Question

1. You recently inherited some property between a wealthy neighborhood and a fairly poor neighborhood. You have constructed a building on the land and are preparing to open an upscale convenience store (which is allowed under zoning laws). Because your location, you believe that the wealthy neighbors will pay a premium for convenience as your store will be the only store in the area. Further, you believe that the residents of the poorer neighborhood will pay the higher prices because the only other convenience store in the area is farther into the poorer neighborhood which has a reputation for being dangerous. As you plan for your convenience store opening, how do you decide whether to charge higher prices than at other convenience stores in the general area

Answer 1

Answer:

Pricing is a very important component of Marketing. Marketing is essential for business performance.

The first objective of pricing is to ensure that the business is profitable.

The second is to ensure that one does not under price or over price. In order words, one would like to ensure that they get the best value possible for their products and or services.

A major factor for consideration when setting prices is the existence and behaviour of the competition and those of the customers.

According to the question, the convenience store will be the only one situated in the wealthy neighbourhood and those who are poor will not mind paying higher prices as the only other store which is the poorer neighbourhood is dangerous.

The challenge here is this, if the prices become too high for the poor residents to pay, they will start to think outside the box. They will opt for a solution(s) that will help them resolve the dilemma of having to choose between danger and having to spend so much at the new convenience store.

Their solutions could be to contribute some money to purchase a store at a safe location, where they can set up a business that will serve the community (both wealthy and rich) at reasonable prices.

Therefore, the best option is to ensure that the prices are just okay as an incentive for the poor to commute all the way to the new store rather than the one that has little or no security. The opportunity cost lost in terms of profit that would have been made is the cost to the company for ensuring that competition does not arise in the nearest future.

The consideration for whether or not the rich will pay is already attended to. Given that the wealthy don't have a convenience store within reach, this store most likely will be welcome as a relief to those who had to travel outside of their locality to do their shopping.          

Cheers!