A customer’s reservation price is the maximum price that s/he is willing to pay for a product or service. From the seller’s perspective, the reservation price is the minimum price that the firm can negotiate. Because a customer will normally anticipate a lower price than a seller would prefer, the market will dictate an equilibrium price based on factors such as supply and demand.
Determining the proper reservation price is important for a firm working on a new profit formula within a business model innovation.
For more new product development and project management terms and definitions, please see the NPD Glossary.
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