Stagelights Target Market Analysis

Once the averages of each relevant data set has been collected, the next step is to calculate elasticites. (See Figure 1 and Figure 3) The elasticity of demand for the average of all the values in the demand function turned out to be 0.037. This number represents extreme inelasticity, so a change in price causes small changes in the quantity of DVDs rented. This means that Stagelights can safely raise their prices and expect their quantity to have little effect. Stagelights needs to move its price elasticity to unitary, or one, to return the highest possible revenue. Currently, Stagelights marginal revenue is less than zero and they are on the decreasing side of the total revenue curve, due to the inelasticity. (See Figure 4)
The income elasticity of the averages turned out to be -2.21. (See Figure 3) This means that Stagelights rental good is considered inferior. As income falls, Stagelights’ rentals become more attractive to consumers. This makes sense, because as income increases consumers are more willing to spend more at the movie theatre and less on rentals. The income elasticity calculation does go against Stagelights target market. The rentals are considered an inferior good, but he is targeting the rich, upscale
For every advertising dollar spent, it leads to a 1.42 increase in sales. This is helpful to increase sales, but it does not translate into a big gain unless large amounts of advertising dollars are spent. If Stagelights truly wanted to increase sales, they would have to convince people not to have cable television or try and persuade the teenage population to use Stagelights. Currently TEENS has one of the biggest negative effects on DVD rentals. Attacking the right market with advertisements may prove more useful than current promotions in the future. The first possible solution is much more viable than increasing sales promotion