Comprehensive Price Change Model

Abstract

The main objective of this research is to formulate a new theory that comprehends the various types of price change strategies from the short-term to the long-term. In general, the theory of price in the field of marketing deals with pricing of new products/services and price changes of existing products/services. The analysis of price changes, however, has been limited to instant tactics, price cutting and rising in the short-term. Consequently, there has been no integrated theory of price changes. In order to overcome this limitation and to break through such theoretical circumstances, this research applies the prospect theory and identifies the short- and middle-term price change strategies at the first step. Furthermore, at the next step, the higher-pricing and lower-pricing (in other words, “selling at the market plus” and “selling at the market minus” in the context of a traditional marketing theory) that companies should achieve through long-time brand strategies or structural cost advantages are determined as a higher dimension of price change strategies respectively. Through these steps, the comprehensive price change model (CPCM) is derived by adopting two dimensions, “variations of the difference between the reservation price and the selling price (ΔPr−ΔPs)” and “variations of the average cost (ΔC)”. CPCM can divide several types of price increases and reductions into four quadrants and identify eight types of long-term price change strategies and four types of short-/middle-term price change tactics, of which the examples and characteristics are also explained in this research.

Keywords

• price change
• prospect theory
• comprehensive price change model
• higher pricing
• lower pricing