Problem 1: Penetration pricing is involved when a company is launching a product in a market where the product that is low priced while the company intends to secure market share. This scheme calls for extensive planning. For proper execution of the pricing scheme, the company or manufacture must be ready and willing to produce the specific product in large quantity. The company or manufacturer should also launch a big campaign that will mainly publicize the low prices of the new products. The business owner must take nit that the penetration price result in an expensive operation and the owner must be readily prepared for the cost.
Increasing prices of the company’s products, increases the quality perception. Quality is a key factor that customers consider when making purchasing decisions. Understanding that price is a measure of quality for many buyers. If the company increases the prices during the festivals, it would boost the market perception of their products. The not good effects would include; The company will probably suffer from sales drop.
In using this approach the initial dollar amount of a product is set lower, then overtime the items will slowly increases in price. This particular strategy helps to rapidly reach a wide fraction of the market to hopefully initiate positive word of mouth throughout our target market. This is our best option as a new business coming into the industry. Our main objective in using this method is to draw in consumers that might be unaware of what products we will be offering. In creating a new company and implementing innovative sales systems, we would like to take some of our competitors business by initially drawing customers in with offering lower prices.
When switching costs (the costs a customer incurs to switch to a new product) are low the threat of substitutes is high. As is the case when dealing with new entrants, companies may aggressively price their products to keep people from switching.
Unfortunately, the factor of price sensitivity still dominates our price decision. In conclusion, when a company introduces a new product into the price-sensitive market, the competitors are expected to move in the market quickly. It is better for the company to apply penetration-pricing strategy, in order to obtain a large market share in a short period and also discourage competitors who plan on entering the market.
1. Consumer’s Income – It is considered as one of those factors that could affect the market because for Drop and Go Laundry Services, it is about the consumer’s purchasing power or capability to attain such services we offer. The higher the income, the more possibility that they will frequently avail DnG’s services. 2. Price of the Product - This factor is so important to be considered in the projection of demand because as the law of demand states: “As the price of the product increases, the demand for the product will decrease and vice versa.” Generally, people are price-conscious; they want services with low prices but with high quality or those that will surely satisfy their needs.
Ideally, the lowest price in the market of £10,400 dictates the upper ceiling of AUDI’s price discretion. However, setting initially a too low price in the hope for increasing it subsequently is not a viable option, as prices are somewhat inflexible upward. Instead, costs have to sink in the long run. Nevertheless, claiming a larger market share will allow AUDI to deftly climb the steep learning curve, lower its costs and further mobilize against market followers. A high price elasticity of demand insinuates that profit margins will continue to soar, if selling prices are reduced any further.
There would also be currency risk where the currency would have fluctuated during the time lapse. Credit policies are developed to overcome these problems by providing guidelines for both parties to follow before conducting business. Budde (2013) stated that it is a ... ... middle of paper ... ...enient credit policy will leads to high amount of borrowing and in cases where full collections are made will increase the profits of the company. She added that a stringent or static credit policy would only minimizes cost and losses from bad debts but might reduce revenue, profitability and cash flow of the company. Also, the company will lose competitive edge and this will eventually has a massive impact on the profitability of the company when the company has fewer customers.
Also, if there are less firms in the market it may be easier to conspire and increase prices. This will lead to allocative inefficiency because prices will be greater than marginal cost. Other possible disadvantages include firms that make more supernormal profits, may be able to use this for predatory pricing and force new firms or smaller firms out of business. Also, if firms get too big they may suffer from diseconomies of scale leading to more inefficiency. The new firm may be able to use its monopoly power to pay suppliers less and therefore make more profits.
As opposed to surplus, there is a shortage, which refers to the excess of demand. The shortage makes consumers unable to buy as much of a good as they would like. Therefore, producers will raise both the price of their product as well as the quantity they are keen to supply. Consequently, the increase in the price might be really significant for some people and they will no longer demand the product. On the other hand, the increased quantity of available product might satisfy other consumers, where eventually equilibrium will be reached.