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One: Anybody notice what happened to JC Penney when it changed its pricing strategy? Before, it offered lots of promotions for its items then it changed to having lower prices but offered fewer promotions. In turns out that its customers liked getting the discounts, even if the ‘net’ price was the same. Search the internet. Here is one article:
Two: A few years ago Starbucks increased its prices for its coffee beverages by an average of about 1 percent (Baertlein, 2012). The company was criticized in the media for changing its prices, however, there was no negative impact on the company’s profits. The true reasons there was not a negative impact was due to elasticity and the demand curve shift. A demand curve for a product illustrates a particular period of time how many units will be purchased at each possible price point (Brickley, Smith, & Zimmerman, 2016). A perfect example of a product with elasticity is gasoline. As discussed in the module 2 NBC Learn video, gasoline prices became elastic as the demand increased across the country. The underlying reason was concern about oil and social unrest in the Middle East. We also see the same results of demand and elasticity under different circumstances. In a short period of time prior to a major winter storm or hurricane approaching an area, we see the business making the decisions to increase the price on certain products. We typically see the demand for gasoline, water, perishables, batteries, and various products increase. The short elasticity allows a business to make the decision of increasing the prices of the products.
Baertlein, L. (2012, January 3). Starbucks raises prices in U.S. Northeast, Sunbelt. Retrieved from Reuters: https://www.reuters.com/article/us-starbucks/starb…
Brickley, J. A., Smith, C. W., & Zimmerman, J. L. (2016). Managerial Economics & Organizational Architecture (Vol. 6th Ed). New York, NY, United States of America: McGraw-Hill Education.