ECON 208 Lecture Notes - Lecture 3: Continental Airlines, Root Mean Square, Experience Curve Effects

• School: McGill University
• Department: Economics (Arts)
• Course: ECON 208
• Professor: Paul Dickinson

Document Summary

Eco lecture (1) even slight improvements in pricing can yield signi cant results. 8% pro t margins, a 1% improvement in price realization, assuming a steady unit sales volume, would boost the companys pro ts by 12. 5%. By contrast, decreasing xed costs by 1% would only lead to an increase in pro ts of 4%: continental airlines had 44 million passengers in 2001, at an average ticket price of . Charging , or 1. 04%, more per ticket would have transformed a loss into a pro t. (2) 80% of managers know how much it costs to produce their product. 23%say they know their customers" willingness to pay for the product. (3) 41% of rms have identi ed their inability to recruit employees with the right pricing tool sets as their major barrier to implementing pricing prac(cid:173)tice overhauls. Typically an introductory marketing class teaches that any pricing strategy should re ect the 3 cs" of pricing: costs, customer, competition.