Prices are generally more elastic in the early stages of the product life cycle and increasingly inelastic in the later stages of the product life cycle.
Underpricing is a pricing strategy whereby companies charge an amount just below cost in order to generate sales in the introductory stage of a product's life cycle.
Once a firm has established its break-even point for a product, it has a starting point for estimating how much revenue it must generate to earn a profit.
While shopping, Lucie sees a pair of jeans on sale for $29.99. She is excited because she has purchased this particular brand of jeans several times in the past for $40.00. In this instance, $40.00 is Lucie's fixed cost.
A recreational watersports dealer reduced the price of its new jet skis by $1,000 in hopes of generating more sales. However, the lower price only resulted in a few more sales of the jet skis. This represents an elastic demand situation.
Promotion is one of the most important strategic decisions a firm faces because it reflects the value the product delivers to consumers as well as the value it captures for the firm.