Pricing Strategies And Elasticity
Price is not a profit margin added on top of the product's cost; it is the mathematical reflection of the perceived value the customer attributes to that product.
Pricing is the strategic decision that most quickly and directly affects a company's profitability. While classic approaches determine the price based on cost (cost-plus), value-based pricing centers on the customer's perception. When introducing a new product to the market, a choice must be made between reaching a small number of customers with a high price (Skimming) or rapidly capturing market share with a low price (Penetration).
Price Elasticity is a sensitivity indicator that measures how a change in price affects the quantity demanded. If the product is an essential need or has unique value, a price increase does not lower demand (Inelastic). However, if the product can be easily substituted, a small price increase quickly drives the customer to competitors (Elastic). Therefore, correct pricing is the art of testing the boundaries of elasticity.
