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Pricing Decisions
In today's competitive environment, pricing has emerged as a critical business competency. Executives in consumer, industrial, and service sectors must be prepared to face complex pricing challenges and to leverage pricing in order to capture the greatest market advantage.
One of the things in setting prices, the management should look at the elasticity of demand. Elasticity is simply a measure of how items respond to changes in price. The goal is to provide reliable reporting of the sensitivity of an item to a change in shelf price. In analytical terms, elasticity measures the impact of a one-percent change in shelf price (increase or decrease) on revenue. An elasticity of 1.0, for example, would indicate a one-percent decrease in revenue relative to the price change. An elasticity of 2.0 would show a two-percent decrease in revenue for the price change, and so on. Clearly, as the elasticity numbers grow larger, the item is defined as being more price sensitive.
In the given question, I take the case of a common product: personal computers (PC). As usual, the elasticity of computers...
One aspect for me will be to reduce the prices of the computers, so that I can gain enough market-share. Below I will show how the prices of the PC should be set in response to the external environment.
Competitive Environment and the Price
Pricing of computers is decided in a very competitive environment. Marketers need detailed, reliable reporting of how an item is priced, relative to the market and channel, to understand how best to set and/or adjust price. By understanding the competitive environment, one can provide a richer view of the way a consumer sees pricing in a channel -- whether by most common price, lowest price, average price, highest price or by key price points. Any pricing decision must be considered in the light of the likely reactions of competitors and marketers need to think carefully about the firm's medium- and long-term position in the market relative to the other players.
Price competition becomes a significant factor in markets where products are very similar; in other words, where there is little product differentiation. For example,…
References
Ingenbleek, Paul, Debruyne, Marion, Frambach, Ruud, and Verhallen, Theo M.M. Successful New Product Pricing Practices: A Contingency Approach. Marketing Letters, Vol. 14, No. 4; (2003): 289
Lowengart, Oded, Mizrahi, Shlomo, and Yosef, Rami. Effect of consumer characteristics on optimal reference price. Journal of Revenue and Pricing Management, Vol. 2, No. 3; (2003): 201
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