Price Elasticity Essay Example | Topics and Well Written Essays - 250 words - 1

Price Elasticity - Essay Example In this case, if goods A and B are complementary, they have to be purchased together for a consumer to reap their utility. Complementary goods have a negative cross elasticity of demand; this implies that the demand of good A increases when the price of good B is decreased, where goods A and B are complementary goods. Conversely, the demand for A is decreased when the price of B is increased. This basically means that when higher quantity of A is demanded due to price decline, the demand of B will equally increase since A cannot be used without B. substitute goods exhibit positive cross-price elasticity of demand. Suppose X and Y are substitute goods. When price of Y goes up, consumers will go for X at a cheaper price but with similar utility as Y The income elasticity of demand measures the degree of change in demand of a commodity in response to changes in consumer’s income level. Inferior goods are those goods that a person may consider using when they do not have enough money, for example a cheap car. With little income, the demand for cheap cars will go up. Once the income increases, people tend to prefer more expensive cars and hence the demand of cheap cars goes down. Normal goods have a normal demand curve. In this case, the demand of a normal god will increase as the level of income increases. Conversely, the demand of a normal commodity will decrease with the level of income (Tobin, 1987). Various aspects including the availability of substitute products or goods, necessity degree and the greater the elasticity of good demand mostly influence the price elasticity of goods demands. Generally, demand tends to be elastic when there is availability of substitute goods in the market (Landsburg, 2011). In this case, the greater the substitute products in the market would result to demand elasticity. The best example is the Coca-Cola and Pepsi situation where the market is always flooded with availability of substitute products thus making the demand

Understanding Buyers Value Essay Example | Topics and Well Written Essays - 750 words

Understanding Buyers Value - Essay Example Understanding Buyers Value Michael Porter (1991. pp103) presented an internal value chain of an organization from conceptualization to delivery of products to customers and argued that "Buyer Value is created when a firm lowers its buyer's cost or enhances buyer's performance". From the author's perspective, the buyer's value is the positive perception of the buyer herself/himself that the organization has earned amidst many factors that influence the perception. The factors may be behaviour with the buyer, communications carried out with the buyer, clarity & transparency of information provided to the buyer, understanding of buyer's need, personalization of the solution against buyer's needs, discount levels provided to the buyer, value added services provided to the buyer. and after sales services & product upgradation services provided to the buyer whenever requested. It may be possible that the buyer has carried out competitive pricing analysis before the bargaining and hence the seller has to either justi fy higher price by demonstrating tangible value additions or simply quote lower than competition to sell the products. Hence, Porter's argument about lowering of buyer's cost and enhancing buyer's performance again gets applicable if the buyer appreciates these facts from her/his perspective. The firm’s perspective can at the most be to control the factors (value chain management) that can achieve the positive perceptions of the buyer – what the buyer finally perceives is the actual value achieved by the firm. The author strongly agrees about the theory of reduced sacrifice undertaken by the buyer because it strongly influences the perception of the buyer regarding the firm. Discussion Points Elmaghraby and Keskinocak (2003. pp1288-1289) presented the mechanism of dynamic pricing to get the best benefits out of increased customer demands and reduced inventories. In such cases, the firms tend to increase their prices which definitely tend to increase the sacrifice level of customers to acquire the prices. The author wishes to discuss if such dynamic pricing strategies in the attempt to get the best out of "favorable conditions for the firm" cause long term damage to the value perceptions of the customers which may backfire especially when the demands eases. Slater and Narver (1998. pp1000-1005) presented that long term competitive advantages of companies can be improved by carrying out innovations more towards market orientation than customer orientation. This is primarily because customers are grossly ignorant about their needs. But on the contrary it is true that customers perceive value on their own based on their social influences and past experiences. The author wishes to discuss how companies should be able to control the perceptions of customers to achieve positive buyer value if this theory about market orientation should be trusted Conclusion: The author presented own perspective about buyer's value stating that this largely depends upon the factors that drive positive perceptions in customer's mind. The best that an organization can do is to apply effective efforts to achieve this positive perceptio