Consumer Perceptions and Manufacturing Essay

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Elasticities & Market Structure

There are many different factors to consider when making strategic decision such as the one that Autoedge currently faces. The board of directors needs to consider many different implications that might occur if the company decides to relocate its manufacturing to the United States. If the company manufactures its products domestically, then one possible implication might be that this could add value in terms of consumer perceptions. Although it seems that the "Made in the USA" brand maybe a secondary consideration for many consumers, there is some evidence that it does actually add substantial value to products and services. For example, one study found that (Schurenberg, 2012):

"In a study of consumer perceptions of clothing made in the United States vs. that made in China, Jung Ha-Brookshire, an assistant professor at the University of Missouri, found that when offered a choice between a shirt made in the U.S. with U.S. cotton and one made in China with local materials, American consumers strongly preferred the "Made in USA" label. They also valued the American-made garment nearly twice that of the Chinese one."

However, the price elasticity of the product lines is really the important consideration for the board of directors at Autoedge in their decision criteria related to relocating the manufacturing operation back to the United States.

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The price elasticity will include all relevant factors that are associated with how much a consumer is willing to pay for a good or service on the aggregate level. For example, if you increase the price of any product, then there will be less people in the market that are willing to buy the product for a variety of reasons. One example might be that they choice a substitute product instead, or simple make no purchase at all. Typically, if the price rises at all, there will be some portion of the market that choses some other option.

It is difficult to encompass the entire auto parts market into a single category. For example, a part that is specifically designed for a U.S. made automobile might not have any substitute products available in the market would have a lower elasticity (more inelastic or relatively inelastic) because people would be more willing to buy it at any price; especially if their transportation needs depended on it. However, a part that had more substitutes, was not as specialized, and was not critical….....

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