Demand factor - Prices

17.02.2015

Prices - one of the easiest ways to regulate sales of products. Price changes do not have big residual effect on sales. After returning to the original value of the price, sales restore to its original level (other things being equal).

 

Elasticity of demand from prices in 1 period

Vertically - relative change on sales compared with the test company. Horizontally - absolute value of the price. Dependence of demand on price is represented by a power function, but for a narrow range of values, dependence of demand on price can be expressed as a linear function for simplicity.

Elasticity of prices is different for each market and product type.

 

Optimal strategy is setting prices according to the required load and production plan. Prices are not a stimulating factor for demand in pure form and should be used for balancing production.

 

Elasticity of demand from occupied market share

With total shares of companies increasing in the group to 100%, price elasticity decreases proportionally to 0%. Total shares in current period presumably affect on price elasticity in current period. To forecast demand, you need to correctly plan total occupied market share. Each period it is necessary to recalculate elasticity of demand from prices according to the forecast.

 

Hints

  1. There is practically no residual effect on demand from the price
  2. Dependence of demand on price is expressed by a power function
  3. Effect on demand from price is different for markets and products
  4. Dependence of demand on price is influenced by competitors in the group

 

Automatic demand forecast based on prices built into the Calculation model, which can be purchased in our store.