2. Meaning
Rservation price is the value a
customer places on a product .It
Constitutes an Individuals maximum
willingness to pay.Percent Good value
represents the proportion of
customers who believe a product is a
good vlaue at a specific price.
3. Purpose
Reservation prices provide a basis for
estimating products demand functions
in a situation where other data are not
available. They also offer marketers
insight into pricing latitude. When it is
not convenient to ask customers about
their reservation prices, Percent good
value can provide a substitute for that
metric
4. Reservation Price-A price above which a
customer will not buy a product,Also
known as the maximum willingness to pay.
Percent Good value-The proportion of
customers who perceive a product to
represent a good value,that is to carry a
selling price at or below their reservation
price
5. A market consists of 11 individuals with
reservation prices for a given product of
Rs 30,Rs 40,Rs 50,Rs 60 Rs 70 Rs 80,Rs
90,Rs 100 ,Rs 110.Rs 120 and Rs
130.The manufacturer of that product
seeks to decide upon its price. The
variable cost to produce the product is Rs
60 per unit.
7. Price(Rs) % Good value quantity Total
Contribution
90 5
100 4
110 3
120 2
130 1
140 0
150 0
8. Linear Demand
The quantity –Price schedule formed
by an accumulation of reservation
prices can take a variety of
shapes.When the distribution of
reservation prices is uniform ,when the
reservation prices are equally spaced
as in the above stated example.
9. The linear demand curve defined by MWB
and MRP.
Maximum Reservation Price-The lowest
Price at which quantity demanded equals
0.
Maximum Willing to buy=The quantity
customers will buy when the price of a
product is zero.
Quantity(Q)
Price=P)
10. Erin knows that the demand for her soft
drink is a simple linear function of price
.She can sell 10 units at a price of zero.
When the price is Rs5 per unit ,demand
falls to zero.how many units will Erin sell if
the price is Rs Rs 3.
Q=MWBx[1-P/MRP]
=10x[1-3/5]
