Modeling Price Cultivation for Major Quality Goods

Abstract

Quality goods are high-priced products. Consumers often wish to own them to satisfy their specific preference. During initiating periods, the pricing strategy of a firm is often based on prestige pricing. This study developed a model to optimize their profits through the price cultivation process. A modified Bass Diffusion Model is adopted by replacing accumulated sales with potential consumers who estimate the source of diffusion power. The distribution density function of ceiling price is used which consumers are willing to pay to estimate the purchase percentage among potential consumers and to forecast selling quantity. Finally, the present values of cash flows were calculated to determine the optimal price cultivation period. The study theoretically found that, with higher cost of capital, the small-and-medium enterprises would gain their optimal benefits through price cultivation marketing campaign. Whereas, with the lower cost of capital, the large-scale firms would not apply price-cut promotion to achieve their optimal profit.