Business Definition for: demand-oriented pricing
demand-oriented pricing
method of establishing the price for a product
or service based on the level of demand; also called demandbased pricing. For example, sellers of compact discs charge a higher price for recordings that appeal to a broad market, such as those of Garth Brooks or Madonna, than they charge for recordings of classical music. The manufacturing cost of the product and the required gross profit margin are of secondary importance to demand in setting the price.
See also
elasticity
,
going-rate-pricing
,
demand
Related Terms:
degree to which supply or demand for a product or service will change as a result of a change in price. A price elasticity of 1.0, as demonstrated by actual sales history, means that demand (or sales) rises or falls in exact proportion to a decrease or increase in price. For example, if the price goes up 10%, sales go down 10%. Nonluxury items or services, such as emergency surgery in the extreme, have very little elasticity, because people will buy or pay for them regardless of cost.
establishing the price for a product or service based on prevalent market prices. This is most common with products that do not vary much from one supplier to another, like steel or fresh meat.
economic expression of desire, and ability to pay, for goods and services. Demand is neither need nor desire; the essence of demand is the willingness to exchange value (goods, labor, money) for varying amounts of goods or services, depending upon the price asked.
Referring Terms:
Copyright c 2000, 1994, 1987 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
