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Thursday, April 6, 2017

The Demand and Price Problem as it Relates to Discounts and Sales

The demand relationship determines price and quantity. Demand is the amount of the product people are willing to buy. This is impacted by the price and what people are willing to pay for it. Thus, the demand and price will determine how much of the product you will sell. It can be difficult to understand how continuous sales can impact long-term demand and price.

In general, as you increase price of a product the quantity that is sold will lower while if you decrease price of the product the quantity that is sold increases. This is one of the reasons why stores offer big discounts to raise the amount that people are willing to purchase but it will often have an impact on long-term demand.

Luxury brands like Gucci, Lois Vuitton, Raul Lauren, and others have a high demand because they are scarce. Luxury brands are expensive and worth a lot on the market as a status symbol. There is a balance that must be maintained to keep the value as a luxury product while still keeping its price just within reach of the average income consumer that seeks a luxury product.

Product pricing is important here!

Constant sales can lower the value of a product. When multiple retailers are offering big sales on a constant basis the product's value begins to decline. Consumers can shop around for the best sale at multiple retailers. The Internet has made this more possible and no longer does locality of being in the right place and time have as much sway.

Discounts and sales are beneficial for clearing stock but not so beneficial for maintaining a luxury status. Having sales around holidays is helpful as well as having sales on last years products. Putting in place continuous sales by many retailers forces these retailers to lower their price to maintain sales at their shop. Producers of luxury products will need to tightly control sales and discounts of products to keep their demand and price high.

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