Analysing a Pricing Policy for a Home Centre: A Case Study

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DOI: 10.4236/jfrm.2014.31002    4,738 Downloads   8,599 Views  

ABSTRACT

One critical aspect of retailer category management is pricing the items in order to maximize total profits. To define an appropriate pricing policy, a retailer should evaluate how changes in prices of a set of items may impact their shelves or inter demands. In this setting, elasticities play a major role. In addition, a proper policy can be defined from different points of view. In this paper, estimation of a profit function and its maximization under different scenarios is used as a tool to analyze such policy. Estimation of this function is performed through a previous selection of items within a home center category. Then, an adequate AIDS model allowing calculation of elasticities is fitted. Moreover, a profit function is defined in terms of prices and demands. This functionis linearized for the following two purposes, to express it in terms of elasticities, and to maximize it more easily under the consideration of different sets of item prices defined in a convex set. Then, confidence intervals for the total and marginal profits were built to gather the randomness of demands. The results are applied to the selected items in a home center that behaves as a monopoly in the area.

Cite this paper

Maglione, D. & Diblasi, A. (2014). Analysing a Pricing Policy for a Home Centre: A Case Study. Journal of Financial Risk Management, 3, 9-18. doi: 10.4236/jfrm.2014.31002.

Conflicts of Interest

The authors declare no conflicts of interest.

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