One of the most important decisions a marketer is called upon to make is the setting of price. In addition to strategic considerations (price is, after all, one of the four Ps), price should always be selected with an eye towards how price affects unit sales. One can get help negotiating the tradeoff between price and units sales by using a simple model of linear demand or by understanding price elasticity. Of course, our carefully constructed demand curves fly out the window if the competition drastically changes their prices. Although price premium is a metric that we can use to track how our prices are changing relative to a competitive benchmark, the real challenge is that pricing is a game or dance in which our fate depends, in part, on what our competitors do. These metrics and concepts here will help managers meet the pricing challenge.
