In addition, companies are wise to consider what their competitors are selling the same product for. If a product is worth $50 and the competitor is selling the product for $49, then matching that $49 is essential unless there is a marketing strategy that promotes the product as being better than what the competitor is offering. Raising prices to a ridiculously high amount is not going to increase profits when many customers are going to ba able to find the same product somewhere else for less money. High prices must be justifiable for a market for the expensive product to develop.
One must also consider that consumers seeking a bargain will wait for price cutting to occur. Thrifty consumers are willing to wait until newer models are released so that the prices of the old model are slashed significantly. These are all factors that must be anticipated by the company when establishing what type of profit needs to be expected from the product and in what type of time frame. So, in a linear sense, as time progresses, it is wise for a company to sell output at the highest possible rate that can be justified by the current market. This is noticeable in the cell phone industry. With most cell phone companies, when one signs a contract, a free or reduced price cell phone is given to the customer at time of contract. ...Show more