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Business Economics Assessment

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Introduction

Business Economics MBA - DL Assessment Due Date: 21st December 2009 Word Count: 1750 Author Olutomi Nneka Oyefuga UB 08030168 Course MBA DL Business Economics MAN4100M Module Leader Damian Ward Contents QUESTION 1A 4 Introduction 4 Key Demand Side Drivers of Price For Vehicles 4 Conclusion 6 QUESTION 1B 7 Introduction 7 Effectiveness of Price Discounting During Recession 7 Price Discrimination 8 Conclusion 8 References Ref Title A Charging Ahead, The Economist San Francisco, August 21st 2008 QUESTION 1A INTRODUCTION Price Elasticity measures the response of demand to a change in price (Begg & Ward), and adopting pricing strategies relevant to a particular product or service remains one of the biggest challenges faces by managers. The demand side drivers of price must therefore be clearly understood, taking into account the end objectives, so as to measure performance against these. It is however worthwhile to note that from the case study [Ref. A], the demand for GM cars is seen to be price elastic as an increase in car prices - by way of retracting 'employee discounts' in this case - resulted in less demand. Conversely a decrease in the prices would have resulted in an increase in the demand for the cars. ...read more.

Middle

The company may therefore need to incorporate prices of substitute and complement goods into its pricing strategies in order to stay competitive. Consumer Needs, Tastes and Spending Trends The needs and tastes of the end user and their spending trends will affect the demand drivers of price for vehicles, as shifts occur in customer reactions and perceptions. The advancements in technology are very good examples of this, as future advancements could reduce the demand for older products. If consumers developed an improvement in preference or taste for GM vehicles, this would result in an increase in demand regardless of the price, resulting in a shift in the demand curve from D1 to D2. If on the other hand consumers regarded GM vehicles as being 'out-dated' for example, the demand would decrease, even if there were a reduction in prices to remain competitive. This would result in a leftward shift from D2 to D1. Environmental Factors Environmental factors can affect the demand for vehicles. For example, GM thrives on manufacturing vehicles that are environmental friendly, and with lower CO2 emissions. Many of the company's objectives rely on this, and this is a reason why several consumers remain faithful to GM brands, e.g. ...read more.

Conclusion

The figure below shows price elastic demand curve, which illustrates how total revenue is affected by reductions in prices and increases in the demand for GM vehicles. It can be seen that for a small discount in the price of the vehicles, i.e. from P2 to P1, there is an increase in demand from DQ2 to D Q1, and for a larger discount, from P1 to P3, from DQ1 to D Q3. The rectangle shows the total revenue represented by the corresponding price change, and the impact of the price reduction on the total revenue is the difference in size between the two rectangles. PRICE DISCRIMINATION Pricing discrimination is likely to provide useful benefits if discounts are to be adopted in the long term. So whilst the recession may have affected the US, and Europe, and discounts could be adopted, prices may be hiked in other regions, e.g. Africa, where different groups of consumers exist which very dispersed spending trends. CONCLUSION Pricing discounts should be used to exploit price elasticity, but should only be used in the short term, as this can be financially unhealthy if production costs are not met, and can also adversely impact a company's market share. Pricing strategies should therefore elude from blanket pricing, so as to appease both cost-conscious and value-conscious consumers without cutting prices. ANNEXES A. Bibliography B. Glossary BIBLIOGRAPHY MATERIAL USED 1. ...read more.

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