Pricing Decisions 李甜 颜瑶 陈悦明

Overview Pricing Decisions Price elasticity of demand Pricing policy and the market Pricing Decisions Profit maximising price Price strategies Cost-plus pricing Relevant cost pricing Other

Pricing policy and the market 1.1 Influences on price In the modern world there are many more influences on price than cost . Price sensitivity Price perception Quality I

Intermediaries Competitors Supplier Inflation Newness Incomes Product range Ethics

Demand Economic theory argues that the higher the price of a good, the lower will be the quantity demanded. 2.1 The economic analysis of demand price (a)Downward-sloping 一般情况 Demand

(b)Perfectly elastic demand 完全弹性 Price Demand (c)Perfect inelastic 完全无弹性 price Demand

Price elasticity of demand Price elasticity of demand is a measure of the extent of change in market demand for a good in response to a change in its price. Tips: Demand is referred to as inelastic if the absolute value is less than 1 and elastic if the absolute value is greater than 1.

Price elasticity and the slope of the demand 0.5Q Q Quantity

Other factors which influence demand Price of other , Income, Tastes or fashion Expectation, Obsolescence, etc. Demand and the individual firm introduction Product life cycle Marketing growth maturity Four P’s decline

1.2 Markets---Four types market having different influences 市场 类型 厂商 数目 产品差别程度 对价格控制程度 接近那种市场情况 完全竞争 很多 完全无差别 没有 一些农产品 垄断竞争 有差别 有一些 香烟或糖果 寡头 几个 有差别或无差别 相当程度 钢铁、汽车 垄断 一个 唯一产品无 替代产品 很大程度但经常受到管制 公用事业如: 水、电

2.Profit-maximising price and output level Demand equation P=a－bQ Total cost function TC=F+vQ Profits are maximised where marginal cost(MC)=marginal revenue(MR)

Demand equation P=a－bQ Where P =the price Q =the quantity demanded a =the price at which demand would be nil b =

2.1Microeconomic theory and profit maximisation (a)Total revenue－Total cost (b)The marginal revenue－marginal cost method Profits are maximised where marginal cost(MC)=marginal revenue(MR)

2.2 WHY? MC output increase ,the marginal cost per unit may rise(due to the law of diminishing returns) MR faced with a downward sloping demand curve ,the marginal revenue per unit will decline

MC output increase ,the marginal cost per unit may rise(due to the law of diminishing returns) MR faced with a downward sloping demand curve ,the marginal revenue per unit will decline Eventually a level of output will be reached where the extra cost of making one extra unit of output is great than the extra revenue obtained from its sale. It would be unprofitable.

3.3 calculation ★ P=a－bQ MR= =a-2bQ Total revenue=P*Q=(a－bQ)*Q=aQ－b MR= =a-2bQ MC? This will simply be the variable cost per unit

A company Fixed production cost $20000 Variable cost per unit $40 P=55-0.05Q MR=55-0.1Q Calculate the price to charge to maximise profit? MC=40 MC=MR 55-0.1Q=40 Q=150

Price strategies 1、Cost-plus pricing （1）Full cost-plus pricing 完全成本加成定价 Full cost-plus pricing is a method of deciding the sales price by adding a percentage mark-up for profit to the full cost of the product. 指在制定产品价格时，以产品成本为基础，加上一个固定的百分率的加成。 Formula： selling price = cost + profit mark-up 单位产品价格 =单位产品成本+单位产品预期利润 =单位成本（1+成本利润率）

Advantages Quick , simple and cheap. Ensure the company make a profit Keep a stable price Disadvantages Ignore the combination of price and demand May be uncompetitive

（2）Marginal cost-plus pricing 边际成本加成定价 Adding a profit margin to the marginal cost of the product. 在定价时只计算变动成本，而不计算固定成本，在变动成本的基础上加上预期的边际贡献。 公式：单位产品价格=单位产品变动成本+单位产品边际贡献

2、New product pricing strategies (1)Market skimming pricing 早期获利定价政策 Charging high prices when a new product is first launched on the market , in order to maximise short profitability. In the case below: The product is new and different. Sensitivity of demand to price are unknown. Firm with liquidity problem. Products may have a short life cycle Different market segments

渗透式定价 (2)、Market penetration pricing Low prices when a product is first launched in order to obtain strong demand for the product as soon as it is launched on the market. In the cases: Discourage new entrants Highly elastic Achieve economies of scale Shorten the initial period of the product’s life cycle

3、Complementary product pricing 互补产品定价 Complementary products are goods that tend to be bought and used together.

4、Product line pricing 产品线定价 A product line is a group of products that are related to one another.

5、Volume discounting 数量折扣 A volume discount is a reduction in price given for larger than average purchase.

6、Price discrimination 价格歧视策略 Charging different prices for the same product to different groups of buyers when these prices are not reflective of cost differences.

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