Hoofdstuk 7
Elasticity of demand:
This concept states that different product categories will show different degrees
of sensitivity to price change. Shows a product where the quantity sold is affected
only slightly by price fluctuations, i.e. the demand is inelastic. Shows a product
where even a small difference in price leads to a very substantial shift in the
quantity demanded, i.e. the demand is elastic. The price elasticity of demand
concept implies that there is no basis for defining products as necessities or
luxuries. If a necessity is defined as something without which life cannot be
sustained, then its demand curve would be entirely inelastic: whatever the price
was, people would have to pay it. In practice, no such product exists.
Resources used for one purpose cannot, of course, be used for another: this is the
concept of the economic choice.
The main methods of pricing used by firms are cost-based, customer-based and
competition-based.
Cost-based methods are the least customer-orientated; two still used are costplus
pricing and mark-up pricing. Cost-plus pricing works by calculating the cost of
manufacturing the product, including distributed overhead costs and research
and development costs, then adding on a fixed percentage profit to this figure in
order to arrive at the price. Mark-up pricing is similar to cost-plus pricing, and is
the method used by most retailers. Typically, a retailer will buy in stock and add
on a fixed percentage to the bought-in price (a mark-up) in order to arrive at the
shelf price. Here the difference needs to be shown between a mark-up and a
margin. Mark-up is calculated on the price the retailer pays for the product;
margin is calculated on the price the retailer sells for. This method is identical to
the cost-plus method except for two factors: firstly, the retailer is usually in close
contact with the customers, and can therefore develop a good ‘feel’ for what
customers will be prepared to pay; and, secondly, retailers have ways of
disposing of unsold stock.
The various approaches to customer-based pricing do not necessarily mean
offering products at the lowest possible price, but they do take account of
customer needs and wants. Customary pricing is customer-orientated in that it
provides the customer with the product for the same price at which it has always
been offered.
Demand pricing is the most market-orientated method of pricing. Here, the
marketer begins by assessing what the demand will be for the product at
different price levels. This is usually done by asking the customers what they
might expect to pay for the product, and seeing how many choose each price
level. Product-line pricing means setting prices within linked product groups.
Often sales of one product will be directly linked to the sales of another, so that it
is possible to sell one item at a low price in order to make a greater profit on the
other one. Skimming is the practice of starting out with a high price for a product,
then reducing it progressively as sales level off. It relies on two main factors:
firstly that not all customers have the same perception of value for money, and
secondly that the company has a technological lead over the opposition which
can be maintained for long enough to satisfy the market .Psychological pricing
relies on emotional responses from the consumer. Higher prices are often used as
an indicator of quality, so some firms will use prestige pricing. Odd–even pricing
is the practice of ending prices with an odd number. Second-market discounting,
The brand is sold at one price in one market, and in a lower price in another
.Competitor-based pricing recognises the influence of competition in the
marketplace. Strategically, the marketer must decide how close the competition
is in providing for the consumers’ needs. A meet-the-competition strategy has
the advantage of avoiding price wars and stimulating competition in other areas
Elasticity of demand:
This concept states that different product categories will show different degrees
of sensitivity to price change. Shows a product where the quantity sold is affected
only slightly by price fluctuations, i.e. the demand is inelastic. Shows a product
where even a small difference in price leads to a very substantial shift in the
quantity demanded, i.e. the demand is elastic. The price elasticity of demand
concept implies that there is no basis for defining products as necessities or
luxuries. If a necessity is defined as something without which life cannot be
sustained, then its demand curve would be entirely inelastic: whatever the price
was, people would have to pay it. In practice, no such product exists.
Resources used for one purpose cannot, of course, be used for another: this is the
concept of the economic choice.
The main methods of pricing used by firms are cost-based, customer-based and
competition-based.
Cost-based methods are the least customer-orientated; two still used are costplus
pricing and mark-up pricing. Cost-plus pricing works by calculating the cost of
manufacturing the product, including distributed overhead costs and research
and development costs, then adding on a fixed percentage profit to this figure in
order to arrive at the price. Mark-up pricing is similar to cost-plus pricing, and is
the method used by most retailers. Typically, a retailer will buy in stock and add
on a fixed percentage to the bought-in price (a mark-up) in order to arrive at the
shelf price. Here the difference needs to be shown between a mark-up and a
margin. Mark-up is calculated on the price the retailer pays for the product;
margin is calculated on the price the retailer sells for. This method is identical to
the cost-plus method except for two factors: firstly, the retailer is usually in close
contact with the customers, and can therefore develop a good ‘feel’ for what
customers will be prepared to pay; and, secondly, retailers have ways of
disposing of unsold stock.
The various approaches to customer-based pricing do not necessarily mean
offering products at the lowest possible price, but they do take account of
customer needs and wants. Customary pricing is customer-orientated in that it
provides the customer with the product for the same price at which it has always
been offered.
Demand pricing is the most market-orientated method of pricing. Here, the
marketer begins by assessing what the demand will be for the product at
different price levels. This is usually done by asking the customers what they
might expect to pay for the product, and seeing how many choose each price
level. Product-line pricing means setting prices within linked product groups.
Often sales of one product will be directly linked to the sales of another, so that it
is possible to sell one item at a low price in order to make a greater profit on the
other one. Skimming is the practice of starting out with a high price for a product,
then reducing it progressively as sales level off. It relies on two main factors:
firstly that not all customers have the same perception of value for money, and
secondly that the company has a technological lead over the opposition which
can be maintained for long enough to satisfy the market .Psychological pricing
relies on emotional responses from the consumer. Higher prices are often used as
an indicator of quality, so some firms will use prestige pricing. Odd–even pricing
is the practice of ending prices with an odd number. Second-market discounting,
The brand is sold at one price in one market, and in a lower price in another
.Competitor-based pricing recognises the influence of competition in the
marketplace. Strategically, the marketer must decide how close the competition
is in providing for the consumers’ needs. A meet-the-competition strategy has
the advantage of avoiding price wars and stimulating competition in other areas
