Optimal price changes with time.

The optimal price is a function of the price-sensitivity of the consumer demand and the cost to the business to deliver each additional item.

The life cycle of a product includes 4 stages.

  1. Introduction
  2. Growth
  3. Maturity
  4. Decline

At each stage the product appeals to a different set of customers. Their price-sensitivities can differ significantly.

Other time related factors that change price include:

  1. Seasons: Winter is better for fur coats and tire chains.
  2. Time of day: Restaurants and golf courses can adjust prices to reach a larger population.
  3. Ad campaigns: Ad campaigns affect the optimal price by changing consumer demand.

An optimal pricing strategy would modify price in response to changing consumer behaviour.

This is only possible with constant experimentation and price update.


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