Question

How would you respond to this post?

As Bulls Eye is the only department store in Show Low and the nearest competitor is 49 miles away, it is operating in an oligopoly market rather than a monopoly since consumers could drive to the neighboring city. However, this is not convenient for the consumer, therefore, Bulls Eye has a strong competitive advantage over the Target 49 miles away. Raising the prices would be considered markup pricing as Douglas (2012) explains as, “cost-based pricing," but it is clear that the markup percentage must also take into account the price elasticity of demand, since higher markups mean higher prices and these will cause demand to be reduced by an amount that depends on the price elasticity of demand” (p. 8.2). Due to their current position in the Show Low marketplace, consumers have little choice but to continue shopping at Bulls Eye, even if its prices are higher than the closest competitor. Therefore, demand is inelastic, meaning a change in price will result in a smaller change in quantity demanded. Considering this, Bulls Eye should be able to increase prices without seeing a significant change in demand. A pro of increasing the prices would be an increase in profit for the company. A con would be risking losing consumers in favor of lower prices at other competitors, even if the closest competitor is 49 miles away. If the savings are significant, consumers may determine cost of driving further still is cheaper than prices at Bulls Eye. However, they likely are not at risk for raising prices due to the factors previously mentioned.

An additional consideration in regards to Bulls Eye’s competition is the internet. Management should be aware of prices on websites that offer similar or the same products. If Bulls Eye raises prices by too much, consumers could finder cheaper alternatives online at sites such as Target or Amazon. It’s challenging to speak on this because I live in a fairly large city, but if I can get the same or highly similar items for much cheaper online or at a store that’s further away, I will. If the price difference is small, I typically will go to the most convenient location. An example of this is gas, the gas station closest to me typically charges 30 cents more than another station two miles away. It’s worth the savings to me to go out of my way, however, if I was extremely low on gas I wouldn’t have a choice but to go to the closest station. Due to gas being something people who drive absolutely need if they are low, a station can charge more than competitors. Similar logic could be applied toward the example of Bulls Eye and Target.

Answer 1

In this competitive world, Bulls Eye must maintain fair pricing structure so as to retain the customers with the company. With the advent of technology, the bargaining power of customers has increased and switching cost to other business has decreased considerably. If Bulls eye maintains the practice of mark up pricing, then the customers may switch to online shopping if they feel that shopping through Bulls Eye is proving to be quite costly for them. Fair pricing strategy will help in retaining loyal customers with business as well as attracting new customers to the business. This pricing structure will be quite fruitful for the company in the long run.