Question

Paul Bowlin owns and operates a tree removal, pruning, and spraying business in a metropolitan area with a population of approximately 200,000. The business has grown to the point where Bowlin uses one and sometimes two crews, with four or five employees on each crew. Pricing has always been an important tool in gaining business but Bowlin realizes that there are ways to entice customers other than quoting the lowest price. For example, he provides careful cleanup of branches and leaves, takes out stumps below ground level and waits until a customer is completely satisfied before taking payment. At the same time he realizes his bid for tree removal jobs must cover his costs. In this industry, Bowlin faces intense price competition from operators with more sophisticated wood processing equipment, such as chip grinders. Therefore, he is always open to suggestions about pricing strategy.

What would the nature of this industry suggest about the elasticity of demand affecting Bowlin's pricing?

Answer 1

The services provided by different players in the industry are not standardized. Good level of other services apart from main services such as cleanup of branches & leaves and waiting for payment till customer is satisfied can influence the customer purchase. Hence , the demand is inelastic within a certain price change (small increase) due to Bowlin's value added services. Bowlin can continue distinguishing the services and attracting more customers.

However, demand can change significantly for higher difference in prices primarily due to intense competetion in the market.