Information on pricing

1. How to set a Price?
I. Identifying costs
II. Others variables
III. Price sentitivity
IV. Price Strategy

2. The different costs
OFixed cost : -Insurance, interest
expense, rent, salaries, …
OVariable cost : direct materials,
productions supplies like oil for machine,
comissions,…
OMixed cost : electricity, water, phone
bill,…
O Y=a+bx

3. Other variables
O The market
O The brand e.g. Apple
O The competitors e.g. Price leader or
price taker?
O The demand
O The desired profit  cost plus

4. Price Sensitivity
O How elastic the good or service is:
O Elastic products will be sensitive to a change
in price: price increase will cause revenue
decrease.
O Inelastic products are less sensitive to a
change in price: price increase will cause
revenue increase.

5. Price strategies
O Price Skimming
O Price Penetration
O Loss Leader
O Freemium

6. Questions
O 1. Variable cost are affect by:
a) The price of a service or a good produced by the business
b) The inflation on the stock market
c) The fixed cost
d) The number of orders of a business
O 2. Which of the following is an example of cost plus?
a) Fixed profit added to the cost of a product
b) Setting a high initial price for new product
c) Setting a low initial price for a new product
d) Selling product at or below the cost to produced them
O 3. If a good or a service is inelastic is it:
a) Sensitive to a change in price
b) Not sensitive to a change in price
c) Inferior good
d) All of the above

7. References
O Wasserman, E. (2010). How to Price Your Products.
Available: http://www.inc.com/guides/price-your-
products.html. Last accessed 1st Feb 2016.
O Christen, M. (2005). Cost Uncertainty Is Bliss: The Effect of
Competition on the Acquisition of Cost Information for
Pricing New Products . Management Science. 51, No 4,
668-676.
O Variable Costs and Fixed Costs. Available:
http://economics.fundamentalfinance.com/micro_costs.php.
Last accessed 1st Feb 2016.
O Dolgui. A, Proth. J, (2010). Pricing strategies and models.
Annual Reviews in Control. 34, issue 1, 101-110.
O Garratt. D, Sloman. J, Wride. A, (2012). Economics. 8th ed.
Essex: Pearson. 58-62.
O Deng. X, (2008). Internet and Network Economics. 2007
ed: Springer. 293-299.
O Liu. C, Au. Y, Choi. H (2014). Effects of Freemium Strategy
in the Mobile App Market: An Empirical Study of Google
Play. Journal of Management Information Systems. 31
issue 3, 326-354.