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How to create profitable pricing | CMO Australia

How do we price goods and services? As business leaders, we have asked ourselves this question since the history of trading.

Today, many companies employ people to analyse a multitude of data to determine the best pricing approaches to take. But how successful are these approaches really, and how do we know whether we are leaving money on the table?

The problem with econometric pricing 

Econometric pricing models work by looking at fluctuations in historical data in terms of sales and pricing of products and services, to determine their price elasticity. This model takes into account both changes in products’ pricing and competitor’s changes in price. So far, so good.

However, digging a little further into the data used to provide this analysis shows us why this model is flawed in specific situations.

Imagine a scenario where all prices rise by the same relative level. The econometric model will say that if the price of products within a category all rise by the same degree, then sales volumes will remain constant for those products. However, this is clearly not the case. If spending power decreases, or remains constant, and prices increase, this can create a situation where lower priced products win more disproportionately than what these models show, which can have implications on future price changes.

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How to create profitable pricing – Customer credentials – CMO Australia.

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