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Week 5 Assessment

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<li><b>You are a business adviser for Alba and Gavigan. Describe a skimming price and a penetration price, and advise them whether they should charge a skimming price or a penetration price, with supportive reasoning for and against each pricing alternative.</b></li>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%;background:white”>As a business advisor for Alba and Gavigan, I will start by giving the description of the following important terms to be used in the process. The penetration pricing is employed where we have items that have a low price. The aim of such is to get higher market portion, more so when the competition is high. On the other, skimming is applied in the event the items are priced highly in order to earn profit. It is an exact opposite of penetration. The case of the Honest Company which has non-toxic products, natural and of high quality goods with strong link to family to cater for their hygiene, I would recommend application of skimming method. This is by keeping them to be of high quality by fully serving the targeted marketed market.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%;background:white”>Such method will be of great importance to the company as it is starting in that it give them the chance to make high quality products, differentiated for the selected market and hence difficulty to be imitated by competitors. Because of the guaranteed quality, it is possible for the company to earn higher profit at the beginning of its operations and be able to cover the start-up costs. With time the company can reduce the price to attract more buyers and be able to increase the market share (Douglas, 2012).</p>
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<li><b>Are they likely to make economic profits initially? Can they continue to make economic profits in the long term? Why or why not? Discuss.</b></li>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%;background:white”>At the begging, the company will earn economic profit on its investment because it will not be having opportunity costs of their inputs. However, within the long-term operational periods, other businesses will get into the market which was monopolistic competitive because of the higher profits the original companies were enjoying. Because of the skimming system of pricing, their total revenue (TR) less the sum of explicit and implicit costs will go on increasing within the long-term. This will take place as the company is able to be predicting earning profits in that long-term operational period because clients will be looking for the particular brands of the company from those of the competitors. Hence reducing the price to satisfy the clients and ensure loyalty will help the company to succeed in the long-term operational time.&nbsp;&nbsp;&nbsp;&nbsp;</p>
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<li><b>What advice would you give to Alba and Gavigan to help them make more profit in the long term?</b></li>
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<p style=”text-indent:.5in;line-height:200%”>As noted earlier, for Alba and Gavigan to get more profit within their long-term operational period, they must ensure that the company&rsquo;s products are always of high quality at all times. This is possible by always remaining innovative and invests in the current production methods. It is important to always undertake market research to ensure that the products meet the needs of the clients. The company needs to be aware of its policy of pricing and how it impacts on its profitability and clients&rsquo; loyalty. The market&rsquo;s feedback is important for ensuring that the changes in the preferences are captured properly. Thus the constant market research will inform them of any changes that may be important in order to remain competitive.&nbsp; &nbsp;&nbsp;&nbsp;</p>

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