MRKT 3001 WU Pricing Strategy and Financial Sustainability Discussion
ANSWER
Benefits:
- Customer Attraction and Loyalty: Low-cost offerings can act as a customer magnet, drawing people into the establishment. Once there, customers may purchase additional, higher-margin items, increasing overall revenue. Moreover, customers who perceive value in these discounts may develop loyalty to the brand.
- Competitive Advantage: By offering budget-friendly items, a company can gain a competitive edge in the market, potentially luring customers away from rivals.
- Market Penetration: Low-cost pricing strategies can help new businesses penetrate a market or expand their market share quickly.
Risks:
- Profit Erosion: Offering deeply discounted items may result in minimal profit margins or even losses. This can be unsustainable if not balanced with higher-margin products to offset losses.
- Quality Perception: Consumers might associate low prices with lower quality, which can harm a brand’s reputation. Maintaining quality while keeping prices low is a delicate balance.
- Customer Expectations: Once customers become accustomed to low prices, it can be challenging to raise them without alienating the customer base.
- Brand Dilution: Overreliance on low-cost items may dilute a brand’s image and positioning in the market, making it difficult to command premium prices for other products or services.
- Financial Sustainability: The financial sustainability of this strategy depends on various factors, including the business’s ability to control costs, upsell, and maintain customer loyalty. Over the long term, a business must assess whether the gains in customer volume and loyalty outweigh the losses on discounted items.
In conclusion, low-cost pricing strategies can be beneficial for attracting and retaining customers, but they also pose risks, including potential profit erosion and brand dilution. The sustainability of such a strategy depends on effective cost management and the ability to leverage the strategy to drive overall profitability.
QUESTION
Description
Have you ever seen items on a fast food menu priced at $1 or $2 each and wondered how the restaurant could possibly make any money by selling those products? In actuality, the profit margin for these items is generally slim, and sometimes restaurants even lose money on these dollar menu items. Why, then, might restaurants continue offering and even promoting their discounted menu items? What about other types of businesses that offer deep discounts on particular products or services and that face the same challenges? Is there a way to incorporate these low-cost offerings into a sustainable pricing strategy?
In this Discussion, you will examine why companies might use low-cost pricing strategies and the impact these strategies can have on the companies.
To prepare for this Discussion:
- Review this week’s Learning Resources on pricing.
- Review the Academic Writing Expectations for 2000/3000-Level Courses, provided in this week’s Learning Resources.
BY DAY 3
Post a 150- to 225-word (2- to 3-paragraph) explanation of the benefits and risks of low-cost product or service offerings for a business. In your explanation, address the following:
- Why would a company continue to offer these discounted items despite losing money on them?
- Is this pricing strategy financially sustainable for the businesses?
- Other than loss of profits, what are some other possible negative consequences of businesses offering discounted products or services?
- To support your response, be sure to reference at least one properly cited scholarly source
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