Lecture 8- Price Flashcards
(13 cards)
How is Pricing Different from other P’s
1) Price is the only “P” bringing in revenue
2) Price is quantifiable and comparable
3) Price is somewhat easy to change
What is Cost-based Pricing?
-Sell enough to at least cover your costs (break even volume)
Where is Cost-Plus Pricing Found?
- Supermarkets & Drugstores
- Industrial Suppliers
What are the Limitations to Cost-Plus Pricing?
- Costs are not easy to determine
- Cost-Plus is product oriented
- Ignores competition
- Ignores consumer
Elasticity of Demand (e>1= elastic)
What are the three different methods to estimate demand curves?
1) Surveys
ex/ how many units would you buy at this price
2) Price experiments
ex/ vary prices in similar locations, record sales effects
3) Statistical Analysis
ex/ determine relationship between price and quantity sold using past prices, quantities sold (e.g. regression)
What are consumers preferences to 3.59 or 3.60
If the left-most digit is unchanged, then the preferences are the same
What are consumers preferences to 2.99 or 3.00
Consumers process prices in a left to right- manner so they would prefer 2.99
Ending in 9 conveys notion of a bargain, give an example
demand increased when price rose from $34 to $39, but unchanged when price rose from $34 to $44
Sale signs and prices that end in 9 are more effective when
- Used less frequently
- Consumers prior knowledge is poor
- For infrequently purchased items or for new categories
Break-even volume BEV equation
What are examples of inelastic/ elastic demand
Elastic: luxury goods
Inelastic: gas or prescription drugs
Why set a single price?
Price discrimination:
Charge consumers with high WTP more than consumers with low WTP
(Can acheive social purposes: scholarships, senior citizen discounts)
