Smith & Wesson: America’s Favorite Gunmaker
Supply And Demand Conditions
The US gun and ammunition industry attracts revenue of over $13 billion annually (Reuter, 2016). The past five years have been particularly interesting, considering the tremendous amount of growth that the industry has experienced as more consumers sought the products. This may explain why Smith & Wesson Co experienced a surge in the market value during 2015 (Laflamme, 2015). The investors were anticipating a maintained growth trend in gun sales. To understand the demand trends, it is crucial to consider some of the determinants of the market demand for the guns and ammunition industry, and these include income, price, demographics, and expected future prices.
Based on the status of security within the US, guns are not entirely affected by income. This is because people who own guns fall in all income brackets. The low-income population has been procuring guns to be safe within their housing projects, owing to the high rates of insecurity within such neighborhoods. The middle class has also been pulled into the guns and ammunition industry due to the growing need to possess a gun as a part of the social norm and as protection at home (Reuter, 2016). Most middle-income homes are at risk from burglaries and home invasions, and the homeowners end up buying guns to protect their hard-earned possessions. The high-income bracket also needs guns for security purposes both at home and while on the streets. Most high-end individuals in society not only carry their guns but also arm their security personnel as a part of their measure against the growing levels of insecurity in the country.
The price of these products does not determine whether they are bought. When people decide to buy a gun, they are willing to pay as much as they have to acquire it. There are, however, many competitors in the market, thus regulating the market prices for the products. Customers in this case are known to purchase guns within their income brackets in the sense that people still buy guns, and the only difference is in the kind of gun they end up buying.
The African Americans, Latinos as well as Caucasian Americans, and other population categories in the US seem to have no impact on the demand for a gun (Laflamme, 2015). The American society has generally moved towards a situation, where gun possession is not about race or even income, but more about personal security and the need to fight security threats in one’s life. Moreover, while more guns are still purchased by men, women are also increasingly stepping up to own a gun.
As the Gun Control idea keeps spreading and growing among people, there is the expected possibility that guns will become more difficult to acquire. This may explain why for the past five years, almost everyone who could acquire and had the desire to possess a gun has done so. The sales in the industry have grown steadily, and there is a projection that these sales will plateau or start on a steady decline after the Gun Control Act becomes a reality. This shows that soon, the industry will be on a decline after its consistent growth over the past five years.
Analysis of Data
The sales volumes of guns have been relatively good with steady growth over the years. The data indicates that the company has had a steady demand, which they have been able to meet successfully. While there may be concerns regarding the future of these volumes as society becomes more conscious of the issue of gun possession, the company can still take the advantage of the current boom as increasingly more people prefer to own guns in a rather insecure society (Reuter, 2016). The company will, thus, continue matching its supply to the current market demands.
Price Elasticity of Demand
The price elasticity of the demand, in this case, is determined by evaluating trends in the pricing and demand of the commodity in question. It was earlier established that the customers in the guns and ammunition industry are not as sensitive to the price fluctuations as other customers may be. The demand for guns is driven by several other factors, with the two most influential ones being the Gun Control laws and the level of security in the country. This means that the demand for guns is mainly not affected by the price, especially considering that numerous competitors can sell illegally to these consumers (Ivorra, Mohammadi & Ramos, 2009). The available data indicates a steady increase in the sales volumes of guns regardless of price changes over the years.
Customer responsiveness to price changes is affected by factors such as the necessity, availability of substitute products, and the breadth of the product’s definition. Guns do not have many substitutes, and in most cases, they do not have any substitutes. When it comes to the necessity, it can be noted that by the time an individual chooses to buy a gun, he or she must feel that they need it for one reason or another; thus, they are willing to spend as much as they will have to spend to acquire it. In addition, guns are rather specific in their use; and, thus, the consumer may not have much of a choice regarding alternatives in the market. Having appreciated the inelasticity of demand about the price, the firm in question is likely to make pricing decisions based on their intentions about their market position instead of the sales volumes. This means that the only focus during pricing will be placed on whether the set prices will give the company a competitive advantage or not.
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