CHAPTER 2

REVIEW OF RELATED LITERATURE

Local Article
What is inflation? It refers to the rate of increase in prices of goods and
services that consumers usually buy. To measure inflation, economic analysts
look at the consumer price index (CPI), which represents the general cost of
products typically bought by consumers. Inflation, which is expressed as
percentage, reflects an increase in the CPI. In August, inflation was at an alltime low of 0.6 percent. This means that on average, the price of goods and
services consumers bought during the month was 0.6 percent higher than a
year ago. Despite decelerating inflation, controlling the prices of goods and
services is among the top concerns of most Filipinos. It only shows how
sensitive economic welfare is to even very small changes in prices and wages,
especially insofar as the poor and near-poor are concerned, said Ernesto
Pernia, professor at the University of the Philippines School of Economics.
Inflation erodes the purchasing power of consumers. If inflation is high,
consumers may have to spend more to buy the same goods and services they
purchased a year earlier. Or, in other words, the same amount of money
would buy less after inflation. Moreover, if inflation accelerates while wages
stay the same, it would require a bigger portion of peoples income to buy the
same goods and services.
Inflation, wage top poll issues
(Raffy Lerma, 2015)
In a country that is agricultural and rich in marine resources, why are millions getting
hungry? High food prices are among the culprits. In the Philippines, food is really expensive.
We are even the most costly among ASEAN countries, former Bureau of Agricultural Research
director Dr Eliseo Ponce said recently during a round table discussion hosted by the University
of Philippines Los Baos Interdisciplinary Studies Center on Food Security. Ponce concludes it's
the lack of framework in policy building, outdated administrative guidelines, inadequate
infrastructures, and abusive middlemen that are behind the country's food prices hike.
How can government lower food prices in the Philippines?
(Jodesz Gavilan, 2014)
It explores the use of a modified Tornqvist index using a geometric
mean formula for the Philippine consumer price index (CPI). Using 2000 as
base year, preliminary estimates seem to indicate that there is a bias in the
current official CPI measure compared to a geometric CPI, and that this bias

tends to be positive. This finding suggests that the CPI measure based on a
Laspeyres formula may tend to overstate true inflation. The paper argues
that the estimated upward bias in the CPI has a direct implication on the
BSPs conduct of monetary policy. Moreover, such upward bias may deepen
over time and be affected by the business cycle. This may lead to
overestimation of domestic price conditions. Along with a set of forwardlooking indicators, the BSP may have to take this finding into account in the
conduct of monetary policy.
A Geometric Price Index for the Philippines: A Preliminary Assessment
(Veronica B. Bayangos and Irene T. Estigoy, 2010)
Knowing about the customers price sensitivity always helps suppliers
to entertain and satisfy them. If the customer is highly competitive and
perceives short term projects, then it is not worth for suppliers to convince
them for high end or expensive products. The customer will anyway
supercharge to reduce the cost or cut the related frills as it may not be
affordable or is out of budget for them to purchase. So it is important for
suppliers to sacrifice on cost or else he may leave the customer unsatisfied,
in worst case he may loose that customer also.Making fruitful strategies and
positive analyzing cost sensitivity is one of the most important challenges
that an organization could face. On the other hand it is desirable to deal
efficiently with it. The best practice is to pre-evaluate the customer needs
and make a fair offer to them according to their requirement and budget.
Cost/Price Sensitivity of Customers
(MSG Management Study, 2008)
Access to medicines is an important health policy issue. This paper considers
demand structures in a selection of low-income countries from the perspective of
public authorities as the evidence base is limited. Analysis of the demand for
medicines in low-income countries is critical for effective pharmaceutical policy
where regulation is less developed, health systems are cash constrained and
medicines are not typically subsidised by a public health insurance system. This
study analyses the demand for medicines in low-income countries from the
perspective of the prices paid by public authorities. The analysis draws on a unique
dataset from World Health Organization (WHO) and Health Action International
(HAI) using 2003 data on procurement prices of medicines across 16 low-income
countries covering 48 branded drugs and 18 therapeutic categories. Variation in
prices, the mark-ups over marginal costs and estimation of price elasticities allows
assessment of whether these elasticities are correlated with a countrys national

income. Government demand for medicines thus appears to be price elastic, raising
important policy implications aimed at improving access to medicines for patients
in low-income countries.
Analysis of prices paid by low-income countries - how price sensitive is government demand for
medicines?
(Srivastava and McGuire, 2014)

