Bulls Eye department store specializes in the sales of discounted clothing, shoes, household items, etc. similar to the offerings at a regular Walmart or Target. Bulls Eye is the only department store in Show Low and the nearest other discount retailer is Target, located 49 miles away in Eagar. Bulls Eye, therefore, has some market power in its local area. Despite having some market power, Bulls Eye is currently suffering losses. An analyst at Bulls Eye is recommending to the manager to raise prices, so that profitability can be improved. The manager is unsure of this strategy as recent data points to increasing numbers of individuals shopping more and more. What are the pros and cons of raising the prices at Bulls Eye and would that strategy be profitable?
Matthew Lindemulder
XXXXXXXXXX:04am May 29 at 6:04am
Even though Bulls Eye is the only retailer within a 49 mile radius compared to the competition, consumers today utilize the internet for online shopping more often. The local community is always going to have the options of Amazon and other online retailers to purchase some of the goods and have them deliver to their homes. Bulls Eye needs to realize what their niche is, or what sets them apart to keep the local people in their community coming inside their retail locations. They have a great variety of products offered, and they should be able to capitalize on their market power being the only one around.
Raising prices if the demand isn't there from the consumers is going to make their situation even worse. "As we have seen, the price elasticity of demand is related to the height and slope of the demand curve, and, indeed, there is a special relationship between price elasticity and the profit-maximizing markup rate over AVC" (Douglas XXXXXXXXXXIf Bulls Eye increases their pricing while sales are going to remain stable, then the profit will increase which would be a significant boost in revenue. Now on the other hand, if they increase their pricing but lose some of their sales from consumers because they are now opting to go elsewhere, they are going to have a big decrease in revenue, which in turn will lower their profit margin making it difficult to withstand.
If Bulls Eye considers itself a competitor of Target, Walmart, and other big box stores, then their market structure would be considered Pure Competition. Now, if they set themselves apart by figuring what they do different than the others, then they can be monopolistic since they are the only retailer in a large mile radius. They would be considered pure competition due to the fact that other retailers are selling the same products. The pricing of their products is going to be determined by what the consumers are willing to pay for them. They are not going to be able to raise a pair of shoes by 20% if a consumer can find the same pair somewhere else for less. Now if they have their own brand of shoes that is exclusive to this store and customer base, they can easily raise pricing to increase their profit. It is all going to come down to the demand of the consumers and them seeing the benefits of the products at Bulls Eye.
The marketing and analytics teams of Bulls Eye need to research the data of the goods that are selling regularly at their store. They can raise the pricing of the most popular goods to increase the profit in this segment based on the fact that they are in high demand. The marketing team needs to continue to get the word out there to the local community about shopping local, staying local, and the benefits that their community can receive by keeping the revenue dollars within the same area. Sales or coupons offered routinely need to be incorporated in their business structure as well. The HR department also needs to get with the employees to ensure that they are treating every single person that walks through that door perfectly. Consumers will have no problem purchasing items that are more expensive at this location if they are treated right, the store is clean and efficient, and they enjoy their time spent in the establishment.
Reference
Douglas, E. (2012).
Managerial Economics(1st ed.)[Electronic version]. Retrieved fromhttps://content.ashford.edu Mark Engel
XXXXXXXXXXMonday May 27 at 8:40am
When looking if Bulls Eye department stores should raise their prices or not in hope of increasing their profitability, you first need to look at the proc and cons of making that decision. Demand elasticity is defined as the responsiveness of quantity demanded to a change in price. The demand for a product can be elastic or inelastic, depending on the rate of change in the demand with respect to the change in price (Agarwal, XXXXXXXXXXWe know that Bulls Eyes is the only store within a 49 mile radius that sells discounted clothing, shoes, and household items which comes with some market power as mentioned, however, raising prices to gain more profit may not be the most effective decision they could make. It is mentioned that Bully Eyes is currently suffering losses, so how could raising prices maximize their profits? I understand that they may be the only player within a 49 mile radius, however, if consumers see a significant rise in prices, they will turn elsewhere to get their products. Instead of the department store raising all their prices, I feel it would be beneficial for them to begin raising prices on just one item to see if their profits increase. So, maybe they raise their prices on their shoes they sell to first see if sales decrease, or if they remain stable, which is the ultimate goal, they will then see a profit on that item. Slowly increasing their prices, going one item at a time will allow these changes to be made without the consumer seeing a significant change in the department store. Of course, you may have some consumers who will drive the 49 miles to Target to save the money on those same items, but not all customers will make that drive, as the price on gas really doesn’t save much money.
When looking at Bulls Eye’s market structure, I would say they fall into the Pure Competition structure, where there are many sellers supplying identical products, such as farmers selling milk, eggs, corn, etc. (Douglas, XXXXXXXXXXEven though Bully Eye’s store is 49 miles away from its closest competition, it is still their competition and should always be aware of similar stores, like Walmart, and Target as mentioned. Department stores who sell the same products really need to be strategic on how they beat their competition. Bully Eye currently sells their discounted items, which may be at a slightly lower price than major department stores, which makes them more profitable than the others. They need to remains competitive, so like I mentioned before, if they just make minor tweaks in increasing their pricing will work, and not just do everything at once. If the rising in prices are slight, the consumers may not even notice the increase.
Reference
Agarwal, P. (2019) Price Elasticity of Demand.
https://www.intelligenteconomist.com/price-elasticity-of-demand/(Links to an external site.)Links to an external site.
Douglas, E. (2012) Managerial Economics. Retrieved from