Principles of Pricing

Principles of Pricing

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qMany businesses focus on driving volume or reducing costs rather than increasing price under the mistaken belief they have greater control over volume and costs than price. Yet, a 1% increase in price (holding volume fixed) has a greater impact on operating profit than a 1% increase in volume or a 1% decrease in cost. By not seizing the initiative on price, businesses abrogate decisions about price to competitors, customers, and the channel. A careful analysis and understanding of those same actors could help them price in a more profitable manner. Hence, this book, which is designed to communicate the fundamental principles of pricing. In marked contrast to other books on pricing, this one is based on economic theory. This is not to deny the value to be had from looking at pricing through other lenses. It is simply that these other lenses do not yet provide a systematic and organized way to think about pricing. Economic theory does. Its power is not in the provision of to-do lists or the Gradgrind-like accumulation of facts.8 Rather, it is in generating the right questions to be asked. Both our own experiences and that related to us by our students who have taken our classes has confirmed us in this view. A second point of contrast with other treatments of pricing is that we convey principles through stylized examples rather than anecdotesq--Provided by publisher.Given the huge variance in customer 2a#39;s demand, the guaranteed availability has a great deal of value to customer 2 and ... the buyer something analogous to a call option.33 The advance purchase discount offered by airlines is a canonical example. One can buy at a low price ifone forgoes the flexibility ofbeing able to change the arrival and departure dates. ... wishes to guarantee the reservation, and $175 a night if the hotel is allowed to cancel the reservation with 24 hoursa#39; notice.

Title:Principles of Pricing
Author:Rakesh Vohra, Lakshman Krishnamurthi
Publisher:Cambridge University Press - 2012-03-05


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