Abstract
When information regarding the effective evaluation of the value of exquisite products is lacking, the market demand function for such products at a given time point is affected by the diffusion of historical transaction price information before the time point. This is because historical transaction prices play an active role in influencing the internal reference price (IRP) of customers, and the continuous diffusion of historical transaction price information leads to the continuous correction, adjustment, and updating of customers’ IRPs. Given the varying rates of such information diffusion, the speed at which customers adjust their IRPs also varies across individuals and contexts. By considering the exponential distribution of potential customers’ IRPs as an example to establish the dynamic demand function that considers the effect of historical transaction prices, this paper discusses the effect of different information diffusion rates on the demand function at a time point. On the basis of this demand function, a sales price control model that maximizes the discounted profitability for businesses in the patent term of an exquisite product is then constructed to provide businesses with an operation method to cultivate prices and increase profits.
Highlights
Exquisite products, defined as high-quality products in this study, differ from common consumer products in that customers have increasingly high expectations of the quality of most consumer products, whereas they consider exquisite products to already be of high reference quality when they first use them
Theoretical research on expected reference price has its origin in the field of psychology; it was pointed out in [8] that according to the adaptation-level theory, customers respond to product sales price by comparing the sales price and the price level they are adapted to
The study results could help businesses determine the appropriate time to cultivate the price to set the customers’ reference price high and the appropriate time to offer discounts for a sell-out. To achieve these objectives of model development, this study (1) expressed the demand function at a time point in terms of historical prices at a given diffusion rate of historical transaction prices/historical sales prices; (2) determined the effect of different information diffusion rates on the demand function at a time point; and (3) based on the dynamic demand established according to points (1) and (2), established a sales price control model that maximized the discounted profit for exquisite products to provide businesses with an operation method for cultivating prices
Summary
Marketing events are subsequently held to prompt the potential customers to purchase the product, leading to a quick sell-out of the new product and thereby helping the business achieve its sales target [1]. Before making investments for adopting the price-cultivation practice, businesses must consider the constant updating of reference prices for such exquisite products in customers’ minds as well as supplier competition (competition between brands) and retailer competition (competition within brands) in the product market [2,3,4]. Example, businesses offer large discounts on their products on various occasions, such as during their anniversaries, on key shopping days (e.g., November and December), or in celebration of Taiwanese sports teams winning championships Such offers can help businesses achieve sales that would otherwise require an entire year to achieve within a short period of time of one week. The purpose of this study is to provide businesses with an operation method for cultivating prices and increase profits
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