--%>

Profit margins

Examine within your answer the circumstances that will enable a company to pass on cost increases to customers and protect profit margins. For example- price sensitivity of demand, rising food prices, cotton prices, etc.

E

Expert

Verified

It is quite true that setting right prices is one among the major challenges faced by each and every business nowadays. Business possessors very well recognize the importance of pricing, but get anxious at any time they think about increasing their prices. The apprehension, certainly, is the actuality that in case if they amplify their prices, they would have to face the risk of losing customers. If customer decides to buy from a particular company exclusively on the grounds of price, they can also go anywhere else on the grounds of price. The customers can anytime switch over to other product or company offering the same product at lower cost than the former. Moreover, if the prices set by a company are reasonable they would allow the company to keep hold of its clients and to obtain more and more customers.

However, in some situations price opposition is usually just superficial; good superiority as well as consumer service is considered to be more significant especially in the longer run. A number of consumers would comprehend that the company needs to pass on the incremented costs of resources such as raw material, rent and fuel which is entirely out of the company’s control it. Moving ahead, as long as the company could make clear the grounds for the cost increments, the clients won’t visualize the organization is stuffing its revenues that to at their cost. If the company increments costs above those of its challengers, it need to make clear in consumers mind the fact that the greater cost puts forward higher advantages as compared to the goods offered at lesser costs by the competitors.

Moving ahead, each and every company irrespective of the size and product they deal in, faces the problem of increased price these days. The main challenge is to pass on this increased cost on customers and protect profit margins in a way it does not offend or dissatisfies them. There are several means to do so. Firstly, differ pricing through intensifying the organization’s offerings. For instance, the company can develop a package of goods. Even though individual products continue to be at the normal price, a package of two or products might cost the equal of 10% less as compared to the price if the items were bought independently.

In addition to this, the other means to obtain superior overall pricing is to provide distinct kinds of consumers with distinct prices. A large number of companies provide discounts to children, students, senior citizens etc. Apart from this, the company can also go for strategies like offering a new look to a previous product such packaging or feature, in order to convince the customers that the increased price is due to the new look. At the same time the companies can manage to shift over the increased cost on customers in an efficient manner. Further, it is highly essential to efficiently manage the company’s prices and make sure they are not being determined by rivals or consumers.

   Related Questions in Microeconomics

  • Q : Substitution Effect-decreasing

    The substitution effect is negative since people react to a price raise by: (i) Reducing purchases of good. (ii) Generating more of good. (iii) Purchasing some substitute goods. (iv) Working less to sustain the existing purchasing patterns.

    Q : Examples of Labor

    The contracts needing employment after some worker’s jobs have been made obsolete through automation are illustrations of: (i) Blacklisting. (ii) Labor-reducing protectionism. (iii) Check-off provisions. (iv) Yellow dog contracts. (v) Feather-bedding.

  • Q : Law of Supply in quantity supplied The

    The law of supply defines that higher prices cause rise in the: (i) Demand for good. (ii) Supply of the good. (iii) Quantity supplied. (iv) Gains of investors. Can someone please help me in finding out the accurate answer from the

  • Q : High economic profits High economic

    High economic profits for firms are least probable to arise by: (1) important market power. (2) “cut-throat” competitive pricing policies. (3) superior products. (4) unusually efficient managers. (5) price-maker behavior.

    Q : Define Size Anomaly Size Anomaly : The

    Size Anomaly: The size effect terms to the negative relation among security returns and the market value of the common equity of a firm. The coefficient on size has extra explanatory power than the coefficient on beta in explaining the cross section o

  • Q : Resource demands from purely

    Relative to the resource demands from purely competitive sellers, demands through imperfectly competitive firms for resources tend to: (1) Perfectly price elastic. (2) Upward sloping. (3) Backward bending. (4) Less price elastic. (5) Perfectly price inelastic.

  • Q : Analytic time in market structure In

    In this figure the firm probably to go out of business the soonest would be as: (w) Firm A. (x) Firm B. (y) Firm C. (z) Firm D. 298_Market Str</span></p>
                                        </div>
                                        <!-- /comment-box -->
                                    </li>
   
   </td>
	</tr><tr>
		<td>
       
      <li>
                                        <div class=

    Q : Socially optimal output in perfectly

    Assume that no externalities in production or consumption exist and the income distribution is universally viewed such as “fair.” When this firm could price discriminate perfectly, one condition for socially optimal output would be for: (i

  • Q : Decisions of oligopoly firm on price

    Within an oligopoly each firm: (w) ignores the pricing strategies of rival firms. (x) faces a horizontal demand curve. (y) should make decisions on price and output based on expected or actual actions of its rival. (z) has little control over the mark

  • Q : Productivity related problem Other

    Other things equal, an improvement in productivity will: A) shift the aggregate demand curve to the left. B) shift the aggregate supply curve to the left. C) shift the aggregate supply curve to the right. D) increase the price level.