Suppose a fitness center has the following schedule of fees and charges. Usage F

Question

Suppose a fitness center has the following schedule of fees and charges.

Usage Fee                           Pricing scheme

Casual Visit                              $10 per visit

Special Visitor                        $25 per month, $5 per visit

Off-peak membership          $400 per year, each visit free

(8am -4pm weekdays)

Fanatic membership             $800 per year, each visit free

Describe the type of pricing scheme being used and describe what the manager of the fitness center assumes about each type of customer and their price elasticity of demand

Explanation / Answer

In economics, price support may be either a subsidy or a price control, both with the intended effect of keeping the market price of a good higher than the competitive equilibrium level. In the case of a price control, a price support is the minimum legal price a seller may charge, typically placed above equilibrium.

People are more likely to consume a product when they are aware of its cost- when they feel 'out of pocket'. but common pricing practices such as advanced sales, season tickets, and price bundling all serve to mask how much a buyer has spent on a given product decreasing the likelihood that the buyer will actually use it.

The psychology of consumption; higher consumption means higher sales. The extent to which customers use the products they have paid for determines whether they will repeat the purchase.

Cost Price Consumption: People are more likely to consume a product if they are aware of its cost. This is known as the sunk-cost effect: Consumers feel compelled to use products they have paid for to avoid feeling that they have wasted their money.

Pricing Drives perception of cost : Pricing tactics that mask rather than highlight prices reduce pressure on buyers to use the products in order to get their money's worth.

Price Elasticity of Demand measures the responsiveness of demand to a change in the own price of a good or service. When demand is inelastic, consumer demand is relatively insensitive to changes in prices. therefore price will be inelastic for those who have taken an annual plan. and elastic for those who have taken a monthly plan.

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