(180f) Product Design: A Systematic Pricing Framework for Maximizing Company Profits

Authors: 
Fung, K. Y., Hong Kong University of Science and Technology
Chan, Y. C., The Hong Kong University of Science and Technology
Ng, K. M., Hong Kong University of Science and Technology
The importance of chemical product design has been well-recognized in the chemical engineering community. Many articles have been published to consider various aspects in product design, including material selection, product conceptualization, and process design to meet the desired product attributes. However, pricing strategy and pricing decisions receive little attention in the chemical engineering community. This is a serious omission as product pricing is important for a company to set the optimal price for getting a reasonable return and at the same time has a good market penetration.

A systematic pricing framework has been developed for pricing a chemical product. First, a pricing strategy is selected based on product characteristics, company strategy, and market situation. Market information and company data are collected next. The collected data are used to predict the parameters in a pricing model. For example, advertising data are used to estimate the product awareness in the market, whereas the consumer preference data between our product and the competing product is used to estimate whether the consumer will purchase our product or the competing product. With all these information, a relation between product price and product demand can be obtained from a pricing model. Finally, the optimal product price is obtained by maximizing the company’s profit. This framework is illustrated with an energy drinks example. With this framework, product design can be optimized not only from a technical perspective, but also from a consumer perspective and a business perspective.

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