WHYCOMPANY GIVES OUT COMPLIMENTARY CALENDARS?Wealways associate the month of December with flood season especially in Kelantan& Terengganu. December also normally become a vacation period for most ofMalaysians as this time of the year coincide with school holiday and people arefinishing off their annual leaves to be with their family. You might bewondering what December has to do with the economy? How about calendar? Peopleare normally looking for calendar for incoming year in December. Many companiesin Malaysia are producing calendars to be given out to their customers, officialcontacts and suppliers. We can find so many types of calendars form small andsimple to big and colorful and quite expensive too.
Why companies are producingcalendars? Why they have to incur an additional unnecessary expenses? Is it partof the advertising expenses? What are the expected benefits? They do not sellthe calendars!! Of course, they are not going to get some income out of thisactivity. These are some of the issues that we are trying to explore and answer. We will relate the issues into some of the economic theories. There must be someeconomic reasons for companies to give out complementary calendars every end ofthe year. Theory of the Firm A firm is an organization that combines resourcesfor the purposes of producing goods and/or services for sale. Firms existbecause it would be very inefficient and costly for entrepreneurs to enter intoand enforce contracts with workers and owners of capital, land, and otherresources for each separate step of the production and process.
Calendars playsome roles in any firm. Generally, firms produce calendars as part of theirpromotion for its products and the company itself. Normally, the calendars areprinted with company’s particulars such as company’s logo, name, address, andcontact numbers. It also has the information and pictures of products thecompany produce. The pictures are normally in full color and very attractive. These elements are very important in projection the good image and can be one ofthe marketing strategies for the company.
The calendars will play a role as partof the company’s advertising effort in promoting its products and services. Normally, calendars are given out as a complimentary to company’s customer,suppliers, business contacts and government authorities. Sometime, people needto buy something from the store in order to get a calendar. Believe it or notthat there are people who buy goods and products just to get the calendar. Theseconsumers are influenced by the year end discounts and the just for the sake ofcalendar that the company offers. But as far as the company is concerned, theabove will increase public awareness of its company and products which willlater have a positive effect on its sale and profit.
Of course, the company willincur some additional expenses in producing calendars in short term but theywill gain in long term. As such, companies are willing to sacrifice short-termprofits for the sake of increasing future or long-term profits. The same goes toother expenditures such as research & development, and new capitalequipment. These require a very high initial investment and the return may berealized in five or ten years.
Originally, the theory of the firm was based onthe assumption that the goal or objective of the firm was to maximize current orshort-term profits but, the theory of the firm now postulates that the primarygoal or objective of the firm is to maximize the wealth or value of the firm. This is given by the present value of all expected future profits of the firm. Future profits must be discounted to the present because a ringgit of profit inthe future is worth less than a ringgit of profit today. As such, companies arewilling to invest in producing calendars as they know that they will gain profitin long-term. Talking about, there are two types of profit which are businessprofit and economic profit. Business profit refers to the revenue of the firmminus the explicit cost or accounting cost of the firm.
The explicits cost arethe actual out-of-pocket expenditures of the firm to purchase or hire the inputsit requires in production. While the economic profit equals the revenue of thefirm minus its explicit costs and implicit costs. Implicit cost refers to thevalue of the inputs owned and used by the firm in its own production processes. Law of Demand As mentioned earlier, calendars act as a part of advertisingchannel for a company. With the right combination of distribution strategies,design, and concepts; the message on the company and its products will reach theconsumer and it stick to their mind as calendars are hanged in our living roomfor the whole year. In long term, the demand for the product is increased.
It isshown by a rightward shift of the demand curve for a product. Before, we explainfurther on shift of the demand curve, let’s look at the basic law of the demand. The law says that as the price of the commodity increase, the quantity demandeddecrease and as the price of the commodity decrease, the quantity demandedincrease. This inverse relationship between the price of the commodity and thequantity demanded per time period is referred to as the law of demand.
Thedemand function faced by the firm is the relationship that identifies thedeterminants of the demands for a commodity faced by the firm. These include theprice of the commodity, consumer’s income, the price of related commodities,tastes, advertising, and other forces that are specific to the particularindustry and firm. The consumer demand theory postulates that the quantitydemanded of a commodity per time period increase with the reduction in itsprice, increase in consumer’s income, increase in the price of substitutes and areduction in the price of complementary commodities, and increased taste for thecommodity. On the other hand, the quantity demanded declines with the oppositechanges.
Now, let’s go back the issue of rightward move of a demand curve. Ifany of the things held constant in drawing the demand curve change, the entiredemand curve shifts to the right so that the consumer demands more of thecommodity at each commodity price if the consumer’s income increase, the priceof substitute commodity increase or the price of a complementary commodityfalls, and if the consumer’s taste for the commodity increase. An increase inexpenditures on calendars could also lead to an increase in demand of theproduct of the company and contribute to the rightward shift of the demandcurve. Regression Analysis In other words, we could say that the expenditures oncalendars could also contribute to the increase in the demand of the product orthere is a relationship between the ringgit spent on calendars and the quantitydemanded of particular product. How significance is the relationship is reallydepending on some formula and data to come up with t value of the hypothesis.
The above can be shown as a regression model as follows :- Q = a – b1 P + b2Y +b3S + b4T + b5C (5. 12) (3. 24) (4. 56) (3. 96) (4.
25) R2 = 0. 85 The t values whichare in parentheses below the estimated slope coefficient and the R2 value arethe assumption figures for the purpose of discussion. The value of a is thevertical intercept and b1, b2, b3, b4, and b5 are the values of the slopecoefficient of the regression line. The above values can be determined by usingsome formulas and past data on Q, P, Y, T, and C. Where Q = Quantity productdemanded P = Price of the product Y = Consumer’s income S = Price ofsubstitute’s product T = Consumer’s taste A = Expenditure on calendars From theabove regression model, we can see that the quantity demanded (Q) will increaseas the is a reduction in price of the product (P), increase in consumer’s income(Y), increase in price of substitute’s product, increase in consumer’s taste,and increase in expenditure on calendars. Using the given t values, we cancompare it with table t values at certain percentage level, normally at 5percent level of significance.
If the given (calculated) t values are higherthan the table values, we can accept the hypothesis that there are statisticallysome significant relationship between Q (quantity demanded) and otherdeterminants of Q which are P, Y, S, T, and A. The coefficient of determination(R2) of 0. 85 shows that 85 percent of the total variation or dispersion inquantity demanded (Q) is explained by the variation in the independentsvariables which are the price of product, consumer’s income, price ofsubstitute’s product, consumer’s taste, and the total expenditure on calendars. Supply and Production Theory We have mentioned on the relationship on the totalspending on calendars which have a positive effect on the quantity demanded fora particular product.
The more amount put on producing the calendar, we couldexpect that there will be more product demanded. As a result, company shouldresponse by producing more of their product. There will be more productssupplied to the market. Theory of supply shows the amount of commodity thatsellers would offer for sale at various prices. As the price of the productincreased, the quantity supplied increase.
With the increase in efficiency,reduction in resource price, and improvement in technology could cause thesupply curve to the right.
