A Reflection Paper on the

Case Study: Should a Dollar Store Raise Prices to Keep Up with Inflation?

By Jill Avery and Marco Bertini

Graduate School of Business

Master’s in Business Administration (MBA)

First Semester A.Y. 2024 - 2025

Managerial Economics

Ruben M. Nayve Jr., Ph.D., DBE

Faculty-in-Charge

Submitted by:

Raiz, Samuel Jr. A.

MBA Cohort 9

23 March 2024

1
Why should a Dollar Store raise prices? Discuss relevant production and cost concepts

as your framework of analysis.

Jill Avery and Marco Bertini's case study "Should a Dollar Store Raise Prices to Keep Up

with Inflation?" examines whether a Dollar Store should raise prices to combat inflation

using relevant production and cost ideas. In this article, I will look at why a Dollar Store may

need to raise prices, using insights from the case study and economic principles to examine

the scenario.

First, it is critical to understand how inflation affects the cost structure of a Dollar Store.

Inflation is the general increase in the cost of goods and services over time, which reduces

money's purchasing power. Inflation is a major problem for Dollar Stores, which rely on

small profit margins from selling things at low prices. The case study demonstrates how

different cost elements including rent, utilities, salaries, and inventory expenses are impacted

by inflation.

Cost-push inflation is a production and cost notion relevant to this issue. Cost-push inflation

occurs when production costs rise, resulting in increased consumer prices. Rising costs of

items owing to factors such as increased raw material prices or transportation fees might eat

into profit margins at a Dollar Store. As Dollar Store owners confront increasing pressure on

their bottom line, raising pricing becomes a vital option to ensure profitability.

Furthermore, supply chain disruptions, such as those experienced during the COVID-19

epidemic, worsened Dollar Stores' cost concerns. The case study demonstrates how

interruptions in global supply chains have resulted in shortages of specific items and

increased transportation costs. These supply chain difficulties raise Dollar Stores' expenses,

2
making it increasingly difficult to maintain existing price points without jeopardizing

profitability.

Additionally, Dollar Store managers must assess the price elasticity of demand for their

products. Price elasticity of demand assesses how responsive the quantity sought is to a

change in price. Raising prices may have little effect on sales volume if demand for Dollar

Store products is generally inelastic, which means that customers are less responsive to price

increases. However, if demand is elastic, which means that clients are extremely

price-sensitive, any price rise could result in a significant fall in sales.

Despite the risk of modifying customers' perceptions of value, Dollar Stores may need to

boost prices in order to stay up with inflation and remain financially viable. Dollar Store

operators can make intelligent pricing adjustments to guarantee sustainability in the face of

inflationary pressures by carefully studying cost structures, supply chain dynamics, and

demand price elasticity.

Finally, the choice of whether a Dollar Store should raise prices to keep up with inflation

necessitates a full examination of production and cost principles. Inflationary pressures,

supply chain interruptions, and price elasticity of demand are all key elements to consider.

While raising pricing may pose some risks, Dollar Stores may eventually be forced to react to

shifting economic conditions in order to preserve their long-term existence.

3
What pricing strategies can be proposed to adopt by One Dollar Store? Support your

answer in terms of the relevant theories on pricing and output determination.

The case study "Should a Dollar Store Raise Prices to Keep Up with Inflation?" by Jill Avery

and Marco Bertini examines whether a Dollar Store should raise prices to combat inflation. In

this essay, I will investigate various price methods that One Dollar Store could implement to

combat inflationary pressures, based on relevant pricing and output determination theories.

Cost-based pricing is one pricing technique that One Dollar Store may want to examine.

Cost-based pricing is determining prices based on the expenses of manufacturing,

distribution, and sales, with a markup added to maintain profitability. Given that inflation has

raised the costs of numerous inputs for Dollar Stores, implementing a cost-based pricing

strategy would allow One Dollar Store to modify prices in response to rising expenses. By

carefully examining its cost structure and applying appropriate markups, One Dollar Store

can set pricing that reflects both cost considerations and targeted profit margins.

One Dollar Store could also look into value-based pricing. Value-based pricing is the practice

of determining prices based on the customer's perceived value of the product or service.

Despite being a Dollar Store where customers expect low costs, One Dollar Store can

differentiate itself and justify price hikes by emphasizing its products' unique value

proposition. For example, One Dollar Store could promote the quality, convenience, or

diversity of its items to customers in order to justify slightly higher prices. By emphasizing

on value rather than just cost, One Dollar Store may be able to reduce the negative impact of

price rises on customer perception.

4
Furthermore, One Dollar Store should consider dynamic pricing as a possible tactic. Dynamic

pricing entails altering prices in real time based on changes in demand, rival pricing, and

other market conditions. Dynamic pricing, while generally linked with industries such as

hospitality and aviation, can also be used in retail contexts, including Dollar Stores. One

Dollar Store may maximize revenue and profitability by employing data analytics and pricing

algorithms. For example, One Dollar Store might use dynamic pricing to offer discounts

during off-peak hours or to modify prices for seasonal items based on demand swings. One

Dollar Store may maintain its competitiveness and respond to inflationary pressures by

dynamically modifying prices to reflect changing market conditions.

Furthermore, bundle pricing may be a smart price strategy for One Dollar Store to consider.

Bundle pricing is offering various products or services at a reduced price compared to

purchasing them separately. One Dollar Store can entice customers to buy more by bundling

complimentary items or generating value-added bundles while still providing value in the

overall offering. For example, One Dollar Store may bundle cleaning goods with kitchen

utensils or provide themed bundles for special occasions such as birthdays or holidays. One

Dollar Store can enhance average transaction value while offsetting any possible revenue

losses caused by price hikes on individual items by using bundle pricing.

To summarize, One Dollar Store has numerous pricing techniques at its disposal to combat

inflationary pressures while remaining competitive in the market. Cost-based pricing,

value-based pricing, dynamic pricing, and package pricing are all feasible options that can be

adjusted to One Dollar Store's specific requirements and goals. One Dollar Store may

overcome the obstacles of inflation by carefully examining its cost structure, recognizing

customer perceptions of value, and effectively leveraging price techniques.

5
References:

Avery, J. (2023, February 14). Case Study: Should a Dollar Store Raise Prices to Keep Up with
Inflation? Harvard Business Review.
https://hbr.org/2023/03/case-study-should-a-dollar-store-raise-prices-to-keep-up-with-inflation

Klingensmith, J. Z. (2019, August 26). Costs and Production. Pressbooks.

https://psu.pb.unizin.org/introductiontomicroeconomics/chapter/chapter-6-costs-and-production/

Production Cost: Definition, Formula & Examples | StudySmarter. (n.d.). StudySmarter UK.
https://www.studysmarter.co.uk/explanations/microeconomics/production-cost/

Sunuwar, M. K. (n.d.). Theory of Price and Output Determination. Scribd.

https://www.scribd.com/presentation/207909885/Theory-of-Price-and-Output-Determination

Banton, C. (2023, October 5). What Is Theory of Price? Definition In Economics and Example.
Investopedia. https://www.investopedia.com/terms/t/theory-of-price.asp