Analyzing price and product strategies with a comprehensive system dynamics model—A case study from the capital goods industry

Price reductions and/or product enhancements are widely seen as appropriate ways to increase market share. However, the key findings of this analysis demonstrate the opposite: decreases in price combined with product enhancements can lead to substantial loss in sales revenue and, ultimately, profit. The discussion draws on findings from a comprehensive system dynamics model, which has been developed in a major company in the capital goods industry. The purpose of this research is to analyze the price and product strategies in the capital goods industry. In the case company, testing intuitive beliefs with the help of a formal system dynamics model proved to be beneficial in the strategic decision-making process. The model had a significant impact on the case company, especially when challenging basic assumptions about mechanisms of markets and competition.