In a free market, lower priced products are likely to attract more customers compared to those with higher prices. In most cases, customers are very sensitive to prices and some organisations have capitalised on this where they lower the prices while at the same time trying to retain value. Mr Herrera is therefore reluctant to put higher price mark-ups as these would scare away his loyal customers which may result in loss of sales and ultimately loss of profits.
However, his stance on the issue of pricing almost destroyed his business in that the revenue generated could not offset the cost of maintaining the buildings as well as high budgets on advertising. It can be noted that the total operational costs are slightly higher than the revenue generated though the customers still believe that he offers good quality on his project. Noble as it is to retain the loyal customers, it is also important to ensure that that the business is also able to sustain itself for long term benefits. Essentially, business is meant to generate profits which can cover all the operational costs.
2. The concepts of demand, price and profits are interrelated in various ways. Demand refers to the number of customers willing to purchase a product. “Marketing’s main thrust and skill is demand management, namely to influence the level, timing and composition of demand in pursuit of the company’s objective,” (Kotler 1999 p.46). The major objective of business is to satisfy the needs and wants of the customers profitably. However, in some instances, there may be over demand of goods and there is need for the marketers to try to reduce demand or change its timing. Demand affects the pricing of the product in different ways. There may be need to increase the price in order to offset the imbalance in revenue generated which may be recorded. An upsurge in demand where the price remains