#427 The Price of Price
From the uncle selling provisions to the Politicans governing a country, Price is perhaps an important element of marketing that is most commonly used.
Scenario 1
I sell carrot cake at $2, i usually prepare to sell 100 plates a day by 3pm when i close shop. 3 months after opening, i run out of carrot cake by 2pm. I have 2 options:
1) Project demand for carrot cake and increase my preparation accordingly (eg. 120 plates)
2) Retain the 100 plates and sell the carrot cake at $2.50 instead
Results
1. Additional revenue of 20 plates x $2 = $40
2. Additional revenue of 100 plates x $0.50 = $99.50
Economics students will point out that with a higher price point of $2.50, my sales is likely to be affected, hence it is unlikely to sell all 100 plates by 3pm, so i created the 2B scenario:
2B. Sales drop to 80 plates, revenue becomes $200 (same as selling 100 plates at $2)
In other means, decision makers must decide what they want to achieve and how they can go about doing it.. so why the hassle of using carrot cake example and what am i trying to say?
CEO Prices
Having high CEO prices of over $70,000 means that part of the population that needs a car will be pegged back simply because they cannot afford to buy a car
Taxi surcharges
Having surcharges means that people who cannot afford to take cab now take other forms of public transport
Carrot Cake
While most of us can afford carrot cake at an additional $0.50, there will be part of the population who cannot, eg. the student that is given $2 lunch allowance daily now cannot afford to pack carrot cake home after morning session
The results of price increase indeeds reduces demand, which provides a false fulfillment that the product is now more available to those who can afford the higher price point. The result is social displeasure, especially amongst those who are stretched to meet the new price or simply pay the premium because they must.
I classify Price as an easy tool to manipulate to control demand, but the social cost of upwards price adjustment is often neglected when fiscal decisions are made by decision makers...
posted by klayhead at 1:21 pm
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