Managerial Economics Assignment

Managerial Economics Assignment.

Some customers are viewed as angels. They purchase the big-ticket, big markup items, want them right when they come out, and want each one of them. And some customers are viewed as devils. They wait for loss leaders sales (Items sold at a loss designed to entice consumers to the store, where the store designed to entice consumers to the store, where the store hopes they will buy other item- the devils only buy the loss leaders); buy items, return them, and then rebuy them as previously owned items at a discount, buy the most discounted items and then resell them thereby eliminating the customers from the store's pool. They scour internet, circulars, and newspapers for the store's competitors' low prices and then make the store honor the competitor's prices because of the "we will not be undersold" pledge of the store, send in for rebates, and so on.

Big box electronics store Best Buy has had enough of the devils' tactics. Best Buy estimates that 20 % of its store visits are by devils. And they would like the devils to get out of their stores. They want to fire some of their customers! On the other hand, they have identified the true angels- the 20 % of their customers that generate the bulk of their profits.

How do you get rid of the devils? You can't identify them and then not let them in your store. That would violate antidiscrimination laws. But you can eliminate the programs that draw them to your stores. For instance, stop direct mailing to t he customers identified by their past purchases as devils, charge customers a restocking fee of 15 percent of the purchases prices for returned items, prohibit reselling returned items on the internet or at another store rather than at the original store and break all ties with internet sites that tipped the devils off to Best Buy bargains and buying strategies that Best Buy regarded as having a negative impact on profits. The financial services sector has solved this problem by catering to their angels (free checking for maintenance of a certain balance) and penalizing the devils transaction fees for ATM use, fees to deal with a teller, cheques charges, and so forth.

Assignment Questions.

1. Define General Demands Function. Can the 'Loss Leader Sale' (discount sale) be related to the Demand Function?

2. What would be your advice to the Big Box Electronics Store to eliminate the devils to increase its sales to the angels and also to increase profit of the store?

3. Financial Service sectors have found a solution to deal with the Angels and the Devils. Can you suggest such remedies to any other sector in the same lines?

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