Product or service assessment is an ongoing process for every industry. For example, managers must determine the effect of variables on the hotdog industry constantly to stay ahead of the competition.

First, inferior versus normal goods must be considered. A normal good is one whose demand increases as the income of the consumer rises. Conversely, inferior goods see a decrease in demand as the income of the consumer rises. For the hotdog industry this means that as customers have more disposable income they buy better hotdogs or purchase other higher priced grilling options. Understanding normal versus inferior goods is important to a manufacturer so they can correctly determine what type of product they sale. An honest understanding of your product helps to ensure that you correctly market that product. At the same time, manufacturers must understand what type of products competitors are selling to ensure they maintain their place in the market.

Income and substitutions variables must also be considered. The income effect is the change in the consumption of goods by consumers based on price. Consumption, of a product, can increase with a price cut. Alternatively, consumption can decrease as the price increases. The income effect also expresses the change in consumption of certain goods by consumers based on their income(The Investopedia Team, 2021).  When I first went to college, I would buy the cheapest hotdogs I could find. This decision wasnt because I enjoyed that brand of hotdogs, it was because I could not afford the Hebrew National brand of hotdogs. As I had more disposable income, I could afford the higher priced (and better tasting) Hebrew National brand. Replacing cheaper items with more expensive items when there is a change in financial condition is called substitution. Income and substitution variable can lead to changes in demand for a product and must be understood by manufacturers to stay ahead of changes in the marketplace.

Derived demand, real income and projected income are yet another variables to be considered by management. Derived demand is a market demand for a good or service that results from a demand for a related good or service. For example, the hotdog industry saw an increase in 2020 as many American households took to hotdogs as a convenient and kid-friendly solution with many more at-home meal occasions(Roerink, 2020). Real and projected income are also noteworthy for managers of the hotdog industry. Real income provides an estimation of an individuals purchasing power. While projected income estimates the future purchasing power of individuals.

A CVP analysis can help management from a cost accounting standpoint and an industry standpoint. The analysis can be used to determine the effects of a price change on various aspects in the cost structure of the company. Management can also estimate various amounts of operating leverage versus variable inputs for production. Considering these variables can help the hotdog industry understand how and why operations succeed and fail from year to year or between various geographical regions.

References

Hirschey, M. (2009). Fundamentals of managerial economics (9th ed.). Boston, MA: Cengage Learning. 

Roerink, A.-M. (2020, May 7). Hot dog sales jump to highest gains since early April. The National Provisioner. 

The Investopedia Team. (2021, May 28). Income effect vs substitution effect: what’s the difference? Investopedia.