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Perfect competition: This is assumes that all companies in the market are selling identical products, at identical prices. As such every firm is a price taker and every firm has a small market share. There's freedom of entry into, an exit out of the market. So think about the nearest, you'd come to. Would be like maybe fruit and vegetables. Imperfect competition: is where there's less competition. Products are not identical and pricing is different. There could be a huge barrier to entry. So difficult to get into into the markets. Many substitute products and you can compete on quality and price.
Pricing power can be very significant. Product, this includes core products. So the basic requirement of a product and augmented products are additional features that might be desired. Think about a hotel. The core product is a room, a bed and maybe food, also a clean environment. The augmented product could be things like a pool, a gym, Jacuzzi, sauna, steam room, laundry bar, etc.  |
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Product is anything that could be off to a market to satisfy a need or a want. So it could include physical goods, services, experiences, events, people, places, properties, information, ideas or any combination of these things.
Price is the one element of the market, it makes, it produces a revenue, the others produce costs. So marketing plans may include pricing, strategies, special offers, etc. You can either focus on your costs or you can focus on the market. When you have to decide how you charge your prices, the relationship between demand, supply and price. Generally the higher the demand, the higher the price. If supplies scarce, this will also lead to a higher price.
- Five common factors affecting demand. First of all affordability, if a customer cannot afford a product, he will not buy it.
- Competition, if they decrease their prices, then demand for your product should also decrease.
- Level of gross domestic product GDP, a calculation of the state of the economy, gathered from output, so the value of goods and services produced.
- Expenditure, so purchased by businesses government and individuals and income so wages and profits.
- Available to substitute products so this will keep your prices down.
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You have to understand the needs and aspirations of consumers. Needs include food, water, warmth and shelter. Things which are not needs but are considered to be very important,are things like car or bike, phone, TV, laptop, entertainment things that people believe they cannot live without.
High demand, equates to high price. Other aspirations which include which influence demand and therefore price for things like trendy clothes, updates to technology, home improvements, larger house, better car, better bike and holidays influences on supply. Think about unexpected events or unexpected weather conditions. If there's very hot weather that should be very good news, if you're selling barbecue stuff. But if supplies are not available, then business will be lost.
Availability of raw materials and labor, A harsh winter might result in fewer lambs being born. Therefore the price of lamb would go up. A very wet winter could ruin crops, again driving the price of things up. Logistics, imagine the effects of a transport strike. A business has to make a profit, for this they've got to charge a price to cover their costs and also to make a profit. On top of that competition for raw material so any scarce materials will be very expensive. Sometimes a government provides support when it believes there is a need to boost the economy.  |
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- Pricing strategies: one example is penetration pricing which is a very low price strategy to try to increase your market share.
- Premium pricing a high price strategy for a luxury item.
- Psychological pricing so for example nine pound 99 value based pricing so what do you believe, the customer will be willing to pay.
- Cost Plus pricing so a percentage of what you have paid for the product.
- Dynamic pricing so a constantly changing price based on marking conditions think of Amazon for example price takings are falling in line with what the market leader charges.
- Price skimming so they're setting a higher price at the start when the product is novelty and then you bring the price down.
- Competition-based pricing so charging the same as the competition are charging.
Elasticity of demand: A measurement of how much demand changes, will the change in price. If a good is elastic, it means if the price changes, demand will change a lot. If a good is inelastic, it means if price changes, demand is much slower to change. Therefore essential items are inelastic. We simply must have them. Non-essential items are elastic.
Elasticity of demand calculation is, it's percentage change in quantity demanded, divided by percentage change in price.
In perfect competition, the price a company pays the suppliers is fairly fixed and unlikely to be negotiable. A company is too small to influence the change in prices as they hold a very small share of the market.
In imperfect competition, a company's got more influence on both pricing and output decisions. It can force a supplier to reduce his costs, when demand increases or the cost of raw materials decreases or lost leader a product or service offered at a knock down price or even a loss to attract additional sales and increase market share often done with a supermarket so they might have a product line that's slow to move. An estate agent may offer one house as a loss, especially if house sales have been slow. The travel industry could offer cheap flights. A trained company could offer bargain prices for first-class seats rather than leave them empty. A restaurant or a bar could have a happy hour to attract customers during quiet times. Output decisions depend on factors such as cost and production, environment and Market power.
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