This research aims to investigate how the changing socio-economic situation of the citizens of India affect the demand of a Mercedes Benz in Mumbai. The Mercedes Benz car models that are going to be looked at are the GLE.The reason for narrowing down to this idea was because there have been many changes in the Indian economy in the recent years which have affected Mumbai. India has also been known as one of the fastest growing countries in the world, and thus there have been a plenty of changes in its economy.
These changes affect the incomes of households significantly which leads to a change in their lifestyle and spending patterns which then also affect the sales of Mercedes Benz. Mercedes Benz is German company that supplies luxury cars in the market and has been the leader for many years. In India, Mercedes-Benz offers 17 Models of their luxurious cars and they provide cars ranged from INR 29.90 lakh (Mercedes-Benz A-Class) the lowest priced model to Rs. 2.35 crore (Mercedes-Benz S-Class Cabriolet) the highest priced model. According to the one of the Mercedes representatives in Mumbai, Mercedes is the leading brand in its industry for many reasons such as the innovation they bring, their customer services and the diverse car models that they offer to their consumers.
Mercedes Benz also offers 10 years of service after the sale of the car where as other companies such as BMW or Audi offer about 5 years of after sales service. Also there is a 6 year warranty plan for the customers of Mercedes while other brands only offer about 4-5 years to the max of warranty for their cars. One of the ways Mercedes is able to offer the quick service is that they have been able to have 86 workshops in India for its customers. As suggested from Investopedia the economic factors that most affect the demand for consumer goods are employment, wages, prices/inflation, interest rates and consumer confidence. As luxurious cars are a part of consumer goods, the answer to this research will be concluded by considering all of these economic factors. The market of luxurious cars can explain the economic concepts such as the income elasticity of demand and government intervention as the socio-economic changes will play a huge role in the demand of elastic goods such as luxurious cars.
Picking Mercedes as a company to research is helpful and is a good choice for this research. This is because the demand for luxurious cars is affected very much due to a change in consumers’ income as they have an elastic demand. A Mercedes Benz car can be claimed to be elastic due to several factors, for example, there are many close substitute cars that consumers can choose from such as BMW and Audi, also, they are not a necessity to the consumer. And lastly, the time taken before the decision is made to purchase the car is also very long. These factors make the Mercedes Benz GLE a good with elastic demand.
Along the others, the reason for not choosing some other consumer good such as food is that it would be pointless for this particular research. This is because they have an inelastic demand and a change in the socio-economic situation of a country would not affect their demand. Mercedes-Benz GLEs are a very popular type of SUV car and come under the luxurious sector of the car industry.
Another reason to choose the Mercedes Benz GLE is that the car has had a very high sales volume in India because it provides a high stature and it also has a high practicality that was catered to be able to cope with the indian road conditions. Therefore, by investigating the Mercedes Benz GLE models, this research can determine how significant an impact of changes in the socio-economic factors can have on the demand of consumers in Mumbai. Mumbai is one of the most popular cities located in India and was the 4th most populated city in the world (21,357,000 people) in 2016 and the second most in India itself. Mumbai is also the wealthiest city in India and it is very famous for the most famous indian film industry Bollywood which has grown a lot over the years and has a market audience of 3.6 billion people with release of about 1000 films every year. “ThisIsMyIndia” claims that “lakhs of people who come to Mumbai with the hopes of making it big in Hindi cinema are employed in the movie-making business in one way or another.”. According to the data of the fiscal year 2009-2010 Mumbai enjoys a Per Capita Income of $2,845.
This number has increased by 16.6% than the previous fiscal year 2008-09 levels of $2,440. In PPP dollars, Mumbai had a Per Capita Income of $7,050 in the year of 2009-10 fiscal.Due to India being the second most populated country in the world (1.2 billion people) and Mumbai (18.41 million) being the second most populated city in India, having a look at cars and the demand for them in India would be more accurate than looking at a location with fewer citizen. Mumbai is also placed 3rd in India when it comes to the most cars owned in a city with about 126,000 cars. This is another reason why this research will look at how the social economic changes in Mumbai affect the demand for Mercedes Benz GLE in Mumbai.
Economic Theories The research will be looking at employment, wages, prices/inflation, interest rates and consumer confidence and the theories that would be most relevant to them are the following: Unemployment rate to check the amount of people employed in the country. Income elasticity of demand (to check the changes in the wages in the country and its effects on the demand for Mercedes), consumer price index to check the inflation in the country, government intervention such as the GST and interest rates and the consumer confidence index. In this research there was also a mention of PPP when talking about the economy of India ad that will be explained here as well.
Unemployment rateIt is measure of the amount of people that are unemployed in a country in terms of percentage. It only considers the people who are a part of the labour force (people who are willing and able to work) in its calculation. Unemployment rate = number of people unemployedtotal labour forcex 100According to The TImes of India “Unemployment in India is projected to increase from 17.7 million last year to 17.
8 million in 2017 and 18 million next year. In percentage terms, unemployment rate will remain at 3.4 per cent in 2017-18″Income elasticity of demandIncome elasticity of demand is defined as the rate of change of the quantity demanded of a good due to a change in the income of the customer. (YED) = % change in quantity demanded% change in incomeDemandDemand is defined as the willingness and ability for a consumer to pay a price for a specific good or service. The quantity demand for a product increases when its price reduces and decreases when its price increase.
This is because an increase in price would make the product more expensive for consumers to purchase.Demand also has determinants which would shift the demand curve to the left or to the right depending upon the scenario. These determinants cause a shift in the curves because they are non-price related. Government InterventionA government intervention is an action taken by a government that interferes with decisions made by people about social and economic matters.
There are many ways in which a government can intervene in an industry or trading. Some examples relevant to this research are laws and taxes on cars and its market.Consumer Price Index (CPI) It is a measure that examines the weighted average of prices of a basket of consumer goods and services. Those goods and services are broken into eight major groups:Food and beverages, Housing, Apparel, Transportation, Medical care, Recreation, Education and communication and Other goods and services. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them to help a country to determine its inflation rate. Formula: CPI = Cost of market basketCost of market basket base year* 100 Inflation rate = CPI2 -CPI1CPI1* 100 where CPI 2 = CPI in the second year and CPI 1 = CPI in the first year Consumer prices in India increased 3.
58 percent year-on-year in October of 2017, above 3.28 percent in September. It was the highest inflation rate in seven months, mainly driven by rising cost of food and fuel. Inflation Rate in India averaged 6.
75 percent from 2012 until 2017, however in November of 2013 it reached an all time high of 12.17 and a record low of 1.54 percent in June of 2017. Consumer Confidence Index (CCI) The CCI is defined as the degree of optimism on the state of the economy that consumers are expressing through their activities of saving and spending. This value is adjusted monthly based on results of a household survey of consumers’ opinions on current conditions and future economic expectations. Opinions on current conditions make up 40% of the index, with expectations of future conditions comprising the remaining 60%.
A similar but smaller survey will be conducted for the primary research of this paper to find the consumer confidence.