Confessions of the Pricing Man: How Price Affects Everything by Hermann Simon

Author:Hermann Simon
Language: eng
Format: mobi, epub
Publisher: Springer International Publishing
Published: 2015-10-19T14:00:00+00:00

Market-Based Price Setting

Managers can only avoid the disadvantages of cost-plus pricing or competitor -based pricing when they explicitly take the demand curve into account in their decision making. They can only find out what their profit-maximizing price s are if they know how customers will respond to specific price level s.

Let’s revisit our power tool manufacturer, but this time use a demand curve to figure out what prices will maximize the company’s revenue and profits. You will recall that the power tool division’s fixed costs are $30 million and the variable unit cost for each tool is $60. The empirically derived demand curve for the tool works out to:

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