Question

Identify a few situations in which price cuts or price increases might be necessary. Based on buyer and competitor’s perspective, how they react towards price changes. (20marks)

Answer 1

Price cuts may be necessary when there is excess capacity. Another time to cut prices is when market share is falling in the face of strong price competition. A company may also cut prices in a drive to dominate the market through lower costs. A major factor in price increases is cost inflation Rising costs squeeze profit margins and lead companies to pass cost increases along to customers. Another factor leading to price increases is over demand. When a company cannol supply all its customers' needs, it can raise its prices, ration products to customers, or both.