Question

Explain two factors A&B should take into account when deciding which price method to use.

Answer 1

Answer:

Whether the demand for their product is elastic or inelsatic AND whether they have close competitors

Explanation:

*DEMAND ELASTIC OR INELASTIC*

If the product A&B is selling has close substitutes, the product is likely to be more elastic. This means that even a slight rise in price will shift consumers to the substitutes ( competitor's product) which have lower prices. Moreover if the product takes a larger proportion of people's income, and is a luxury, the price is likey to be elastic. However if the product is inelastic ( the product doesn't have close substitutes), an increase in price will not cause much fall in sales, resulting in the prevention of losses in revenue. By using this knowledge A&B can determine whether or not they can use price skimming or promotional pricing.

*CLOSE COMPETITORS*

If the product that A&B is selling has close competitors, raising the price greater than competitor's prices will result in losses of A&B and it will loose customers to rival businesses. A&B can also decide by observing the quality of rival's products and examine whether they should further increase the quality and set higher prices for their product to create a 'higher quality image'.

Through these observations A&B can decide if competitive pricing or penetration pricing will be suitable for it or not.