Gabriella Daniel Professor Acan Microeconomics paper Anchor Prices in a Market Based Economy Most economists would agree that in a market based laissez faire economy, supply and demand are based on the consumers’ willingness to pay. However, a debated topic among economists is what types of forces affect one’s willingness to pay. In his book Predictably Irrational, economist Dan Ariely explains that a consumer’s memory of past prices will cause them to purchase or opt out of purchasing an item. He calls the first price of an item that a consumer learns of to be the anchor price. The anchor price is a significant force because all other prices of the same product will be compared to the first price. In the second chapter of Ariely’s book …show more content…
Other articles support Ariely’s idea, such as Linda Sapadin’s article that shows the effects an anchor price have on the everyday customer, as well as Eric Yu’s article that informs businesses how important it is to implement a price anchor that will increase customer’s willingness to pay. Ariely’s argues that what consumers are willing to pay for an item depends on the prices they are accustomed to seeing. He states that the first price they see for an item, the anchor price, causes the consumer to compare later offers to this initial …show more content…
He discusses how non-profit restaurants can use price anchoring in order to actually make a profit. In his research on a non-profit Panera Bread restaurant located in Boston he validates the idea that what the buyer is willing to pay is dependent on the price offered by the supplier. These Panera restaurants have proven that companies can make a profit while still helping the people who cannot afford high priced meals by using anchor prices. The Panera company has made money by offering a “pay what you can” type of deal to their customers. When a customer goes to pay for the meal, they are able to pay as much or as little as they can afford. However, the company is able to make a profit by supplying a receipt with a suggested price, and this acts as the price anchor. The company has found that most customers will see this suggested price and then agree to pay it, with some people still willing to pay more. Yu suggests that businesses use this strategy in or to maximize their profits: “This powerful pricing strategy tactic works when you utilize a price to give your customer's a frame of reference for valuing your product. It often enables you to guide your customers to choose the exact product you want them to choose at the exact price you want them to
According to Kantar Retail, most of Target’s shoppers are younger on average than its rivals, and more educated. That means it has to consistently offer something different and appealing; it emphasizes more on the latest-trend apparel, eye-catching home décor and exclusive designer merchandise than its competitors. This results in a willingness to pay a bit more for items by customers who are willing to pay a bit more. Moreover, this successful
The shops have a pricing strategy that ensures that people with different purchasing power can find the food product that they can afford. The price of different products will range from $4 to $40. This means that the cheapest food item in Platinum pizza shop is $4 and the most expensive food item is $40. This pricing is relative below what other restaurants are charging for the same food items. This is the perfect market strategy that the shop is
... Although the authors have referred to the book as a different type of book, outside the main role of economics, it is really the opposite: it is a book that gets to the root and the origin of economic theory. Again, it raises questions about what happens in society, analyzing peoples motivations based on data and the economic rationality of individuals, and drawing conclusions which are often considered counterintuitive or different than established knowledge. In fact, Steven Levitt ‘s academic career has been marked by success, and he has been recognized with numerous awards. This shows that when economics is shown in a way understandable to the public, the result can be a big bestseller.
...e. A price gouger needs to charge more in order to avail the product or service. In the case of Raleigh, the roads to the town were not accessible due to fallen trees and rocks. An entrepreneur would need to cut the trees and remove the rocks in order to take the product there. People who do that need compensation for all the trouble they take to bring products to the market. The youths who brought ice to Raleigh town had to cut down trees in order to access town. Instead of selling ice as the “right price” of less than 2 dollars, the youths charged more than 8 dollars. The price provided just there right compensation for all their efforts. Banning price gouging led to serious suffering of the people because the little food left went bad causing even more losses. For a few dollars for the price of ice, Raleigh residents could have saved millions worth of food.
uses is price lining or as the Basic Marketing book puts it, “a few prices cover the field” (Perreault and Cannon, 2014, p.466. For example using the online menu for the Ruby Tuesday in Beaverton Oregon, the appetizers are all around one price while most of the main course items are more expensive but still all linger around similar prices to each other. This makes the customer feel as though they have many different options to choose from for the same price as everything else. Ruby Tuesday also uses a specific idea of “sharable appetizers,” which makes customers feel less sensitive about the price of the food because they will be sharing it with others (2015). This can also be seen with Ruby Tuesday and Lime Fresh Mexican Grill when they do their different catering events. For Ruby Tuesday, customers are allowed the ability to pick and pay for larger quantities of food from the menu provided on the website (2015). Lime Fresh does something similar, but they also have specific set items that are for parties that just want certain things, like their Burrito Platter
All consumers should aware themselves of the factors involved with price elasticity and how the traits potentially impact their purchases and personal or commercial budgets. Commercial firms have the problem of managing price elasticity with their products and prices and governments have a constant problem of determining taxes from price elasticity. I used three examples to attempt solving how firms manage their products with price elasticity factoring with Proctor & Gamble, the oil, and airline industries. I used government examples of how the attempts to collect data to formulate their policies for taxation on elastic and inelastic products while also describing how the US Postal Service uses price elasticity to compete with corporate competition. Exposure to these factors of price elasticity will generate consumers’ awareness of firms and governments role to determine goods or services at a particular price.
