Ph.D. in Economics, Associate
Professor Kalashnikova T.V.
National Research Tomsk
Polytechnic University, Russia
The synthesis of the demand-oriented pricing method with the parametric
method
The purpose of this research is the development of
models combining the demand-oriented pricing method with the parametric method.
First, the basic range of «profitable» price changes
is needed to be calculated with the use of price elasticity coefficients. The
establishment of the price in that range leads to the growth of the target figure
(turnover or gross margin) relative to the level corresponding to the last
price used in the analysis. Then the final price is determined with the help of
parameters of the additive nature.
Legend:
– price elasticity coefficient, 
– consumer price, 
– purchasing price.
The turnover of specific goods can be increased:
1) if 
, boosting the price by Y%, 
;
2)if 
, lowering the price by Y%, 
;
3)if 
– the price is optimal.
The gross margin of specific goods can be increased:
1) if 
, enhancing the price by Y%, 
;
2) if 
, cutting the price by Y%, 
;
3) if 
– the price is optimal.
The
selected parameters of points of sales:
1. The number of
competitors in a given radius of the shop (it is recommended to use a radius in
the range of 500-1000 m) 
.
In
general, the more competitors, the lower the price will be established.
2. The number of
checks 
.
The more the quantity of checks, the higher the price will be fixed.
Statistics of the number by quarters are used. It is necessary to determine the
minimum and maximum values among all points of sales.
3. The
average check 
.
Data of
average checks by quarters are also used.
The
same integer scale with an odd number of divisions 
is needed to be selected for the
first three parameters. The minimum value
of the scale is taken as the zero.
The
scale for the parameter «number of competitors»:
«0» – 
and more competitors;
«1» – 
competitors;
«2» – 
competitors;
…
«n-2» – 
competitors;
«n-1» – 
competitors,
where 
– a set numbers of competitors.
The
scale for the parameter «number of checks»:
«0» – quantity of checks for the last quarter 
;
«1» – quantity of checks 
;
«2» – quantity of checks 
;
…
«n-2» – quantity of
checks 
;
«n-1» – quantity of
checks 
,
where 
– minimum number of
checks for a quarter among all points of sales, 
– maximum number of
checks for a quarter, 
.
The
scale for the parameter «average check»:
«0» – value
of the average check for the last quarter 
;
«1» – value of the
average check 
;
«2» – value of the
average check 
;
…
«n-2» –
value of the average check 
;
«n-1» –
value of the average check 
,
ãäå 
– minimum value of
the average check for the a quarter among all points of sales, $; 
– maximum value of
the average check, $; 
.
All three parameters are supposed to complement each other.
So, the total parameter of a point of sales is defined as a sum of its
individual parameters:
,
where 
– parameter «number of
competitors», 
– parameter « number of checks»,
– parameter «average check».
If three integer scales have n divisions, and the minimum value is 0, the number of steps of the
scale of the general parameter 
is defined as 
.
The corridor of «profitable» price changes for a whole
price group, found with the use of a price elasticity coefficient, should be
divided into several equal ranges, contact with one of which depends on the
value of the total parameter of the outlet. The quantity
of bands is 
.
So as dependence functions of change of turnover and
gross margin from price elasticity of demand have the parabolic character and
the negative coefficient a, the
optimal price lies in the middle of the price corridor found with the help of
the elasticity.
The upper and lower limits of the range are determined
depending on the total parameter of a point of sales 
:
where 
– lower border of the range, $; 
– upper border of the range, $; 
– the total parameter of a point
of sales, 
– upper border of the corridor
of «profitable» prices, $; 
– lower border of the corridor
of «profitable» prices, $.
· If 
(that is upon conditions of
working points of sales, which are considered to be optimal) the optimal price
of a point of sales coincides with the optimal price of the corresponding price
group and lies in the middle of the corridor; 
;
· if 
optimal price – the upper limit
of the corridor;
· if 
optimal price – the lower limit
of the corridor.
So, the pricing models, which allow determining a
consumer price in the range of «profitable» prices taking into account
individual characteristics of points of sales finally, have been developed.
References
1. Martijn Brons, Peter Nijkamp, Eric Pels, Piet Rietveld. A meta-analysis
of the price elasticity. A
system of equations approach // Tinbergen Institute Discussion Paper. – 2006. –
¹106/3.
2. Joseph G. Eisenhauer, Kristine E. Principe. Price knowledge and
elasticity// Journal of Empirical Generalisations in Marketing Science. – 2009.
– Vol 12, ¹2. – P. 24-35.
3. Paul B. Ellickson, Sanjog Misra. Supermarket pricing strategies //
Marketing Science. – 2008. – Vol 27, ¹5. – P. 811-828.