Establishing a Price for a New Product Using the Law of Supply and Demand

Thomas Songer describes research as the acquisition of knowledge through reasoning, intuition, and use of appropriate methods. Scientific methods refer to a procedure involving systematic observation, measurement, experiment, formulation, testing, and modification of hypotheses. These methods are based on elements of empiricism, determinism, and skepticism. The best hypotheses lead to predictions that can be tested in various ways based on controlled experimental data. A proposed hypothesis may be refined, expanded or rejected and must be falsifiable for it to be meaningfully tested. Scientific method involves seven major steps which includes; selecting a question to examine, categorizing a hypothesis interrelated to the question, creating testable predictions in the hypothesis, scheming an test to answer hypothesis question, collecting data in experiment, determining results and assessing their validity, and determining whether the results support or refute the hypothesis. This paper intends to illustrate how scientific research methods can be applied in supporting decision making in the modern business world.

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Scientific methods are more about iterative than a top-down process. The researcher always has the chance to refine the accuracy of a research by altering the applied experimental method, in some cases restate their hypotheses or entirely redefine a research problem. There are various models of scientific inquiry. Classical inquiry model encompasses approximate and exact reasoning which can be described as abductive, deductive or inductive. Inductive approach associates evidence to existing theories and concept while deductive approach focuses on theories as implications of the nature of results and evidence gathered in a research. Abductive reasoning, on the other hand, is viewed to move back and forth in using induction to support theories and deductions to support evidence with theories.

The main difference between qualitative and quantitative research methods is that qualitative methods rely on written or spoken data while quantitative methods make use of statistical information to make logical conclusions. Qualitative methods are holistic in nature and normally approach the research problem in a subjective manner. The data used in qualitative methods is mostly verbal and purposively sampled. In qualitative context, hypotheses are generated and inquiries to the hypotheses are inductive and purpose oriented. Generally, qualitative methods can be considered exploratory and their fundamental aim is to develop an understanding of the subject matter under study.

On the contrary, quantitative methods are used to generate numerical facts through logical and statistical techniques. These methods approach the research problem objectively and are particularistic in nature. They employ measurable data which in most cases are randomly sampled. Hypotheses for quantitative methods are result-oriented and are tested on basis of available measurable numerical data. Research in this context makes use of structured procedures which includes surveys, research questionnaires, and direct observations. These procedures are aims at examining the relationship between cause and effect among declared variables and recommend a course of action.

According to Murdock (2017), facts gathered through quantitative research methods can be aid decision making in a business environment such as packaging, marketing, and advertising, assembly techniques, and finances. Financial analysts use return on investment techniques to determine the scale of profits that a given product is able to earn in relation to the amount of capital invested in producing it. By conducting a regression analysis, they are able to generate trends of product performance over defined periods of time and thus inform decisions on how much capital can be invested in any business line the firm may intend to venture into. The main intention of applying quantitative studies is to form a logical basis on which a business can manage risks and develop pools of investment.

The other aspect of the application of quantitative research methods in business can be observed in advertising and marketing field. Advertisers apply quantitative data in determining the number of people who view the certain advertisement, they also gather information regarding consumer attitudes and preferences from information on how consumers rates services and products in a distribution line. Marketers, on the other hand, use statistical data in determining the markets in which their products perform best and to categorize the characteristic of consumers who buy their products most. This information is relevant to businesses as it forms the basis on which sponsorships and campaigns are focussed and also outlines the strategies through which the company will position itself amongst the general market culture. Analysis of consumer attitudes and behavior facilitate decisions regarding needs associated with stocking and delivery.

In carrying out a research on establishing a price using the law of supply and demand, I would employ abductive reasoning in effecting a quantitative research method. Quantitative methods are structured and quantify a problem by way of generating data the can statistically quantify behaviors and any other defined variable. In this context, online surveys and systematic observations would be used to source data about pricing characteristics indicated by competitive products which already exist in the market and are similar or can be complimented for the intended new product. Relevant information would also focus on trends and other unique factors other than demand and supply that influence prices in various market segments.

With my research problem identified and focussed on how to establish a value for different merchandise exhausting the law of supply and demand, my null hypothesis would be; "demand and supply of a product are the only key determinants of its price". As stated earlier, an acceptable hypothesis must be falsifiable. Glazunov (2012) concurs with this argument when he states that science and mathematics models need to be consistent and falsifiable. To this effect, therefore, the alternate hypothesis for my selected research problem would be; "demand and supply of a product are not the only key determinants of its price".

For the purpose of testing the stated hypothesis, the practicability of the theory of supply and demand would be evaluated. According to this theory, instances of low supply and high demand of a product are considered to result to increase in its price while large supply and low demand of a product attribute low level of its price. Basically, this theory elaborates the effect posed by the availability of a product against the willingness of buyers to purchase the specific product on its prevailing market price. Statistics pertaining volume of sales and prevailing market prices of products that are similar and complementary to the new product for which a price is to be set shall be assessed in relation to the amounts of profits or losses reported over the same periods of time, for the selected products. The data that shall be so gathered will be used to develop the relationship between the prices, the demand implied by the number of sales, and the amounts of profit or losses which would indicate aspects of supply, and comparing them to the theoretical implications of demand and supply.

Other factors that would be considered in order to validate the hypothetical argument would involve investigating unique factors that can be affiliated with exemplary or underperformance of a given product. These factors would be indicated by characteristics like the cost of resources channeled towards activities like product branding and advertising, and unique product performance in a given market segment. Such factors would be possible indicators of other attributes like consumer behavior and preferences, and product awareness being influencing factors on product prices.

The other perspective along which the stated hypothesis would be tested is in economies of scale. This refers to the cost advantages that business gains due to its scale of operation. Competitive market players shall be assessed on basis of how big their firms are. The occurrence of big firms being able to offer competitive market prices shall be a basis to qualify the stated hypothesis because the articulated attempt of these firms to lower prices is intended to increase demand for their product which is in line with the law of demand and supply.

The consideration of using similar and complementary products for assessment of suitable price for a new product is based on the fact that during market penetration, a product is faced by the challenge of positioning itself in the existing market. This implies further challenge in form of competitive pricing a factor which the new product is most likely to consider as a strategy to making its presence in the market noticeable. This pricing mechanism is limited to availability of resources since the venture of such a product into the market is at its early stage. Evaluation of patterns in different market segments is based on the argument that consumer behavior is dynamic and some renowned brands have a likelihood of attracting the attention of a certain class of consumers. This could be an implication of dispute against the law of demand and supply because depending on market segments, there is the tendency of some consumers insisting on buying specific brands of products inconsiderate of availability of alternative cheaper products.

Conclusion

The results of this research would either support or refute the stated hypothesis on whether forces of supply and demand are the only key factors that determine the price of a product. Support for the hypothesis would mean that businesses would consider variables in demand and supply only to determine the price of their products. If the hypothesis ends up disputed, it would imply that businesses will be required to consider factors other than level demand and supply only, to determine prices for their products. The illustration described in this paper highlights the applicability of research methods in facilitating day to day decision making in business.

References

Glazunov, N.M. (2012). Foundations of Scientific Research. National Aviation University. Kiev, Ukraine.

Murdock, R. (2017). Applications for Quantitative Techniques in Business Decision Making. Bizfluent. Updated on September 26, 2017. Retrieved from www.bizfluent.com. Date retrieved; April 25, 2018