Businesses create goods or services demanded by consumers.

Full Answer Section

• Market: Operates in the global streaming and digital entertainment market.
• Service: Subscription-based streaming service providing on-demand access to digital content.
• Category of Goods: Netflix's service falls under the category of a normal good and, increasingly, a substitute good. It's a normal good as demand generally increases with consumer income. It's also a substitute good, as it competes with other forms of entertainment like traditional television, cinema, and other streaming platforms.
• (Notes: Provide a brief overview of Netflix's business, its market position, and the nature of its streaming service. Explain why Netflix is a normal and substitute good, providing examples.)

(Slide 3) Netflix Consumers and Marketing Strategies

• Consumers: Netflix targets a broad demographic, including:
  • Individuals and households seeking convenient and on-demand entertainment
  • Movie and television enthusiasts
  • Users of various age groups, from young adults to older adults
  • Tech-savvy consumers who prefer digital content consumption
• Marketing: Netflix employs a variety of marketing strategies:
  • Content Marketing: Focuses on creating and acquiring high-quality original content to attract and retain subscribers.
  • Personalized Recommendations: Uses algorithms to suggest content tailored to individual user preferences, enhancing user experience.
  • Global Expansion: Adapts its content and pricing strategies to cater to diverse international markets.
  • Social Media Marketing: Engages with users on social media platforms to promote new releases, build brand awareness, and foster a sense of community.
  • Partnerships: Collaborates with internet service providers, device manufacturers, and other companies to expand its reach and accessibility.
• (Notes: Describe Netflix's diverse consumer base and detail its marketing mix, highlighting its emphasis on content creation, personalization, and global expansion.)

(Slide 4) Understanding Price Elasticity of Demand

• Price Elasticity of Demand (PED): A measure of how much the quantity demanded of a good or service changes in response to a change in its price.
• Formula: PED = (% Change in Quantity Demanded) / (% Change in Price)
• Elastic Demand: PED > 1. A large change in quantity demanded in response to a small change in price.
• Inelastic Demand: PED < 1. A small change in quantity demanded in response to a large change in price.
• Unitary Elastic Demand: PED = 1. The percentage change in quantity demanded is equal to the percentage change in price.
• (Notes: Define PED, provide the formula, and explain the different categories of elasticity (elastic, inelastic, unitary). Use simple examples to illustrate each category.)

(Slide 5) Graph: Elasticity of Demand

• Graph 1: Elastic Demand Curve
  • A relatively flat demand curve.
  • Show a small price increase leading to a large decrease in quantity demanded.
  • Label the axes as "Price" and "Quantity."
• Graph 2: Inelastic Demand Curve
  • A relatively steep demand curve.
  • Show a large price increase leading to a small decrease in quantity demanded.
  • Label the axes as "Price" and "Quantity."
• (Notes: Include two graphs to visually represent elastic and inelastic demand curves. Clearly label the axes and demonstrate how price changes affect quantity demanded differently in each case. Explain the slope of the curves.)

(Slide 6) Elasticity of Demand for Netflix

• Elasticity: The demand for Netflix has become increasingly elastic over time.
  • Historically Inelastic (Early Stages): In its early stages, when Netflix had fewer competitors and offered a unique value proposition, demand was relatively inelastic. Subscribers were less sensitive to price changes.
  • Increasingly Elastic (Mature Market): With the rise of numerous competing streaming services (Disney+, Amazon Prime Video, Hulu, etc.), the demand for Netflix has become more elastic. Consumers now have many substitutes and are more likely to switch providers in response to price increases.
• (Notes: Explain how the elasticity of demand for Netflix has changed over time due to increased competition in the streaming market. Discuss the factors that contribute to both inelastic and elastic demand for the service.)

(Slide 7) Graph: Elasticity of Demand for Netflix

• Graph: A demand curve for Netflix that shows a steeper slope in the earlier years (representing inelastic demand) and a flatter slope in recent years (representing more elastic demand).
• (Notes: Create a graph that visually represents the changing elasticity of demand for Netflix. The graph should illustrate how demand has become more elastic over time. Label the axes and explain the shift in the curve.)

(Slide 8) Relationship Between Elasticity and Netflix Pricing

• Pricing Strategy: Netflix has historically increased prices, but faces increasing challenges due to elastic demand.
• Historically: When demand was more inelastic, Netflix could raise prices without significant subscriber loss, increasing overall revenue.
• Currently: With more elastic demand, price increases can lead to substantial subscriber churn, potentially decreasing revenue.
• Example (Hypothetical):
  • Assume in 2015, a $1 price increase from $8 to $9 only caused a small subscriber loss from 50 million to 48 million, increasing revenue.
  • Assume in 2024, a $1 price increase from $15 to $16 causes a larger subscriber loss from 200 million to 180 million, potentially decreasing revenue.
• (Notes: Explain how Netflix's pricing strategy is influenced by the changing elasticity of demand. Use hypothetical numbers to illustrate the impact of price changes on subscriber numbers and revenue in both inelastic and elastic scenarios.)

(Slide 9) Graph: Netflix Pricing and Total Revenue

• Graph 1: Inelastic Demand and Total Revenue (Early Years)
  • Show a price increase on a steeper demand curve.
  • Illustrate that total revenue increases (Price x Quantity).
• Graph 2: Elastic Demand and Total Revenue (Current Years)
  • Show a price increase on a flatter demand curve.
  • Illustrate that total revenue may decrease (Price x Quantity).
• (Notes: Include two graphs to demonstrate how price changes affect total revenue under different elasticity conditions for Netflix. Clearly label the axes and explain the relationship between price, subscriber numbers, and total revenue.)

(Slide 10) Marketing Strategies and Elasticity of Demand for Netflix

• Marketing and Elasticity: The increasing elasticity of demand for Netflix requires adjustments to its marketing strategies.
• Current Strategies:
  • Content Investment: Continue to invest heavily in original content to differentiate itself and retain subscribers.
  • Bundling/Tiered Pricing: Offer different subscription tiers with varying features and prices to cater to different price sensitivities.

Sample Answer

Product and Company Selection:

I'll choose Netflix and its streaming service.

PowerPoint Presentation Outline (10 Slides - Excluding Title and References):

(Slide 1) Title: Price Elasticity of Demand: The Case of Netflix Streaming Service

• (Notes: Briefly introduce the presentation's focus: analyzing the price elasticity of demand for Netflix's streaming service.)

(Slide 2) Introduction to Netflix

• Netflix: A global streaming entertainment service provider, offering a vast library of films, television shows, documentaries,