Write about the Relationship Between Price, Demand and Revenue.
If a firm drops price, does it always increase its demand and revenue?
Source 1: Estimating flight-level price elasticities using online airline data: A first step toward integrating pricing, demand, and revenue optimization, peer reviewed journal article
Mumbower, S., Garrow, L.A. and Higgins, M.J., 2014.Estimating flight-level price elasticities using online airline data: A first step toward integrating pricing, demand, and revenue optimization. Transportation Research Part A: Policy and Practice, 66, pp.196-212.
In this article, the price-demand conditions and dynamics of flight ticket booking and the factors on which these dynamics depend are taken into account. To study these dynamics, the article chooses Jet Blue Flights, a commercial airline and studies its business in four major transcontinental markets around the world (Jetblue.com, 2017). Using Least Square Methods, the article studies the price elasticity in this sector and derives several interesting relationships (Rao 2015). The price sensitivity of the business travellers are found to be less than that of those who avail flights for informal purposes; short distance flights’ price sensitivity are found to be considerably high and high price sensitivity is also found in case of promotional strategies taken by the competitors.
The authors prescribes designing price slabs according to customers, depending upon the price elasticity of flight ticket demands of different types of clientele, which can increase the revenue of the study enterprise in the long run (Varian 2014). However, a more extensive study of these factors on the revenues of other goods and services could have made the article a robust one. Nevertheless, it can be used to form the methodological construct of the assignment to study whether a price drop always increases demand and profit of a firm (Wieseke, Alavi and Habel 2014).
Source 2: Getting the Prices Right, An Evaluation of Pricing Parking by Demand in San Francisco, journal article
Ovchinnikov, A. and Milner, J.M., 2012. Revenue management with end?of?period discounts in the presence of customer learning. Production and operations management, 21(1), pp.69-84.
The article deals with the problem of disparity in demand and supply of parking spaces in San Francisco, both in the budget parking spaces as well as the highly priced ones. This poses a serious problem for majority of drivers, barring a few who find a cheap parking space easily. Others need to waste fuel to drive around in search of a parking space (Jahanshani et al. 2014). On the other had the overpriced parking spaces remain under occupied due to low demand, thereby experiencing loss of revenue. According to this article, San Francisco has implemented a dynamic pricing programme for parking spaces, where the price is set according to the demand of drivers, block wise (Cowan 2012).
The article gives an insight of how dynamic demand-specific pricing can help in maximising revenue. In spite of the fact that the article only remains constricted in one particular kind of service market in one geographical location, San Francisco, the underlying economic concept of the article is robust and applicable in general scenarios and therefore, the article can be used in the concerned assignment as a conceptual base (Peppers and Rogers 2016).
Source 3: NZ Post prices to rise due to falling mail volumes, newspaper article
Stuff.co.nz, J. (2017). NZ Post prices to rise due to falling mail volumes. [online] Stuff. Available at: https://www.stuff.co.nz/business/90720902/nz-post-stamp-prices-to-rise-due-to-falling-mail-volumes [Accessed 15 Aug. 2017].
This article tries to study how a fall in demand of a service, instead of decreasing the price of that service increases it as. To study this unusual phenomenon, the article takes into account the rise in price of sending letters and parcels, due to fall in letter volumes in the recent times, the country considered being New Zealand. According to this article, the drastic fall in letter mailing, with emails and online markets taking an upper hand, the mailing industry has to resort to price hike in order to earn profits and stay in the market (Jahanshani et al. 2014). However, the study, after interviewing people from different genre of the society, finds that this price hike, though will shift personal mailing more to online formats, it will not hamper number of letters posted on business and formal purposes by that extent, thereby not affecting the revenue coming from the latter negatively (Baumol and Blinder 2015).
The context of the article, though related to studying the relationships between price, demand and revenue, the cause and effect studied here is opposite to that to be looked into in this assignment. Moreover, the area of study chosen in this article is very constricted and not that significant (Solomon 2014). Therefore, though this article has been reviewed, it will not be appropriate to use it as research supplement in this assignment.
Source 4: Strategic Price Positioning for Revenue Management: The Effects of Relative Price Position and Fluctuation on Performance, article from university journal
Noone, B.M., Canina, L. and Enz, C.A., 2013. Strategic price positioning for revenue management: The effects of relative price position and fluctuation on performance. Journal of Revenue and Pricing Management, 12(3), pp.207-220.
