Consumers
Consumers
A marketer should understand the relationship between price and consumer purchases and perceptions. This relationship is explained by two economic principles : the law of demand and price elasticity of demand and market segmentation.
A marketer should understand the relationship between price and consumer purchases and perceptions. This relationship is explained by two economic principles : the law of demand and price elasticity of demand and market segmentation.
The law of demand states that consumers usually purchase more units at a low price than at a high price. The price elasticity of demand defines the sensitivity of buyers to price changes in terms of the quantities they will purchase.
Elastic demand occurs if relatively small changes in price result in large changes in quantity demanded. Numerically, price elasticity is greater than 1. With elastic demand, total revenue goes up when prices are decreased and goes down when prices rise.
Inelastic demand takes place if price changes have little impact on quantity demanded. Price elasticity is less than 1. With inelastic demand, total revenue goes up when prices are raised and goes down when prices decline.
Unitary demand exists if changes in price are exactly offset by changes in quantity demanded, so that total sales revenue remains constant. Price elasticity is 1.
Competition
Another element contributing to the degree of control a firm has over prices is the competitive environment within which it operates. A market-controlled price environment is characterized by a high level of com¬petition, similar goods and services, and little control over price by individual companies.
Another element contributing to the degree of control a firm has over prices is the competitive environment within which it operates. A market-controlled price environment is characterized by a high level of com¬petition, similar goods and services, and little control over price by individual companies.
A company-controlled price environment is characterized by moderate competition, well-differentiated goods and services, and strong control over price by individual firms. Companies may succeed with high prices because consumers view their offerings as unique. Differentiation may be based on brand image, features, associated services, assortment, or other factors.
A government-controlled price environment is characterized by prices set by the government. Examples are public utilities, buses, taxis, and state universities. In each of these cases, government bodies determine prices after obtaining input from the affected companies, institutions, or industries as well as other interested parties (such as consumer groups
).
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