Since GM*= (P*-VC)/P* =-1/e, Quantity Demanded Price Charged * MWB(uy) MWP(ay) Variable Cost (VC) Two observations on the price-quantity demand schedule Example of a Linear Price-Quantity Demand Function The Optimal price is the mid point between the Maximum Willingness to pay and Variable Cost of the Product Price elasticity Gross Margin -1.5 67% -2 50% -3 33% -4 25% GM* = -1/e Where, GM*, (gross margin*) indicates the gross margin at the optimal price and e = the elasticity of demand. Since GM*= (P*-VC)/P* =-1/e, 11/27/2018 Paul Farris

Pricing Principles Cost Value Competition 11/27/2018 Paul Farris

Product Life Cycle Clay Christensen Features, technologies Quality, reliability Ease of use, convenience Price 11/27/2018 Paul Farris

Summary Cost, value, competition and sense of strategy over the product life cycle One price will rarely do the job Segmentation Bundling Selling through distributors Pricing is a process that can be improved and innovated 11/27/2018 Paul Farris