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Analysis: The Economics of Price

In: Price Management

Author

Listed:
  • Hermann Simon

    (Simon-Kucher & Partners Strategy and Marketing Consultants)

  • Martin Fassnacht

    (WHU – Otto Beisheim School of Management, Chair of Marketing and Commerce)

Abstract

Value-to-customer, costs, and competing offers are the economic determinants of price. This chapter will examine these three determinants and their interrelationships. Viewed in isolation, costs only represent the lower limit for price. The most important determining factor for the price is value-to-customer, from which we derive customers’ willingness to pay, the price-response function, and the price elasticity. The offers and the prices of competitors typically also influence the sales volume of a product. The primary focus of this chapter is the understanding and explication of price’s effects on volume. The applicable methods—expert judgment, customer surveys, experiments, and market observations—will be explored in depth and illustrated by cases from practice.

Suggested Citation

  • Hermann Simon & Martin Fassnacht, 2019. "Analysis: The Economics of Price," Springer Books, in: Price Management, chapter 3, pages 85-142, Springer.
    • Handle: RePEc:spr:sprchp:978-3-319-99456-7_3
    DOI: 10.1007/978-3-319-99456-7_3
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