Forecasting the Company Pricing Policy in a Particular Market
Economics and management
Science & Production Association “Spark”, 12, Pilotov St., Saint-Petersburg, 196210, Russia
The purpose of this work is to develop a price setting procedure based on conditions of total profit maximization.
Monitoring certain market characteristics viewed as a relationship of product demand to its price is taken as a basis of this study. The price setting procedure has been considered in a situation when a company cuts down its product costs as a result of improving its production process. A notion of profitability parameter depending on the profit rate is introduced as well as an equation of relative profit change depending on this parameter and relative changes in prices and product sales is derived. This equation defines how minimum gain in sales depends on a price cut provided that the company’s profit remains the same.
A market behavior characteristic in the form of at least two points in the coordinate plane is used to find a relative parameter of price reduction corresponding to maximum profit: relative price variance — relative change in sales. The data result from the analysis of answers given by a group of market experts or directly by the potential buyers of products. With two available reference points a second-degree polynomial is chosen as a market characteristic: an optimal price variance is found using standard methods for finding the maximum of a function.
Methods of analytical determination of an optimal product price if a real market characteristic is available.
The company management marketing policy in conditions of product cost reduction.
Keywords:increase in profits, product profitability, price forecasting, market analysis
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