 = 3.6

Vulnerabilities for Mentadent = 2.0+1.5+1.8 = 5.3

Lower the Vulnerability, higher is the Brand/Equity Power

Therefore, Crest has the highest Band/Equity Power

Brand with the highest equity/power = Crest

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