Background Note | HBS Case Collection | July 2010 (Revised December 2011)

Marketing Analysis Toolkit: Pricing and Profitability Analysis

by Thomas J. Steenburgh and Jill Avery

Abstract

Pricing is one of the most difficult decisions marketers make and the one with the most direct and immediate impact on the firm's financial position. This toolkit will introduce the fundamental terminology and calculations associated with pricing and profitability analysis. Users will learn how to produce and interpret demand curves and calculate the price elasticity of demand. The concepts of revenue, costs, contribution margin, gross margin, and net income will be introduced to inform profitability analyses. Finally, retailer profitability metrics including retailer margin and penny profit are discussed. The note gives students a foundation for analyzing marketing cases, as well as providing an analytical structure and process for completing a marketing plan. The note is accompanied by a free Excel worksheet that contains sample problems; prebuilt Excel models to calculate demand curves, price elasticity, and profitability metrics for firms and their channel partners; and charts and graphs that help visualize the results.

Keywords: Forecasting and Prediction; Price; Profit; Management Analysis, Tools, and Techniques; Marketing Strategy; Demand and Consumers; Measurement and Metrics; Strategic Planning; Mathematical Methods; Retail Industry;

Citation:

Steenburgh, Thomas J., and Jill Avery. "Marketing Analysis Toolkit: Pricing and Profitability Analysis." Harvard Business School Background Note 511-028, July 2010. (Revised December 2011.)