Wednesday, April 10, 2013

In Response to Sarah Allen

How do you think marketing managers choose the appropriate price for a product? What factors do they take into consideration when setting a price?

I believe that the first step in choosing a price is figuring out the minimum price the product must be sold at to make a profit.  Therefore, the managers must take into account the price that it costs to product each product, as well as figuring out what the break-even point is.  They must then take into account the external environmental factors and find out what customers are willing to pay for similar products.  I believe that they also must take into account how much profit they are looking to make.  After all of these factors are taken into account, they may then be able to distinguish an appropriate price for the product.

If it product is priced too highly then the product won't sell.  On the other hand, if the product is priced too low than there won't be much of a profit, it any, made of the product.  Therefore, the price must be set appropriately.

What are some products that have failed because of an inappropriate price point?

Elasticity of Demand

Elasticity of demand is the consumer's responsiveness or sensitivity to changes in price.  If the demand is elastic a change in price will either increase or decrease consumers' buying.  If the demand is inelastic a change in price will not make a significant change in consumers' buying.  The price elasticity of demand is equal to the percent change in quantity divided by the percent change in price.

Products that are considered to have elastic demand are products that we don't necessarily need to have, but rather items that we want.  Some examples of these products are candy, shoes, purses, televisions, etc.  We don't need to have these items so if the price went up a ridiculous amount, the demand for the might decrease and less of these products would be bought.  If the price of these products went down, the demand for them might increase and more of the products might be sold.

Products that are considered a necessity, instead of just a want, are products that have an inelastic demand.  For instance, one product that has an inelastic demand is oil.  Oil is a necessity.  No matter if the price goes up or down oil still must get bought.  Therefore, the demand for oil is inelastic.

Can you think of some other products that have an inelastic demand?  Do you believe the consumer has any control over prices of products with an inelastic demand?  Why or why not?