Neil Harris on Game Design & Business Models. Pricing to the demand curve. Many college microeconomics courses include the following exercise.
The teacher offers the students an imaginary trip to Hawaii, and asks them to write down on notecards how much they are willing to pay for the trip. The teacher takes the notecards and graphs the bids. Here’s how the graph might look: The y-axis is the students’ “willingness-to-pay” and the x-axis is the students sorted from highest to lowest bids. The line is known as the demand curve.
Now imagine you’re the company selling these trips. Your total revenue and (assuming zero marginal cost) profit will be the area of the green square (revenue times quantity). Notice the sections under the curve to the right and above the green box. After you have chosen the right price, the only way to make the area under the curve greener is to charge different customers different prices.
So the goal of pricing is to capture as much area under the demand curve as possible. Sometimes, the search for pricing proxies can lead to absurdity. Use Pricing Strategy to Boost Sales - Rafi Mohammed. By Rafi Mohammed | 10:00 AM July 2, 2012 What’s the fastest way to profitably sell more of whatever it is your company sells?
I argue that it’s better pricing. Think about how your company sets prices: Are you confident that your prices capture the value of your products and services? When I ask managers this question, most respond with a chagrined: “Not very confident.” Panera's experiment in human nature: Let customers decide what to pay. Panera Bread launched a new breed of business to attack the growing epidemic of food insecurity in America.
The result is Panera Cares—cafes where people eat tasty, nutritious food in an uplifting environment and pay whatever they can afford. There's a full Panera menu, but no prices. The guest, not Panera, sets the price. And yet, each community cafe is self-sustaining. Panera Cares, in partnership with our communities, aims to raise the level of awareness about food insecurity in this country. Context Panera Bread Company owns and franchises 1,562 bakery-cafes in 40 states and Canada. Panera has been among the single best performing restaurant stocks when measured over the past decade. Triggers Much of Panera's success comes from utilizing the principles that others call conscious capitalism. This article was originally posted on the Management Innovation eXchange (MIX), an open innovation project aimed at reinventing management for the 21st century. Key Innovations and Timeline Lessons.