Price Discrimination (Research Paper Sample)

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Price Discrimination
Our firm is has introduced Aloe Vera soaps in the market. In order for the products to gain success in the market, it was important for our firm to undertake price discrimination in order determine the appropriate prices of the product, the prevailing competitiveness in the market. Price discrimination involves the practice of charging varied price on similar services or goods. There are three main degrees of price discrimination. The first price discrimination is referred to as the perfect price discrimination. Perfect price discrimination is evidenced when the firm is charging varied prices for each unit consumed. The second degree of price discrimination involves charging varied price for varied quantities, which includes discount on quantity sold. The last degree of price discrimination is where the firm charges varied prices to varied consumer groups.
The introduction of Aloe Vera soap in the market has faced stiff competition from other soap producing companies. The big companies have cut a name for themselves in the industry, as well as, creating enough awareness about their product in the market. In this case, our firm eliminated the idea of perfect price discrimination. It was because this could not have favored a new product. Perfect price discrimination normally favors those products that have been in the market for a longer time and the customers and were in high demand. It meant that, the application of perfect price discrimination would affect the price elasticity of the product.
The firm settled for the second degree of price discrimination, which involved charging at varied prices for each unit consumed. Our firm has varied packages for the Aloe Vera soap. Some of the packages are packed singly while others are packed in four packs. It meant that, the prices for these packages have varying prices. In doing this, it meant that the firm increased the prevailing price elasticity of demand.
Price Elasticity of Demand= % Change in demand quantity / % Change in prices
Another factor that our company had to consider in regards to the pricing of the Aloe Vera soap is the prevailing competition from other companies selling the same commodity. The firm was forced to develop an effective competition-based strategy. It involved setting our prices that were based on our competitors’ prices, as opposed to the prices that, the company had earlier projected regarding profit and cost objectives. The firm had to consider the price environment. It was essential in determining a firm's control level over the competitive pricing. The price environment is usually company-controlled, government controlled or market-controlled. In our case, the prevailing prices where price environment was both company and market controlled. The bigger companies that dealt in soap products were controlling the prevailing prices. These companies showed moderate competition since the products being sold were unique (Center for Business Planning).
In considering the c...