This allows them to raise the prices of the books higher than the retail value, as the company has less competition. Once this happens, Tropics becomes one of the only platforms to buy books, as they intended with their pricing. Unable to stay profitable after the loss in business, the local bookstores in the area have to shut down. Once customers notice the major price difference, many begin to order their books online instead. The local bookstores only sell books, and can't change their prices any lower since the store owners have several other operation costs, such as rent for the retail space. Since Tropics also sells other products, the company can afford to do this and lose a profit on the books in the short term. To compete with local bookstores that have physical locations, executives at Tropics decide to lower the prices on books, listing them cheaper than their retail value. Tropics is an online selling platform that offers a variety of superstore products, such as home goods and entertainment materials, including books. To better understand how this pricing method works it might help to consider an example: Related: What Can You Do with a Business Degree? 10 of the Top Jobs Predatory pricing example This discourages competitors from matching the low price, as another company may not be able to afford to lose profit on an item even in the short term. It's not uncommon for companies using this model not to make any profit in the short term. In this pricing model, companies set the price as low as they can without losing too much money. Learning about this model can help ensure that you avoid it when setting prices. Some companies may do this to attract the business of customers and ultimately eliminate the competition, but as of March 2022, according to the abuse of dominance regulations, this is an illegal practice. Predatory pricing is the act of setting prices lower than the industry standards. In this article, we define predatory pricing, provide an example and explain why it's important to use fair pricing methods with a list of common strategies and factors to consider when choosing a pricing strategy for a company. It's important to know about different pricing methods to become a well-informed consumer and professional, especially if you work in the finance, business or marketing field. One factor that affects a store's customer base is the presence of competitor businesses, as these organisations may attract consumers from similar customer bases. A primary concern of many retail businesses is maintaining a customer base.
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