EXTERNAL FACTORS
1. Demand
Demand for the product is the total volume that is bought by a customer group(s) in a definite time period, in a definite geographical area, in a particular marketing environment and with the defined marketing mix.
For a marketer it is necessary to understand the relationship between price and the consumer perception. The relationship can be explained by two economic concepts Law of Demand and Elasticity of demand.
The law of demand states that consumers usually purchase more units at a low price than the high price. The price Elasticity of demand shows the sensitivity of buyers to price changes in terms of quantities they will purchase.
Elastic demand occurs if relatively small changes in price result in large changes in quantity demanded total revenue goes up when prices are reduced or goes down. Price elasticity is more than 1.
Q1 - Q2
Price Elasticity = Q1 + Q2 = % age change in Qty. demand
P1 - P2 % age change in price
P1 + P2
Unitary elasticity Price elasticity Price inelasticity Negative elasticity
Qty. (a) (b) (c) (d)
In elastic demand takes place if considerable price change has little impact on quantity demanded. Price elasticity is less than one. Total revenue goes up when prices are raised.
Unitary demand exists when there is no impact of price on demand. Total sales revenue remains constant. Price elastic is one.
Negative demand exists if change in price has the adverse impact on demand. Price increase leads to increase in demand.
Research confirms that not all consumers use price as the dominant purchase determinants. The marketer has to study the type of product and type of customers to whom he want to serve and price elasticity of demand before arriving at a pricing decision.
2. Competition. Another factor that contributes to the degree of control a firm has over prices is the competitive environment within which it operates. A company's marketing program is influenced considerably by a particular type of competitive structure in which the company operates.
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