1. Concepts of Revenue
Total Revenue = Price x Qty
Average Revenue = TR
Qty
Marginal Revenue = ∆TR
∆Q
TR = EMR
2. Demand for the product.
Meaning full surveys require
careful attention to each phase
of the process.
• Questions must be precisely
worded to avoid ambiguity.
• Survey sample must be properly
selected so that responses are
respresentative.
4. Steps
• Select a test market – several cities,
region or a sample of consumers
taken from a mailing list.
• Experiment may incorporate a
number of feature:
a)Evaluating consumer perceptions of
a new product.
5. b)Different prices for an existing
product may be set in various
cities to determine demand
elasticity.
c) Test of consumer reaction to a
new advertising campaign.
6. Conclusion
Market experiments have an
advantage over surveys in that they
reflect actual consumer behaviour.
However, there are risks involved.
a) In test market where prices are
increased consumers may switch to
products of competitors.
7. b) Result of some market experiments
can be influenced by bad weather,
changing economic conditions or
aacties of competitors.
c) Because most experiments are
relatively short during, consumers may
not be completely aware of pricing or
advertising changes. Thus, their
responses may understate the
probable impact of those changes.
8. Investment and Stock Markets
Economic theory suggests that rise and
falls in the stock market should bad
firms to change their rates of capital
investment in the same direction.
The relationship between stock price
and firm “investment in physical
capital in capture by the ‘Q theory of
investment’ by James Tobin.
9. Q Theory = Rate of investment in
any particular type of capital can
be predicated by looking at the
ratio of the capital’s market
value to its replacement cost.
Q = V
PKk
10. V = Stock Market value of a
firm
K = Amount of capital firm
owns
PK = Price of new capital
goods.
PKk
= Replacement cost of
firm’s capital stock.
11. Pricing Tactics & Strategies
• Cost oriented pricing.
• Competition oriented pricing
• Prices based upon other
economic considerations
12. Full Cost Pricing
P = AVC + AFC + Net profit
margin
The actual price charged by the
firm depends upon potential
competition and general
economic environment – Born vs
Depression
13. Marginal Cost Pricing
MC = AVC or Short down point
Incremental cost pricing or M
Cost pricing is a short run
phenomena
Rate of Return Pricing = A fixed
% mark up over cost.
14. • Profit as a fixed % of total sales.
• A fixed return on existing
investments
Competition oriented Pricing
Pricing and not cost are the
guiding principles.
Trade Association Pricing
15. Loss Leader Pricing
A loss leader is an item which
produces a less than customary
contribution or a negative
contribution but which is expected
to create profits on increased future
sales or sales of other items.
Administered Pricing
Dual Pricing
Differential Pricing
