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ECO401 - Economics 1st GDB Starting Date May 15, 2014 Closing Date May 19, 2014

                                                                                                    Total Marks : 30

The Case:


From an economic viewpoint, internet is the opponent of high prices and high profit margins. By greatly expanding the scope of the market, the internet effectively eradicates geographic boundaries, transactional costs and price competition especially for easily transported goods and services. For example, in the pre-internet era, a person looking for a car had to visit the local market or a well-known showroom to look for the best bargain available. With the internet, consumers can now log on to different websites used for internet marketing and get a data on hundreds of good conditioned cars. Successful internet retailers offer bargain prices, a broad assortment of attractive products, and speedy delivery. They also effectively handle profits and basic customer service. The internet is a wonderful communication device that greatly improves access to information about the product quality, prices and performance. . In today's business world, it is also important to understand how internet marketing can affect price elasticity.


Requirement:


Keeping in view the above scenario of internet marketing, discuss the impact of internet marketing on price elasticity of demand of goods and on profit margins of sellers.

 

Important Instruction:

 

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Replies to This Discussion

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Internet-based technologies have significantly reduced the marginal cost of producing and distributing digital 
goods such as software, news stories, music, photographs, stock quotes, horoscopes, sports scores, and health tips. 
Some firms such as America Online are selling large aggregations of such digital goods for a low flat monthly 
fee. Such aggregation of so many products would be extremely expensive using traditional distribution media. 
Such bundling offers economies of aggregation that favours large distributors of such bundles and makes it 
difficult for smaller companies that sell unbundled products to compete effectively (Bakos and Brynjolfsson, 
2000). The Internet has helped create digital goods such as music, software, videos, and pictures. It also enables 
customization of digital and non-digital products. For example, online customers can purchase personal 
computers on the Internet in a variety of combinations by choosing the appropriate features or music retailers can 
create CDs containing songs ordered by customers.
A more recent Internet development is recommendation systems that are a form of mass customization (Ansari, 
Essegaier, and Kohli, 2000). Search engines such as Google and Yahoo use such recommendation systems to 
recommend relevant products or services on the basis of keywords supplied by users. Electronic book sellers such 
as Chapters.ca and Amazon.ca, when a customer is searching for a specific book, recommend other books that the 
customer could also purchase on the basis of past purchases of other customers. It is important that online 
companies adopt physical and technological processes to keep personal information safe and secure. Many 
Internet companies take measures to reassure customers that any information customers provide will not be 
misused and that they will maintain their privacy in order to convince customers that the site is secure. Online 
businesses state their privacy policy in their websites where they explain what information they do and do not 
gather when someone visits their site. 
E-businesses also guarantee that if the customer information is abused, they will be responsible for any financial 
losses that may occur. Usually, the personal information provided to the e-tailer when an order is placed or an 
account is opened is secured using Secure Socket Layers (SSL) encryption technology. The SSL technology 
prevents such information from being intercepted and read as it is transmitted over the Internet to the company’s 
servers. This information is decrypted only when it reaches the company’s servers and is then stored on restricted 
access computers located at restricted access sites. Online companies create strong e-brands and highly satisfied 
customers by providing them with a positive experience and with the use of traditional advertising and 
promotional efforts. Many of the things that lead to higher customer satisfaction and loyalty in traditional 
businesses also work in e-businesses. Delivering excellent service and value is equally important for customer 
satisfaction, customer loyalty, and retention in offline and online businesses. Companies hoping to attract and 
most importantly retain visitors to their website need to improve their service levels and offer online customers 
superior value and satisfaction. 
Branding is becoming important in Internet-based businesses because online consumers prefer to buy from wellknown and reputable e-companies. Companies such as Amazon.com and Schwab are widely known, recognized,
and trusted by online consumers. Many consumers avoid purchasing online because of trust and privacy issues
(Ipsos Reid, 2002). Gaining people’s trust is a major challenge for Internet companies as many online visitors are 
reluctant to provide credit card information because they do not trust the visiting site. Traditional retailers with 
established names usually have an advantage over certain Internet-only companies because they have been known 
for years and enjoy a higher degree of trust by consumers. The reputation and image of the website may have an 
impact on the offline business. 
2. Impact on Pricing Strategy
Among the marketing areas that have been affected the most by the Internet is pricing. The Internet influences a 
firm’s pricing strategy in multiple ways, including providing consumers with more information, increasing 
competition, increasing the number of suppliers, the establishment of various auction houses, and pricing 
research.
1. Increased information. One major effect of the Internet is the explosion of information that has resulted in 
more competition among firms and lower prices (Zettelmeyer, 2000). Many Internet-only companies offer 
substantially lower prices than other retail or even mail order firms. For example, customers of 
Autobytel.com, an Internet referral service on automobile dealer pricing, pay less for a particular car than 
customers who don’t use this referral service (Morton, Zettelmeyer and Risso, 2001). Online book and CD 
prices are 9 to 15 percent lower than prices in conventional retail stores (Clay

Prices according to your thoughts and prayers will be so low that the price elasticity of demand is negative elasticity price elasticity of Internet marketing as part of an overall change of different products from do not belong to more familiar Pakistan to become withe people a day over the Internet in the past are familiar with using the Internet in Pakistan is much change in the elasticity between price and demand changes

In the early years of e-commerce it was predicted by some that the Internet would lead to a "frictionless economy". Lower search costs and better information provided via the Internet were expected to increase competition in retail markets and thus lead to lower price levels. It was also expected that there would be greater price convergence, that is a lower dispersion of prices for online transactions.Most studies have found lower price levels online than offline, even when shipping and other costs are included.here has been some suggestion that the gap between online and offline prices has been reducing over time.

In a fast-paced society, everything has to be done in an instant.Everything costs more. Everything moves faster. The good thing is that we can have anything we want in just one click. We have the different technological advances right within our reach – time efficient and cost effective- which make our way of life more convenient. All of these realities of modern society have been in the name of progress. One of the most popular, most obvious technological advances at present is the Internet, which provides the users convenience from entertainment to education and from personal concerns to business matters. Indeed, the Internet introduces many unique benefits to marketing including low costs in distributing information and media to a global audience. 

One of the benefits associated with Internet marketing is the availability of great amounts of information. Compared to traditional media, such as print, radio and TV, Internet marketing can have a relatively low cost of entry. Consumers can access the Internet and research products, as well as purchase them at any hour of any day. Companies that use Internet marketing can also save money because of a reduced need for a sales force. Overall, Internet marketing can help a business’ expansion from a local market to a national or international one, faster.Profit margin is very high on internet because it includes biddings, it includes the banks and also the courier companies and also the site owners. 

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