|
As a part of defining their business, apparel manufacturers identify what general price range of merchandise they will produce. As discussed in previous chapters, the general price ranges in apparel markets include low end, budget, moderate, better, and designer. Firms position themselves within the general price range in order to appeal to their target customer and respond to the competition in the market. For example, a firm may be positioned as an upper moderate producer of professional career women's apparel. Given this general range, prices are determined for each product in the line.
Under most pricing strategies, it is desirable to establish a markup that is sufficient to cover variable and nonvariable costs, profit, and subsequent price reductions. The first step in setting prices is having an accurate knowledge of costs, thus the emphasis on the costing process earlier in this chapter.
In general firms operate in markets where fundamental economic concepts apply. Firms face downward sloping demand curves indicating that as prices increase the quantities taken from the markets decrease (Figure). A firm cannot usually expect to increase its prices and maintain sales volume at the same time. The elasticity of the demand curve determines the impact that price-volume relationships have on total revenue. A steeper demand curve is inelastic, meaning that a price decrease results in comparatively little increase in quantity sold. A flat demand curve is more elastic, meaning that a decrease in price results in a greater quantity purchased. A firm is challenged to find a price-volume combination that achieves the goals of the firm and maximizes profits.
|
Participants