Analysis of Price Elasticity of a Product
Analysis of Price
Elasticity of a Product
ECO / 561
Analysis of Price
Elasticity of a Product
Abstract
Below
report contains various types of elements which includes introduction about the
company, market structure, relationship between pricing and elasticity of the
product, non-pricing strategies and in last the conclusion is given. In
introduction of the company the structure and rank of the Samsung is defined
with their competitors as well as their strategy of owning the market.
Furthermore the market structure in which the company operates is given which
is perfect competition. Their survival in this dominated market is due to their
unique ways to thinking in addition the relationship between the price and the
elasticity of the product is defined in which it is clear that the company is
trying to capture the high income earners at initial level but after that they
are lowering their prices to target medium earners which means that a slight
decrease in the price will increase their sales more.
Effects
of changes in the pricing strategy on the variable cost and fixed cost is also
elaborate in the below chart in which marginal revenue and marginal cost is
calculated according to their formulas. After those non-pricing strategies are
given in which advertisement, promotion and incentive schemes are included.
Samsung adopts the unique ways of advertisement so they can attractive more
customers through the internal ton market. Furthermore the effect on cost
structure due to changes in the business operation techniques are defined with
appropriate examples in detail. In last but not lease the conclusion and references
are given to make the report easily understandable.
Introduction
Samsung
is the one of the best brand of selling smartphones. It ranks first globally in
all smartphone selling companies. It captures most of the market
internationally as it cell phones are very unique in design and technology with
high quality features. Recently it has launched a new cell phone names Samsung
Galaxy 5 which is also known as S5. It was distributed in all the major markets
such Asia, United Kingdom, America etc. Market was dominated by the launch of
this product and everybody was willing to purchases this smart phone. As the
product is technology high and unique so the elasticity of this product is very
much sensitive which means that by a slight change in the price of the product
the sales will grow more as the demand of this product is high but only due to
heavy prices every individual can’t buy this, so if it’s prices are lower down
so more people will be attracted towards it.
Market Structure
There
are various types of markets structure exists such as monopoly, perfect
competition etc. Samsung Company operates in the perfect competition, as there
are various types of competitor exist in the industry such as Nokia, Apple, and
Sony Ericson etc. all these are very competitive and are very much risky for
Samsung success if Samsung lacks in the performance or strategy. Currently
Samsung enjoys the top position among all these companies due to their unique
way of thinking and high quality technology.
Relationship between Pricing
and Elasticity
Elasticity of
the product is something which affects the selling of the product. In other
words we can say that by change the price of the product the quantity demand of
the product will be change but how much it depends on the nature of the
product. For example the products which are the basic need of the people will
not get affect by the increase in the price because how much the cost is people
need to have that product.
Our
product is not a basic one; it is the luxury phone with high level features. So
if the increase the price of the product the sales of our product will decrease
but if we decrease our prices the sales will increase more as compared to other
situation. Our product is mostly purchased by the high level income earners so
they do not think about few dollars, so the increase or decrease in the price
will not hit those buyers but a decrease will capture the market of medium
level earners, because a reasonable amount could be afforded by them.
Effects of change in
quantity demanded on marginal revenue and marginal cost
Quantity
|
Price
|
Marginal Revenue
|
Total Revenue
|
Total Cost
|
Fixed Cost
|
Variable Cost
|
Marginal Cost
|
10
|
80000
|
80000
|
800000
|
500000
|
200000
|
300000
|
30000
|
20
|
75000
|
70000
|
1500000
|
800000
|
200000
|
600000
|
30000
|
30
|
70000
|
60000
|
2100000
|
1100000
|
200000
|
900000
|
30000
|
40
|
65000
|
50000
|
2600000
|
1400000
|
200000
|
1200000
|
30000
|
50
|
60000
|
40000
|
3000000
|
1700000
|
200000
|
1500000
|
30000
|
60
|
55000
|
30000
|
3300000
|
2000000
|
200000
|
1800000
|
30000
|
70
|
50000
|
20000
|
3500000
|
2300000
|
200000
|
2100000
|
30000
|
In
above chart the fixed cost remain same due to the change in quantity demand but
the variable cost per unit will increase according to the level of activity
increases. Marginal revenue is calculated by change in the revenue / change in
the quantity and marginal cost is increased due to change in the total cost /
change in the quantity.
Non –Pricing Strategies
There
are various types of non –pricing strategies to put entry barriers for new
arrivals/ rivals. Some of them are described below
Advertising
Advertising
is one of the vital elements of increasing the sales through non pricing, in
which the company uses various ways to make aware the customer about their
products. They highlight the important and unique features in there
advertisement and they make different advertisement for every different market.
Samsung Company
uses highly professional and unique ways to advertise their product, they have
highly qualified professional for this purpose which represent the product of
Samsung’s in such a way that it looks more attractive and capture the more
market. Advertisement
is also necessary to remind the customers about their product and make them
aware of changes in the features and prices as the prices are changed
frequently in this type of business.
Promotions and Incentives
Besides
advertisement there are other ways too, in which company usually offers
incentives on the purchases of their product or they promote their product by
different ways like free selling for some periods or at discounted prices.
Samsung company do not requires this type of methods because they are already
at top level of market and their company is going well already.
Change in business
Operation
If
the company changes their way of operating their operations or changes the
techniques to produce their product so this will effect on their cost too which
are fixed and variable. Samsung currently is operating by hiring high level
professionals to produce their cell phones and they operate in house. But if
they changes their ways of operations such as outsourcing the production
department so their cost will be changed accordingly and they may cost more or
less depends upon the outsourcing company. Samsung pays their employees on
monthly basis and bonus and commissions are also paid to sales person according
to their sales revenue but if they change this and start a new way of paying
their employees such as wages basis, no commission and bonuses but on different
parameters, this will also change their cost structure which is fixed and variable.
This cost structure will affect the company’s profit and their success because
more cost will reduce down the profit but this can be vice versa too because
due to change in the cost structure it is possible that the costs are decrease
hence profits will be increased.
Conclusion
From
all the above discussion and data on charts it is crystal clear that the
Samsung company is operating at very high level technology and getting success
day by day as compare to their competitors. Their 1st position
globally is the evidence of this statement. They are also trying to capture the
medium level earners market because they are decreasing their prices and by
decrement of every 5000 the increase in the quantity is of 10 units which will
increase their revenue accordingly. They have to be very careful in their
performance, strategy and cost control because they are facing very highly
competitive competitors who will beat Samsung if it lacks slightly even. Nokia
is the most immediate rival of Samsung Company because it ranks second in this
market. Samsung is also doing good
advertisement to enhance their level of sales and to increase their market
share in internal market so they can secure them from new entries and from
existing competitors.
References
Based on this paper , need to add the
following information
Required Elements:
•
Describe the current global economic conditions and their effect
on local macroeconomic indicators for your good or service.
•
Describe the local economy's stage in the business cycle.
Describe how current credit market conditions affect your
planning or operating decision for your good or service.
No more than 600 words.
AFTER PAYMENT ENTER PASSWORD : "shiv" TO UNLOCK THE SOLUTION
Comments
Post a Comment