Price Elasticity and Inelasticity - what it all means.

 

The picture says it all. The total revenue for a product for example, is directly dependent on 2 factors.

a) Price per unit

b) Quantity Sold.

The sweet spot normally is where the Demand Curve (sloping downwards from Left to Right) and the Supply Curve (sloping Upwards from Left to Right) meets, and taking the 'Y' axis on the vertical would be the right Price and taking the 'X' axis on the horizontal would be the number of units sold AT THAT PRICE.

So, when would a product be deemed to be Price Elastic or Price Sensitive ?

PRICE ELASTICITY

It would be so, when for example, the item, lets call it a Kueh Lapis (multicolored desert) is first priced at $2.50 or at the top end of the green box. When the Kueh Lapis is sold at $2.50 and the demand is 35, then the total revenue would be as stated in the green zone or 35 x $2.5 equals to $87.5.

When the seller at the end of the day cant sell the remaining Kueh Lapis, and he reduces it to $2.0, there is a surge in orders or 55. Hence his revenue will then be $2.0 x 5.5 or $110.

The downside would be that he would need to make and sell more (55) for lower margin but the total revenue would be MORE than if he made less and sold them at a higher price.

Price Elasticity occurs when there are many other substitutes (many other snacks vying for my stomach when I need a pick me up, savory, sweet or just a bun), hence, people will buy more of this product when they deem it to be 'cheap' or inexpensive and can stretch their dollar to fill their stomachs.

Circumstances when price elasticity occurs :

a) many competitors and substitutes

b) small  price change and people are price sensitive. (daily necessities would be ideal catagories, such as toothpaste, toiletries, soaps, consumables, snacks,soft drinks and running shoes or sneakers are items which come to mind). 

This is PRICE ELASTICITY.

PRICE INELASTICITY

This would be when the product (say for example) petrol is priced first at $2.30 per litre, As there are very few other substitutes to petrol (once can downgrade the quality of his petrol, or else take public transport eschewing totally the need for his own transport but we are discussing the transportation function, say for a Grab Car Driver).

So hypothetically speaking at $2.30 per litre, the guy buys say 30 litres, and the total output he pays would then be $2.3 x 30 or $69.

If the price shoots up to $2.40, the poor guy still needs to fill up his tank, and so he skimps and tries to shorten his commute routes via Google Maps, he would still need close to 30 litres. So he is forced to buy 28 litres.

His overall outlay would then by $2.4 x 28 or $ 67.2

Price Inelasticity would occur when there is an oligopolisitic market (few players dominating the market such as petrol) and the item is deemed as a luxury item (branded handbags, designer shoes, petrol are 3 such products which come to mind). 

So which product technically is 'better' to sell ?  The one sold in price elastic market or the price inelastic one ?  The answer is "It Depends". 

Well, lets look at the cost or making these products.

a) For Kueh Lapis, say the cost of making one Kueh Lapis (time, ingredients, petrol to send to shop, rental, portion of business owner salary etc etc) is $1.00.

Then to sell 55 per day his margin would come to $55 daily. Working 6 days a week, that is 24 days per month, the gross margin from Kueh Lapis would be $1,320.

Of course, the seller would try to make as many different sweet desserts as he can in his stall, so this number above is totally meaningless. Unless  he can estimate the rest of his sweets and desserts he sells per day, can the owner then multiply the different margins he makes from the other desserts / sweets to see if his profit gained every month is worth his time, rent, and all the other fixed and variable expenses spent.

The same goes for the Petrol Station, as these are giant multi layered and multi country business entities which have been operating profitably for decades, making billions each year.

The bottom line is this :  If you want to go into business, choose one which has few competitors, and stick to price inelastic market places where you have a distinct advantage in your value add (whatever it is) and serve that small niche quietly. 

 

2016 Barcelona Visit

 

Plaza de Catalunya Dec 2016

Parc Guell Dec 2016 

La Rambla 

La Pedrera 

Recently as I was scanning through the old photos of our visits to Europe (we have had 5 self made tours in the last 7 years, with exceptions for 2020 and 2021 due to COVID), I chanced some lovely pictures of our visit 5 days 4 nights to Barcelona in South Spain.

