Please answer these Requirement: Select a product/service that you have recently
ID: 1136101 • Letter: P
Question
Please answer these
Requirement: Select a product/service that you have recently purchased and use it as an example to work on this assignment. Please make use of graphs wherever necessary. 1. Describe the product/service that you have selected Product/Service name Nature of product (normal/inferior) Substitute(s) Complement(s) [1 Mark] 2. How would an increase in price influence its market? Describe the disequilibrium that would result from this change and how markets can adjust [3 Marks] 3. Describe all relevant factors that are likely to [3 Marks] a) b) Increase the demand for this product. Decrease the supply for this product. 4. Illustrate the changes to equilibrium price and quantity if the market simultaneously experiences a decrease in income level and an improvement in production technology [3 Marks]Explanation / Answer
Price sensitivity in the market
Price sensitivity refers to the changes in customer demand as a price changes. For example, commodity goods such as petrol have high price sensitivity. The difference of a few cents in price can impact a customer's behaviour.
Some markets are more sensitive to price increases than others. Price sensitivity can change over time based on a number of factors including changes in the economic environment, competition or demand. Factors other than price, such as quality, service, and uniqueness, can also influence price sensitivity.
Level of demand
Demand for your products or services will have a great influence on price. Generally, the higher demand for your product, the higher you can price your product and services. Demand can also be influenced by price. For example, lowering the price of a product can increase demand temporarily.
Level of Competition
Competition can impact your price and its sensitivity. Generally, the less competition you have, the higher demand there is for your product. Changes in your competition may also impact your price, such as a new competitor entering the market could affect the level of demand for your products or services.
Your competitor's activities can also have an impact on your pricing decisions, whether they have a new feature, an advertising campaign running or a price reduction.
Government regulations
Depending on your industry or how global your market is, local and international regulations can sometimes influence your pricing decisions. For detailed information on pricing regulations, see our Legal obligations page.
Researching price influences
Research can help you find the optimum price for your products. Generally, the optimum price is one that your customers are willing to pay, without it affecting your profits. This isn't a one-off activity, you must monitor your key pricing influences regularly as part of your overall market research to ensure your prices stay competitive and you still meet your customers' expectations.
Market testing
To help you determine how much your customers are willing to pay for your product/service you should perform some form of market testing. As a start, research your customer's purchasing behaviour such as:
With this customer information in mind, you can then develop a price comparison offering a number of different product/service options for testing to help you determine a price range that is acceptable.
Competitors
In writing your marketing plan, you should have already determined who your direct competitors are and how your business compares to them. This information can be useful in helping you determine your price point. If you decide to use your competitors' prices as a guide, be careful that it doesn't dictate your prices too much, as it can seriously undervalue your product/service and drive down your profits.
When you compare your business to competitors, it's also important to ensure you look at the business as a whole and compare on other value-based traits (such as special features, quality and customer