August 18, 2014
Existing industries bring new products into the market regularly. Sometimes there are already similar products from other industries in the market and sometimes industries bring in a completely new product. One such industry is Tresemme. Tresemme is a professional hair products company that sells everything from shampoo and conditioner to hair products that renew a hair’s health. If Tresemme decided to bring in a product that would cause curly and/or frizzy hair to dry straight, the company would have to consider the market structure, elasticity of the product, the pricing in relation to elasticity, pricing decisions and nonpricing strategies, and fixed and variable costs. Market Structure
Tresemme is part of a monopolistic competition market structure. A monopolistic competition market structure is “…characterized by a relatively large number of sellers producing differentiated products…” (McConnell, Brue, & Flynn, 2009, p. 177). There is a large number of hair care industries selling shampoo, conditioner, hair styling products, and products that renew hair’s health. However, if Tresemme decided to introduce a new product that would cause curly or frizzy hair to dry straight, it would be a new product in the industry. There are several products that are used to help protect hair when straightening it or to help it become straight quicker each time you use it. However, there is no product that can be sprayed on hair to cause the hair to dry straight with no extra products needed. Elasticity of Demand and Pricing
“The responsiveness (or sensitivity) of consumers to a price change is measured by a product’s price elasticity of demand” (McConnell, Brue, & Flynn, 2009, p. 114). Hair products such as shampoo and conditioner are products that consumers buy regularly and are considered relatively elastic. This means that consumers pay attention to the price they are paying because there are several companies selling hair care products and the consumer can choose a different product if the price is raised. Individuals who consider a product that straightens their hair a necessity may not pay a lot of attention to the price of the product if it changes, but an individual that may not consider a product that straightens their hair a necessity will pay more attention to the prices. If Tresemme introduced a new straightening product it would be elastic because there are several companies that sell hair care products and consumers could choose a different company if the price was too high. Marginal Cost and Marginal Revenue
Marginal cost is “…the added cost of producing one more unit of output” (McConnell, Brue, & Flynn, 2009, p. 51). In the case of Tresemme’s new product for straightening hair, it may be best to start with a lower number of unit output. This is because it is a new product and it is unknown how the consumers are going to react to the product. There is potential that the product sells very well, but there is also potential for the product not to sell well and then money will be wasted as a result. “Marginal revenue is the change in total revenue (or the extra revenue) that results from selling one more unit of output” (McConnell, Brue, & Flynn, 2009, p. 178). The marginal revenue is going to be based on the marginal cost. However, as stated before, if Tresemme starts with a smaller marginal cost because the product is new that is also going to lead to a smaller marginal revenue. It may be important to start by introducing the product to see how consumers are going to react before mass producing the product. The best way to maximize pricing for Tresemme is to increase revenue while decreasing cost. In order to increase cost the quantity of sales will need to be increased, up sell products to existing customers, sell more diverse products, and revise price in order to produce a balance between price and cost. In order to decrease...
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