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Decision: Long-Term Price Optimization

In: Price Management

Author

Listed:
  • Hermann Simon

    (Simon-Kucher & Partners Strategy and Marketing Consultants)

  • Martin Fassnacht

    (WHU – Otto Beisheim School of Management, Chair of Marketing and Commerce)

Abstract

Any company’s goal should be long-term—and not short-term—profit maximization. This goal is synonymous with the maximization of shareholder value. Up until now, we have not examined relationships across time periods. For long-term price optimization, it is necessary to take into account that the determinants of the optimal price can be dynamic—the goals, the price-response function, and the cost function. Competitive conditions also typically change over the life cycle of a product or market. In this chapter, we focus on how the effects of price changes, carryover effects, and the experience curve influence the optimal development of price. For the introductory phase of a product, we will examine two standard strategies—skimming and penetration strategy. We will then use several cases to demonstrate the differences between short-term and long-term optimal prices. The chapter will conclude with a qualitative perspective on price management and relationship marketing.

Suggested Citation

  • Hermann Simon & Martin Fassnacht, 2019. "Decision: Long-Term Price Optimization," Springer Books, in: Price Management, chapter 7, pages 259-297, Springer.
    • Handle: RePEc:spr:sprchp:978-3-319-99456-7_7
    DOI: 10.1007/978-3-319-99456-7_7
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