The 17th marks essay...( 0.0 )

Pricing policy is important because the product price decided upon must be to cover the firm’s cost of producing and marketing the product and generate an acceptable level of profit. Getting the right price requires balancing between being competitive and being profitable. Therefore, the issue whether to lower the price of whisky B or not depends on these factors: elasticity of whisky B, marketing objectives, competition, nature pf whiskey and economic conditions.

Price elasticity of demand measures the responsiveness of demand following a change in price. Whisky B may has a inelastic demand whereby PED is between 0 and 1. It is measured by % change in quantity demanded over % change in price. Therefore, an increase in price will lead to a less than proportionate decrease in quantity. This rationalise for the raise of price as the firm will not lose much demand and still able to increase total revenue.
On the other hand, if whiskey B has a elastic demand where PED is between 1 and infinity – a percentage change in price will lead to a more than proportionate change in quantity demanded. Price of whisky B should not increase as it will lose much demand and will suffer from a loss in total revenue.

One factor affecting PED of whisky B is the number of substitutes. Whisky is a type of alcoholic drink where consumers may substitute it with other alcoholic drinks such as beer, brandy and red wine. In such cases, whisky B will have an elastic demand and thus its price should not be changed. However, consumers of some countries may have a strong preference for whisky, thus leading the demand to be inelastic.
Alternatively, whisky B may be one of the choices from many other companies that produce similar type of whisky, in consumers’ point of view. There is thus a high number of substitutes, contributing to high elasticity of whisky B. If Whisky B has done much marketing effort in positioning itself as a superior brand as compared to its competitors, it can increase price and enjoy higher total revenue as it enjoys the benefit of inelastic demand.

One of the marketing objectives which may be taken by whisky B is to capture as much market shares as possible especially when it has entered the global market, as a new product. To achieve its goal, it may adopt price penetration strategy which rationalizes for the decrease in price. This act as an incentive for potential customers to try out their new product and thus increase their competitiveness of whisky B. This is essential in a highly competitive, price sensitive market such as USA where it imports alcoholic drinks all around the world.
However, price penetration strategy should only be adopted for a short period of time after its promotion period as pricing it highly will ensure customers to perceive it as highly-valued and eventually one of the market leaders in the long run.
Whisky may belong to either shopping good or specialty good category. Shopping good is where consumers usually compare several brands or stores on styles, quality and prices before buying, while specialty good is where consumers are willing to search extensively and travel great distance for as they are reluctant to accept substitutes. Most shopping goods has a elastic demand where it has a significant number of substitutes and faces more competition by rival firms. Hence, price of whiskey B should be lower to reap higher total revenue. Conversely, if consumers view whisky B as a specialty good, it will most likely have a inelastic demand, where price should be raised instead of drop so as to increase total revenue.

Competition level varies for different countries and market whisky B has entered. If company of whisky B is the only one seller of whisky which has no close substitute in the market, it is a monopoly and thus enjoy more freedom in price setting. In this case, it will have a inelastic demand where it will make more returns when the price is raised. However, it can still lower its price as it enjoys freedom to do so.

In economic situations such as boom and inflation, purchasing power and desire of consumers increase and thus prices of whisky B can be increased to increase total revenue especially if it has a inelastic demand. On the other side, in situations such as recession and intense competition, purchasing power and desire decrease (for recession). The business objective to survive will override all other objectives and thus price should be set low to increase sales, especially for elastic demand.

As whisky B production is expanding to meet world demand, the firm will employ mass production to achieve economies of scale. This increases fixed cost incurred by the firm which needs a high demand to offset it. There might be a need for whisky B to reduce its price by offering discount especially in times of recession. On the other hand, if it incurs high variable cost, price needs to be raised to ensure revenue collected is able to offset high variable cost. Otherwise the company incurs losses and is not bale to meet its low fixed cost.
In conclusion, there are many factors which can affect the pricing policy of whisky B. The firm should weight the different factors before deciding the price. However, the price may have to change according to market conditions, time and at different countries. I would advise that price discrimination be practiced by whisky B as different markets have different elasticity and level of competition, etc. This is feasible as different prices can be set for the same product as it can separate the different groups of customers by geographical boundaries. The flexibility of price discrimination will ensure that the price will be tailored to suit different market, and thus work for the firm best interest.