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Pricing Analytics: Session 6-Incorporating Complimentary Products
Pricing Analytics: Session 6-Incorporating Complimentary Products
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
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