The article ventures into the detailed analysis of price revenue relationships and the relation between the revenue of a firm and the pricing strategies of the competitors of the firm. To study the above-mentioned relationships, the article takes data of 98% of all the branded hotels of the United States of America and runs regression analysis on the variables (Rao 2015). The study finds that strategic pricing, keeping in mind the pricing plans of the competitors in mind, can help in increasing the revenues of a particular enterprise. On the other hand, a highly instable pricing strategy, lacking foresight can affect the revenues of the company negatively (Malik et al. 2013).
The authors give a detailed insight about the factors in the pricing strategies of a company that can affect its revenue collection, both positively and negatively. The article studies the effects of strategic pricing in the hotel industry. A more widespread research of these variables in other domains can increase the relevance of the article (Varian 2014). The concept of strategic pricing, taking into account the competitors’ strategy, as introduced in this article, can be useful for analyzing the research question to be dealt with in this assignment (Rios, McConnell and Brue 2013).
Source 5: Supply and Demand: Why Markets Tick, professional site
Imf.org (2017). Finance & Development. [online] Finance & Development | F&D. Available at: https://www.imf.org/external/pubs/ft/fandd/basics/suppdem.htm [Accessed 15 Aug. 2017].
The article discusses the price revenue relationships, via demand, in different types of markets. For research purposes it takes into account perfectly competitive market, monopoly market and a market with temporary monopoly. It argues that, while in perfect competition, lowering price can help firm in getting larger market share and increase revenue, in monopoly lowering price though increase clientele but not to the extent of offsetting the decrease in revenue due to price reduction (Baumol and Blinder 2015).
The article ventures in the basic microeconomic concepts to see the price, demand and revenue relationship, using the concept of price elasticity and market type. Being very broad in nature, it fails to accommodate the outliers of demand law and their price revenue connections (Pielow, Sioshansi and Roberts 2012). A more detailed research and several case studies can increase the suitability of the article to be used as research guideline. However, the clear approach of the article and its microeconomic explanations can be used as a conceptual base for the concerned assignment (D’arpizio et al. 2015).
Baumol, W.J. and Blinder, A.S., 2015. Microeconomics: Principles and policy. Cengage Learning.
Cowan, S., 2012. Third Degree Price Discrimination and Consumer Surplus.The Journal of Industrial Economics, 60(2), pp.333-345.
D’arpizio, C., Levato, F., Zito, D. and de Montgolfier, J., 2015. Luxury goods worldwide market study. Bain & Company.
Jahanshani, A.A., Hajizadeh, G.M.A., Mirdhamadi, S.A., Nawaser, K. and Khaksar, S.M.S., 2014. Study the effects of customer service and product quality on customer satisfaction and loyalty.
Jetblue.com (2017). JetBlue | Flights and Airline Tickets at Discount Prices. [online] Jetblue.com. Available at: https://www.jetblue.com/flights/#/ [Accessed 16 Aug. 2017].
Malik, M.E., Ghafoor, M.M., Iqbal, H.K., Ali, Q., Hunbal, H., Noman, M. and Ahmad, B., 2013.Impact of brand image and advertisement on consumer buying behavior. World Applied Sciences Journal, 23(1), pp.117-122.
Peppers, D. and Rogers, M., 2016. Managing Customer Experience and Relationships: A Strategic Framework. John Wiley & Sons.
Pielow, A., Sioshansi, R. and Roberts, M.C., 2012.Modeling short-run electricity demand with long-term growth rates and consumer price elasticity in commercial and industrial sectors. Energy, 46(1), pp.533-540.
Rao, J.N., 2015. Small Area Estimation.John Wiley & Sons, Ltd.
Rios, M.C., McConnell, C.R. and Brue, S.L., 2013. Economics: Principles, problems, and policies. McGraw-Hill.
Solomon, M.R., 2014. Consumer behavior: Buying, having, and being (Vol. 10). Upper Saddle River, NJ: Prentice Hall.
Varian, H.R., 2014. Intermediate Microeconomics: A Modern Approach: Ninth International Student Edition. WW Norton & Company.
Wieseke, J., Alavi, S. and Habel, J., 2014, October. Willing to pay more, eager to pay less: The role of customer loyalty in price negotiations.American Marketing Association.