The Catalan city is everything  they say it is,good and bad.

1. Antoni Gaudi and Joao Miro and their buildings are very part of the landscape.

2.It is the capital city for pickpockets and petty thievery. I had my new Samsung Note 10 stolen right under my nose.

3.  Football is a religion of sorts, we noticed the fans from Germany (Bayern Munich) were in town for a game at the Nou Camp (Barcelona FC is world class) and the place was half filled with Germans.

4. The Spanish Tapas is second to none. The Catalans (they are very proud of their heritage so they insist on being called Catalans first, Spaniards second) have a 'grazing' - as in cows method of eating their dinner. They will meet group A for Happy Hour at (say) 6pm and have a Campari Soda and tapas at one place perhaps near La Ramblas, then at 8.00 pm adjourn to Born (a small suburb filled with bars and flamenco clubs) for round 2.

5. The Walking Street La Rambla is marked at one end by the statue of Cristoforo Columbus (above) (an Italian explorer not Spanish) who was commissioned by the teenage Queen Isabella to go and conqueor the New Worlds in the mid to late 15 th Century (that is 1480 onwards). He went Westwards and landed  on the islands we now know as the Caribbean islands near Florida. Seeing the dark skinned peoples, he mistakenly thought he had arrived in India !

6. La Pedrera was a house designed by Antoni Gaudi and every angle you look at it, you will find that it is all curved, there are no sharp corners at all. At the top of the house, there are these chimneys which look like something from Star Trek - the last frontier.

7. At the top end of the city of Barcelona, there is the Plaza de Catalunya and Parc Guell (a park which was solely designed by Antoni Gaudi). 

7. My wife and I climbed to the top most of Parc Guell overlooking the entire city and found there was an old American chap playing the best 'Blues' riffs I have ever heard. Standing atop the small mound, looking at the city and the seascape and with the sounds of the Blues playing in the background, the feeling was a mixture of euphoria and grandiosity. In short, it was magical.

The picture taken above at the old tree at the top shows me fully relaxed and feeling reflective, 

 

To Achieve Something I need to Try, Fail, Try Again, Fail, Try 3rd Time, Fail, Try 4th Time then Succeed.

The title of this post sounds more like a joke than what I have just experienced today.Recently I bought a beautiful painting from local artist Mr. Ong Hong Seng who had an exhibition through the walkway of the NUSS guild house Kent Ridge premises for the month of March till Mid May (19th to be exact).

I was very pleased with my purchase and decided to hang the artwork titled "Swimming with the Dragons " in my office premises and would take Pride of Place and I am hoping it would be a conversational starter to family, friends and business associates who happen to drop by for a visit or a cup of coffee.

So this morning, I went to the office all charged up with my purchase and bought 2 sets of 3 M super sticker (8 sets which apparently was designed to hold up to 5.4 kg of weight) and I strategically placed them as per the instructions on the sealed package which came with instructions - I am notoriously bad at following written instructions - that is one of my weak points. 

To be 'kiasu', (or afraid to lose), I also popped by opposite hardware shop on my first trip to the office to get the even higher load hanger (5.4 kg), as the painting came equipment with tied in rope which you could hang from a heavy duty hanger.

First Try - Fail 

My first attempt was to unstick the 8 sets of sticky tape behind the painting, it seemed to work - for a good 30 seconds. Then Bam ! the painting fell down to the ground.

Second Try - Fail Again 

I then tried, using the Heavy Duty Hanger. I carefully climbed up the small ladder and ensured that the Heavy Duty Hanger was at the appropriate height - the painting must be high enough to command enough PRESENCE. Again I pasted the Heavy Duty Hanger and put the rope around the Hanger. It did not even last 5 seconds and fell down again. Bam ! for the second time.

Undaunted, I went across the road to the Hardware shop. This dumb un hands-on guy. I went and bought a heavy duty hammer and 2" nails for concrete, thinking that it would do the trick.

Third Try - Fail Yet Again

Upon reaching the office, which was quite the mess now, with wrappings, ladder, sticker peels and other display items all strewn all over the place, I proceeded again to gingerly climb up the ladder and stretch myself to try to knock the 2" concrete nail (I brought 2 with me) into the touch concrete wall. The first nail, went flying after a few blows.

