|M.Sc Student||Osherov Amos|
|Subject||Effective Pricing Strategy and Diffusion Process of Primary|
and Contingent Products
|Department||Department of Industrial Engineering and Management||Supervisor||Professor Paul Feigin|
Contingent products are products that must be used with another primary product such as DVD machines and DVD titles, mobile phone handsets and phonecalls. When introducing new products, the price of the primary product can influence the adoption of the contingent product and vice versa. In this situation, the question is, “Which pricing strategy should be used to set prices on the primary and contingent products in order to maximize the profits of the total product mix?”. In this research we examine the effective pricing strategy for a marketer of both a primary and a contingent products. Penetration pricing strategies, under which the marketer starts with low a price and then raises it, or starting with a high price that decreases (“skimming” strategies). The research include two major stages: First, we develop a simulation modeling capability using Stochastic Cellular Automata in order to study the evolution of a market for contingent products and the profit impact of different pricing strategies. The model can be use as a decision support tool in identifying the effective pricing strategy under specific conditions and the resultant sales and profit from each product during the diffusion process. In the second stage we develop a general model which provides guidelines for developing pricing strategies for primary and contingent products and describes the relative contribution of the primary and contingent products to the overall profitability of the product mix. Using classification trees we study the effect of different model parameters such as the effects of advertising and word-of-mouth on the effective pricing strategies.