Foreign Article
This describes a study of status consumption and price sensitivity. The
pervasive desire for social prestige motivates consumers to pay higher prices
for goods that confer status. We suggest that three constructs involvement,
innovativeness, and brand loyalty mediate this relationship. A model using
data from 409 U.S. college students. Status consumption does influence
price sensitivity; and this influence is largely, but not totally, mediated by
involvement, innovativeness, and brand loyalty. The results are consistent
with previous studies and theories regarding these variables and attest to
the importance of status consumption in consumer behavior. Understanding
how such psychological constructs interact to produce their effects improves
consumer theory and marketing practice.
Status Consumption and Price Sensitivity
(Ronald E. Goldsmith, Leisa R. Flynn, and Daekwan Kim, 2016)
Price sensitivity deals with the consumers sensitivity to price changes
and is important for strategic decisions. Price has a significant influence on
the behavior of consumers and consequently on firm revenues and profits. In
general, price sensitivity is analyzed by the slope of the demand curve or by
the price elasticity of demand (Kaul & Wittink, 1995, p. 151). In my article we
will use price elasticity, since it is not sensitive to the units of measurement
and is often used in the field of microeconomics, and we will focus on
describing the factors which influence price elasticity. It measures the
percentage change in demanded quantity due to one percent price change
ceteris paribus. When the price elasticity is larger than one, the demand will
be price elastic. When the price elasticity is smaller than one the demand will

be price inelastic. Basically, in the first case demand is sensitive to price

changes and in the second case it is not.
Important price sensitivity issues
(Sander Barendsen, 2014)
Consumers' price sensitivity is an important input to strategic and
tactical decisions. Price sensitivities depend on various factors for which our
purpose of this paper is to explore consumers' price sensitivity and
innovativeness as well as to contribute to diffusion theory by adding
information on price sensitivity. This research reviews how consumers
demonstrate their sensitivities to price on their product purchase decisions.
Consumer's sensitivity to price has a significant impact on product
innovativeness as most of the product purchase decisions are being made
based on price rather than the brand or accessibility. Our discussions and
findings will have important implications for managers and researchers.
Managers may get guidelines for taking their pricing decisions to achieve
maximum earnings while researchers can go for further study.
A Critical Review of Consumers Sensitivity to Price
(Abdullah-Al-Mamun, Muhammad Khalilur Rahman and S D Robel, 2014)
Research from a marketing-analytics firm finds price-sensitive shoppers
come from all income and demographic groups, are often more brand loyal
than others and spend more in supermarkets on average than shoppers less
focused on price. Dunnhumby defines "price-sensitive" shoppers depending
on how much they use coupons, how much they consistently purchase the
lower-price items in categories and how often they buy items on promotion.
Among the groups that over index for price sensitivity are millennials, Mr.
Petty said, and that's one reason price-sensitive shoppers are also bigger
spenders. "Millennials do use coupons more and look at promotions more,
and they make less money," he said, yet they also spend more on groceries
because they're more likely to have kids. "They're one of the highestspending groups and yet they're very price sensitive." A similar paradox
arises among people who sign up for brand customer-relationship
management programs or are "brand advocates" who follow brands on social
media. They're more price sensitive than average, but also more brand loyal.
Price-Sensitive Shoppers Can Be Profitable for Brands
(Jack Neff, 2013)