As part of the marketing team at a major airlines, you must develop a strategy to increase demand for flights between two mid-sized cities. You examine data from previous flights and determine that the existing demand for flights between the two cities is as given in the accompanying table. Price per flight Quantity demanded per day $200 1,200 $300 1,100 $400 1,000 $500 900 $600 800 $700 700 a. Your team launches a viral advertising campaign that is so successful that all existing consumers increase their willingness to pay by $100, and 50 new customers demand flights at every price. How will this affect the quantity demanded per day? Price per flight Quantity demanded per day $200 1,350 $300 $400
The correct answer and explanation is:
Updated Quantity Demanded Table
After the advertising campaign, all existing consumers increase their willingness to pay by $100, and 50 new customers demand flights at every price. This shifts the demand curve upward by $100 and adds 50 customers to each price point.
To calculate the updated quantities demanded:
- Shift the price in the original table downward by $100 for each quantity. For example, the quantity originally demanded at $200 will now be demanded at $300.
- Add 50 customers to each quantity demanded.
Updated Table:
| Price per flight | Quantity demanded per day |
|---|---|
| $200 | 1,350 |
| $300 | 1,250 |
| $400 | 1,150 |
| $500 | 1,050 |
| $600 | 950 |
| $700 | 850 |
Explanation (300 Words)
The viral advertising campaign increases all existing consumers’ willingness to pay by $100, effectively shifting the entire demand curve upward by $100. This means that for every price point, the demand now corresponds to the quantity that was previously observed at $100 lower. Additionally, the campaign attracts 50 new customers at every price point, further increasing demand.
For example:
- At the original price of $200, the quantity demanded was 1,200. Post-campaign, the same quantity is now demanded at $300 because consumers are willing to pay $100 more. Adding the 50 new customers results in a new quantity demanded of 1,350 at $200.
- At $300, the original quantity demanded was 1,100. This quantity shifts to $400 after the campaign, and adding 50 new customers results in a quantity of 1,250 at $300.
This dual effect of shifting the willingness to pay and attracting new customers significantly boosts the quantity demanded at every price point. The success of the advertising campaign demonstrates the effectiveness of strategies targeting consumer perceptions of value. By increasing the perceived value of flights between these two mid-sized cities, the airline has managed to not only retain existing customers but also expand its market share.
In the long term, this strategy could stimulate sustained demand growth if paired with other initiatives like improving flight services or offering loyalty programs.