Will Bury has a new way of digitising books, and wants to maximize profits from his existing business. The paper presents some amendments to previous proposal, giving advice on the way in which profits may be maximized. The advice given includes recommendations for pricing, as well as advice to support increasing sales through differentiation and the development of loyalty in the customer base.
Business
Amended Will Bury Proposal
Current Position
Current Sales
Elasticity of Demand
Elasticity of Demand for the Digital Books
Books in Copyright
Books out of Copyright
Cost Structure
Influences in Demand
Will Bury has developed technology which effectively digitizes books; allowing the book to be listened to as an audiophile or read in a digital format, believing that this format will take over from their the current paper-based books and CD audio books. Will has started to sell the books online and his technical expertise has helped create a system which may provide a good income for him in the future, but his business acumen appears to be lacking in his ability to determine a suitable pricing strategy for the different books.
When maximizing profits the company will seek to maximize the revenues that are received at the same time as minimizing the costs. The aim of this paper is to assess the way that Will Bury may maximize his profits. The first consideration is to look at the way in which pricing should be determined and then look at other potential strategies which may help increase revenue.
2.
Current Position
Before any strategy can be determined it is necessary to look at the current position, to ensure that the strategy recommended will have a solid foundation and is based on the existing position of the firm. The level of sales and elasticity of demand needs to be considered with reference pricing strategies, however, it is also necessary to look at the cost structure which will increase the understanding of the firm and the potential strategies which may be suitable.
2.1
Current Sales
. Will has launched some books online, and has noticed that there are two different patterns, the books which were out of copyright was sold for $10 each and sold 1,000 copies, however, the books that were newer and was sold for $15 sold a total of 2,000 units. Will was surprised as he assumed that the cheaper books would sell more, but this was not the case. In order to understand why there is a difference, as well as help with undertaking an effective pricing strategy it is necessary to consider the concept of elasticity.
2.2
Elasticity of Demand
For most goods in the market it is known that when the price increases demand will decrease and when the price decreases demand will increase (Baye, 2007). This is the reason why when a company wishes to sell off surplus goods they will have a sale and reduce prices, or when goods are very popular and there are insufficient stocks companies know that they can increase the price and still so the products (Baye, 2007). However, while the majority of goods will see an increase in demand when prices decrease, the rate at which demand changes of will vary, and some products may see a faster increase than others (Baye, 2007). Additionally, in a few cases a decreasing price may undermine the value of the product, and may result in a decrease in sales, this is known as a Giffen good (Baye, 2007).
Elasticity is a way of measuring the impact that a change in price will have on the demand for a product, and the revenues which are generated. If Will wants to maximize revenues, he can use the concept of elasticity in order to determine how prices for both the out of copyright and new books should be price.
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