Workflow Overview

This Building Blocks workflow introduces two more novel elements.

  1. Three Competitors: A third competitor has been added into the Market.
  2. Product Correlation: The means to set more granular correlations between Feature and Product Customer Distributions has been added.

The Building Block workflows have so far only touched lightly on the types of differentiation that Products can exhibit within a Market. In fact, only three types of Products have been described (see BB-103 Monopoly vs Commodity vs Orthogonal):

  1. Commodity Products
  2. Orthogonal Products
  3. Semi-Orthogonal Products

But, in fact, this is just the tip of the iceberg. These three types are rarely seen in real-world Markets.

In this workflow, we explore what happens when a third Product, positioned somewhere between the first two incumbent Products, is introduced into the Market.

This Building Blocks example assumes you have already downloaded the open-source KNIME analytics platform and installed the free Market Simulation (Community Edition) plugin. If not, start by returning to Getting Started.

Downloads

KNIME Workflow
Workflow Image

Competitive Story

Fans of The Jetsons will know that George Jetson works at Spacely Sprockets, though he often gets fired by his boss, Cosmo Spacely.

Our story begins after George Jetson gets fired for the last time, and George Jetson starts his own company. His product, Jetson Gears, is very similar to Spacely Sprockets (correlation = 0.9), but his years of industry experience also leads him to borrow the best concepts from Cogswell Cogs (correlation = 0.5).

Unfortunately George is dismayed to discover that, despite offering a Product which provides Customers with a level of value equal to that of the incumbents, he picks up the lowest Market Share.

Define Products

The list of the three Products in the Market can be defined in the Table Creator node.

Product Details

Products need to have a ‘Product’ name and a Price. An optional Cost field can be added to help a downstream Market Simulation node calculate the ‘Profit Maximizing Price’.

Correlations

The correlations between the Products can also be set in a Table Creator node.

Customer Distributions

The Product Correlations determine the correlation between each of the Customer Distributions within the WTP Matrix with respect to each other.

Horizontal Differentiation

Correlations determine the degree of Horizontal Differentiation between Products.

Configuration

The ‘Correlation Pairs To Matrix’ node does not need to be configured. It simply converts the list of correlation values into a Correlation Matrix.

Correlation Matrix

As Spacely Sprockets and Jetson Gears are highly correlated (0.9) they are said to have little Horizontal Differentiation. Jetson Gears has more Horizontal Differentiation with respect to Cogswell Cogs (correlation = 0.5). The two Products with the most Horizontal Differentiation are Spacely Sprockets and Cogswell Cogs (correlation = 0.2).

Matrix

The ‘Matrix Distributions’ node is more complicated than the ‘Customer Distributions’ node, but its job is the same: to generate Willingness To Pay (WTP) Customer Distributions for the Features and Products in a Market.

WTP Values

The ‘Matrix Distributions’ node can only generate Normal Distributions, but the output Customer Distributions are correlated in accordance to the Input Correlation Matrix.

Product Array

The Product Array lists the three input Products to the Matrix Distributions node.

WTP Matrix

The Matrix Distributions node generates a Willingness To Pay (WTP) value for each Customer with respect to each Product.

Profit Engine

The ‘Profit Engine’ node predicts which Customers will buy which Product from which Competitor.

Configuration

The Profit Engine is set up to calculate the Demand Curve for Jetson Gears.

Demand Curve

George Jetson needs to very sharply discount his Product to pick up Profitability and Market Share.

Results

Market Share

The Market Share of all three Competitors can be shown using a Pie Chart.

Color

The upstream ‘Color Manager’ is used to set the Color of each Product.

Quantity

The size of each pie-slice is determined by the Quantity of each Product sold.

Failure

The Jetson Gears Product picks up the smallest Market Share (24.3%) despite copying from both the incumbent Products.

Note that this Market Simulation takes no other factors into account, such as historic business relationships and Customer buying habits. The failure of George Jetson to win an equal Market Share is due entirely to the lack of Horizontal Differentiation in his Product.