Product design in price-competitive markets: A case study of a skin moisturizing lotion

In this article, we apply a recently developed method for product design to the formulation of skin lotions and extend its application to consider price-competitive markets. The method is based on the use of consumer preference functions that are in turn parameters of price-demand relations. These relationships are then embedded in a business model that aims at determining the optimal lotion formulation from the profitability point of view. The model allows to distinguish the formulation that leads to the consumer most preferred skin lotion from the most profitably one in a quantitative fashion. In the latter case, the selling price is also determined simultaneously with the optimal formulation. The example analyzed shows that the consumer most preferred lotion is not profitable, whereas a slightly less preferred lotion is very profitable. We then extend the new product design procedure to consider a competitive environment in which prices of all competitors, change dynamically until equilibrium is established. (C) 2010 American Institute of Chemical Engineers AIChE J, 57: 160-177, 2011