The Effects of Price Reduction on Demand and Business Profitability

This report provides a comprehensive analysis of the relationship between price, demand, and profitability in a business context. It explores the impact of price reductions on demand, customer positioning, and overall economic growth. The report delves into various aspects such as price elasticity, the law of demand, and the effects of price discounts. It also examines how factors like customer perception, economic conditions, and government policies influence these relationships. The analysis includes a review of relevant literature and empirical studies, providing a nuanced understanding of how businesses can strategically manage their pricing to maximize profit and market share. The report concludes with insights into how businesses can respond to changes in commodity prices and their effects on consumer behavior and overall market dynamics. The report also looks at the impact of shopper education strategies and how they affect consumer choices, especially in the food and beverage industry.

Comparative analysis

Table of Contents
INTRODUCTION...........................................................................................................................1
If a business drops its price will it always increase demand-and will it always make more
profit?.....................................................................................................................................1
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
The main topic is about If a business drops its price will it always increase demand-
and will it always make more profit? For this topic, the project report various aspects have
been covered such as price, customer position, economic growth, Price discount, demand,
productivity, profitability etc. which communicate that if the price of commodity will
decrease, there will be increase in demand of product as well as organisation will earn more
profit.
If a business drops its price will it always increase demand-and will it always make more
profit?
There is great impact of change in the price of the product on the demand, the
customer will always enjoy the decrease price of product, as they will able to purchase more
quality at the same amount or at the less than that. The customer will able to purchase more
quantity of products that have become cheaper and will not buy those goods which is
expensive for them. The demand function state that there is negative relationship between the
demand and price of the product. Whenever the price of the product will fall, there will
increase in the demand and when the price increase, the consumer will try to shift to other
substitute and demand for that product will fall. The law of demand state that all the other
factors which affect the demand will constant other than price. But in the real world there is
income and substitute effect other than price on the demand of the product. If the price of one
product rices, simultaneously there will be increase in demand of other that is substitute
products (The Effects of the Price Change on the Demand of Agricultural Products During
Summer, 2013). As well as when the income of people rises, they will able to pay more for
the goods and services and the demand rises.
There is inverse relationship between the price of commodity and profit of the
organisation. The company who want to earn more profit, they need to attract large
customers and to generate more leads. In order to achieve that companies need to cut down
their cost and reduce the price of the product. If price of goods and services will reduce then
the demand will increase and if the company is able to sell more products, then they will
generate high revenue. There are some related point which help to understand the
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relationship between price, customer position, economic growth, Price discount, demand,
productivity, profitability etc.
Customer position is the place that the brand carry in the perception of customer and
how the products and service of the organisation is different from the other brand goods and
services. It is effort made by the company to create positive perception in the mind of target
market so that their wants can be converted into purchase. It is analysis which help the
organisation to find that where the product and service stands in the market place as well as
in the eye of customer. When the organisation is able to do good positioning then their
products and services will be called as the unique as compare to the competitor. Perceived
value plays significant role in positioning of customer, if the company is successful to satisfy
the perceived value of customer, they will able to earn more and capture large target market.
The firm's have identified various strategies which help them to capture customer position,
one of them is price penetration that means reduce in price of the products and services
(Holmes and Bolander, 2017). The companies try to cut the prices by cutting down the cost
of production and advertisement, with that they try to give discount and promotions to the
customers. This will help them to attract numerous customers, as the clients are in the wait of
discount and when they find it, they put efforts to convert their desire into purchase with the
less value in return. There is negative relationship between the price and customer position.
When the price of the product will decrease, there will be increase in the customer position.
As it is one of the most renown strategies which is called price penetration to attract and
retain large customers. Law of demand will not been applicable in the real world, other
factors like income, substitute and complimentary goods can not be constant so if the price is
considered, there will be negative effect with the demand.
Price discount is the strategy which is used by the organisation to sell their low price
product at bulk quantity. The key objective of this strategy is to cut the cost and gain
competitive advantage. The large retailers try to ask more discounts from the suppliers so that
they can serve more products at the low price to the customer in order to increase demand
and earn more profit (Le and Ball, 2016). There are several types of discount such as flat,
occasional, rewards etc. which attract the customer and help the organisation to sell more
products Shopper education strategy is the plan of action where the seller give proper
knowledge about the specification and features of the product so that they can communicate
