What price is best for my store?
There has been many debates on the subject. A well-known formula provided by VLLord some years ago:
[Formula X]
There has been worksheets based on this formula. Also, later a strange modified version has been suggested by some players (While previous formula seems to have some merits, the modified version seems to be based on some misconception):
[Formula Y]
What I noticed is that such formula do not take many other variables into consideration, for instance number of visitors, brand, intensity of competition, effect of district, ... The formula does not even provide a good guess to maximize the profit or sales volume or anything else, just a price that might work well. And with methods that allow analyzing the sales reports who needs to get into such details?
What I would like to propose as a better method is a dynamic elasticity test, that i have used for the last 3 months with excellent results. This method is based on usage of sales history to predict an optimum price to maximize profit. This method has nothing to do with any formula implemented in the game, just considers the dynamics of your store, restaurant, etc. Since it uses a dynamic study on the actual sales history, all variables mentioned earlier and those unknown to us are taken into consideration without even knowing how they affect our sales.
How To Use?
Using the worksheet might seem a bit tricky at first glance, but it's really simple. All you need to do is to edit 5 variables in green: sales volume and sales price at two different days and your prime cost (purchase value), and press the button "Calculate point of maximum profit". please do not modify texts in black.
You can see the result for one of my stores in the above picture:
day 1, Price has been set to $130.00 and 19,230 pieces has been sold.
day 2: Price has been set to $260.00 and 8,412 pieces has been sold.
I purchased that specific product into my store for $65.00
You can see Ed (price elasticity of demand) is shown according to different economic theories, but you can ignore them to avoid confusion initially. The predictions appear at the bottom:
Proposed Sales Price: $403.00
Estimated Sales Volume: 4,987
Please be informed:
1. The worksheet is sensitive to the samples you enter, please be cautious when you test your enterprise with different prices and enter some realistic input. Chose two real distant points, somewhere between 2 to 10 times local sellers price would be fine.
2. Please do not go crazy with very high and very low suggestions by worksheet. As you already know the far ends of any economic model is invalid. Such result usually is a sign that prime cost is either too high or too low.
3. Please notice that the worksheet does not work according to unit elasticity of demand (Ed=-1), and it is not also recommended to be there, since there is always some prime costs. if you put the prime cost to zero, then the result will be the unit point of elasticity. We heartless capitalists always want to shift to the far inelastic end of the curve, isn't it so?
4. You can use the calculated elasticity as a guide, and [arc] elasticity usually provides a better estimation to my experience. if the calculated Ed is lower than -1, it shows your customers are picky and you can't really opt for high prices. if the calculated elasticity is higher than -1 (i.e. -0.90) then your customers are willing to pay more for that product, and you can re-run the test with higher prices to get better results. and elasticity greater than 0 means that you have entered fake input.
5. To my experience the results are good, sometimes missed on stores, a few times it proposed real high prices that had no chance to work, but never missed for restaurants.
6. The results reflect the predictions for your retail enterprise at current state: current number of visitors, current level of competition, current quality of products sold, current brand, current city Av. salary, current district, etc. If there's a considerable change in one of these variables, i.e. there's new and serious competitor in town, you will need to run the test again.
Like always, this does not come with any guarantee. Hope it also works for you, and your suggestions, error reports, and new ideas are always welcome! I always considered this game to have some educational value, and if you correct my errors you have taught me something
Edit: worksheet has been modified slightly:
Curves now cover the whole range of data to provide a better view.
Some notes have been added. version 2.1
Pricing v2.1.
Sorry for delay. I wanted to improve the file but unfortunately no time.
Future programme: Proposing a new asset valuation system. I have downloaded some reading material, good at math but not educated in economics and there's a chance that I misinterpret the academic stuff. Anyone with education in that field is welcome to PM me and participate. We can create something together.
I'm on my phone. Turns out the issue was because I clicked the link causing a weird endless loop... I have it now however by right clicking/save link on the main page
Sadly the program on my phone doesn't do macros...