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Discuss the Assumptions of the Consumer Demand Model

Four key marketing decision variables are price (P), advertising (A), transportation (T), and product quality (Q). Consumer demand (D) is influenced by these variables. The simplest model for describing demand in terms of these variables is:

D = k - pP + aA + tT + qQ

where k, p, a, t, and q are constants. Discuss the assumptions of this model. Specifically, how does each variable affect demand? How do the variables influence each other? What limitations might this model have? How can it be improved?

Solution Preview

The above model indicates that the variables that affect a buyer's decision to buy are price, advertisement, transportation, and product quality. The model may also be stated as: consumer demand is a function of a constant k, reasonableness of the price, advertisement effectiveness, transportation (accessibility of the product), and product quality.

Assumptions of the model
1. The marketing mix is composed of the Price, Advertising, Transportation, and Product Quality.
2. The marketing mix is a part of the decision variables of a buyer.
3. There is a factor (k) other than the marketing mix (price, advertising, transportation, and product quality) that affects consumer's decision to buy a product.
4. Perceptions of the buyer on the marketing mix variables are quantifiable.

How does each variable affect demand?
From the model itself, the variables A (advertisement), T (transportation), and P (product quality) have positive effects on demand for the product. This means ...

Solution Summary

The expert discusses the assumptions of the consumer demand models.