5. Survival: firms may price their products at whatever level will bring in the most cash in order to meet short-term survival needs. Ex. Catastrophe (weather) or construction that causes people to be unable to get to a business. They May lower prices enough just to get people to come in, to survive 6. Social responsibility: depending on the product, a firm may price it at a level that can make it accessible to the greatest number of people in order to meet a pressing need. (Example: a medication that can save lives, but could cost too much for a sick individual to afford it.) Factors that limit the range of prices a firm may set are pricing constraints: 1. Demand for the product class, specific product, and brand. 2. Stage of the product in the product life cycle 3. Single product or product line (printers and printer ink) 4. Cost of producing and marketing the product 5. Cost of changing prices and the time period they apply The seller’s price is also constrained by the type of market in which it competes (most competitive to least competitive):
Competitors' Prices and Consumers' Awareness of Them Consumer-Driven Pricing Actions . With consumers able to compare prices on the Internet, they can make more efficient buying decisions. This occurs, say, when a consumer visits the HDTV section of a store to actually examine a TV— and then goes home and orders it online at a lower price. RedLaser, an eBay-owned smartphone app, enables consumers to scan a product's barcode on a store's shelf and then compare that price to those both online and in nearby stores Seller/Retailer-Driven Pricing Actions . Aggressive price changes through the Internet started in the 1990s when airlines constantly changed ticket prices to fill the seats on their planes using their yield management systems. Today, many sellers are changing online prices even faster. This is made possible by Internet-based dynamic pricing , in which the seller changes prices in response to its existing inventory and the prices of competitors. This can occur every 10 or 15 minutes. Estimating Demand A demand curve is a graph that relates the quantity sold and price, showing the maximum number of units that will be sold at a given price. Elastic demand exists when a 1 percent decrease in price produces more than a 1 percent increase in quantity demanded, thereby actually increasing sales revenue. Inelastic demand exists when a 1 percent decrease in price produces less than a 1 percent increase in quantity demanded, thereby actually decreasing sales revenue. Unitary demand exists when the percentage change in price is identical to the percentage change in quantity demanded so that sales revenue remains the same. The more substitutes a product has, the more likely it is to be price elastic .
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