Communication in Professional Contexts for Price and Demand

Question: Write about theCommunication in Professional Contexts for Price and Demand. Answer: Introduction The law of economics states that with the change in the price of the products, the demand for the products changes. According to the law of economics, the price and demand of the products is inversely proportional to each other. Accordingly, if the price of the product decreases, then the demand of the product will increase. However, there are certain exceptions in the law of economics. In a few cases, it is being seen that with the rise in the price of the products, the demand is also increasing and vice versa. In accordance with it, various authors have given different opinions about the effect of the change in the price in the influencing the change in demand. This report will discuss about the opinions of different authors and literatures to determine the extent to which the change in price will impact the change in demand. Moreover, it will also be analyzed that whether the decrease in the price will help the organization to have more profit from the market. Critical Analysis of Price Demand Relationship Influence of Price in Determining Demand As stated by Ashe-edmunds (2017), price is one of the key determinants in influencing the demand of the products in the market. According to him, reducing the price level increases the attractiveness of the product in the market. However, it should also be considered that price is not only the single determinant in determining the demand of the product. Various other factors such as quality and brand value also influence the demand for the product. Thus, with decreasing the price of the product, it is also important for the organizations to maintain their quality to attract more customers. It is also being stated by him that, rapid reduction in the price will in turn create negative impression among the customers. This is due to the fact that, customers tend to relate quality with price and thus, with the reduction in price, customers believe that quality will also get decrease. It will eventually reduce the demand for the product. Misconception Regarding the Pricing Factor According to Heda, Mewborn and Caine (2017), reducing the price may not have the desired outcome as being expected for the business organizations. This is due to the fact that, according to the authors, in the contemporary business scenario, pricing is not only the factor that will determine the market share for the organization. They also stated that, the myth regarding the increase in demand with the decrease in price is misconception and are not related with the practical situation. According to them, the demand for the product may increase with the decrease in the price in a few cases but in the majority of the cases, the influence of the price is marginal. Thus, it is being recommended by the authors that the organizations should not only rely on the pricing factor to increase their market share, rather than they should also consider the other factors to enhance their organizational performance. Similar kind of opinion is being given by Gan, Pujawan and Widodo (2017) regarding the influence of price on the demand of the products. However, they have stated some important factors that should be considered in determining the pricing strategy of the organizations. According to them, reduction of the price is being depended on various factors such as the cost of production and distribution. Thus, according to them, it is important for the organizations to consider these factors before going for price reduction. Without considering these factors, it may have adverse effect on the organizational performance. It is also being stated by them that, the influence of price works on the buying behavior of the customers to a certain level. Afterwards, the pricing strategies do not have their effectiveness. Reduction in Profitability Timpson (2017) has stated an important aspect of the influence of price in changing the demand of the product. According to him, it is true to a certain extent that reduction in the price level will help to increase the demand of the products. Thus, it will eventually help to enhance the market share of the organization. However, one factor being stated by the author that should be considered is the profitability of the organization. This is due to the reason that, the more the price will get reduced, the less will be the profitability of the organization from a certain products. The cost of production will remain as same and with the reduction in the pricing level, the profitability will get reduced. Thus, according to the author, the market share will get enhanced and on the other hand, the profitability will get reduced. Exceptions to the Price Demand Relationship According to Uzgoren and Guney (2012), pricing strategy is not effective and applicable in the case of luxury goods. This is due to the reason that, consumers buying luxury items are being influenced by their higher prices and exclusivity. Thus, reducing the price of the products will keep away the target customers due to the fact that, with the decrease in the price, the product will be available to more number of audiences. Thus, according to the author, pricing strategy should be in accordance to the area of operation for the organizations. Moreover, it should also be determined by the organizations about the requirement of their target customers. This is due to the fact that, in few cases, the target customers will get attracted with the decrease in the reduction in price and on the other hand, reduction in price will reduce the number of existing customers. According to Haagsma (2012), similar customer buying behavior can be noticed in the case of the giffen or inferior goods. Inferior goods refer to the products having less value among the customers and are having relatively inelastic demand. Thus, in case of these types of goods, reduction in the price does not have much effect on the buying behavior of the customers. This is due to the fact that majority of the giffen and inferior goods are less uses to the customers and the customer budget for these types of goods is also less compared to other products. Due to this fact, the customers demand for the goods is less influenced by the change in price. Moreover, organizations producing these types of goods are having lower level of profitability and thus, it is also impossible for them to further decrease the price. The profitability of the organization operating in this sector is so less that further reduction of price is not possible and if that is being done, there will be very less effect on the buying behavior of the customers. Thus, according to the author, the inverse relationship between the price and demand is also not applicable in the case of inferior goods. Conclusion Having analyzed the various aspects given by different authors in determining the influence of pricing strategy in changing the demand of the product, it can be concluded that the influence of price in determining the demand is being depended on various factors. The critical analysis of the influence of pricing helped to understand that decreasing the price level will not help the organization in increasing the market share of the products. Rather than the organization should consider other aspects in determining their pricing strategies. Moreover, this report has also been identified that the area of operation and the type of product are also the determining factor in understanding the influence of the price in increasing the demand. Reference Ashe-Edmunds, S., 2017. Chron. [Online] Available at: https://smallbusiness.chron.com/cutting-prices-good-marketing-strategy-61446.html [Accessed 16 August 2017]. Gan, S. S., Pujawan, N. I. Widodo, B., 2017. Pricing decision for new and remanufactured product in a closed-loop supply chain with separate sales-channel. International Journal of Production Economics, Volume 190, pp. 120-132. Haagsma, R., 2012. Notes on some theories of Giffen behaviour. InNew Insights into the Theory of Giffen Goods(pp. 5-19). Springer Berlin Heidelberg. Heda, S., Mewborn, S. Caine, S., 2017. How Customers Perceive a Price Is as Important as the Price Itself. Harvard Business Review, 3 January. Timpson, J., 2017. 'Cutting prices works sometimes, but it's the lazy way to increase sales.' [Online] Available at: https://www.telegraph.co.uk/connect/small-business/cutting-prices-is-the-lazy-way-to-increase-sales/ [Accessed 16 August 2017]. Uzgoren, E. and Guney, T., 2012. The snop effect in the consumption of luxury goods.Procedia-Social and Behavioral Sciences,62, pp.628-637.