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Prices

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.

 

Test 1 - Scenario 12C1 - Product 1 (EU)

Effect of price changes on sales is practically independent from average prices in the group. Vertically - relative change on sales compared with the previous period. Horizontally - absolute value of the price. All points lie on trend line. Dependence is not strictly directly proportional, because elasticity slightly decreases while price increases.

If you do not take in calculation extreme points, for convenience of calculation we can assume that elasticity as directly proportional.

 

Test 2 - Scenario 12C1 - Product 3 (EU)

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

 

Test 3 - Scenario 12C3 - Product 1 (EU)

Price elasticity for scenario 12C3 is very different from scenario 12C1. Points still lie on trend, which indicates that there is no significant influence of the competitors in the group.

 

Test 4 - Scenario 12C3 - Product 1 (EU and Nafta)

Price elasticity for Product 1 in both markets EU and Nafta looks equal, coefficient is -0.0177. Price elasticity for Products 2 and 3 have a slight difference, so we can assume that elasticity in EU and Nafta on scenario 12C3 are the same.

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.

 

Dependence of price elasticity on market load

With total shares of companies increasing in the group to 100%, price elasticity decreases proportionally to 0%. Total shares in current period affect on price elasticity in current period. To forecast sales properly you should plan market load. That means each period is necessary to recalculate the price elasticity while you forecast market load.

 

Hints

  1. No residual effect
  2. Dependence directly proportional
  3. The effect is different in markets and products
  4. Price elasticity is directly proportional to market load

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