Price Elasticity of Demand and Strategic Pricing Decisions

You are the Pricing Manager at a fashion retail chain selling both designer handbags and basic T-shirts. Due to increased costs from supply chain issues, you must decide on a pricing strategy. Considering that price elasticity of demand (PED) differs between luxury and essential items, what is the most strategic action to take?

• Raise prices on both products equally

• Raise prices on designer handbags only

• Raise prices on basic T-shirts only

• Lower prices on both products to increase volume

As the owner of a local petrol station, global oil prices have surged and you are considering passing the cost onto customers. Which statement best explains why petrol is typically price inelastic?

• Demand for petrol is price elastic

• Petrol is a luxury item

• Petrol has few substitutes and is a necessity

• Consumers will switch to electric cars immediately

You are the Marketing Director at a luxury chocolate company. A new competitor enters the market with similar quality but lower prices. Should you lower your price to stay competitive? How might price elasticity of demand (PED) affect your revenue and brand image? Choose the most strategic response.

• Lowering your price will always increase revenue and improve brand image.

• Lowering your price may increase revenue if demand is elastic, but could harm your luxury brand image.

• Keeping your price high will guarantee you lose all customers to the competitor.

• PED does not affect revenue or brand image in luxury markets.

A company is considering lowering its prices in response to increased competition. Using your reasoning skills, explain which risk is most likely to occur and why this could impact the company's brand image.

• Increased brand loyalty

• Reduced perceived quality and brand value

• Higher profit margins

• Increased price elasticity of demand (PED)

As a product manager launching a new unlimited data plan, market research shows mixed sensitivity to price among customer segments. If demand for unlimited data is elastic, which pricing strategy would most effectively maximize total revenue? Justify your answer using economic reasoning.

• Set a high price to increase profit per unit

• Set a low price to attract more customers

• Offer no discounts to maintain brand prestige

• Charge different prices to all customers

Imagine you are a regional manager of a cinema chain with low midweek ticket sales. Using your understanding of price elasticity of demand (PED), analyze why offering a discount might increase midweek ticket revenue for leisure activities.

• Leisure demand is typically price inelastic

• Leisure demand is typically price elastic

• Discounts reduce the perceived value of the experience

• Higher prices attract more customers during the week

AutoCare offers a basic car service for £80. PED is -1.8. They’re considering lowering the price to £65 to attract more customers. How should AutoCare respond to the high elasticity?

• Lower the price and promote it heavily through local ads

• Keep the price and add free extras like car wash or diagnostics

• Raise the price to signal quality and exclusivity

• Focus on corporate fleet contracts instead of individual customers

SweetSpot’s vegan cupcakes are priced at £2.50 with a price elasticity of demand (PED) of -0.6. Competitors are launching similar products at £2.00. Using your understanding of price elasticity, which strategic response should SweetSpot choose to maintain its market position?

• Emphasize ethical sourcing and premium ingredients in marketing

• Match competitor prices to avoid losing customers

• Launch a budget cupcake line alongside the premium range

• Offer bulk-buy discounts to increase volume

TechNova sells phone cases at £15 with a PED of -2.2 and is losing market share to cheaper online sellers. Based on the concept of price elasticity, what is the most strategic response for TechNova to regain market share?

• Cut prices to £10 and bundle with screen protectors

• Focus on design and customization to justify current price

• Shift to wholesale distribution and exit retail

• Increase prices and target luxury buyers

FreshMart wants to raise its delivery fee from £3.00 to £4.00, with a price elasticity of demand of -1.2. What is the best pricing strategy to manage elasticity and customer perception?

• Introduce free delivery for orders over £30

• Raise the fee and offer no changes

• Bundle delivery with subscription plans

• Switch to dynamic pricing based on time of day