--%>

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 : Minimum wage laws for unskilled and

    The capability of unskilled workers to compete against skilled workers for jobs tends to be decreased by: (1) progressive income taxes. (2) laws which impose excessive legal minimum wages. (3) speculation and arbitrage. (d) inflationary balance of trade deficits. (5)

  • Q : Describe economic perspective The

    The economic perspective refer as: 1) macroeconomic phenomena, but not microeconomic phenomena. 2) microeconomic phenomena, but not macroeconomic phenomena. 3) the making of purposeful decisions in a context of marginal costs and marginal benefits. 4) unlimited resour

  • Q : NOT operating area of monopolistic firm

    Monopolistic competitors within long-run equilibrium do NOT operate where: is (1) MR = MC. (2) P = ATC. (3) P > MC. (4) MSB > MSC. (5) economic profits are realized. How can I solve my Economics

  • Q : Economic profits to entrepreneurs

    Economic profits are NOT recompenses to entrepreneurs who: (1) endure business uncertainty. (2) provide society along with economic capital. (3) innovate new goods and technologies. (4) exercise monopoly power or monopsony power. (5)

  • Q : Prices decrement in price elasticity of

    When animal rights activists persuade several fur coat buyers to switch to micro-fiber jackets as well as pelt prices decrease from $150 to $50 each, resultant in the baby seal harvest decreasing from 18,000 to 6,000 yearly, in that case the price elasticity

  • Q : Changes in total revenue by price falls

    When the price falls along such demand curve for pizza, in that case total revenue: (w) falls. (x) rises, then falls. (y) rises. (z) does not change.

    Q : Market price below equilibrium price

    When the market price is beneath the equilibrium price then: (i) The market will clear. (ii) An excess exists. (iii) Consumers will not invest. (iv) The shortage exists. (v) Each and every consumer will be satisfied. Find out the r

  • Q : Cost of inputs in Determinants of demand

    I have a problem in economics on Cost of inputs in Determinants of demand. Please help me in the following question. The entire given are determinants of demand apart from. (i) Taxes and preferences. (ii) The cost of inputs. (iii) Price expectations.

  • Q : Determine marginal revenue by maximizes

    Maximizes total revenue by a monopolist where marginal revenue: (w) equals marginal cost. (x) is rising. (y) is zero. (z) is negative. Hey friends please give your opinion for the problem of

  • Q : Oligopolistic pricing behavior

    Collusive oligopolistic pricing behavior: (1) leads to natural monopoly when only some firms dominate an industry. (2) entails overt agreement among many firms in setting outputs and prices. (3) arises while contestable firms simultaneously raise or l