Marketing Nathalie Dens
Price and customer value
Price elasticity of demand
Percentage c h ange ∈quantity demanded
E= =η
percentage c h ange ∈ price
Unit price elasticity of demand
η = -2.26: 10% increase in price produces 26.2% decrease in quantity demanded (and
reversed)
Zero price elasticity of demand (η = 0)
demand is perfectly inelastic = demand does not change in any way when price changes
Infinite price elasticity of demand (η = ∞)
consumers will buy as much of a good as possibly at particular price but
at a higher price quantity demanded falls to 0
at a lower price the quantity demanded rises without limits
1
, Marketing Nathalie Dens
Concept of pricing and cost
Price:
amount of money expected, required, or given in payment for something
Cost:
represents total money, time and resources sacrificed to produce or acquire an offering
Profit:
total revenue – total costs
- Pricing
o Income, flexible, easy to imitate
o Right price
=> determined by customers
- Proposition costs
o Fixed cost
Manufacturing plant and equipment, office buildings, cars and other
vehicles, salaries, professional service fees (e.x. legal, architectural)
o Variable costs
Equipment servicing costs, energy costs, mileage allowances, overtime and
bonus payments, professional services in a business with a strong regulatory
regime (e.x. pharmaceuticals)
- Relationship pricing – costs
o Increases in price
disproportionately positive effect on profit decreases in price
o Study identified that
1% increase in price = 8.7% improvement in profit
1% increase in variable costs = 5.9% improvement in profit
1% increase in volume sales = 2.8% improvement in profit
1% increase in fixed costs = 1.8% improvement in profits
2
Price and customer value
Price elasticity of demand
Percentage c h ange ∈quantity demanded
E= =η
percentage c h ange ∈ price
Unit price elasticity of demand
η = -2.26: 10% increase in price produces 26.2% decrease in quantity demanded (and
reversed)
Zero price elasticity of demand (η = 0)
demand is perfectly inelastic = demand does not change in any way when price changes
Infinite price elasticity of demand (η = ∞)
consumers will buy as much of a good as possibly at particular price but
at a higher price quantity demanded falls to 0
at a lower price the quantity demanded rises without limits
1
, Marketing Nathalie Dens
Concept of pricing and cost
Price:
amount of money expected, required, or given in payment for something
Cost:
represents total money, time and resources sacrificed to produce or acquire an offering
Profit:
total revenue – total costs
- Pricing
o Income, flexible, easy to imitate
o Right price
=> determined by customers
- Proposition costs
o Fixed cost
Manufacturing plant and equipment, office buildings, cars and other
vehicles, salaries, professional service fees (e.x. legal, architectural)
o Variable costs
Equipment servicing costs, energy costs, mileage allowances, overtime and
bonus payments, professional services in a business with a strong regulatory
regime (e.x. pharmaceuticals)
- Relationship pricing – costs
o Increases in price
disproportionately positive effect on profit decreases in price
o Study identified that
1% increase in price = 8.7% improvement in profit
1% increase in variable costs = 5.9% improvement in profit
1% increase in volume sales = 2.8% improvement in profit
1% increase in fixed costs = 1.8% improvement in profits
2
