More Realistic and Complex Pricing Flashcards
Cannibalizing is stealing sales
from a brand you already own
Common ownership of two substitute products reduces
marginal revenue on each product
After acquiring a substitute, raising prices on both but
raise price more on the more elastic (low-margin) product
When owning a complementary product consider
dropping prices on both
After acquiring a complementary product,
reduce prices on both products to increase profit
if MR > MC at capacity,
then price to fill available capacity
If promotional expenditures make demand more price elastic
then you should reduce price when you promote the product
Managing price expectations is as important
as managing price
Prospect theory implies that consumers are motivated not by price level, but
rather buy a comparison of the price level to the reference price
Integrate losses but
separate gains
If fixed costs are large relative to marginal costs,
capacity is fixed and MR > MC at capacity, then set price to fill capacity
If demand is hard to forecast and cost of underpricing are smaller than overpricing
then underprice on average
Psychological biases suggest framing price changes
as gains rather than losses
