You are the manager of ABC Store, a retailer that sells young women’s fashion clothing. You are being pressured by your company board to improve total revenue earned by this product. What factors should you take into consideration in order to do this?
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Total Revenue = Price per unit x Quantity sold
To increase Total Revenue, you will need to either raise the price of each unit or increase the number of units that you sell.
If you decide to raise the price per unit, you will need to determine whether the clothing you sell is an elastic or inelastic good. Given that fashionable clothing is probably a rather elastic good, we can assume that raising the price per unit will lead to fewer units being sold. Your customers will choose to shop at another store; there are many alternatives to buying clothing at your store.
You might find that lowering the price per unit will lead to a greater quantity of items sold. Lowering prices will lead to your store being more competitive in the market. In some cases, the increase in the number of units sold will more than compensate for the drop in prices.
You can also increase the number of units sold without changing the price per unit through marketing efforts that increase demand.
If you are the manager of ABC which is a retail store that sells young women's fashion clothing, here some some factors and examples (I did them on shoes and jeans as well as coats) you should take into consideration in order to improve total revenue earned by this product:
1. If the product is Elastic/Inelastic, which is the price effect for demand:
-If it is elastic (not a necessity, lots of subs, large portion of budget), the total revenue will go down when the price goes up. An example of this could be brand name shoes that you will only wear once for a party.
-If it is inelastic (a necessity, fewer or no subs, small portion of budget), the total revenue will go up even when the price goes up. An example of this could be walking/comfortable shoes.
2. Another thing you should take into consideration besides price effect is the 7 determinants(shifts) of demand & their examples. The demand will increase the total revenue if more ppl buy:
-Change in Income: If people receive a raise, they will purchase more.
-Price and Availability: The demand for Nike shoes will go up if the price goes up Reebok shoes (since Reebok is now more expensive).
-Complementary goods: Demand for the shoes will go up, if the price for socks go down.
-Weather/Season: Boots will only be in season during winter (because it's too hot to wear them during the summer!) And, sandals will be popular in the summer (since it is too cold to wear them in the winter!)
-Number of Buyers: You should only sell shoes that people will buy so the demand goes up.
-Styles, Tastes, and Habits: Demand will go up for skinny jeans more than flare jeans since skinny jeans is in style.
-Expectations: The demand will go up for coats if a big storm is expected to come up.
I hope this helps!
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