I sell variations of an item on eBay. It is an unusual commodity which I purchase in bulk lengths and then cut to various sizes. They come in about 20 types, which I then sell as 10 different lengths, giving a total of 200 variations.
My goal is to determine what price I should charge for each, to maximise monthly profit.
The problem is I only make an average of one sale per day. I have no idea how I can establish a demand curve for the products, given such limited data. (Some variations I only get one sale per 18 months!)
What techniques could I use for this problem?
How could I go about establishing the most profitable price for each of the variations, with such limited information? (Given known costs).
The only clear idea I have is this:
- Treat all 200 variations as a single product, and vary all their prices simultaneously, to derive a single demand curve. So for example, one month I might set all prices to generate 10% profit on top of the costs, then next month, set all prices to generate 20% profit, and so on, and this way establish what price generates the highest monthly profit.
But the variations tend to have wildly different applications, as well as, I expect, alternative products that can satisfy the customers' requirements, and so on - so having a single demand curve could leave significant profits untapped.
The only other idea I have is to profile the demand curve for each item in a different way:
- For each product, take an example: one that only sells approx every 6 months on average: On each sale, if the time since the last sale was 6 months, I divide the total profit made on that item by 6 - or for a product that sold twice in one month, multiply by two. And then each time there is a sale I can some how establish the demand curve for it.
But the snag is for a product that sells infrequently, the demand curve could be static, but obviously this does not mean it would sell, say, once every 6 months like clockwork. So it could take years to establish a demand curve for that variation.
I'm wondering if I should entirely forget about the demand curve and concentrate instead on a marketing-oriented approach, for example:
- Surveys: (How I would phrase this I'm not sure - I doubt customers would tell me the maximum they'd pay!)
- Market research: plot graphs of how much other retailers/distributors charge for each variation. (Although I have seen very few indeed that sell small lengths such as those that I offer)