Assignment 1: demand estimation | Business & Finance homework help
A lower price elasticity indicates that a change in price won’t have much effect on demand. In this case, businesses may engage in “price skimming”, where they set high initial prices before gradually lowering them over time as competition increases and demand decreases.
However, if there is a high price elasticity of demand for a product or service, then businesses should consider decreasing their prices because it would lead to an increase in total revenue due to increased sales volume – consumers will respond more favourably when prices drop. This could be beneficial for businesses who want to quickly attract new customers and maintain existing ones. The key is keeping these discounts sustainable over time – offering too many discounts could lead to decreased profits if not managed carefully.
On the other hand, for products with highly inelastic demands (low responsiveness), businesses should consider raising their prices; since people are less likely to stop buying at higher prices, there is an opportunity for increased profit margins from each sale. This strategy can also be used by companies who have strong brand loyalty or offer services whose value outweighs its cost – such as those that offer convenience or status symbols – since these factors tend to reduce sensitivity towards changes in prices amongst consumers.
Overall, understanding how customers respond to different pricing strategies based on their level of sensitivity helps businesses develop appropriate long-term and short-term pricing plans that maximize revenues while maintaining customer loyalty and satisfaction levels.