Prices+and+Economics

//What is Price?//
===Very simply, price is the money a customer must pay for a product or service. But price is much more than that. Price is a very important element of the marketing mix. It is one of the 4 P's. Price is the actual cost and the methods of increasing the value of the product to the customers. When planning any marketing activity, business people must consider the impact of the cost to the business, the price customers must pay, and the value that is added to the product or service as a result of the activity.===

===Price is an important tool for marketers because it can be changed much more quickly than other marketing decisions. Once a product is designed and produced, it is very difficult to change its form or features. Changing a price is often as simple as adding a new price sticker or marking out an old price. Even manufacturers can change the price charged by a retailer by offering a coupon or a rebate. Because prices can be changed more rapidly and easily than other marketng tools, marketers must be careful not to make mistakes with price changes.===

===The economics of price takes into consideration supply and demand. If there is a small quantity of a product or service but a very large demand, the price will usually be quite high. On th other hand, if there is a very large supply of a product or if demand is low, the price will be low.===

===It may seem that an easy way to get consumers to buy your product is to decrease the price. It seems logical that if the price decreases, more products will be sold. Many people believe that if sales increase, profits will increase as well. However, that is not always the result. This concept is known as elasticity of demand. Elasticity of demand describes the relationship between changes in a product's price and the demand for that product. The elasticity is based on the number of good substitutes for a product and the willingness of consumer to go without a product if the price goes too high.===

===The table below shows Inelastic Demand. When the price is decreased for one dozen eggs, a larger quanity will be sold. However, the increase in quantity is not enough to increase the total revenue from the sales. The result occurs because consumers who purchase eggs have few substitues for that product. When consumers need to purchase eggs, they will do so even if the price is increased. If the price decreases, they will not buy many more eggs than they would at the higher price. In inelastic demand, a price decrease will decrease total revenue.===


 * **Price of One Dozen Eggs** || **Quantity Sold** || **Total Revenue** ||
 * $ .65 || 305 || $198.25 ||
 * $ .68 || 300 || $204.00 ||
 * $ .71 || 292 || $207.32 ||
 * $ .74 || 285 || $210.90 ||
 * $ .77 || 277 || $213.29 ||
 * $ .80 || 264 || $211.20 ||

===In elastic demand, a price decrease will increase total revenue. This occurs when customers see several good subsitutes for the product. If the price of a product is decreased, more consumers may switch their buying habits to include the purchasing of that particular product.===

===When businesses emphasize price as a reason for customers to buy a product or service, two problems can result. First, the emphasis on price may encourage customers to view price as the most important reason for buying. Second, the emphasis on price means that businesses must keep prices as low as possible. With low prices, there is less profit available on each product sold.===

===To avoid this, some companies use non-price competition. Non-price competition deemphasizes price by developing a unique offering that meets an important customer need. Price is not an imporant factor when purchasing a one-of-a-kind painting or applying for admission to a college.===

===Companies using non-price competition need to carefully study the needs of a target market. The products and services that people in the target market view as competitors must be examined. If the the company is successful in meeting the customer needs, price will not be an important factor in the decision to purchase.===