A look at different pricing strategies a firm may use to try and increase profitability, market share and gain greater brand loyalty. Types of pricing strategies General strategies Profit maximisation. One strategy is to ignore market share and try to work out the price for profit maximisation.
However, economics has an impact on every moment of our lives because, at its heart, it is a study of choices and why and how we make them. Scarcity You implicitly understand scarcitywhether you are aware of it or not.
Simply put, the world has limited means to meet unlimited wants, so there is always a choice to be made. For example, there is only so much wheat grown every year.
Some people want bread; some people want cereal; some people want beer, and so on. How do we decide how much flour should be made for bread? One answer is a market system. Supply and Demand The market system is driven by supply and demand.
This demand means you can charge more for beer, so you can make more money on average by changing wheat into beer than grinding that same wheat into flour. More people start making beer and, after a few production cycles, there is so much beer on the market that prices plummet. This extreme and simplified example does encapsulate the wonderful balancing act that is supply and demand.
The market is generally much more responsive in real life, and true supply shocks are rare — at least ones caused by the market are rare. Costs and Benefit The concept of costs and benefits encompasses a large area of economics that has to do with rational expectations and rational choices.
In any situation, people are likely to make the choice that has the most benefit to them, with the least cost — or, to put it another way, the choice that provides more in benefits than in costs.
Going back to beer: If demand is high, the breweries of the world will hire more employees to make more beer, but only if the price of beer and the sales volume justify the additional costs to the payroll and the materials needed to brew more.
This extends far beyond financial transactions. University students perform cost-benefit analysis on a daily basis, by focusing on certain courses that they believe will be more important for them, while cutting the time spent studying or even attending courses that they see as less necessary.
Although people are generally rational, there are many, many factors that can throw our internal accountant out the window.
Advertising is one that everyone is familiar with. Commercials tweak emotional centers of our brain and do other clever tricks to fool us into overestimating the benefits of a given item. Some of these same techniques are used quite adeptly by the lotteryshowing a couple sailing a yacht and enjoying a carefree life.
This image and its emotional message "this could be you" overwhelm the rational part of your brain that can run the very, very long odds of actually winning.
So, cost and benefits may not rule your mind all the time.
Everything Is in the Incentives Incentives are part of costs and benefits and rational expectations, but they are so important that they are worth further examination. Incentives make the world go round, and sometimes go wrong.
If you are a parent, a boss, a teacher or anyone with the responsibility of oversight, and things are going horribly awry, the chances are very good that your incentives are out of alignment with what you want to achieve.
This particular brewery has two sizes of bottles: The owner wants to increase production, so he offers a bonus to the shift that produces the most bottles of beer in a day. Within a couple of days, he sees production numbers shoot up from 10, bottles a day to 15, However, he is soon deluged with calls from suppliers wondering when orders of the 1L bottles are going to come.
The problem, of course, is that his incentive focused on the wrong thing — the number of the bottles rather than the volume of beer — and made it "beneficial" for the competing shifts to cheat by only using the smaller bottles. When incentives are aligned with organizational goals, however, the benefits can be exceptional.
Some incentives have been proven so effective that they are common practice at many firms, such as profit sharingperformance bonuses and employee stock ownership. However, even these incentives can turn disastrous if the criteria for the incentives falls out of alignment with the original goal.
Poorly structured performance bonuses, for example, have driven many a CEO to take temporary measures to juice the financial results enough to get the bonus — measures that often turn out to be detrimental in the longer term.
Putting It All Together Scarcity is the overarching theme of all economics. It sounds negative, and it is one of the reasons economics is referred to as the dismal sciencebut it simply means that choices have to be made.
These choices are decided by the costs and benefits that impact the choice, leading to a dynamic market system where choices are played out through supply and demand.The Concept Of Pricing To Market Economics Essay. Print Reference this.
Disclaimer: as well as the concept of price discrimination. This essay will outline and review the concept of pricing to market.
It will be followed by the implications of PTM for purchasing Power Parity. The concept of pricing to market deviates from the law of. Economics Model Essay 1 This question will be discussed in economics tuition in the fifth week of term 1. (a) Distinguish between the concepts of price elasticity of demand, income elasticity of demand and cross elasticity of demand.
Pricing is the process whereby a business sets the price at which it will sell its products and services, and may be part of the business's marketing urbanagricultureinitiative.com setting prices, the business will take into account the price at which it could acquire the goods, the manufacturing cost, the market place, competition, market condition, brand, and .
Pricing Concepts The Concept Of Price Economics Essay. Home. Pricing Concepts The Concept Of Price Economics Essay. 11 Sep admin. It all started with Spice Jet cut downing its air menus. In January, , this low frills bearer from India announced that it had slashed its menus on a limited – period sale for 10 lakh seats on all its.
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