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Supply and Demand Conditions

And

Price Elasticity of Demand

Joseph Aguirre

Southern New Hampshire University

Snap-on provides professional mechanics with high quality tools and customer service. However, Snap-on’s customer base goes beyond serving auto mechanics. Snap-on’s primary customer segments include: (i) commercial and industrial customers, including professionals in critical industries and emerging markets; (ii) professional vehicle repair technicians who purchase products through the company’s worldwide mobile tool distribution network; and (iii) other professional customers related to vehicle repair, including owners and managers of independent and original equipment manufacturer (“OEM”) dealership service and repair shops (“OEM dealerships”) (Annual Reports, n.d.).

Snap-on target customers are every mechanic anywhere in the world and offers a mass variety of products to meet the needs of any mechanic. Snap-on is brand mechanics can count on and go beyond meeting the expectation of each customer’s needs.

As a leader in the industry, Snap-on strives to stand out from other competitors. “Snap-on does not believe that any single company competes with it across all of its product lines and distribution channels, various companies compete in one or more product categories and/or distribution channels (Annual Reports, n.d.).” There are many specialty tools Snap-on exclusively distributes that other companies cannot provide. “Examples of products that have features or designs that benefit from patent protection include wheel alignment systems, wheel balancers, tire changers, vehicle lifts, test lanes, ratcheting screwdrivers…(Annual Reports, n.d.).” The following are some major competitors: Selling to professional technicians in the automotive service and repair sector through the mobile van channel include MAC Tools (The Stanley Works), Matco (Danaher Corporation), and Cornwell. Snap-on also competes with companies that sell tools and equipment to automotive technicians through non-mobile van distributors including Craftsman (Sears Brands LLC), RIDGID and Husky (The Home Depot, Inc.), and Kobalt (Lowes Companies, Inc.), auto parts supply outlets (such as NAPA, AutoZone, Inc. and Pep Boys), and tool supplywarehouses/distributorships (such as MEDCO and Integrated Supply Network, Inc. (ISN)) (Annual Reports, n.d.) Even with competitors offering comparable products at similar or lower cost, Snap-on’s reputation of offering superior products is not hindered. Demand for Snap-on tools continue to increase and projected to keep this positive trend. The following graph constructed shows the positive tool sales trend for the past 5 years:

	2010	2011	2012	2013	2014
Tool Net Sales (In Millions)	1545.1	1667.3	1729.4	1743.3	1868.5

Data found on 2015&2012 Annual Reports on Snapon.com

The following graph shows Snap-on’s revenue for all products for the past 5 years:

	2010	2011	2012	2013	2014
Net Sales (In Millions)	2619.2	2854.2	2937.9	3056.5	3277.7

Data found on 2015 Annual Reports on Snapon.com

This shows the success of Snap-on and the positive growth of the company, regardless of competitors. As sales are anticipated to grow, it is important Snap-on stays innovative and find ways to lower costs. Due to number of competitors entering the market, offering affordable options would create more profits and stay above competitors. In addition, as vehicles and machinery continue to advance, it is important Snap-on continues to keep up with technology to develop and improve current inventory. Technology advancements would also develop ways to lower costs in manufacturing or distribution, which could benefit the company as whole and provide ways to lower cost for customers as well.

Considering the various determinants of elasticity:

The availability of close substitutes to the good; the more alternative there are, the more elastic the product is. There are few (close to none) competitors, offering the same quality of products. So current substitutes does not significantly affect the demand for Snap-on tools.

The passage of time; it takes time for consumers to change buying habits as price changes, and things become more elastic as time passes. As Snap-on tools become more expensive, mechanics don’t change to different brands right away, it takes them time to decide when to switch to cheaper quality tools. Since mechanics end up spending more money replacing cheaper tools that end up breaking frequently.

Whether the good is a luxury or a necessity; it is easy for people demand more or less of a luxury, while necessary goods are not affected much. Tools and equipment are a necessity for mechanics, they need it for everyday use, in order to make a paycheck. Again price rising doesn’t affect the demand that much.

The definition of the market; the more narrow the market, the more substitutes available. However, Snap-on products do not have many alternatives that could match its same quality and service.

The share of the good in the consumer’s budget; goods that take up more of a consumer’s budget the more elastic it will be. A lot of mechanics are able to fit tools into their budget as prices go up, and Snap-on is committed to helping their customers with different payment plan options. However, it is important Snap-on makes it affordable for mechanics, since technological advancements could allow competitors to develop comparable or even better affordable options.

Considering the positive trend in sales the past 5 years shows how competitive Snap-on is in the market. For Snap-on customers, their tools are a necessity for their livelihood. They need proper durable tools and equipment to get work done efficiently. The tools they buy are not for one time use, so quality is the upmost importance. With Snap-on having such high reputation and being able to provide such quality in a convenient way; gives them an advantage in the market. Having this in mind, Snap-on would be slightly inelastic.

Work Cited

Annual reports. (n.d.) Retrieved 2016, from www1.snapon.com/corporate/annualreports.nws

Hubbard, G., & O’brien, A. (2015). Microeconomics (5th ed). Pearson Custom.

Tool Net Sales (In Millions) 2010.0 2011.0 2012.0 2013.0 2014.0 1545.1 1667.3 1729.4 1743.3 1868.5

Net Sales (In Millions) 2010.0 2011.0 2012.0 2013.0 2014.0 2619.2 2854.2 2937.9 3056.5 3277.7