How should a business market a product that has price-inelastic demand and a high income elasticity of demand? (9 marks)

Price-inelastic demand refers to products which demands don’t change as the price of the product changes. This usually means that the product is either a necessity and there aren’t many alternatives or it is a luxury product that has high brand loyalty with their customers. In this case we can infer that it is a luxury product as the product also has a high income elasticity of demand which means as income increases, demand increases by a higher percentage. This means that more people are likely to buy the product when they have a higher income as they are willing and able to purchase it. A product like this should be marketed to those with high incomes who are able to buy luxury products such as expensive cars, this is because demand for expensive cars doesn’t change much when price changes as the people who buy them usually have a large amount of disposable income therefore a small change in price wouldn’t affect their choice to buy the expensive car. As a result, businesses should market the product as luxury and advertise their product in a way that makes buyers think there are no alternatives therefore people will want to buy it. In addition they should try to maximise their brand loyalty to customers for example offering a free service for the car in the first year and offering multiple payment options such as upfront payments or monthly payments. By doing this, the business are able to increase their prices for this product as it is a price inelastic product therefore increasing the price slightly won’t affect demand detrimentally. This means that the business would receive a higher sales revenue which can be spent on expanding the business through advertising and maintaining brand loyalty as well as opening new branches.