Revenues & Costs

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The simulator can report profits and revenues for products specified in market simulations.  Click Add... and four options appear, two for specifying costs (to the producer) and two for specifying prices (to the consumer).

 

Specifying Costs (to the Producer):

 

To compute profits, the simulator needs to know how much each product costs (to the producer) per unit.  You can specify per-attribute incremental costs, or conditional costs that depend on combinations of multiple attributes taken together.

 

Add per-attribute incremental costs for profit calculation...  This allows you to specify costs (to the producer) per separate attribute.  The total cost of a product (to the producer) is calculated by adding the costs of the separate attributes.  (You do not have to associate costs with every attribute.)

 

Add conditional costs for multiple attributes together...  This allows you to specify costs (to the producer) for combined attributes (such as brand x size combinations).  Use this if the costs for one attribute depend on the levels of a different attribute (a pricing dependency).

 

Specifying Prices (to the Consumer): (Only applies to product searches)

 

The price (or range of prices) you specify in the product specification grid will be used in product searches, unless you want to override (add to) the price by specifying prices per attribute in these tables.

 

Add per-attribute incremental prices... (Only applies to product searches)  This allows you to specify prices (to the consumer) per separate attribute to be used in product searches. When the simulator computes the price to use for a searched product, it adds the price it finds in the product specification grid to any prices it finds in the prices table.  (You do not have to associate prices with every attribute.)

 

Add conditional prices for multiple attributes together... (Only applies to product searches) This allows you to specify prices (to the consumer) for combined attributes (such as brand x size combinations) to be used in product searches.  Use this if the prices for one attribute depend on the levels of a different attribute.  When the simulator computes the price to use for a searched product, it adds the price it finds in the product specification grid to any prices it finds in the prices table.  

 

Why specify per-attribute incremental prices?  When conducting product search, the main reason to do this is to avoid trivial solutions where optimal products have all the best features at the lowest price.  If you associate incremental prices with attribute levels, then a searched product with enhanced features will be assigned a higher price that is computed by summing across the attribute pricing tables plus any base price you may have specified in the product specification grid.

 


Computing Revenues and Profits:

 

Total Revenues are calculated as Share x Market_Size_in_Units x Price .  

 

Profits are calculated by subtracting Total Cost from Total Revenues, where Total Cost is equal to Share x Market_Size_in_Units x Cost_per_Unit.

 

Page link: http://www.sawtoothsoftware.com/help/lighthouse-studio/manual/index.html?pricinginfowindow.html