Pricing Questions Answered

(** Disclaimer: Sorry, iWriter has punished me for including the titles of the questions in the article because of Copyscape so I just wrote the number of the question instead, I hope you understand)

First question

Companies influence competitive behavior within a specific market by playing with 3 main things: market prices, brand awareness, and appealing features.

When a competitor changes its product or service cost, the competition will automatically have to adjust or they will lose customers. That said, by using the cost leadership strategy, companies strive to become the lowest-cost producers, attracting clients to your products and indirectly influencing competitors to make some adjustments on their own.

Now, although that is not so simple and frequent in real-life, if done intelligently and patiently, in the long-term, a company may bring prices and quality the adversary can not afford and therefore, set a monopoly. Often, reducing the market price for a specific product is hard to impossible to do given all the pressure and producing costs, which is why a better approach to this strategy would be trying to reduce your manufacturing costs without lowering the quality. That way, the company will get bigger profits and will become stronger in the long-term, which means, of course, bad news for the competition.

On the same note, to influence competitive behavior, a provider can focus more on giving their products and service a branding by using various marketing strategies. Brand awareness will allow clients to choose you over other providers even if you have bigger costs. As for the appealing features, a company may try what is called the differentiation strategy, which basically translates to giving your product and service a unique, special trait, such as appealing features, or more effective, providing solutions for people other companies do not yet provide.

Second Question

Just like the distributors and retailers, manufacturers are also interested in bigger production/ orders and being part of the supply chain for an innovative product or market. That said, statistics show that high prices for new products have very effectively broken the market up into sections that carry in price elasticity of demand. The launching high price only plays to skim the cream for the relatively price-insensitive consumers. Demand is often inelastic in terms of price when new products come in, the reason for which starting with low prices helps stimulate the audience to try the new thing and ultimately spread the word.

Third Question

As IBM is a big multinational corporation, it all comes down to branding and reputation before anything. Full-service retailers provide all the required services, including warranty, insurance, and customer support, in other words, they take all the responsibility for the product and sale, leaving IBM out of any legal issue and brand damage. Online retailers, on the other hand, usually play as third-party vendors and leave all the legal trouble and customer support to IBM. Replacement and repairing costs are exponentially higher than an original BestBuy directly from the corporation. As mail-order online retailers are usually the ones to do this kind of play, coupled with prejudices such as spam mails, IBM finds itself in big danger of brand hurting and therefore it is in their interest to get rid of those retailers.

Fourth Question

Since they’re the national manufacturers, there is no other place to get the cereals from. Given that all the mentioned grocery chains (Kroger, Safety, etc) are the only cereal source in the whole country (importing from aboard would be more expensive), the manufacturers are the ones in power, free to set the price, etc. The market competition between them and the law of demand will still regulate the price somewhat but as long as the manufacturers have the most value and power in this supply chain, they’re able to keep higher profit margins than retail grocery chains.

Fifth Question

On the basics, Laura’s Raw Yarn exploits the economies of bulk-buying, because both LRY and Stephen Rich Lamb Farms are trading in bulk orders, making it easier and more convenient to bargain on the price. Since LRY is using advanced techniques for the spinning of the wool, it also exploits the technical economy and by advertising and marketing the products through craft magazines, they exploit the marketing economy. Stephen Lamb Farms exploits the circular economy because they’re basically the wholesalers of this specific supply chain and the agrarian economy.

Possibilities for either of these companies to gain cost advantages would be signing a contract in which they agree to work together on longer periods, trading bulkier orders, or simply taking the other’s job and become both the manufacturer and the retailer.

Sixth Question

A proper product life cycle management will considerably save a business’s costs. The four main stages of the product life cycle: the development, growth, maturity, and decline help managers and administrators manage sales, compete with competitors, estimate profitability and margins, track each product’s activities to see what adjustment needs to be taken, etc. Over time, or in the long-term, all these advantages turn in reduced product production cost, higher profit margins, and a better system overall.

Seventh Question

Price sensitivity translates to the feedback of the quantity for a specific product demanded to changes in price. Scanner data is the favorite option simply because it is more qualitative and precise. It is much easier to identify the price sensitivity of a product using scanner data, which increases productivity and therefore profitability. The only downside of scanner data is that it is expensive.

Eighth Question

  1. With an unlimited budget and no time constraints, I think the best option is still price elasticity of demand as it will bring the most results and data to analyze and use to my benefit
  2. Since there will be no time or resources to conduct the price elasticity of demand method or a survey, I would simply look at the overall data of the competitors on my level and go with the average result.
  3. The tradeoffs involved in the second method would be going with the regular and not determining my unique sensitivity degree.

Ninth Question

This statement is telling the simple and straight-forward truth: as long as you don’t participate in any price-fixing arrangements with your competitors, either it is verbal, written, or inferred from conduct, antitrust laws will not punish you. Price-fixing arrangements are the deals between competitors in regards to lowering, raising, or fixing the price on the market to restrict competition, resulting in higher prices and better profit margins for them. In this statement, the individual is the company that establishes its prices and terms on its own, not conducting any type of agreement with other companies, which is exactly what antitrust laws are hoping to achieve.

Tenth Question

It depends. If there is no legal contract involved between the mail-order company and the luggage manufacturing company that includes an unfinished period of trading both companies agreed to do, then the luggage company may stop selling to them legally. If there is such a contract involved, then it would be pretty much illegal and case laws would need to be opened.

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