Pricing Goals, Demand Elasticity And Customer Segmentation

A good knowledge of the customer group and its elasticity of demand for a product are vital factors for firms that need to operate successfully. Another factor that a firm needs to identify is its own pricing strategy. The pricing strategy must balance the firm’s need for sales growth against the anticipated profits. The pricing goals may be recognized as Profit Maximization, Revenue & market share Maximization and Quality leadership. Apart from the firm’s independent choice, the pricing goals depend largely on the target customer group.
A close research of the customer groups helps in understanding the distinct behavioral patterns associated with the pricing policies. For a soap manufacturing company, it is vital to understand the potential customers and how they are impacted by any changes in price of soap. The first group of customers is identified as the rich and brand conscious users, who are willing to pay a higher price to get a soap bar that promotes fairer, smoother skin. The firm understands that the price elasticity of demand for this group is inelastic and the sales volume will not be affected by any change in prices.
The firm can employ the quality leadership strategy to earn supernormal profits which are much higher than the high cost incurred on serving the group. The price is used as an indicator to support the image of the firm as a quality leader. The second group of customers may be categorized as the ones with rather elastic demand. In order to cater to this group, the firm needs to balance the price with the product features. The firm must be aware of the costs and the set the prices for profit maximization depending on the market structure in which it operates.

Save Time On Research and Writing
Hire a Pro to Write You a 100% Plagiarism-Free Paper.
Get My Paper

The perfect competition market structure controls the pricing for such an elastic group of customers. The third group of customers is defined by the users who buy the soap only if it is absolutely cheap. The demand elasticity is perfectly elastic and so the best pricing strategy of the firm for such a customer band is revenue maximization. The price of the soap can be set below normal to boost sales and revenue while temporarily ignoring profits. The firm must evaluate the impact and the duration of operating at such minimal profits.
The appropriate prices set for the different customer segments are greatly influenced by the varying cost of serving each segment (Peterson & Lewis, 1999). However, even if the cost does not vary, the firm may employ concepts such as price discrimination and peak bundling to achieve the pricing goals (Economic Expert. com). A thorough analysis of the customer segments along with their respective demand elasticity must be carried out and evaluated in the light of the firm’s own pricing goals in order to implement effective pricing decisions.
Rigby suggests that using customer segmentation as the basis for pricing strategy not only ensures overall satisfaction for the customers but also ensures sustained profits for the firm. References Peterson, H. C. , & Lewis, W. C. 1999. Managerial Economics (3rd ed. ). Prentice Hall of India. New Delhi. Rigby, D. , Customer Segmentation, Management Tools. Retreived on April 16, 2009 from http://www. bain. com/management_tools/tools_customer_segmentation. asp? groupCode=2 Price Discrimination, Economic Expert. com Retreived on April 16, 2009 from http://www. economicexpert. com/a/Price:discrimination. htm

Fountain Essays
Calculate your paper price
Pages (550 words)
Approximate price: -

Why Work with Us

Top Quality and Well-Researched Papers

We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.

Professional and Experienced Academic Writers

We have a team of professional writers with experience in academic and business writing. Many are native speakers and able to perform any task for which you need help.

Free Unlimited Revisions

If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account or by contacting our support.

Prompt Delivery and 100% Money-Back-Guarantee

All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. In case you cannot provide us with more time, a 100% refund is guaranteed.

Original & Confidential

We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text. We also promise maximum confidentiality in all of our services.

24/7 Customer Support

Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.

Try it now!

Calculate the price of your order

Total price:
$0.00

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

No need to work on your paper at night. Sleep tight, we will cover your back. We offer all kinds of writing services.

Essays

Essay Writing Service

No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.

Admissions

Admission Essays & Business Writing Help

An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.

Reviews

Editing Support

Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.

Reviews

Revision Support

If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied with the service offered.