20. GABOR–GRANGER PRICING METHOD

OBJECTIVE

Define the optimal price range for a product or service.

DESCRIPTION

This method is useful in taking general pricing decisions. Data are collected through surveys in which each respondent is asked about his intention to purchase and shown several prices that move up or down depending on the previous answers. Alternatively, prices can be shown randomly or in a fixed series. The highest price at which a respondent reports that he would buy is considered to be his WTP. Once we have a specific price limit (WTP) for each interviewee, we can draw an accumulated demand curve.

Gabor–Granger Pricing Method

Since we have the information about demand and WTP available, we can calculate the revenue curve in the graph and establish the optimal price at which revenues are maximized.


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