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PRICING Examples. First Year 2010 Term 2. Pricing Principles: Cost Value Competition. 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).

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Pricing examples

PRICING Examples

First Year 2010 Term 2


Pricing examples

Pa


Pricing examples

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,


Pricing examples

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.


Pricing examples

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


Calculating promotion budgets with demand pricing
Calculating Promotion Budgets with Demand Pricing

List Price

Promotion Price

Discount

Units Sold

Promotion Cost

$2.00

$1.40

$0.60

90

$54.00


Pricing examples

The Maestro

of Marketing


Some conclusions

Some Conclusions


Product life cycle clay christensen

Product Life Cycle Clay Christensen

Paul Farris


Summary

Summary

Paul Farris


Pricing examples

Mon. Tues. Wed. Thur. Fri. product life cycle

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