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Marketing Analysis Toolkit: Pricing and Profitability Analysis

This document introduces key concepts for pricing and profitability analysis in marketing. It discusses how price influences customer demand, with demand curves representing the relationship between price and quantity demanded. The slope of the demand curve shows how quantity demanded changes with price. Price elasticity helps marketers understand how responsive customer demand is to price changes along the demand curve, whether demands is elastic or inelastic.

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Shonali banerjee
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214 views1 page

Marketing Analysis Toolkit: Pricing and Profitability Analysis

This document introduces key concepts for pricing and profitability analysis in marketing. It discusses how price influences customer demand, with demand curves representing the relationship between price and quantity demanded. The slope of the demand curve shows how quantity demanded changes with price. Price elasticity helps marketers understand how responsive customer demand is to price changes along the demand curve, whether demands is elastic or inelastic.

Uploaded by

Shonali banerjee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Marketing Analysis Toolkit: Pricing and Profitability Analysis

Pricing is one of the most challenging issues marketers face, and it has the most direct and immediate
influence on a company's bottom line. The core concepts and computations connected with pricing
and profitability analysis are introduced in this marketing analysis toolbox.

For most items, the price influences whether buyers will purchase it; as the price rises, the quantity
wanted by customers decreases, and as the price decreases, the quantity demanded by customers
increases. A demand curve, which is linear in its most basic form, visually represents the connection
between price and demand.

Customers' likely purchase volumes at various prices are plotted on a demand curve. The following
formula is used to compute the slope of a linear demand curve:

Slope of the demand curve (m) = change in price


change in quantity
demanded
The price at which no client would buy a product because it is too expensive is indicated by the point
where the demand curve crosses the y-axis. This is the maximum price a client is willing to pay for a
product. The company will sell no units if they price the product at this level.

The greatest number of units the company can sell if the price is zero, or the largest amount clients are
ready to buy at any price, is where the demand curve crosses the x-axis. It's crucial to remember that a
demand curve is only a simulation of what would happen in the market at various prices, therefore we
should be more confident in its price projections.

Marketers need to understand how responsive, or elastic, customers’ demand for a product is
to a change in price at a certain point on the demand curve. The price elasticity of demand
ratio helps illuminate this:
Price Elasticity = Percentage change in quantity demanded
of Demand Percentage change in price
Inelastic demand curves have a steeper slope and are therefore more vertical than elastic
demand curves, indicating that the quantity demanded by consumers does not change
very much when the price is increased or decreased.
The following chart summarizes the range of elasticities that exist in the marketplace to
guide interpretation:

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