If A Business Drops Its Price Will It Always Increase Demand

Question: If A Business Drops Its Price Will It Always Increase Demand - And Will It Make More Profit? Answer: Study of Li and Yada shows product or service prices might have a great competitive edge but requires providing the seller sufficient profit. For the fear of business failure, most of the sellers cut their margins off during the time of loss. Businesses often drop prices of their product and services hoping that this low reduction can lead to considerable increase in the demand and as a result a substantial increase in profits. This research is focused on cause and consequence of the reduction in product prices. Cited study concludes that making such improvements to the performance may have yielded better fiscal performance in short term, the management of the company understood it will not address the declining market share. Further it states that pricing is a very critical decision and blatantly cutting prices is not a solution every time. This article is significant for the research as it is recent considers all major factors and objective which led to a reduction in prices. This article does not have any significant limitation as it is perfectly linked to my research and provide be the basis for my work. Consider book for the research is based on the theoretical framework of price uncertainty, production, and profit by considering recent market conditions of Australia. According to the viewpoint of Tisdel; if or if not the reduction in price might boost profit rely on the demand elasticity of the product as per consideration. Prices influence the volume and thus profits. However, the heavy amount is to be paid if it results negative. There is a need to know the price adjustment would have a gradual effect on profits. This book is a secondary support to my study due to a major limitation of linkage to economics. However; study of this source provided me learning that a businessman is said to be smart when he recognizes that low price renders either low quality or worse services. Generally, the price set by companies regarding their products in a variety enables business to be more sustainable Study of Mankiw shows the economic relationship of price, demand and profitability to understand the logical reasoning of the fact that if a business drops its price will it always increase demand - and will it make more profit. As per the viewpoint of Mankiw; making a reduction in price results in profitability, only if cost and quantity of sale stay stable. When a reduction in price lead to low quality of companys products further the company is been dragged to reduce them in order to maintain sales. Their research had assisted me in a better understanding of the concept and logical reasoning of the concerned situation in the case. In their research, Venegas and Ventura had clarified that if the reduction in price is supported by the poor quality that it can take away potential profits and consequently lead to a net loss. One other negative impact that comes with is continuing market share loss since the quality reduction cannot bring the sales the way it was. Conversely, is the company is able to drop costs efficiently without having any effect on quality, process or figures then the company can make higher levels of profit. This study is the primary source to the research as it provides consequences if pricing strategy of the company is not viable. However; limitation of this study that it is concentrated on supply chain coordination. This is an online article based on strategic planning: Will Lowering Your Prices Increase Profits? This was a short but viable link for the study as describes the relationship of price demand and profits with proper economic examples and theory. Although due to the limitation of content it does not a complete framework it provides cutting down prices would cost money during the short term. Even in the past, price reduction measures did not do much to augment sales volumes and were matched quickly by the rivals. This issue is one faced by every retailer: though indirect, long-run elasticity of price might be high, direct, the short-run elasticity of price is quite low. Any major cuts in price are likely to have significant negative impacts on margin for a couple of years or more, and they need to be paid during that time in some manner. References Strategic planning: Will Lowering Your Prices Increase Profits?. 2017. [Online]. Available through https://www.marketingmo.com/strategic-planning/will-lowering-your-prices-increase-profits/. Venegas, B.B. and Ventura, J.A., 2018. A two-stage supply chain coordination mechanism considering price-sensitive demand and quantity discounts. Journal of Operational Research, 264(2), pp.524-533. Mankiw, N.G., 2014. Principles of macroeconomics. Cengage Learning. Tisdell, C.A., 2015. The theory of price uncertainty, production, and profit. Princeton University Press. Li, Z. and Yada, K., 2015, November. Why do Retailers End Price Promotions: A Study on Duration and Profit Effects of Promotion. In Data Mining Workshop (ICDMW), 2015 IEEE International Conference on (pp. 328-335). IEEE.