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that information to the customer. It is very important for the shopper to have perfect
knowledge about the product so that he can protect customer from the harmful effects when
the products is not properly used. Price discount and shopper education have large impact on
the food and beverage industry in the Australia. There was 20% price discount given in the
20 stores of food and beverage and it is analysed that there was 12.7% increase in the
purchase of gram, vegetable and fruits and 19.8% post discount. if the price is being
discounted, there will be increase in the purchase of product and services. In the Australia,
mounting price discount, increase in the diet of people and increase in the sale of food and
beverage.
Economic growth is the measurement that how much more products the country is
producing in comparison to the past period. If the country is able to produce more, then the
organization will able to earn more profit and the price of stock will increase and this will
lead to increase in the capital of organization. More capital will increase in the investment to
the different resources such as more job availability and this will raise in the income of
employees. After that the organization and employees have to contribute more income tax.
There will be increase in the Gross domestic product and annual growth rate. If the size of
economy increases, that will have no effect on the future growth rate but it will put the
economy at the growth path (Jaimovich and Rebelo, 2017). It is no doubt that tax policy can
affect economic choices. If the tax rates will be cuts, it will gain in the after tax return for the
investment, saving and working class. If the tax reforms occurs, then it is very complex
problem for the country, it will cut the tax rate. It is being perceived that this situation will
increase in the size of economy on the long run. There are various channels which can affect
the economic growth with the income tax rate which involves substitution and encourage
investment, work and saving. This have great impact on the price of the commodity,
gradually the price will reduce, and organization will sell more of their products and with that
they will earn large profit
From many years modern economics is facing very big problem that is increase in the
price level of the products which decrease in the purchasing power of the customer. If the
price increases, The demand will decrease and the organisation will no able to invest in more
job opportunity. The employment level decreases and income of individual also falls down
which will lead to decrease in purchase power (The impact of the changes of commodity
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price level in the world, 2014). So it clearly states that there is inverse relationship between
the price and demand of the product. There is inverse relationship between the commodity
price level and demand of the products
An experiment was held to improve population diet and changing it to healthier one,
this file also included the components like food label and food taxes. The experiment was
based on three by three model where people were provided with three level of discount of
10%, 25% and 50% wit three label special offers, healthy choice and special offer and health
choice on health food. The experiment was hold through weakly shop. Through this
experiment it comes forward that the highest purchasing of healthier product was maximum
at third label which provide them with the 50% of discount. The major thing which come
forward was that though there was significant amount of purchase in healthier food but it
does not reduce the statistic of non healthier food that people buy. There was no decrease in
the amount of non healthier product it only results in higher energy purchase. Another thing
which comes forward was that people were more interested in price discount rather than label
(Hung and de Kok, 2016). The significant steps were taken in order to reduce the energy
amount and include healthier food like instead of giving discount on all product, heavier
discount were given on Fruits and vegetables. It increases the amount in purchase of
vegetable and fruits. Price discount play important part in purchasing healthy food, it also
shows that people give more importance to price than different label. It discusses the negative
impact of this discount and ow to over come it.
CONCLUSION
It is concluded from the report that there is inverse relationship between the price and
demand of the product which can be explained from various factors such as customer
position, economic growth, Price discount etc. from the customer position factor it is state
that there is negative relationship between price of product and customer position, if price
will decrease, organisation will able to grab large market share. Price discount is another
strategy which is used by the companies to sell more product at lower prices. Economic
growth means increase in level of income with that customer will able to buy more products
and the organisation will earn more profit. It is sure that if the organisation will drop price of
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their products, demand of their goods and services will increase and they will able to earn
more profit.
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REFERENCES
Books and Journal
Holmes, Y. M. and Bolander, W., 2017. “Let's make a deal:” Price outcomes and the interaction
of customer persuasion knowledge and salesperson negotiation strategies. Journal of
Business Research. 78. pp.81-92.
Le, H. N and Ball, K., 2016. Economic evaluation of price discounts and skill-building strategies
on purchase and consumption of healthy food and beverages: The SHELf randomized
controlled trial. Social Science & Medicine. 159. pp.83-91.
Jaimovich, N. and Rebelo, S., 2017. Nonlinear effects of taxation on growth. Journal of Political
Economy. 125(1). pp.265-291.
Hung, Y. and de Kok, T. M. 2016. Stakeholder and consumer reactions towards innovative
processed meat products: Insights from a qualitative study about nitrite reduction and
phytochemical addition. Food Control. 60. pp.690-698.
Online
The Effects of the Price Change on the Demand of Agricultural Products During Summer, 2013.
[Online] Available through:<https://ecsdev.org/images/conference/siICSD2013/xhabija
%20%20293-302.pdf> [Accessed on 8th September 2017]
The impact of the changes of commodity price level in the world, 2014. [Online] Available
through:<http://www.economics-sociology.eu/files/09_71_Miecinskiene_Lapinskaite.pdf>
[Accessed on 8th September 2017]
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