Dobson, Gregory; Kalish, Shlomo
March 1988
Marketing Science;Spring88, Vol. 7 Issue 2, p107
Academic Journal
A central problem in marketing is: how should a firm position (reposition) and price a line of related (substitute) products in order to maximize profits (or welfare). We formulate this problem faced by a monopolist as a mathematical program, outline how to obtain market data from a sample of customers, discuss what cost data are relevant, and suggest a heuristic algorithm to solve the problem. The output of the process is a list of products to offer, their prices, and the customer segments which purchase each product. While traditional real world complexities, e.g., uncertainty about customer wants, product performance, and competitive response, are not modeled, we believe the system developed can serve as an important input into the decision process when new products are designed and priced. The methodology can be used as a part of a decision support system, where management specifies the number of products desired. The system suggests a few good solutions, together with the prices and customer segements served by each product. We use the standard assumption that the market is composed of different customer segments of various sizes, each containing homogeneous customers.


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