Pricing Strategy of Dell

Running head: MANAGERIAL ECONOMICS
Managerial Economics
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MANAGERIAL ECONOMICS1
Table of Contents
Introduction......................................................................................................................................2
Pricing strategy of Dell....................................................................................................................2
Price elasticity of demand and pricing strategy...........................................................................3
Price discrimination strategy of Dell...........................................................................................5
Product mix pricing and price adjustment...................................................................................6
Conclusion.......................................................................................................................................7
References........................................................................................................................................9

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Introduction
In case of any business, pricing strategy plays an important role in determining success of
the business. Businesses need to take right decision about price in the complete life cycle of the
product. Pricing strategy varies depending on degree of competition, elasticity of demand and
other related factors (Kienzler & Kowalkowski, 2017). For example, if perfect competition
prevails in the market then no sellers has sufficient market power to control market price. In a
market with intense competition among rival groups business lowers price to increase its market
share. In such a market, consumers often experience a series of price reduction because of
intense rivalry among the sellers resulting in a price war. The resulting price war may cost the
firms in terms of a decline in revenue because of a significantly lower price. One important
determinant of pricing strategy of a business is the associated price elasticity of demand for the
product. If demand is relatively price elastic then it is profitable for business to lower price
(Pindyck & Rubinfeld, 2015). If demand in contrast is relatively inelastic then business can
increase revenue by increasing price. The paper discusses pricing strategy followed by Dell for
its computer taking considering relative elasticity of demand.
Pricing strategy of Dell
The company Dell Inc which operates with the brand name of Dell is a multinational
company having headquarter in United State. The company is named by its founder Michael Dell
and is involved in the business of personal computers, laptops, devices for data storage, software,
printers, network switches, computer peripherals and such others. Dell now has become one
leading brand for consumer durables. The company manufactures, designs, develops and markets
a variety of products along with offering customized product to satisfy need for both business
class customers and home or consumer class consumers (Bugert & Lasch, 2018). Some examples

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of Dell’s product offered to businesses and individual customers include Dell Precision
workstations, dimensions desktops, Optiplex desktop, Latitude and Inspiration notebook.
Pricing strategies of a company usually undergo changes along with different phases of
life cycle of the product since there is some constraints on freedom of the company to charge
price at various stages of production. Dell mainly aims to manufacture profitable and low price
personal computers for its customers. For his reason pricing strategy of Dell takes into
consideration affordability of its customers. Since, product of Dell is customizable, price
depends largely on customized services and opinion of the customers. In order to increase its
market share in the industry Dell is currently taking the strategy of undercutting prices (Hanna &
Dodge, 2017). The evaluation of pricing strategy of Dell requires clear understanding about
relevant elasticity of demand for Dell’s computer and other related aspects.
Price elasticity of demand and pricing strategy
Price strategy of businesses vary according to the price elasticity of demand faced by the
business. By definition, price elasticity of demand is an economic measure which estimates
variation in demanded quantity because of the corresponding variation in price. When demand
changes by a proportionately greater amount compared to price then demand is defined as
relatively elastic (Kreps, 2019). For goods having a relatively elastic demand, when firm
increases price of the good proportionate decrease in sales volume is larger than proportionate
increases in price resulting in a loss in revenue. Business in this case therefore should charge a
lower price to increase revenue since here sales volume increases by a proportionately greater
magnitude than decrease in price. In contrast, when proportionate change in demanded quantity
is less than the corresponding proportionate change in price then demand is considered as
relatively inelastic. Firms facing an inelastic demand for the product, when increase price then