Question

- Does the fruit snack industry have “elastic demand” or “inelastic demand”?

benefits of penetration pricing

benefits of wholesale pricing

Answer 1

Elasticity of demand means the change in degree of demand due to the change in its price. A good is said to be highly elastic / elastic when due to change in its price, the demand also changes. A good is said to be inelastic when despite change in its prices there isnt much change in the demand. Generally all essential commodities have inelastic demand as it is essential and no matter how much price changes people will still consume it. Example- medecines.

In case of fruit snack industry, which produces fruit snacks , elasticity will be high as it is not a much needed or essential item. Such item (fruit snack) is not a necessity. It can be avoided. Hence when price increase , people may stop consuming it. Hence it will be elastic.

penetration pricing- under this method sellers reduce their price of goods initially to capture the market or to survive in the market. They believe that lower prices of their goods will attract customers. Benefits are that , at lower price, customers are easily attracted. As sales increase, economies of scale is acheived and goodwill can be built during initial stage of peoduct launch.

wholesale pricing-  under it sellers , attempt to sell goods at bulk to their customers at lower price than retail price. It helps to sell goods at bulk and sell off their major chunks of supply immediately. Lower price also helps to attract customers.