Factors and Examples of Changing Velocity

Factors v.s. Examples

• Availability of substitutes

When a competitve product suddenly rises in price, customers will immediately change to buying other products, so it is very ELASTIC.

• Strength of brand image

When a company has a very strong brand image, then people would be willing to buy their products even it is more expensive. Therefore, when it tends to be INELASTIC.

• Time

Customers usually have brand loyalty, but once more time passes, customers will recognise its higher price compared with its competitors, then they may abandon it and go to other competitors. So, as a price rise is implemented longer, a product's price tends to become ELASTIC.

Price Elasticity of Demand

Before we start, lets clear something out:


The higher the S, the lower the D is (like the more carrots they have in the shop, the cheaper they are).

___________________________________________________

NOW:



The slope of the curve shows the elasticity by:

% change in quantity

---------------------- <--this is a divsion like 1÷2= 1/2

% change in price

IT IS HOW RESPONSIVE DEMAND IS TO A CHANGE IN PRICE

Price Elastic:

If you have an answer>1, then demand is very sensitive to price. This means a small change in price leads to a big change in demand.

You have a product, you sell it $1000. Then you decided to make it cheaper and lower the price by 7%. Then the people purchase it increased by 28%.
28%÷7%= 4

In other words, PEOPLE WANT TO BUY THEM WHEN THEY ARE CHEAP.

SO THE DEMAND IS SAID TO BE PRICE ELASTIC.

Think Gucci and Burberry. And the old ladies trying to look expensive. No offence.

Price Inelastic:

If you have an answer<1,>

This means a big change in price leads to only a small change in demand.

You have a product. You sell it $1000.

You lower the price by 50% and the demand increased by 25%.

25%÷50%= 0.5

Therefore it is sensible to put the price up.

In other words, THEY DON'T GIVE A DARN ABOUT THE PRICE.

SO THE DEMAND IS SAID TO BE PRICE INELASTIC

Pricing Strategies and Methods

Price Price Price......Money Money Money.
YES WE ALL LILKE MONEY.

But what are the strategies for pricing??


NEW PRODUCTS

1. Penetration Pricing
Lower price than the competitor's to get to new market. When brand loyalty(loyal customers) is bulit, rise the price to get the profit back.

Adv: Cheap, people like cheap good stuff. When the price gets up people won't mind because they are used to the product AND become loyal.

Dis: Low sale revenue because of the low price.


2.Price Skimming
High price because they're new for the early buyers, when the products become competitive (and the early buyers get bored) the price gets low.

Adv: Can help the product to look nice(i.e: good quality)

Dis: May scare some potential customers away due to the high price and people might not want to buy it when it become cheap (STEREOTYPE built when its expensive)



MARKET ORIENTATED PRICING

1. Competitve Pricing
Setting the price similar or below the competitor's price.

Adv: Sales are likely to be HIGH because your price is at a realistic and adorable price which the price is not under or over priced.

Dis: Your competitors will have the similar price with you which customers won't be able to tell which one is better.


2. Promotional Pricing
Reduce the price for an existed product for a short period of time, normally does it when new products come out (e.g.: BUY ONE GET ONE FREEEEE).

Adv: Can get rid of hard selling + unwanted stocks and can help to renew interest in a business if sales are falling.

Dis: Low sales revenue because of low price.


3.Psychological Pricing
Using price to make the products look cheaper or expensive.

Cheaper: $100 --> $99 and your mum would be like, "OMG! So cheap!"
Expensive: $156264822000000 for rich people to feel rich (for good quality products)



COST BASED PRICING
Say if I have some products, and I want to earn money for every single product purchased, I'll put maybe 10% of the cost onto the product as its selling price.

Adv: As the product price increases, the higher the percentage rate the higher profit you get.

Dis: The price may not be how much the customers are willing to pay.







Remember PRICE≠COST!!!

Cost is the actual value (money) for the product
Price is the how much you sell to customers.






IT IS ESSENTIAL TO MEMORIZE THEM
NO OTHER WAYS.

****IGCSE EXAM LIKES TERMINOLOGY

Topics

3.1.8 Price
Price elasticity of demand
Pricing methods and strategies



Those are the topics I'm doing lah.