In retail, both company behavior and consumer’s behaviors affect product prices. Consumers have shown different behaviors and impacts on market prices. In this paper, I will examine these issues. This will show how consumer behavior interacts with market behavior. I will also demonstrate how the use of price is a cue to quality, or can destroy the price-quality relationship.
The first thing that I found out, by working at Home Depot is how responsive our market is to a change in price. This responsiveness is known as elasticity. I first learned this term in macroeconomics class. Products like tools, fixtures and lumber are highly inelastic. That is, regardless of whether the prices are raised or lowered, customers continue to purchase them in approximately the same quantities. Customers demand for elastic products do fluctuate with the price. A small change in prices either up or down will result in an increase or decrease in the number of units sold. Good examples of these are electronics, brand name shoes and clothing etc.
The more elastic your product then the easier it is to raise your prices without hurting your sales. To increase your profits on highly elastic products rather than raising your prices you might try lowering them. Because although this reduces your profit on each unit sold the resulted increase in sales volume will probably increase your overall profits. I learned this lesson in business finance this semester.
When a business sets s a price for their products, they set an amount which covers the manufacturing and selling costs. This takes sales conditions into account. Also the freight charges and cost of transportation must somehow be included in the final price. These costs are often passed on to buyer. Even though the product isn’t higher quality, the costs rise. Sometimes the costs are split. Retailers have developed certain