- 55 Views
- Uploaded on
- Presentation posted in: General

PRICING Examples

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

PRICING Examples

First Year 2010 Term 2

- Pricing Principles:
- Cost
- Value
- Competition

Pa

Example of a Linear Price-Quantity Demand Function

MWB(uy)

Two observations on the price-quantity demand schedule

Quantity

Demanded

*

*

MWP(ay)

0

0

Price Charged

Variable Cost (VC)

The Optimal price is the mid point between the Maximum Willingness to pay and Variable Cost of the Product

GM* = -1/e

Where, GM*, (gross margin*) indicates the gross margin at the optimal price and e = the elasticity of demand.

Since GM*= (P*-VC)/P* =-1/e,

Customer Segment 1

UnitsPrice Unit Cost Unit MarginProfit

70$2.00$0.80$1.20$84.00

75$1.80$0.80$1.00$75.00

80$1.60$0.80$0.80$64.00

85$1.40$0.80$0.60$51.00

Customer Segment 2

UnitsPrice Unit Cost Unit Margin Profit

0$2.00$0.80$1.20$ 0.00

30$1.80$0.80$1.00$30.00

60$1.60$0.80$0.80$48.00

90$1.40$0.80$0.60$54.00

Adapted from Farris & Quelch, SMR, 1989.

Single Price

Dual-Price

List

$1.60

140

$1.60

$0.80

$0.80

140

$112

List

$2.00

70

Promotion

$1.40

90

Price

Units

Avg. Unit Price

Variable Cost

Contribution

Total Units

Total Contrib.

$1.66

$0.80

$0.86

160

$138

Paul Farris and Erv Shames

List Price

Promotion Price

Discount

Units Sold

Promotion Cost

$2.00

$1.40

$0.60

90

$54.00

The Maestro

of Marketing

- Smart discounts can raise real prices and margins
- Good targeting is needed to make this happen
- Calculating the profitability of price promotions is a difficult, challenging exercise

- Features, technologies
- Quality, reliability
- Ease of use, convenience
- Price

Paul Farris

- Cost, value, competition and sense of strategy over the product life cycle
- One price will rarely do the job
- Segmentation
- Bundling
- Selling through distributors

- Pricing is a process that can be improved and innovated

Paul Farris

Mon.Tues.Wed.Thur.Fri.

Marketing Forum

Sunnyside

Sealed Air

Earthlight

Aqualisa

9/27

Mktg Econ Note

Seven Qs Note

iPhone/Pricing

Progressive

Speakers

10/4

Pricing Note

Levis at Walmart?

Kalashnikov

Black & Decker

10/11

Mid-term Exam

Brand Equity Note

Ohio Art

10/18

Fed. Express

ZS Associates

Mktg Experiments Note

BREAK

10/25

11/1

Retail Relay

Stainmaster

CustLifeValue Note

11/8

Conjoint

Heinz + Spkr

11/15

Snapple

Beer Game

11/22

Sorrell Ridge

Netflix