Question

1. Gyms often use pricing strategies. Suppose a yearly membership to the gym costs $300, a monthly pass costs $40, and a daily pass costs $10. A. Explain the rationale for this pricing strategy. B. What must be true about the customer’s price elasticity of demand in each group? Who might be the “typical” customer in each group?

Answer 1

A. This pricing strategy can be made on the basis of type of customers. By using this obviously, it is seen that if someone has to pay monthly or on a daily basis he/she needs to pay a lot more than when he is paying in yearly basis. Still it can be beneficial for the customers according to the situation.

B. Price elasticity of demand can define by the change of quantity demanded for the change of price. Where the change in price has taken place in following manner.

One year package = $300 (Total paid in a year $300)

Monthly package = $40 (Total paid in a year 12*40=$480)

Daily package = $10 (Total paid in a year 10*365=$3650)

Here the difference between monthly packages and yearly packages is not that much, but the daily packages is used if you consider its cost on yearly basis.

Demand of each packages is shown in following price elasticity of demand curve.

Although the quantity demanded for monthly package and yearly package will vary according to the demographic situation. If the citizen live in a particular place are mostly permanent citizen then this graph will be followed. But if a religion with more numbers of non-permanent members then they will prefer monthly packages over yearly packages because if they move on another location their investment will be lost. And at the same time the difference between monthly package and yearly package is not that much. So, in this situation, the quantity demanded at the monthly packages will be higher than the quantity demanded of yearly packages.

C. Yearly package = Relatively permanent citizen in a particular location

Monthly package = Relative less permanent citizen in a particular location.

Delhi package = Those who want to have a trial they can select this criteria.