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  • Pricing Analytics: Session 6-Incorporating Complimentary Products

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    Amit Thakur
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    The document discusses incorporating complementary products into pricing analytics by using historical data on common additional purchases to estimate demand curves for related products. It presents a method to fit a quadratic equation to three known data points on a demand curve in order to estimate demand across different prices and maximize profit. The document also describes how this approach can be scaled up using Solver Tables to efficiently price a large number of products.

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    The document discusses incorporating complementary products into pricing analytics by using historical data on common additional purchases to estimate demand curves for related products. It presents a method to fit a quadratic equation to three known data points on a demand curve in order to estimate demand across different prices and maximize profit. The document also describes how this approach can be scaled up using Solver Tables to efficiently price a large number of products.

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    12 views11 pages

    Pricing Analytics: Session 6-Incorporating Complimentary Products

    Uploaded by

    Amit Thakur
    The document discusses incorporating complementary products into pricing analytics by using historical data on common additional purchases to estimate demand curves for related products. It presents a method to fit a quadratic equation to three known data points on a demand curve in order to estimate demand across different prices and maximize profit. The document also describes how this approach can be scaled up using Solver Tables to efficiently price a large number of products.

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    of 11

    PRICING ANALYTICS

    Session 6-Incorporating Complimentary Products


    https://www.youtube.com/watch?v=KxMUE8igQ5
    Dr. Ajay Singh
    Department of Business Administration
    ABES Engineering College, Ghaziabad
    Incorporating Complementary Products

    Certain consumer product purchases frequently result in the purchase of related


    products, or complementary products.
    Table1-Examples of Complementary Product
    Original Purchase Tie-in Complementary Product
    Men’s suit Tie or shirt
    Inkjet printer Printer cartridge
    Xbox console Video game
    Cell phone Case
    Using Pricing subjectively to estimate
    Demand Curves
    Given these three points on the product’s demand curve, you can use the Microsoft
    Office Excel Trendline feature to fit a quadratic demand curve with the following
    formula

    Demand=a(price)2+b(price)+c------------------ Equation 1

    For any three specified points on the demand curve, values of a, b, and c exist that will
    make Equation 1 exactly fit the three specified points.
    Because Equation 1 fits three points on the demand curve, it seems reasonable to
    believe that the equation will give an accurate representation of demand for other
    prices.
    We can then use Equation 1 and Solver to maximize profit, which is given by the
    formula (price–unit cost)*demand. The following example shows how this process
    works
    Using Pricing subjectively to estimate
    Demand Curves
    • In situations when you don’t know the price elasticity for a product or don’t think
    you can rely on a linear or power demand curve

    • A good way to determine a product’s demand curve is to identify the lowest price
    and highest price that seem reasonable.

    • You can then try to estimate the product’s demand with the high price, the low
    price, and a price midway between the high and low prices.
    Worksheet-3a

    Let’s suppose that a drugstore pays $0.90 for each unit of lipstick it orders. The
    store is considering charging from $1.50 through $2.50 for a unit of lipstick.
    They think that at a price of $1.50, they will sell 60 units per week. (File
    Lipstickprice.xlsx.)
    At a price of $2.00, they think they will sell 51 units per week, and at a price of
    $2.50, 20 units per week. What price should they charge for lipstick?

    https://flylib.com/books/en/2.907.1.169/1/
    Worksheet-3b

    Suppose that you currently charge $5.00 for a razor and you sell 6 million razors.
    Assume that the variable cost to produce a razor is $2.00. Finally, suppose that the
    price elasticity of demand for razors is 2, and the demand curve is linear. What
    price should you charge for razors?
    Using Solver Table to Price Multiple Product

    The Approach developed to price a product in preceding section can be extended to


    enable company to easily price hundreds and thousands of products
    The only information required for each product is the unit cost, estimated demand for
    the lowest possible price , estimated demand for the intermediate price and estimated
    demand.
    Using Solver Table to Price Multiple Product

    After you have a Solver model in a worksheet, you can use SolverTable to “loop
    through” the values of one (in a One-way SolverTable) or two (in a Two-way
    SolverTable) inputs and track any wanted outputs.
    Examples of Mutiple Price
    Practice Exercise

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