Why is fruit more expensive in Las Condes than in Puente Alto?
Posted: Sun Dec 22, 2024 9:53 am
Why is fruit sold for more in Las Condes than in Puente Alto? Is the cost of producing it different?
What makes the difference is the customers' willingness to pay. Keep in mind tha philippines country code if you give your customer what they want, it is fair to charge them what they are willing to pay. A concept that goes hand in hand with this is price elasticity.
Price Elasticity
Elasticity is a term used by economists to describe how sensitive demand for a product is to a change in its price. For example, how much sales fall as a percentage if I raise my prices by that percentage.
It is said that there are products that are more elastic and more inelastic, that is, more and less sensitive to changes in price. For example, soap, coffee, tea, or any other easily substituted product are often considered elastic goods. If prices rise, consumers will simply buy another brand, or switch to another product that performs similar functions. On the other hand, an example of an inelastic good is prescription drugs. Even though prices are high, when people are sick, they usually pay for the drugs, since they need them to get better.
The more inelastic the products and services a business sells, the more it can raise prices.
The following factors influence whether a good is more elastic or inelastic:
Availability of substitute goods. Are there other products/services that fulfill the same (or similar) role? For example, a substitute for coffee is tea, or a substitute for driving a car is taking an Uber.
The more necessary the product, the more indifferent people will be to the price. An example is medicines.
Brand loyalty. There are loyal customers who are willing to pay more to buy products from a specific brand. An example is Apple products (such as the iPhone), whose loyal customers are willing to pay extra just because they are from that brand. Or Coca-Cola, which is much more expensive than other supermarket branded cola drinks.
Who pays. When the payer is an individual, and the money comes out of his or her own pocket, demand is likely to be more price sensitive. However, when the purchase is on behalf of a large company, the purchasing officer may be a little less price sensitive.
Optimizing price elasticity
An entrepreneur had a warehouse in a central commune in Santiago. Warehouses have a hard time differentiating themselves from one another, because they tend to have access to the same suppliers and sell more or less the same things. Competing on price doesn't seem like a good option either, because their costs are the same as everyone else's. So in order to have a better business, he decided to manage it better by optimizing prices based on his customers' willingness to pay.
He had a bar code reader that allowed him to keep a very detailed record of purchases and sales. So he decided to gradually increase prices and analyze them every two weeks. For example, one day he decided to increase the price of drinks by $100 pesos. Two weeks later he checked his data and had sold slightly fewer units, but at a higher price, so his total margin was higher. He raised it by another $100 pesos, and again he sold fewer units but made more money.
He raised it by another $100 pesos, and realized that he had gone too far, because in reality his sales were already falling, and he was making less money. He lowered it by $50 pesos, and realized that in reality that was the price at which he was able to make the most money in total.
In short, after several weeks he discovered that selling $250 more than he had initially was maximizing his margin. He did this exercise in groups of five products at a time. When he optimized those five products, he moved on to another five to fine-tune them.
What makes the difference is the customers' willingness to pay. Keep in mind tha philippines country code if you give your customer what they want, it is fair to charge them what they are willing to pay. A concept that goes hand in hand with this is price elasticity.
Price Elasticity
Elasticity is a term used by economists to describe how sensitive demand for a product is to a change in its price. For example, how much sales fall as a percentage if I raise my prices by that percentage.
It is said that there are products that are more elastic and more inelastic, that is, more and less sensitive to changes in price. For example, soap, coffee, tea, or any other easily substituted product are often considered elastic goods. If prices rise, consumers will simply buy another brand, or switch to another product that performs similar functions. On the other hand, an example of an inelastic good is prescription drugs. Even though prices are high, when people are sick, they usually pay for the drugs, since they need them to get better.
The more inelastic the products and services a business sells, the more it can raise prices.
The following factors influence whether a good is more elastic or inelastic:
Availability of substitute goods. Are there other products/services that fulfill the same (or similar) role? For example, a substitute for coffee is tea, or a substitute for driving a car is taking an Uber.
The more necessary the product, the more indifferent people will be to the price. An example is medicines.
Brand loyalty. There are loyal customers who are willing to pay more to buy products from a specific brand. An example is Apple products (such as the iPhone), whose loyal customers are willing to pay extra just because they are from that brand. Or Coca-Cola, which is much more expensive than other supermarket branded cola drinks.
Who pays. When the payer is an individual, and the money comes out of his or her own pocket, demand is likely to be more price sensitive. However, when the purchase is on behalf of a large company, the purchasing officer may be a little less price sensitive.
Optimizing price elasticity
An entrepreneur had a warehouse in a central commune in Santiago. Warehouses have a hard time differentiating themselves from one another, because they tend to have access to the same suppliers and sell more or less the same things. Competing on price doesn't seem like a good option either, because their costs are the same as everyone else's. So in order to have a better business, he decided to manage it better by optimizing prices based on his customers' willingness to pay.
He had a bar code reader that allowed him to keep a very detailed record of purchases and sales. So he decided to gradually increase prices and analyze them every two weeks. For example, one day he decided to increase the price of drinks by $100 pesos. Two weeks later he checked his data and had sold slightly fewer units, but at a higher price, so his total margin was higher. He raised it by another $100 pesos, and again he sold fewer units but made more money.
He raised it by another $100 pesos, and realized that he had gone too far, because in reality his sales were already falling, and he was making less money. He lowered it by $50 pesos, and realized that in reality that was the price at which he was able to make the most money in total.
In short, after several weeks he discovered that selling $250 more than he had initially was maximizing his margin. He did this exercise in groups of five products at a time. When he optimized those five products, he moved on to another five to fine-tune them.