Review Slide Selected Review of Exam 1 Questions

Forms of Price Promotion 1. Special Package: price incentive to induce trial offer in a form that minimize initial outlay Criterion benefit the end user, not distributor's margin end user perceive price cut as a special offer to first time buyer, not repeat buyers

Forms of Price Promotion 2. Free sample/sampling Good for products that are frequently purchased, high margin, benefit can be realized after one usage Soaps, cigar, software Advantages Induce trial quickly and broadly 70% gain rate

Forms of Price Promotion 3. Coupon Advantages Most popular “Coupon Mom”“Coupon Mom” Go to ultimate customer, maintain price image, can be directed to first time buyers Disadvantages Inconvenient, costly, retailer fraudulent Fact: about 25% of coupon redeemed do not have purchase ($250M)

Forms of Price Promotion 4. Rebate Advantages avoid coupon counterfeiting and fraudulent redemption by retailers limit the offer to one per family lower administration cost multiple products: help develop a list a deal prone consumers many consumers fail to redeem it

Forms of Price Promotion 5. Reward program 6. Refund 7. Buy-now-pay-later 8. Price matching 9. be creative!!!

Lecture 9 Demand Curve, Elasticity and Consumer Surplus

Demand Curve A demand curve is a graph relating the quantity sold and price, which shows the maximum number of units that will be sold at a given price. Three factors effecting demand: Consumer tastes – These include culture, demographics, and technology. Price and availability of similar products – As the price of substitutes fall or their availability increases, the demand for a product will fall. Consumer income – As income increases so will demand for certain products.

Demand Curve Is Useful Ups and downs of U.S. gas prices

Demand Curve and the Consumer Surplus Price ($) 0 The demand curve is an aggregation of the demands of individual or segment, who have different reservation prices (max. willingness to pay) Ideally, charge each customer their reservation price (as long as it is above c) – (i) no profitable customer is excluded from buying and (ii) no money left on table. Demand

Illustrative Demand Curves for Newsweek Demand curve under initial conditions The demand curve with more favorable conditions

Price Elasticity of Demand (effects demand) Marketers are especially interested in how sensitive consumer demand and the firm’s revenues are to changes in the product’s price. This is measured by price elasticity of demand, the percentage change in quantity demanded relative to a percentage change in price. A product with elastic demand is one in which a slight decrease in price results in a relatively large increase in demand, or units sold. The reverse is also true A product with inelastic demand is one in which a slight increase in price results in a steady or increased demand, or units sold.

Price Elasticity of Demand

Many firms seek to maximize profits through building sales. This approach is called demand-oriented pricing. Demand-oriented pricing is sensitive to the notion of customer value and setting prices to match the benefits of the product as perceived by customers. Demand-Oriented Pricing

Understanding the concept of Elasticity of Demand is necessary to successfully apply demand-oriented pricing Elasticity = Q 2 - Q 1 (P 1 + P 2 ) P 2 - P 1 (Q 1 + Q 2 ) where P = price per unit Q = quantity demanded in units 1,2 = time periods Price Elasticity of Demand

Buyers are price sensitive Buyers are price insensitive Consumers have lots of choice (substitutes) when products are elastic.

Measuring Elasticity of Demand Dell Computers recently cut the price of a poor selling notebook from $1599 to $1399. Sales averaging 14,000 units in the first period rose to $20,000 in the second period. 1.What is Ep for the notebook? 2.Interpret the E. 3.Did revenues rise or fall after the price cut?

Next Lecture Cross Price Elasticity and Empirical Estimation of Demand Curve