Each price will lead to a different level of demand and therefore have a different impact on a company's marketing objectives:
(a) Price Sensitivity -
The demand curve shows the market's probable purchase quantity at alternative prices. The first step in estimating demand is to understand what affects price sensitivity. Customers are most price sensitive to products that cost a lot or are bought frequently. Customers are less price-sensitive to low-cost items or items they buy infrequently. They are also less price-sensitive when price is only a small part of the total cost of obtaining, operating, and servicing the product over its lifetime (total cost of ownership - TCO).
(b) Estimating Demand Curves -
Most companies attempt to measure their demand curves using several different methods.
(i) Surveys can explore how many units consumers would buy at different proposed prices.
(ii) Price experiments can vary the prices of different products to see how the change affects sales.
(iii) Statistical analysis of past prices, quantities sold, and other factors can reveal their relationships. These can be: Longitudinal or Cross-sectional.
(c) Price Elasticity of Demand -
If demand hardly changes with a small change in price, we say the demand is inelastic. If demand changes considerably, demand is elastic.Demand is likely to be less elastic under the following conditions:
(i) There are few or no substitutes or competitors.
(ii) Buyers do not readily notice a higher price.
(iii) Buyers are slow to change their buying habits.
(iv) Buyers think the higher prices are justified.
If demand is elastic, sellers will consider lowering the price. A lower price will produce more total revenue as long as the costs of producing and selling more units do not increase disproportionately Price elasticity depends on the magnitude and direction of the contemplated price change.
It may be negligible with a small price change but substantial with a large price change. It may differ for a price cut versus a price increase.
(a) Price Sensitivity -
The demand curve shows the market's probable purchase quantity at alternative prices. The first step in estimating demand is to understand what affects price sensitivity. Customers are most price sensitive to products that cost a lot or are bought frequently. Customers are less price-sensitive to low-cost items or items they buy infrequently. They are also less price-sensitive when price is only a small part of the total cost of obtaining, operating, and servicing the product over its lifetime (total cost of ownership - TCO).
(b) Estimating Demand Curves -
Most companies attempt to measure their demand curves using several different methods.
(i) Surveys can explore how many units consumers would buy at different proposed prices.
(ii) Price experiments can vary the prices of different products to see how the change affects sales.
(iii) Statistical analysis of past prices, quantities sold, and other factors can reveal their relationships. These can be: Longitudinal or Cross-sectional.
(c) Price Elasticity of Demand -
If demand hardly changes with a small change in price, we say the demand is inelastic. If demand changes considerably, demand is elastic.Demand is likely to be less elastic under the following conditions:
(i) There are few or no substitutes or competitors.
(ii) Buyers do not readily notice a higher price.
(iii) Buyers are slow to change their buying habits.
(iv) Buyers think the higher prices are justified.
If demand is elastic, sellers will consider lowering the price. A lower price will produce more total revenue as long as the costs of producing and selling more units do not increase disproportionately Price elasticity depends on the magnitude and direction of the contemplated price change.
It may be negligible with a small price change but substantial with a large price change. It may differ for a price cut versus a price increase.
No comments:
Post a Comment