This workflow introduces three other simple types of Markets, and compares:
- Monopoly Markets,
- Commodity Markets,
- Orthogonal Markets, and
- Semi-Orthogonal Markets.
A Commodity Market is where several Competitors all sell identical Products.
An Orthogonal Market is where the Products are in the same Category, and are competing for the same Customers, but the Products are otherwise unrelated. Orthogonal means “statistically independent“.
The Semi-Orthogonal Market contains Products that share some similar characteristics, but also have some unique differentiation. These types of Markets are the most common.
The WTP Matrix is a Normal Distribution with a Mean = 100 and Standard Deviation (SD) = 50.
Distribution Statistics include Min, Max, Mean, SD, Variance, Skewness, Kurtosis, Overall Sum, # Missing, Median, Count, and an automatically generated Histogram.
The Output Product Array has been filtered to just show the ‘No Sale’ Quantity (the number of Customers who do not buy the Monopoly Product). There are 8,398 ‘No Sale’ Customers in this Monopoly Market.
More precisely, the Market Simulation defines two Products with each Product made up of exactly the same Feature.
Products vs Features
There are actually two ‘Products’ in this Market, but each Product is made up of the identical ‘Feature’ called “Sprockets”. Price and Cost is the same.
Only the Feature Name is required to be defined. But the Customer Distribution Type, and Input Parameters could also have been defined here.
The ‘Product Generator’ node does not need to be configured. It knows what to do based upon the input tables. Note that the middle table (with the white triangle) is optional. Black triangles indicate required input tables.
The two Competitive Products (Spacely Sprockets and Cogswell Cogs) are now completely defined.
The ‘Profit Engine’ node predicts that 814 Customers buy Spacely Sprockets, while 788 Customers buy Cogswell Cogs. As these two Products are undifferentiated, we would expect a 50:50 split. But some randomization is used to settle tie-breaks.
If Spacely Sprockets were to lower Price, then they would win all Customers. But if they were to raise Price, then Cogswell Cogs would sell the cheaper Commodity Product, and Spacely Sprockets’ Market Share would fall to 0%.
The Quantity of Customers who do not purchase one of the two Commodity Products is 8,398. This is exactly the same as the number of ‘No Sale’ Customers from the Monopoly Market. This is the expected result as the two Products offer no differentiation and Prices remain the same.
The value Customers place on Products is called their Willingness To Pay (WTP). When their WTP for one Product is uncorrelated with their WTP for another Product, the two Products are said to be “orthogonal”.
The Willingness To Pay (WTP) Customers have for Spacely Sprockets is uncorrelated with the WTP they have for Cogswell Cogs.
The Linear Correlation node is configured to calculate the Correlation between the two Customer Distributions which define the Products.
As expected, there is virtually no correlation (0.005) between the WTP Customers have for Spacely Sprockets and the WTP Customers have for Cogswell Cogs.
Configure the Pie Chart to build Pie slices for each Product by aggregating the Quantity sold.
This Semi-Orthogonal Market again comprises of two Competitors. The two Products in the Market share a “Commodity Feature” but are each differentiated by their own “Orthogonal Feature”.
The “Commodity Feature” and the two “Orthogonal Features” can have their own Feature-Level Cost and Price. This Cost and Price will contribute to the overall Cost and Price of the Products.
The ‘Product Generator’ node aggregates the WTP Customers have for each of the Features …
More Customers buy a Product than in the Monopoly Market and the Commodity Market. But fewer Customers buy a Product than in the pure Orthogonal Market.
The Demand Curve is no longer a “winner take all” as it was with the Commodity Market. Competitors can now Price above Marginal Cost and be profitable.
The fewest number of Customers bought a Product in the Monopoly and Commodity Markets. The most number of Customers bought a Product in the Orthogonal Market.
The number of Customers who purchased a Product in the Semi-Orthogonal Market (yellow) is between the Orthogonal (green) and Commodity Markets (red / blue).