Answer to Question #132483 in Economics of Enterprise for Johan

Question

Explain the type of pricing strategy that you as the manager of a company would implement for Good
X and Good Y with the following price elasticity of demand co efficients. Use diagrams to motivate
your answer.
a). Good X: 2.3 (10)
b). Good Y: 0.6 (10)

Answer 1

a) Low price strategy, or price breakout.

It can be used at any stage of the product's life cycle. It is most effective when demand is highly price elastic.

Is used for:

a) market penetration, maximizing the market share of the product (crowding out policy);

b) increasing the utilization of production facilities;

c) avoidance of bankruptcy.

The purpose of applying a low price strategy is to make a profit in the long term, not in the short term.

b)

Preferential pricing strategy. It is used to increase sales at the stage of falling product life cycle. It is carried out with the help of various discounts to the basic prices.