demand-oriented pricing

Examples of demand-oriented pricing in the following topics:

• Impacts of Supply and Demand on Pricing

  • The supply and demand model states that the price of a good will be the level where the quantity demanded equals the quantity supplied.
  • As a result of the fall in demand, price drops as well (while the actual quantities of demand and supply will depend on the shape of the demand and supply curves, for the sake of example, let's say the price drops to $4).
  • Should price decline, demand would increase.
  • A demand curve shows the quantity demanded at various price levels.
  • Demand-oriented pricing focuses on the nature of the demand curve for the product or service being priced.

• Market-Oriented Theories

  • Market-oriented theories of inequality argue that supply and demand will regulate prices and wages and stabilize inequality.
  • In a free market, prices are supposed to be regulated by the law of supply and demand.
  • According to supply and demand, if a produce or service is scarce but desired by many, it will fetch a high price.
  • When demand exceeds supply, suppliers can raise the price, but when supply exceeds demand, suppliers will have to decrease the price in order to make sales.
  • Consumers who can afford the higher prices may still buy, but others may forgo the purchase altogether, demand a better price, buy a similar item, or shop elsewhere.

• Everyday Low Pricing

  • Everyday low price is a pricing strategy offering consumers a low price without having to wait for sale price events or comparison shopping.
  • Everyday low price (EDLP) is a pricing strategy promising consumers a low price without the need to wait for sale price events or comparison shopping.
  • One 1992 study stated that 26% of American supermarket retailers pursued some form of EDLP, meaning the other 74% were Hi-Lo promotion-oriented operators.
  • One 1994 study of an 86-store supermarket grocery chain in the United States concluded that a 10% EDLP price decrease in a category increased sales volume by 3%, while a 10% Hi-Low price increase led to a 3% sales decrease; but that because consumer demand at the supermarket did not respond much to changes in everyday price, an EDLP policy reduced profits by 18%, while Hi-Lo pricing increased profits by 15%.
  • Translate the meaning of the EDLP (everyday low price) pricing strategy

• Market Demand

  • Market demand is the summation of the individual quantities that consumers are willing to purchase at a given price.
  • The demand schedule represents the amount of some good that a buyer is willing and able to purchase at various prices.
  • The relationship between price and quantity demanded reflected in this schedule assumes the following factors remain constant:
  • A market demand schedule for a product indicates that there is an inverse relationship between price and quantity demanded.
  • The market demand is the summation of the individual quantities that consumers are willing to purchase at a given price.

• Interpretations of Price Elasticity of Demand

  • The price elasticity of demand (PED) explains how much changes in price affect changes in quantity demanded.
  • The price elasticity of demand (PED) is a measure of the responsiveness of the quantity demanded of a good to a change in its price.
  • $\frac{\%Change \; in \; Quantity \; Demanded}{\%Change \; in \; Price}$
  • In this case, any increase in price will lead to zero units demanded.
  • The price elasticity of demand for a good has different values at different points on the demand curve.

• Demand Schedules and Demand Curves

  • A demand curve depicts the price and quantity combinations listed in a demand schedule.
  • The curve can be derived from a demand schedule, which is essentially a table view of the price and quantity pairings that comprise the demand curve.
  • Using a demand schedule, the quantity demanded per each individual can be summed by price, resulting in an aggregate demand schedule that provides the total demanded specific to a given price level.
  • The plotting of the aggregated quantity to price pairings is what is referred to as an aggregate demand curve.
  • It is derived from a demand schedule, which is the table view of the price and quantity pairs that comprise the demand curve.

• Stimulating Demand

  • For brands to successfully stimulate consumer demand, they must understand consumer needs and motives.
  • Companies are now increasingly focusing on how to stimulate consumer demand and compete for customer loyalty.
  • For there to be a demand for products and services, there must be consumer need and motivation.
  • Benefit segmentation may include consumer labels such as price-conscious, convenience-oriented, service-oriented, or other motivation features.
  • To stimulate demand, brands must first understand the needs and motives of consumers.

• Impact of Price on Consumer Choices

  • The demand curve shows how consumer choices respond to changes in price.
  • As price goes up, the quantity that consumers demand goes down.
  • A critical consideration of product/service pricing is the price elasticity of a given good, which indicates how responsive demand is to a change in price.
  • The figure pertaining to price elasticity shows how the slope of the demand curve will change depending on the degree of price sensitivity in the marketplace for a good.
  • Construct the demand curve using changes in consumption due to price changes

• Defining Price Elasticity of Demand

  • The price elasticity of demand (PED) measures the change in demand for a good in response to a change in price.
  • The price elasticity of demand (PED) is a measure that captures the responsiveness of a good's quantity demanded to a change in its price.
  • The law of demand states that there is an inverse relationship between price and demand for a good.
  • A PED coefficient equal to one indicates demand that is unit elastic; any change in price leads to an exactly proportional change in demand (i.e. a 1% reduction in demand would lead to a 1% reduction in price).
  • This means that demand for a good does not change in response to price .

• Cross-Price Elasticity of Demand

  • The cross-price elasticity of demand measures the change in demand for one good in response to a change in price of another good.
  • The cross-price elasticity of demand shows the relationship between two goods or services.
  • Cross-Price Elasticity of Demand (EA,B) is calculated with the following formula:
  • For independent goods, the cross-price elasticity of demand is zero : the change in the price of one good with not be reflected in the quantity demanded of the other.
  • Two goods that are substitutes have a positive cross elasticity of demand: as the price of good Y rises, the demand for good X rises.