Price Reduction Strategy Term Paper

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Pricing Strategy

Price Reduction Strategy

What are the implications for revenue and profits of implementing the price cut?

The implications for revenue and profits are dependent on the demands and supply of the product. If there is not enough demand for the product, a reduction in the price of the product by 10% is unlikely to boost the demand of the product. On the other hand, if there is sufficient demand of the product, a 10% reduction in the price of the product will have direct effect on the revenue and profits of the company. The reasoning behind is that the price elasticity of the product is 2.5%, higher than 1. Therefore, a reduction of 10% in the price will have about 2.5 times effect in the demand of the product.

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As far as meeting the target by the marketing managers, the managers would find it easier to meet its revenue, as price reduction is going to increase the sales of the product (McConnell, 2001).

Change in profit without Competitors' Response

Change in the profit can be calculated from the following formula:

Price elasticity of demand = % change in the demand

Change in the price

So from the given question we can find:

2.5 = % Change in quantity demanded

So % change in demand = 25%

Change in the profit will be = 125*90-100*100 = (1125-1000)/100 = 125/100

1.25 times the profit.

Competitors' Reaction to Price Strategy

Market demands often set a ceiling and costs as for pricing. Competitor set prices.....

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