Market-Adaptive Pricing
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The standard way to measure price elasticity for a product is by testing a different price and then measuring its impact. However, in practice, this can be difficult to do for a number of reasons, including:
- the reluctance by many pricers to change prices even for testing purposes, and
- the intervening influence of other non-price factors which can cloud test results, and so on.
Therefore a more practical alternative was developed for pricing service parts. After many years of doing competitive pricing research it was determined that elasticity can be inferred by its effect upon competing prices. When the market for a product is more price sensitive, there is a tendency for competing prices to be closer together; and when the market for a product is less price sensitive the reverse is true -- competing prices tend to vary more. In other words, the range of competing prices for a given product is inversely correlated with its elasticity; and, as such, competitive pricing surveys can be used as an alternative to price testing.
Bill Huyler and Associates developed the above and created a MAPS software widely used in the pricing of service parts for automobiles and high tech companies. MAPS, Market-Adaptive Pricing Software, is now used in Servigistics Pricing Management solution.
