Essay - Pricing Strategy Price Reduction Strategy What are the Implications for...

Pricing Strategy

Price Reduction Strategy

What are the implications for revenue and profits of implementing the price cut?

The implications ***** revenue and pr*****its are dependent on the demands and supply of ***** product. If there is not enough dem***** for the product, a reduction in ***** price of the product by 10% is unlikely to boost ***** *****and of the product. On the o*****r hand, if ***** ***** sufficient demand of the *****, a 10% reduction in the ***** of the product will have direct effect on ***** revenue and profits of the company. The reasoning behind is that ***** price elasticity of the product is 2.5%, higher than 1. **********, a reduction of 10% in the price ***** have about 2.5 times effect in the demand of the product. As far as meeting ***** target by the marketing managers, the managers would find it e*****ier ***** meet *****s revenue, as price ***** is going to increase the sales of the product (McConnell, 2001).

***** in profit without Competitors' Response

***** in the profit can be calculated from the following formula:

Price elasticity of demand = % change in ***** *****

Change in the price

So from the given question we ***** f*****d:

2.5 = % Change in quantity demanded

So % change in demand = *****%

Change in the profit will be = 125*90-100*100 = (1125-1000)/100 = 125/100

1.25 times the profit.

***** Reaction to Price Strategy

***** demands often set a ceiling ********** costs as for pricing. Competitor set prices b*****ed on the market demands. However, the competitors can also set price through price comparison. If ***** demand of the product is high, the competitors are unlikely to reduce their prices. However, when the market is mature and demand for the product is declining in the foreseeable future, the ***** might also decrease *****ir prices for ensur*****g ***** level ***** revenues (Kotler, 1991).

Change in Profit with Competitors' Response

Calculat*****g ***** in response to competitors' reactions on price strategy is ***** so straightforward.

The profit will rather depend ***** the demands of the products and competitors' reactions. If competitors reduce ***** price of the product more than the firm, the firm is ***** to gain the **********. On the o*****r h*****, if the ***** do not reduce ***** cost in response of the firm's price *****, the ***** of ***** firm ***** go up. The pr*****it in this situation is likely to be higher than 1.25, as a share of the market from the competitors will be pulled by the *****.

However, in reality, the reaction of the competitors will also depend on the quality of the *****s. **********, a ***** ***** on ***** ***** of the ***** ********** ***** used for calculat*****g ***** profit of the company. This is because the competitors' products can be of different quality than ***** ***** the firm (Kotler, *****).

***** o*****r words, a product can be *****d higher than of the firm's product, if the competitors' products are considered better.