Session 3- Willingness to Pay

Question 1

Shaping Willingness To Pay

Answer 1

customers will purchase iff. price < maximum wtp

leads to –> price response curve

Question 2

graphs

Answer 2

d(p)- quantity at each specific price (D * sum (w(x))
D = maximum possible demand * sum of frequencies
1. calculate D * sum (surface - frequencies to the right of 10$)
2. draw d(p) - quantity at each price (e.g demand at 10$ is 9000 bottles)
Wtp = price*frequency

Question 3

Example: Wtp (distribution demand)

Answer 3

fraction of population that would pay at $18 (d(p))

1. go to w(x= 18, 20,22) you have to sump up those who would pay a max. of 18 (20,22.. to infinity)
2. multiply by Demand (D)
3. d(P=8) = 0.15 * 10 000 = 1500 bottles at price 18

Question 4

d(p)

Answer 4

quantity a each specific price
Price Response Function
specifies demand, D, as a function of the Price, P
cumulative frequencies

Question 5

D

Answer 5

maximum possible Demand

applicable to all frequencies

Question 6

W(x)

Answer 6

willingness to pay at each specific price
which is represented by diff. price levels (x) &frequency (y)
e.x. w(8) = 0.1 –> 1 out of 100 customers would NOT pau more than 8$

Question 7

2-segment distribution

Answer 7

1. built diff. Demand Curves (recalculate total demand and its frequencies)
   a) D = sum of both needs to be the same as non-segmented
   D (each S) = sum frequency * D
   b) recalculate back frequency (f1/sum of all f. in new S.)

Question 8

profit optimisation

sgmentation

Answer 8

look if optimal price of each segment together > overall optimal price

Question 9

Gausch-distribution

Logistic Function

Answer 9

homogeneity
price discrimination
find optimal price for each segment
mean of distribution is more meaningful (normal distribution)
differential factor fo each group with meaningful average
(take one with highest profit)

Question 10

Price Optimisation

Answer 10

a) Traditional method
take derivative of profit function and equal to 0
b) alternative:
calculate profit at each price level and take highest one

Question 11

Profit Optimisation (price adjustments)

Answer 11

a) sometimes lowering prices will increase demand
b) other times it has a negative impact on profit
(by how much can you edce price such that you still have an optimal profit)

Question 12

Graph relationship

Answer 12

1. Willingness To Pay (w(x)) - 
price x frequency
2. Price-Response Curve (d(p))
given D demand
price x demand