abhishreshthaa
Abhijeet S
Demand
The first thing that you need to find out is how responsible your market will be to a change in price. This responsiveness is called elasticity. Products such as eggs, razor blades and medicines are highly inelastic.
That is, regardless of whether the prices are raised or lowered, customers continue to purchase them in approximately the same quantities.
Customer demand for elastic products on the other hand fluctuates with the price. A small change in prices either up or down will result in an increase or decrease in the number of units sold.
Good examples of these are television sets, strawberries, clothing etc.
As a rule, items that are considered to be necessities are less elastic than those that are considered to be luxuries.
This is because the customer needs them regardless of the price. (e.g. The person who has a headache does not wait until the aspirin on sale comes down in price before buying it, he needs to get rid of the headache immediately and price is not an object).
But how does all this affect your pricing strategy? Well for one thing, the more elastic your product then the easier it is to raise your prices without hurting your sales.
To increase your profits on highly elastic products rather than raising your prices you might try lowering them.
Because, although this reduces your profit on each unit sold the resulted increase in sales volume will probably increase your overall profits.
The first thing that you need to find out is how responsible your market will be to a change in price. This responsiveness is called elasticity. Products such as eggs, razor blades and medicines are highly inelastic.
That is, regardless of whether the prices are raised or lowered, customers continue to purchase them in approximately the same quantities.
Customer demand for elastic products on the other hand fluctuates with the price. A small change in prices either up or down will result in an increase or decrease in the number of units sold.
Good examples of these are television sets, strawberries, clothing etc.
As a rule, items that are considered to be necessities are less elastic than those that are considered to be luxuries.
This is because the customer needs them regardless of the price. (e.g. The person who has a headache does not wait until the aspirin on sale comes down in price before buying it, he needs to get rid of the headache immediately and price is not an object).
But how does all this affect your pricing strategy? Well for one thing, the more elastic your product then the easier it is to raise your prices without hurting your sales.
To increase your profits on highly elastic products rather than raising your prices you might try lowering them.
Because, although this reduces your profit on each unit sold the resulted increase in sales volume will probably increase your overall profits.