BUS M300 1nd Edition Lecture 10 Outline of Current Lecture I Price II Price Setting III Elasticity of Demand IV Elasticity Impact on Revenue Sales V Optimal Places to be with Elasticity VI Measuring Elasticity VII Elasticity to Set Prices for Segments Current Lecture I Price a A product s price should be viewed from the customer s perspective b Customer could be a consumer or a channel intermediary like a retailer or wholesaler c Customer value product s benefits price d What impacts price i Quality ii Perceived value iii Cost iv Supply v Demand vi Competition These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute vii Urgency of need if your thirsty you will pay more money for convenience II Price Setting a To effectively set pricing one must consider all of these 4 factors i 1 Customer price sensitivity Elasticity ii 2 Product Costs iii 3 Value of Product to the Customer iv 4 Competition s Prices III Elasticity of Demand a Sensitivity elasticity the degree to which pricing influences demand i Helps us understand what the price should be ii If it is elastic it fluctuates a lot responds easily iii If it is inelastic it is fixed iv Gas inelastic people will continue to buy if the price goes up b Elastic demand change in demand change in price c Inelastic demand change in demand change in price d Elastic demand 1 0 Inelastic demand 0 e Example i Current price is 5 current units sold is 10 Test price is 4 test units sold is 15 ii Elasticity change in demand change in price iii Change in price 1 5 iv Change in unit 5 10 v 1 5 divided by 5 10 2 5 vi 2 5 is elastic IV Elasticity Impact on Revenue Sales a What factors cause demand for a product to be elastic inelastic i Necessity gas vs unnecessary new car ii Importance chocolate vs unimportance clothing iii Substitutes Applebees 2 for 20 vs No substitutes iv Availability vs Not available iPad limited editions b Type of Demand Price Revenue Impact Unit sales Impact Elastic Increase Down Down Elastic Decrease Up Up Inelastic Increase Up Slightly Down Inelastic Decrease Down Slightly Up V Optimal Places to be with Elasticity a If Elastic i Better to have Bargain Price ii 1 price price is reason for purchase Wal Mart b If Inelastic i Better to have Premium Price ii Inelasticity built through non pricing actions iii Vigilance used to detect market shifts VI Measuring Elasticity a E points of elasticity b Qs unit sales at different weeks months etc c Ps unit prices at different times d 1s old e 2s new f Q2 Q1 Q1 divided by P2 P1 P1 equals E VII Elasticity to Set Prices for Segments a Consumers response to marketing stimuli is not uniform b Consumers in different segments respond to a product s price in different ways c This formula helps you calculate what price a different segment geographical region should charge d P price e E elasticity f P1 P2 equals E1 E2 E1 divided by E1 E2 E2 g Multiply this by P1 x to get x unknown price