Economic Look at Toothpaste Industry
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assumption is that there will not be a market share present to sustain sales. If a new brand comes onto the market and is immediately tagged with a higher retail price than those brands that enjoy brand loyalty chances are rather slim that sales will be high. Pricing strategies in this instance rely on marketing.
Advertising, samples, and promotional pricing can help a new company break into the market place and build a customer base. By promoting a new brand at a price that undercuts the competition slightly may entice consumers to consider purchasing the newer item. Production, advertising, storage, and transportation costs are all costs that are related to the marketing of toothpaste. There are factors and costs that are fairly common to businesses that are producing the same types of items. These costs are considered when pricing an item with the manufactures suggested retail price. A company cannot sustain undercutting the competitions prices for an extended period of time if the costs are close and similar.
The toothpaste company is deemed to be a price searcher. This means that the company must find a comfortable place between the price elasticity of supply and the price elasticity of demand in order to enjoy a profit. The unit price of a tube of toothpaste is relatively small and the demand for toothpaste is rather steady. Heavy marketing and advertising is used to keep interest in or bring interest to the product. If the price of the product is set too high consumers will look elsewhere for a more economical alternative. If the prices are set too low there may be loss of interest to a more median priced alternative, or there may such a short term demand that supply may not be able to sustain it and losses incurred because of the lower than sustainable pricing. The price for toothpaste is elastic. If the price goes up too high than the consumer will look elsewhere for less costly alternatives.
Studying the market, the influences, and the economy are useful tools to companies and consumers. By being able to interpret and adjust pricing strategies may mean the difference for a company in terms of riding out small recessions or losing the business.