Econ 561

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ECO 561 Economics

March 12, 2012

Abstract

The following paper discusses a business proposal on hair extensions. The proposal will include profit maximization strategy, how to increase revenue, entry into the market. The proposal will also look at product differentiation and the mix of pricing and non-pricing strategies to increase revenue as well as pricing and non-pricing strategies for hair extensions under the current business cycle in the United States economy. Lastly, the paper will look at business decisions, credit markets and the global economy affects hair extensions. Hair Extensions

The market for hair extensions is a growing industry that encompasses all lifestyles. It attracts the extremely rich all the way down to the middle class. Hair extensions are also for those who are cancer survivors. This proposal will focus on the business aspect of starting and entering into the market. The market consists of many small businesses, usually hair salons or independent experts that the sole focus is on hair extension. The first aspect of the service is to look at the elasticity of the market.

Market Elasticity

The elasticity of market for hair extensions is extremely high. The reason for the elasticity being extremely high is because the demand it is considered a luxury and a slight change in the price of hair extensions can either deter a consumer from buying the product or encourage a consumer to buy more of the product. They are also not apart of the consumer’s life or a necessity to buy, meaning that the does not need them in their daily life like food or water. Substitutes also make the market for hair extensions’ elasticity extremely high. Substitutes include wigs, toupees, hair implants and clip in extensions. These substitutes offer a way for the consumer to choose cheaper and more economical choices than hair extensions. With the market being highly elastic price choices are extremely important to being successful within the market and being a strong competitor. Understanding the market structure and how the costs will affect consumer confidence in the business will determine how successful one will be in the market.

Market Structure and Costs

The structure for the hair extension market is considered an oligopoly. An oligopoly is, “a market situation in which each of a few producers affects but does not control the market” (“Oligopoly”, 2012). Within the market structure only a few large businesses supply hair extensions to the whole market. Within these large businesses, they branch out and brand their hair extensions through small and large salons, independent contractors and schools. The fixed costs of the market are the cost of hair to the business, costs of the instruments used to put in the hair extensions and the maintenance of the product. These products will vary in price but mostly will be similar throughout the market to a business. Some of the variable costs will be the consumer and how many customers a professional can see within a day. The variable costs entail the number of hair extensions sold and the products that are used in putting hair extensions in the hair per unit costs. Profit maximizing will be discussed later in the business proposal but the variable costs will drive profit maximizing. How to increase profits revenue will need to be looked at and how profit maximizing will enable entry into the market and be successful in the business.

Pricing and Non-Pricing Strategies

“A well thought out price strategy is one of the most important things an ecommerce retailer can have as it’s critical in assessing the competitiveness of a product and consumer demand and should continually be evaluated” (Tags,2011). Some strategies for pricing with hair extensions the business would have to look at how the competitive market is selling their hair extensions, then either match the price or offer a discount on the...
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