Session 4 - Price Optimisation Flashcards Preview

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Flashcards in Session 4 - Price Optimisation Deck (21)
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1
Q

moving prices- volume hurdle

A

change in price

required changed in volume such that price change laves one better of or at least indifferent as before

2
Q

% DELTA Q

A

equal or greater

-% delta P /(%CM + %delta P)

3
Q

% DELTA Q

A

Qfinal - Qinitial / Q initial

4
Q

% DELTA P

A

Pfinal - Pinitial / Pinitial

5
Q

% CM

A

Pinitial - VCu / (Pinitial)

6
Q

Decision Implication

price reduction% delta P <0

A

Total is positive
expected increase in Volume associated with price reduction it will overcome volume hurdle
price reduction will increase profitability

7
Q

Decision Implication

price reduction% delta P >0

A

Total is negative < VH

8
Q

Price Elasticity

A

independent of scale
measure of the change in Volume delivered with change in prices
moving prices and see reaction of Demand
compering diff. products, bands, markets

9
Q

Interval Elasticity

A

delta q/delta p *
average p/ q at average p
p = price at average level in the interval
q= level of demand- quantity at average p

10
Q

Point Elasticity

A

elasticity of demand in an interval at a certain level of demand
(assumed linear) sloped * p/q
p = price at certain level of D.
q= quantity at specific price

11
Q

Volume Hurdle

Disadvantages

A

does NOT consider LT changes in Customer Demand as well as competitor´s reaction

12
Q

Volume Hurdle

Disadvantages

A

does NOT consider
a) LT changes in C. Demand
b) competitor´s reaction
temporary price reductions may change customer´s expectations

13
Q

Inelastic Markets

A

0 – < -1 Normal Markets
Infinity –> -1 (IE Markets)
demand changes little with price change (per unit)
tend to favour price increase to improve profitability (revenues will be greater)

14
Q

Elastic Markets

A

-1 –> - infinity
demand changes drastically (very price sensitive) when price changes (per unit)
extreme - commodity

15
Q

Elasticity

Characteristics

A

better measured in matured &commodities (we assume future is very similar to past - thus use historical data to calculate elasticity)
less well for branded markets
firm level (brand choice) >= category level (switch brand to reduce purchases)
LT (uncover substitutes) < ST (customer locked)

16
Q

Profit Optimisation

Linear Price response curve

A

average of variable cost + max w.t.p
assumes changes in demand per price unit change in constant (not matter what the base price might be)
elasticity = slope
1. w(x)= 1/10 (if x (0,10)) &0 (otherwise) –> UNIT DISTRIB.
2. d(p) = D - mp
LINEAR DEMAND

17
Q

constant elasticity price response

A

distribution of wtp which is highly concentrated near 0
demand does not drop to 0 at any time (close)
d(p) = C*p^-1 (hyberbola)
Both WTP &Price Response are hyperbolic, but Price Reponse is more to the left (asymptote)

18
Q

Logit Price Response

A

most popular
Wtp corresponse to Gausch
Price Response is logic
closest to market price

19
Q

Constant Elasticity

Moving Prices

A

moving prices using elasticity assumes demand curve is hyperbolic
good enough if we move them around the point calculated

20
Q

Profit Optimisation

Elasticity

A
p optimal = (VCu * e)/(1+e)
problems: 
industry vs product level
LT total cost Unitary
ST Variable cost Unitary
21
Q

Log Linear Model

A

exponential Regression Model
slope coefficient of Log-linear regression gives us elasticity of y in respect to x
e.g 1% increase in Quantity will result in a decrease about X% in Price