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Respond to…Bulls Eye department store specializes in the sales of discounted clothing, shoes, household items, etc. Similar to the offerings at a regular Walmart or Target. Bulls Eye is the only department store in Show Low and the nearest other discount retailer is Target, located 49 miles away in Eagar. Bulls Eye, therefore, has some market power in its local area. Despite having some market power, Bulls Eye is currently suffering losses. An analyst at Bulls Eye is recommending to the manager to raise prices, so that profitability can be improved. The manager is unsure of this strategy as recent data points to increasing numbers of individuals shopping more and more. What are the pros and cons of raising the prices at Bulls Eye and would that strategy be profitable?
I’m not sure if raising prices would be a strategic move for Bulls Eye that proves profitable. First, we have to not only consider their losses but find out why these losses are occurring. Secondly, if recent data points to increasing numbers of individuals shopping more and more that, in my opinion, means there is definitely an increase in profits; which leads me back to my first point.
The pros of raising the prices are simply that dedicated/loyal customers will be willing to pay the higher prices and those who do not have transportation or means to travel 49 miles will still shop.
The cons of raising the prices are that they will lose some customers; especially those who are able to travel to Target. It will also cause shoppers to re-evaluate their shopping habits and only shop for what they need instead of freewill splurging. This, in turn, will definitely cause Bulls Eye to lose profit.
Bulls Eye must consider their price elasticity of demand as it measures the rate of response of quantity demanded due to a price change (Douglas, 2012). The bottom line, Bulls Eye must indeed forecast the rate of response that will take place due to a price change. My thoughts are that Bulls Eye need to re-evaluate every product line and brand and then determine which are worth increasing and which should remain the same. They must also investigate to find out why the losses are occurring if that has not already been done.
Reference
Douglas, E. (2012). Managerial Economics (1st ed.) [Electronic version]. Retrieved from https://content.ashford.edu/Respond to…The Bulls Eye’s owner should consider the idea of increasing prices as the store has market power in area but the price shouldn’t exceed so much that it might discourage buyers to visit. The con of price increase could also be that the store deals in selling discounted clothes and the price increase will decrease the demand of products which will ultimately discourage buyers to visit the store and take interest in shopping. Alternative policies could be used instead to attract people. These policies include the following; analyzing the strengths and weaknesses of other discounted clothes sellers and to make policies according to them. The Bulls Eye could initiate buy one get one free offer for a limited time and advertise it to get a quick response. This offer could be of benefit to the owner if the prices are settled carefully. The price settlement could involve the price increase too. The other way to attract the people is by reconsidering the quality of the material it might be possible that the supplies of the company are not satisfying the consumers. This could be done by taking feedback from people or by arranging an online survey and announcing a giveaway opportunity for a few random consumers who have answered surveys. The price increase is considerable in a case where the market is in monopoly-like in case of Apple Inc. where the demand is very much high and the owners are confident that increasing price will not affect the demand so much. In the case of the Bulls Eye, the situation is different. Here the market power exists but there are options like Target. The price increase could maximize the revenues if it the price elasticity of demand is one. The price elasticity to demand = 1 shows that the percent change in demand is the same as the percent change in price. Therefore; the careful analysis of considering the price increase is important.
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