MARKETINGPROFS: RETAIL PRICE AND THE IMPACT OF COMMODITY-PRICE INFLATION
MarketingProfs‘ Joy Joseph asks and answers, “So how much impact do commodity prices have on retail prices? And on product managers’ pricing strategy?”
MarketingProfs Excerpt:
In the past year, the most fundamental of the 4 Ps of marketing—price—has rapidly risen to prominence.
In a way, that is an inevitable outcome of the recent media focus on macro factors that determine the economics of demand and supply—inflation, employment, and income, to name a few.
Not surprisingly, as the consumer price index flutters up and down, all eyes focus on commodity prices. So how much impact do commodity prices have on retail prices? And on product managers’ pricing strategy?
The relationship between commodity prices and retail prices follows a simultaneous feedback loop. Although in the short term retail-price changes lag commodity-price changes, in the long run they can also drive commodity-price changes.
For instance, retail gas prices respond to short-term changes in crude-oil prices: Disruptions in crude oil supply cause crude-oil prices go up, resulting in a corresponding spike in pump prices. In the long run, however, as inflation and slowing economies decrease demand, the commodity prices could dip to adjust for lower demand levels.
To further complicate matters, commodity prices are heavily driven by short-term expectations and market news, and are determined by trading on financial markets; retail prices, however, are less prone to react to market news and are determined by actual demand-supply economics.
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