Price Elasticity of Demand
Factors Affecting Price sensitivity: have to think about price in a context The unique value effect
The substitute awareness affect
Price comparison effect: made us more price sensitive
Business expenditure effect: made us less price sensitive
End-benefit effect: i.e. package travel bundled in less price sensitive The total expenditure effect: the bigger the total expense the more aware The shared cost effect: tend to be less price sensitive when sharing the cost with others The sunk investment effect: already sunk in your time so you aren’t very price sensitive. The price quality effect: if we believe in the connection between price and quality then we will be less price sensitive.
What is a 20oz coca-cola worth
-1.29 paying for refrigeration
-1.99 paying for service in restaurant setting
-4.50 paying at a concert because there are no other options
cheap flight but being nickel and dimed for everything customers don’t want
Cost-plus pricing-i.e. wine is 3X as expensive in restaurants -product, cost, price, value, customers
not a customer focused approach-only works if it generates the forecasted demand.
drawbacks: people see different values in different items.
Break-Even analysis and target profit pricing
-takes into account
Competition based pricing
-focus on competitors
-monitor “going rate”
-Avoid Price wars
downside- customer is not a part of the decision.
Value based pricing (turn everything upside down)
(Reverse engineer your pricing)
another problem is that very often people don’t know what a fair price is.
You should use all of these strategies and see which yields the best result.
Pricing and the Product lifecycle
New Product Pricing
Skimming pricing: a price that moves start off high then drop price etc. apple does this (fad like demand curve) Penetration pricing: low price right off the bat involves selling...
Please join StudyMode to read the full document