Building a Market
Products compete in the Market for Customers. Each Product is associated with a Willingness To Pay (WTP) Customer Distribution. The WTP Customer Distributions contains data on how much each Customer in the Market would be willing to pay for each Product.
The Feature-related icons look like pieces of a jigsaw puzzle. That’s because you cannot sell a Feature in isolation – you need to collect together several Features in order to create a Product.
The Features are what differentiate each Product from one another. There are many forms of differentiation, but the most general are called “Vertical Differentiation” and “Horizontal Differentiation”. Vertical Differentiation are those aspects which make the Product “better”, while Horizontal Differentiation are those aspects which make the Product “unusual”.
An important part of Differentiation is whether or not Customers agree. Brands are an important way to differentiate Products because Customers disagree on the value each Brand provides. Correlation measures the degree of agreement or disagreement in the Market.
When manufacturers work to expand their Product line, they typically look to improve one or two Features of the existing Products. Manufacturers can either work to make the best Features available, or work to distinguish their Features to better satisfy certain Customer Demographics.
Manufacturers might identify several possible feature enhancements or business strategies that could possibly improve their sales. Market Simulation can test each to determine which strategy drives the greatest revenue and profitability.
Another common way for Sellers to differentiate their Products is by selling to Customers located around different geographies. Sellers can also differentiate with Time – making their service (such as a plane trip) available at more convenient times for certain demographics.
Competitors will often sell many similar Products in the same Market. These Products all compete for the same Customers, and cannibalization will occur when a Customer would have bought something more expensive from the same Seller. Market Simulation can identify better ways to improve a Seller’s overall sales after taking into account cannibalization.
The most important element of Market Simulation are the Customers. Each Customer will place a different value on each Feature, and will have a different Willingness To Pay (WTP) for the Products. Market Simulation can be used to predict how Customers will react when there is a change in the Market – such as a new Product or new Pricing.
Simulating a Market
Once your Market of Products and Customers has been defined, you can run a Market Simulation. The Market Simulation will predict Customer Behavior. The Simulation can also be run in a loop that compares the real-world market with the simulated market until the Market Simulation is tuned.
The Profit Engine automatically runs the Market Simulation many times around the current conditions. This will generate a Demand Curve comparing Price against Quantity sold. It will also allow the Seller to select the Profit Maximizing Price.
An “Invisible Hand” guides the real-world market, and helps Sellers and Customers balance supply and demand. Market Simulation is guided by a “Robotic Hand” which uses Artificial Intelligence (AI) to help Customers maximize their “Consumer Surplus” while helping Sellers maximize their Revenue and Profitability.