5.Cost/Profit Analysis for KIa12
KIA has decided to enter Compact Car market in India. KIA proposes to introduce cars in the range of 5-8 Lacks that will compete with Maruti Dzire, Hundai Accent, Maruti SX4 rtc.
The current size of market for cars in this range is :
Quantity of cars produced in this range is:
Current Market Share of various cars in this market
From the Supply perspective KIA expects
Fixed Costs as:
Marginal Costs as:
Average variable costs as
<We need to assume something here based of any other company cost structure : for example say KIA need to spend 3.5 lacks per car to produce at quantity 2000 nos per yesr>
The objective of this study is to find out based on market and competitor analysis number of cars Kia need to produce to recover their investment in 5 years.
1. Demand Analysis
The Law of Demand states that the relationship between a good’s price and the quantity demanded of that good is negative. This is referred to as a “change in quantity demanded”. Own-price changes cause movements along a given demand curve.
The demand for automobiles for is dependent of certain factors: The demand function for X:
XD = f (PX, Ps, Pc, I, T&P, Pop, A, O, PPP, R, SP, Av, In, Tr, F) Where:
XD = quantity demanded
PX = X’s price; the price of a car
Ps = the price of substitutes
Pc = the price of complements
PPP=Purchasing Power parity of the consumers
R= Rising income level of the consumer
I= Inflation of the country
A=after sales service cost
T&P=tastes and preferences
Pop=population in market or market size
SP= Price of Spare Parts
Av= Availability of nearby service station
In=Lack of proper roads
Tr= Traffic Condition on the Roads
F=Financing options available in the market
2009 Price vs Quantity analysis of Sedan Cars in India
<Add Demand Curve analysis here>
Shift In Demand Curve
Changes in these shift the demand curve:
* Number of buyers
* Tastes and preferences
* Income of the consumers
* Purchasing Power Parity
* Change in Fuel Prices
* Change in Financing Options
* After sales servicing cost
* Availability of spare parts
* Lack of Infrastructure Facilities like Roads, etc.
* Price of substitutes or complements
* Expectation of future prices
Number of buyers
Demand is originating from new segments of the market; Apart from the usual clientele like industrialists, film stars and chairpersons of companies, an increasing number of young professionals like doctors, chartered accountants, lawyers and software professionals owning start-ups do not mind splurging on our cars.
Tastes and preferences
The surge in demand for compressed natural gas (CNG) and liquid petroleum gas (LPG) vehicles in India is driven by the increasing price of petrol and diesel, as well as by the fact that CNG prices are relatively low compared to prices for more traditional fuels.
Demand is driven by growing environmental concern and the Indian government's proactive measures to implement Euro-II emission norms.
Price of substitutes or complements
Substitutes: Goods that can serve as replacements for one another: when the price of one increases, demand for the other goes up.
When the price of a Honda city goes up, the demand for its substitute the Hyundai car goes up.
Complements/complementary goods: Goods that “go together”, i.e. a decrease in the price of one results in an increase in demand for the other.
If the price of petrol increases, the demand for car and its complementary good will fall. if the price of Cars were to rise dramatically, less people would chose to buy and use cars, switching perhaps to...