Product Line Pricing Considering Consumer Choice Behavior

Due to the increasingly fierce market competition and customer demand diversification,many companies develop product lines to meet the purchase demand of different consumers.Successful product line design can help companies to provide diversified products,expand market share,reduce development costs,increase sales profits,shape brand value,and enhance competitive advantage.However,in the complex and changeable market environment,company decision-making is affected by many factors.Moreover,the products in the product line have certain substitutability.These factors make it more difficult for companies to make pricing decisions on product line design.Price is one of the influencing factors for a company to achieve the optimal goal.It is an important embodiment of product value and can adjust the demand structure of customers.Therefore,product line pricing is an important decision-making in product line optimization.In addition,customers are important participants in market activities and are important carriers of product value realization.When faced with differentiated products,customers may choose to buy products in the product line or not.Therefore,it is crucial to consider the influence of consumer choice behavior on product line design.There are two kinds of models to simulate consumer choice behavior:deterministic choice model and probabilistic choice model.Probabilistic choice model is widely applied in marketing,transportation,operation management,and other fields because it better simulates consumer choice behavior.The multinomial logit(MNL)model is one of the most widely used probabilistic choice models due to its simple formula and good theoretical results.However,the MNL model has strong assumptions that irrelevant options are independent with each other(independence from irrelevant alternatives,IIA)and random error terms obey the Gumbel distribution.These assumptions are sometimes not satisfied in practice,so the application of MNL model is limited.Some other probabilistic choice models have also been developed and widely applied.Marginal distribution model(MDM)and Marginal moment model(MMM)can be applied by assuming that the distribution function or mean and variance of utility error terms are known.They has weak assumptions,especially for MMM,it does not require the error term to obey a specific distribution and it can overcome the ⅡA problem,so its applicability is more extensive.In this dissertation,the MNL,MDM,and MMM are respectively used to simulate consumer choice behavior.These models are applied to the product line pricing problem to study the correlation between the optimal decision and the influencing factors,and provide decision support for product line pricing.The main research and innovation of this dissertation are shown as follows:(1)On the basis of literature review,the research status of product line design,consumer choice model,robust optimization,and product network effect at home and abroad is summarized,the existing problems in the product line design are analyzed,and the necessity of this research is discussed.(2)Different from the traditional consumer choice models,which assume that the parameters are known accurately,this dissertation studies the product line optimization problem considering parameter uncertainty in the MNL model,and solves the maximin revenue through robust optimization.When one or multiple new products are developed,the solutions of the nominal model and the robust model are compared and analyzed.It is found that,compared with the nominal model,the optimal solution of the robust model is less affected by the parameter uncertainty and the robust model can obtain more stable optimal profit.Then the static and dynamic robust models are studied,and it is found that the dynamic robust model can better guide companies to determine relevant parameters and make better product line pricing strategy.(3)Because the application of the MNL model is sometimes limited,the optimization problems of product line design based on MDM and MMM with good applicability are studied.It is proved that under certain conditions,the profit function of product line pricing problem based on MDM is concave in market share,and it is found that when the utility error term obeys several common distribution functions,the profit functions are also concave.Considering the wider applicability of MMM,this dissertation focuses on the product line pricing based on MMM.In monopolistic and oligopolistic markets,the profit functions are proved to be concave in market share,and the solving equations of optimal price and market share are obtained,respectively.Finally,numerical experiments are carried out to analyze the variation of the optimal solution with different influencing factors.(4)With the rapid popularization of the Internet and e-commerce,many products exhibit network effects in varying degrees,that is,the utility a customer obtains from purchasing a product is affected by the sales volume of the same product or similar products.This dissertation takes network effect into account and studies product line pricing based on MMM.The solving equations of the optimal price and market share are obtained under different scenarios,including developing a new product,homogeneous products,and heterogeneous products.Through numerical experiments,the influence of different factors on the optimal solution is studied,the necessity of studying network effects is verified,and the robustness of the optimal solution is tested.(5)Many consumer choice models assume that the probability of a customer choosing a product is positive,even if the customer obtains negative utility,which is obviously inconsistent with reality.Therefore,the product line optimization problem based on MMM considering negative utility is studied.For the MMM,when the customer obtains negative utility,his probability of choosing this product is assumed to be 0.Through numerical experiments,it is found that the improved MMM obtains more realistic result than the MMM,and the changing trend of the optimal solutions with different influencing factors is analyzed.The above research results can not only enrich the theoretical system of product line pricing and product line optimization,but also have important practical significance for the development and design of product line,product pricing,and enterprise development strategy,and provide important decision reference for companies to make product competition strategy.