Fast food chains use value pricing. This type of pricing is how much the customer thinks an item on the menu is worth. Basically what this means is customers see price as a primary indicator of a product’s value. Value pricing happens when a company increases a product’s benefits while either maintaining or decreasing the price. A great example of value pricing in McDonald’s is the ability to “super-size” drinks and fries. The value of the drink or fries is increased because a customer can get substantially more of the item for a fraction more of the
McDonald's also focuses on the perception of value within it line of products and therefore takes care to price its menu items accordingly. Different products are priced differently depending on which target audience those items appeal to most. An extensive value menu is an essential part of any fast-food menu in recent years. The prices and products within the value menu can prove to be areas that will make or break a fast-food companies' year depending on the competitions value menus.
Break even analysis is a method business use to decide pricing levels that would be profitable and Dream Dinners is constantly evaluating this process as menu changes are made. This method coupled with competition based pricing is important to stay in the game with competitors. Competition based pricing is looking at the competitions pricing and try to lower your prices, Dream Dinners works with their vendors to get the lowest price they can on supplies to keep their prices low. Dream Dinners incidentally started out as a concept testing, though they did not initially set out to become a business they realized the concept created for their group could work for many other. Moving forward into the business they now utilize concept testing
The market price of a good is determined by both the supply and demand for it. In the world today supply and demand is perhaps one of the most fundamental principles that exists for economics and the backbone of a market economy. Supply is represented by how much the market can offer. The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve. In demand the schedule is depicted graphically as the demand curve which represents the amount of goods that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same. The demand curve is almost always represented as downwards-sloping, meaning that as price decreases, consumers will buy more of the good. Just as the supply curves reflect marginal cost curves, demand curves can be described as marginal utility curves. The main determinants of individual demand are the price of the good, level of income, personal tastes, the population, government policies, the price of substitute goods, and the price of complementary goods.
Price elasticity plays an important role in the lives of consumers. The price elasticity of demand is the sensitivity of the demand for a product when its price changes (McConnell, Brue, & Flynn, 2009)iv. Cafes like Panera Bread refuses payments from customers and politely asked them instead to “take what you need, and leave your fair share” (Strom & Gay, 2010)v, resulting in more people getting goods like food at a fair price that they are willing to pay. Based on the income elasticity of demand, consumers can get a better and healthier life as they will buy things with better quality as their income rises. People will go to Italiannies for pizza and not to Pizza Hut as Italiannies offers a better, tastier, healthier and wider variety of choices, even when it is more expensive. With cross elasticity of demand, consumers can get the same quality product at a cheaper price as the rivalry between substitute goods will result in price reduction or improved quality. Consumers get to travel by MAS Airlines at a cheaper price as the rivalry between MAS and other airline companies has caused its price reduction (Gunasegaran, 2011)vi. Consumers with a low budget can also buy what they need. Consumers can get more value from a package offer when buying complementary goods as they “go together”, for example: McDonald's McValue Lunch which comprises of a burger, fries, and soft drink, all for only RM5.95 onwards (My Food Fetish, 2009)vii. With this, consumers can get convenience when buying certain products.
As with all markets and their respective economies, having equilibrium is one of the key factors of a successful system. Although most markets do not reach equilibrium, they attempt at getting close. There are numerous methods devised to reach equilibrium, whether they involve human intervention directly or a cumulative decision by all factors involved. These factors may be a seller's willingness to lower overall revenue, or a buyer's willingness to withhold some demand for a certain product. Of course, the basics of supply and demand retrospectively control the equilibrium in the market.
This paper will illustrate the moral, social, and factual implications of the Volkswagen scandal regarding the case dealing with the emissions standards of their diesel engine vehicles. The reader should note that this analysis is given from two different philosophical points of view. The philosophical perspectives being used here in this criteria are from the Kantian and Rule-Utilitarian ethics perspective. This paper will demonstrate the moral implications of the case, and how this applies to Mr. James Liang’s actions regarding ethical responsibility. Mr. Liang and his colleagues worked for Volkswagen to create a low emission diesel engine. In the course of the project, it was apparent that the emission goal could not be achieved. To circumvent this problem, Mr. Liang and his peers developed a software application to trick emission test. This situation was discovered, and on September 9th 2016 Mr. Liang pleaded guilty to the charges presented against him in Detroit Michigan. In the discourse below analysis will be given to determine the Kantian and Rule-Utilitarian basis on Mr. Liang’s situation.
A fast food restaurant will have to have a good pricing strategy in order to ensure that competition does not push the firm out of business. This will ensure the restaurant remains competitive. For effective management of cash inflows, the management will require to create an environment whereby each item has been priced conspicuously and reflecting the cost of bringing the same to the table as well as the profit margins targeted by the restaurant (Mark 1998).
People think that the price of fast food is cheaper than a home-cooked meal. Although many people like to eat fast food because of it is inexpensive and tasty, the actual price of the fast food is not exactly same like the menu. The price of fast food sounds affordable, but actually it is quite expensive. This is because people are influenced by the fast food restaurant’s advertisement. It illustrates the price of a set of fast food is affordable compared to cooking at home. When people go to the fast food outlet, they realize the price at the bill is not as same as the advertisement stated. The price is even higher than the price stated at the advertisement. Although the fast food advertisement provides the information that the price of fast food is low, the price in the advertisement does not include the tax and tips. On the other hand, cooking at home is much cheaper than eating fast food. It is always affordable, healthier and more emotional fulfillment when eating at home and cooking ingredients compare to eating out (Warner, 2015). The people only need to buy the ingredients and cook it by our own.It is always affordable because people only need to pay ingredients and cook it at home. There are no tax and extra tips! If people prepare their food in large quantities at home, it is more economical than buy several sets of fast food. According to Yeager (2010), “A family that commits to eating at home can save $3000 in one year and eat just as well,” (p. 52). Save and