This handling of stocks and consequently lesser

This company basically has two
distinct product lines. One consists of discount consumer goods and the other
consists of high-end luxury goods. It is obvious that there is a considerable
price differential between discount consumer goods and high-end luxury goods. Consumers
themselves are well aware of a difference in qualities and brand values of
commodities from these two product lines.

The primary advantage of
emphasizing on luxury items is it gives the company a premium image and it can
concentrate on a niche category of consumers who would not mind paying higher prices
for premium brands. Therefore, the company need not always be on its toes to
match with discount offers of Wal-Mart and Target. Also, it need not intently
focus its energies on ensuring elevated levels of inventory turnover of
discount consumer goods to generate sufficient total revenue for it to keep
afloat.

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In case of premium goods though
there will be lesser turnover in terms of units the money value of such
turnover would be considered as each unit is highly priced. This will lead to
the lesser physical handling of stocks and consequently lesser number of
employees at store department.

However, if the company directs
its energies mainly on premium brands it would lose the benefit of selling and
earning more through “Leader Pricing” of low-end goods. When
customers throng the store to buy products that are offered at heavy discounts
(also known as “loss leaders”) they generally end up also buying
items they need but at full retail prices even if they could get those
elsewhere at a discount. These consumers do simply because it is more
convenient for them to get everything under one roof instead of hopping from
one outlet to another.

Also, the price elasticity of
demand of low end, heavily discounted consumer goods is generally of inelastic
nature and the company is assured of nearly steady revenue even though prices
rise to some extent. But price elasticity of demand for premium goods is
generally of elastic nature and the company might register significantly lesser
sales revenue if prices of these goods rise even slightly. Therefore, shifting
emphasis on premium goods lends an inherent volatility of the bottom-line. Therefore,
I don’t think it would not be prudent to double the number of luxury goods it
carries and halve the number of discount consumer packaged goods.