Price Elasticity Comparing the Price Essay

The exclusivity of these higher-end products and their cost structures also are deliberately now being created to ensure barriers to entry from mass merchandisers. The threat of a mass merchandiser dominating the supply chain and driving down costs to sell on brand equity alone continues to force marketers of key brands in this industry to concentrate on defensible differentiation. As a result of all these strategies and the inherent structure of this industry the price elasticity of high-end cotton apparel continues to be protected from becoming too price-inelastic over time.

Total Revenue Implications

Clearly the revenue implications of managing products with low price elasticity as toys are require an inordinate level of supply chain, distribution and logistics efficiency as the per-unit margins are already under severe pressure. For products that have higher levels of price elasticity there is the benefit of typically greater gross margins yet the constraint of longer sales cycles. Intermediating between these two extremes is the need for demand management and demand planning on the part of retailers who stock products with these extreme price elasticity characteristics. For the retailer selling high-end women's cotton apparel the challenge is to create a suitable inventory management model that capitalizes on enough inventory turns to allow for maximum profits without degrading the brand's equity or inadvertently redefining the demand curve of an industry (Shahnawaz, 2004, 69-84) for toys which have inherently shorter lifecycles and much more of a shorter sales cycles (Farrell, Shields, 2007, 445) the challenge to retailers in attaining maximum profits on these products are to focus first on operational efficiencies. The need for rapid inventory turns, accurate demand forecasting and planning, pricing optimization and optimization of shelf space to the floor level are all needed to ensure profitability is attained in this highly inelastic market.Counterbalancing each requires an integrated supply chain capable of managing the rapid inventory turns necessary for inelastic products while preserving the profitability and accuracy of demand forecasts for the highly price elastic product of high-end women's cotton apparel. Accurate demand curve analysis is crucial in both cases to maximize the level of profits by product.

References

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