- Pricing strategies are core to the success of a new enterprise. Considering the presence of two established pet grooming services, it is essential to price services at a competitive price. For a new business, there are two options available to enhance its market penetration. This includes survival and performance. The first available option is to set prices high. This is appropriate when there are no competitors, or in a case where the existing competitors are not established. In the present scenario where there are two established enterprises offering the product at the same prices, it is appropriate to have low charges. With relatively lower prices than the current competitors, it is easy for a new business to penetrate the market. However, with the passage of time and offering of quality services, the new business will have a market share. Therefore, the business can later increase the prices and get returns.
- The break-even point is a fundamental calculation in any business. It indicates the point at which the organization meets its expenses with the current revenue being generated. It indicates the point where a growing business can sustain itself by offsetting expenses with the amount of revenue collected. When a business seeks to establish the break-even point, it is critical for the business to compare the total revenue to the total expenses. Considering the grooming services, there is a total cost of $1000 for the advert in the local newspaper. The revenue obtained from one dog is $40. Break-even point = (TR/TC). Therefore, the break-even point will be: (1000/40) = 25 dogs. This implies that, for the grooming services to recoup the amount incurred in advertisements, 25 dogs will have to be treated. However, if the charge is to be adjusted to $50 per dog, the break-even point will be (1000/50) = 20 dogs. In the second scenario, 20 dogs will be required to attain the break-even point.
- The question revolves around exchange rates. Exchange rates cannot be considered to be stable in the market. In this regard, with the presence of market anomalies, it is difficult to speculate the future exchange rates. Fluctuations in exchange rates are caused by a number of factors. These include political instability and government interferences through various interventions and regulations. With the fluctuation in the exchange rate between the dollar and the Euro, there are two results. If the US dollar strengthened against the Euro, then the German cars would be lowly priced in the US market. This would be favorable for the Americans and disadvantageous for the German exporters. However, in a case where the Euro is to gain strength against the US dollar, the vehicles would be expensive in the US market. This scenario would favor the German exporters because it would require the Americans to pay more for the vehicles.
- When prices on certain products increase, the demand for other commodities is affected. However, this depends on the relationship that exists between products. According to the price elasticity of demand, products can either be complements or substitutes. Complements are products that are consumed together. For instance, spaghetti and spaghetti sauce are complements because they are consumed together. Therefore, when the price of spaghetti increases, the demand of the spaghetti and that of spaghetti sauce will decrease. In the case of rice, which is considered a close substitute to spaghetti, the increase in price for spaghetti will cause an increase in the demand of rice.
Responses to the students
Student 1
In response to the answer provided by the first student, the strategy adopted is meant to provide them with an entry into the competitive market. In this respect, the students should have unique strategies as compared to their competitors. The students opted for the adoption of low pricing strategy while offering similar services as their competitors.
This will ensure that they gain a considerable market share within the shortest time possible. Afterwards, the students can change their prices depending on the services they are offering. In this respect, they can have higher prices if the services they offer are special compared to those offered by the competitors. Nonetheless, the pricing strategy remains to be the best during the introductory stages.
Student 2
In response to the answer provided by the second student, it is true that fluctuations in the currency will affect the car sales between any two countries. In this respect, car sales between Germany and the US will be affected by fluctuations in the denominations used by the two countries. When the Euro appreciates against the dollar, the price of the cars being sold to the US will be higher. In this respect, buyers from the US will have to use more dollars in buying the cars from Germany, which are valued in Euros.
On the other hand, when the Euro depreciates against the dollar, the price of cars sold from German to the US market will be lower. Here, the buyers from the US will have to use few dollars in buying the car as the dollar will be more valuable than the Euro. Therefore, it is true that fluctuations in the currency can affect the prices of products in international trade.