Question

The first step in the forecasting game plan is to project sales and other operating activities. Sales numbers are determined by both a volume component and price component. Projecting prices depends on factors specific to the firm and its industry that might affect demand and price elasticity. For the following types of firms discuss whether it would be likely that the firm would be able to raise future prices:

a. A firm in a capital-intensive industry that is expected to operate near capacity for the near future.

b. A firm in an industry that is expected to experience numerous technological improvements.

c. A firm with products which are transitioning from the growth to maturity phase of the product life cycle.

d. A firm that has established a well-known brand name and image.

Answer 1

a.

If the industry is capital intensive it is not likely that a competitor could easily and quickly enter the market and steal market share by cutting prices. Then in this case, due to capacity constraints the firm should be able to raise prices

b.

If a firm is going to experience numerous technological improvements, then the firm would probably not be able to raise prices due to efficiencies brought on by the technological change, even though the sales volumes may increase.

c.

If a firm with products transitioning from the growth to maturity phase of the product life cycle may find it more difficult to raise prices, as the product's sales reach level where the demand is more stable. So the increase in the price increases may result in consumers looking for alternative as switching products.

d.

A firm that has established a well-known brand name and image is in an advantage position to raise prices as the consumers feel such brand loyalty towards the product. So, increase in price may not have much impact.