Drivers of Price Elasticity

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Из курса от партнера University of Virginia

Cost and Economics in Pricing Strategy

221 оценки

University of Virginia

Cost and Economics in Pricing Strategy

221 оценки

Курс 1 из 4 — Specialization Pricing Strategy Optimization

How much should you charge for your products and services? Traditionally, businesses have answered this question based on the cost to produce or provide their goods and services. This course shows you the economic factors behind pricing based on cost and the pros and cons of a cost-based pricing approach. Led by Darden faculty and Boston Consulting Group global pricing experts, the course provides the practical and research-based models and methods you need to set prices that maximize your profits. By the end of this course, you’ll be able to: --Apply knowledge of basic economics to make better pricing decisions --Recognize opportunities for price discrimination—selling the same product at different prices to different buyers—and recommend strategies to maximize sales and profits --Calculate three types of price elasticities to determine the impact of price on demand --Analyze and apply different pricing models -Cost-plus pricing -Marginal cost-plus pricing -Peak-load pricing -Index-based pricing --Evaluate the impact of channel intermediaries and customer lifetime value on pricing

Из урока

Common Pricing Metrics: Elasticities

This week we'll dive deep into the world of demand modeling. We'll start with a brief overview of regressions--what they are, why they're useful and how to calculate them using Excel. Then you'll get a chance to use regressions as you learn about three types of elasticities--relationships between demand and price or other factors--and the drivers of these elasticities. We'll finish with a price optimization based on demand models--a truly useful method for pricing based on economic factors. By the end of this week, you'll be able to impress your colleagues and friends with your knowledge of mathematical models and how to use them to inform your pricing strategy!

Price Elasticities8:33

Cross-Price Elasticity6:53

Income Elasticity4:32

Drivers of Price Elasticity3:16

Drivers of Price Elasticity: Market Share4:22

Drivers of Price Elasticity: Competitors' Prices4:42

Calculus: Taking a Derivative3:58

Price Optimization Considering Demand8:12

Price Optimization Example4:00

Познакомьтесь с преподавателями

Jean Manuel Izaret
Senior Partner and Managing Director, Leader of BCG’s Global Pricing Practice
Thomas Kohler
Associate Director, Pricing
Marketing, Sales & Pricing Practice
Ronald T. Wilcox
NewMarket Corporation Professor of Business Administration & Senior Associate Dean for Degree Programs
Marketing

Hello, I'm Jeremy, and

I would like to introduce to you today the concept of drivers of elasticity.

You know what elasticity is?

This is how much your volume would move when you change your price up or down.

What I'd like to give you today is some of the secrets of what drives the elasticity.

You don't to always measure elasticity, sometimes it is really hard to do so, and

so, having a sense about what will drive the elasticity to be higher or

lower is really helpful.

There are actually three fundamental drivers of elasticity.

The first one, quite obviously, is the demand curve.

That means, how many customers are going to be willing to

pay a high price point for the products,

and how many are going to be willing to pay a lower price point for the products.

That's the shape of your demand curve.

The second one is your share.

If you are a large play in the market place,

a few customers switching to you will not represent that much volume.

Your elasticity is going to be lower.

But if you're a very small player, you can have a few customers representing a large

proportion of your volume, and that means you're going to have a higher elasticity.

The third driver of elasticity is the distribution

of prices that competitors have in the marketplace.

One single competitor of one single price points will have a different elasticity

from a range of competitors with a range of price points.

Let's go through these step by step.

So the first step is understanding the demand curve and how it drives elasticity.

By now you know the demand curve and how it flows from customers willing to pay

high price points, to customers willing to pay a low price point.

And it has different shapes.

It's not a smooth straight line,

it's neither a curve that goes down completely perfectly.

It has some bumps, and you will want to take advantage of these bumps because

these are the places where the elasticity is right at the sweet spots.

In other words, the elasticity is driven by the slope of that curve,

and you really want to be at a point where you going to take the maximum number

of customers for a given price points in order to get the maximum profits.

As you can see here, when you start at the price with $50,

not many people want to buy that, but you really want to have the maximum volume,

and so that bump is going to work you really well for you.

This is true for the second product, the third product, and the fourth product.

You can see the shape of that demand curve here determines that.

In that particular market,

four products would be ideal right at the price point that they are.

If you were to put them at slightly higher or slightly lower price points,

the rectangles that here represent your revenues, would be slightly lower

than the optimum, which is why pricing right within

the bumps of the demand curve is the ideal price points for each of your products.

That's how the demand curve shapes your elasticity with a slope.

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