Choose Two Real-World Companies In Different Industries
Choose Two Real World Companies In Different Industries One That You Choose Two real-world companies in different industries, one that you feel faces elastic demand and one that you feel faces inelastic demand
Choose two real-world companies in different industries, one that you feel faces elastic demand and one that you feel faces inelastic demand. In each case, you are an economist working in the company and you have come to a conclusion of what kind of demand the company faces. You are to write a paper, convincing the president of the company of your conclusion and explaining what the company's pricing strategy should be. For specific paper requirements, please see the rubric attached to this assignment. 200 word minimum for each company Paper must be written in APA format, for more information on APA formatting, please click the "Resources" tab. 2 sources, other than the textbook, must be cited. Include a bibliography.
Paper For Above instruction
Introduction
Understanding the nature of demand elasticity is crucial for companies aiming to optimize their pricing strategies and maximize revenue. Elastic demand indicates that consumers are sensitive to price changes, whereas inelastic demand reflects a relatively low sensitivity to price variations. In this paper, I analyze two companies from distinct industries—one experiencing elastic demand and the other inelastic demand—and provide tailored recommendations for their pricing strategies based on these demand characteristics.
Company 1: Tesla Inc. – Electric Vehicles Industry (Inelastic Demand)
Tesla Inc., operating within the electric vehicle (EV) industry, exemplifies a firm facing inelastic demand. The demand for Tesla vehicles remains relatively insensitive to price changes due to several factors, including brand loyalty, environmental concerns, and technological innovation. Consumers who prioritize sustainability and innovative features may be willing to pay premium prices, and their purchasing decisions are less likely to fluctuate with marginal price alterations.
As an economist advising Tesla, I recommend adopting a pricing strategy that capitalizes on inelastic demand by maintaining relatively high prices for their premium models. This approach can lead to higher profit margins without significant reductions in sales volume. Tesla's strong brand equity and limited substitutes for its advanced technology further support a markup strategy, which aligns with the characteristics of inelastic demand. Additionally, implementing target-specific pricing promotions and bundling services could enhance consumer value perception while preserving premium pricing.
Company 2: Amazon.com – E-commerce Industry (Elastic Demand)
Amazon.com operates within the highly competitive e-commerce sector, where demand tends to be elastic. Consumers have numerous alternatives for online shopping and are highly responsive to price fluctuations. Price cuts or discounts often lead to significant increases in sales volume, illustrating the elastic nature of demand in this industry.
Given Amazon's demand elasticity, my recommendation is to focus on aggressive pricing strategies such as frequent discounts, special promotions, and dynamic pricing algorithms. These tactics can attract price-sensitive customers, expand market share, and boost sales volume. For Amazon, cutting prices temporarily can be a highly effective way to outcompete rivals and increase overall revenue, provided the increased volume compensates for the reduced margins. Moreover, Amazon should leverage its data analytics to optimize prices dynamically, maximizing consumer responsiveness while maintaining profitability.
Conclusion
In conclusion, understanding whether a company faces elastic or inelastic demand is fundamental for devising appropriate pricing strategies. Tesla, with its inelastic demand characteristics, benefits from premium pricing to maximize profit margins, while Amazon, facing elastic demand, can enhance revenue through strategic price reductions and promotions. These tailored approaches align with economic principles and help each company sustain growth within their respective industries.
References
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Kotler, P., & Keller, K. L. (2016). Marketing Management. Pearson.
Lamb, C. W., & McDaniel, C. (2019). Markets & Marketing. Cengage Learning.
Smith, A. (1776). The Wealth of Nations. Methuen & Co. Ltd.
Holt, D., & Quelch, J. (2018). Competing in a Digital World. Harvard Business Review.
Investopedia. (2023). Elastic Demand. https://www.investopedia.com/terms/e/elastic-demand.asp
Investopedia. (2023). Inelastic Demand. https://www.investopedia.com/terms/i/inelastic-demand.asp
U.S. Bureau of Economic Analysis. (2022). Consumer Spending Data. https://www.bea.gov/data/consumer-spending
Statista. (2023). E-commerce Revenue Worldwide. https://www.statista.com/topics/871/online-retail/