I still persisted, and tried the second nail. I proceeded banging or trying to hammer in the second 2" nail into the concrete. I realised soon enough that the 2" nail was 1" too long.  I would end up hammering into the evening (I started at 11.20 am today) if I pursued with my useless endeavor.

Fourth Try - Hallelujah ! 

So, down I went and I made another trip to the next hardware shop. I was embarrased enough NOT to return to the first hardware shop. I went to the corner shop and bought this time 1" nails. Not too long and not too thick -like my head.

After about 10 hard hammers Voila ! The nail stuck in the concrete !

I gingerly placed the picture and arranged it so that it wouldn't be 'sang nek' or slant to one side.

The Picture finally was UP ! and it gave my office a classy look and feel.

My satisfaction was really deep and my joy was immeasurable.

Life is like that. Business is like that.

You try, you fail. Pick yourself up, accept the brickbats, the criticisms and try again with tweaks in your approach and experience the bitter fall downs.

When it is finally there, like my picture - SAVOUR the feeling.

Is it worth the sweat, effort, risk and money ?  YES.

 

May 13th Sweltering Heat Wave has been hitting Singapore

Today we are experiencing a heatwave. The weather this past week has been hovering in the mid to high 30s C and every kind of exercise will require double the effort and lots of rehydration. I decided not to go cycling at 10 am - which is something of a routine for the past 3 months or so, and decided to go home early and do some household chores.

Late in the afternoon, when it was slightly cooler, I did some light exercises and some gardening. At the 3rd age, I must be mindful of the vagaries of my age and take appropriate measures that I do not overstrain my body.

The heatwave is a consequence of the world's global warming which I am fearful has reached the 1.5 C tipping point of no return and like what the climate experts have said all along. Countries which always have had relatively mild weather, will have to brace themselves for weather shocks and the ones who are not prepared, the citizens will be worse for it.

A recent run at night at West Coast Park 

 

Business is very much like a Sudoku Puzzle.

Every Sunday, I religiously cut out the weekly Sudoku Puzzle and attempt to finish in.

Most times I am successful, occasionally I fail and the reasons I fail are :

a) Impatience

b) Brain is not functiong effectively that Sunday morning

c) Carelessness (see (b))

d) Too tough.

Today, I managed to get 90% of the puzzle done. Left with about 10 squares (out of 81) with 

2 options to choose from, I decided to use the pencil and go with 1 option at the bottom left corner.As you can see, the circles of 6,8 are written in, so I decided to first go with the "8" at the extreme left square (bottom left Square 1).

After about 8 moves, I reached a "double number", meaning that there were 2 same numbers on the same line, which means that the solution was wrong.

I went for my trusty eraser, and changed it now to "6" at the Bottom Row extreme left square and "8" at Bottom Row Square 3. The game finished and I successfully completed it !

Business is like that, no matter how your gut feels, plan for failures are dead ends. Leave open an exit route, to erase the bad mistakes, or learn from past mistakes and move on to the finish line. Of course, business is not so simple as that and one needs plenty of :

a) Luck

b) Funds inflow to maintain stable cashflow

c) Support from customers who will give you renewed streams of income

d) Proper strategy and perfect timing to size up and scale up at the correct time

e) Perseverence during the very tough moments, when you are under extreme pressure.

f) Having the energy and health to see through your goals as well as having the second tier management team to execute your plans thoroughly leaving no stone unturned

g) Having the right digital marketing strategy to boost your presence and footprint so that you are seen as the 'player' in the niche which you are in.

 

4 Major Challenges as Highlighted By our Deputy Prime Minister

Recently our DPM Mr. Heng S. K. highlighted 4 challenges for Singapore in the immediate forseeable future. The current economic and climatic landscape is very uncertain, the world may be heading for a recession (Singapore has had 1 Q of negative growth already) and there are many challenges confronting the world, the main 3 are :

a) East - West Geopolitical conflict (USA and China are the most obvious), with the situation regarding Taiwan and the numerous claims of information theft, hacking, military exercises and espionage raising the tensions in South East Asia every other week.

b) Ukraine - Russia war. This has been going on for over 1 year, and the economic impact has been ever rising costs of food, and other resources like building materials. The threats made on both sides are also very unsettling.

