Demand Equations Which Include Product Attributes

Richard D. Teach

Abstract


This paper presents a demand model which combines the normal economic factors such as price and advertising with a set of physical attributes of products in establishing the market share allocations as well as the aggregate levels of demand for business simulations. The usual assumptions of demand equations used in simulations. multiple firms producing homogeneous products and selling to a single market. are expanded to a more realistic representation of an actual market place. Multiple market segments exist, each with their own preference mapping. Different products may have different acts of physical attributes. Each product has its own set of attributes which are determined by the management team of the firm producing the product In this model, buyers choose among alternative products, selecting from among those that best fit their needs and desires. If similar products are produced, the market cannibalizes one product for the other. If a product has only a few desirable characteristics, then the marker will largely reject it. The poorer the product, in the eyes of the buyer, the fewer sales. Marketing pressures from price, promotion and sales force efforts, affect demand but do not need to dominate the product attributes. The relative importance among the economic and product attributes can be controlled by the simulation administrator.

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