Rainy Days and Mondays 

c) Global Warming. We are facing very cold 'winters' or  months on end where it rains day in day out. Countries in the temperate zones are facing hotter springs, and summers. The ice caps have melted way beyond what they used to be 50 odd years ago. Fires and floods these last 5 years are commonplace in places where there were'nt ever before.

Singapore has nothing to sell as far as natural resources. We only have a deep harbour. We cannot and probably never ever be self sufficient  because, we cant feed our population anything. We have been first a fishing village some 200 years ago, then a town for entrepot trade between East and West, a manufacturing hub from the 70s to late 90s for Western producers, an IT Hub, a banking centre, a nice place to visit for 3 - 4 days (gaming and all things mad made we have).  And that's IT. 

These days, we have gone into Advanced Remanufacturing, which is higher value added manufactuting ; with several data centres such as AWS and Google. Numerous pharmaceutical giants have set up shop here, such as Pfizer, Moderna to name just 2. We are a research base for quite a number of biomedical manufcaturers and lately, even the EV makers have set up shop here.

We must remain nimble. We have no choice.

The 4 challenges facing our aging population : 

a) Rising costs of living (inflation)

b) Healthcare Consumption - expected to increase with more older people living longer

c) Retirement Adequacy

d) Economic Dynamism    

Hypoxic Training ; Controlled Environment with Low Levels of Oxygen ; Scientific Studies and Results in Post Here

The data and research done by Sports Scientists, Professors G. Millet, B.Roels,L.Schmitt,X.Woorens et al from multiple universities such as Institute of Sports Sciences, University of Lausanne, Switzerland etc. is quite comprehensive.

There are typically 4 different types of key studies :

a) Live High Train High

b) Live High Train Low

c) Live High Train Low and High

d) Live Low and Train High

All these studies are as a result of the near miraculous performances of many athletes who participated in the 1960 Mexico City Olympics which was held at an elevation of 2250 m above sea level, with it, the air pressure was lower and the O2 level was also lower. Many sports scientists began to investigate the effects such as the increase in haematological capacity, or the blood bearing capacity of the human body, as well as the erythropoeitic effects - the production of more red blood cells when the body is subject to lower levels of O2. 

The elite athletes all performed and gave fantastic results (Bob Beamon's long jump record was unbeaten for nearly 25 years after the feat he recorded in Mexico City's rarefied air).

 The findings of Millet et al, are shown above, that various combinations of the 4 training strategies DO have a positive effect on the athletes performance when they resumed competition at sea levels. See above graph.

The findings suggest an increase in the level of aerobic capacity optimally 2 - 4 days (green highlights) after return to sea levels, but this is not 100% for all athletes.

From 14th to 28th day after the LHTH trainings, the effects are still apparent as seen from the graph (Orange highlights in graph).

Hence, it justifies the benefits of this type of training strategy. 

QRA's Athletic Environmental Chamber can simulate altitudes with Oxygen levels up to 5000 m (O2 level of 13.5% or lower). Additinally, QRA can provide Sleep Rooms with altitude levels of up to 3500 m and corresponding O2 levels to match.

Hence, the LHTH, LHTL and the other configurations can easily be accomplished at sea levels without the need to move the entire set of athletes, nutritionists, physiotherapists, doctors and scientists to migrate for weeks to higher altitudes in the name of better performances.

We can provide the full suite of environments, in the Environmental Chamber in your building, anywhere in the world. 

Temperature : - 20 C to 50 C

RH                : 20 to 95%

Hypoxic        : Sea Level to 5000 m

CO2             : maintain at 400 ppm 

Solar            : Entire Solar Spectrum.

QRA INTERNATIONAL PTE LTD

(Singapore Designed Athletic Chambers, World Class Quality Approved)

48 Toh Guan Road East

#03 - 144 Enterprise Hub

Singapore 608586

Tel : (65) 6795 1486

Website :www.qra.com.sg

Email : qrasales@qra.com.sg

            mark@qra.com.sg

Our friendly professionals will be most happy to be of service to you.