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© 2009 Scott Davis and Strategic Marketing Decisions. Any distribution or other commercial use of the contents of this article is prohibited unless written permission is obtained from Scott Davis and Strategic Marketing Decisions.

What is Reactor™?

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Reactor™ is a market simulator developed by Strategic Marketing Decisions to help product managers and pricing decision-makers make better pricing and product line decisions. It uses cutting edge market modeling techniques to forecast the impact of different pricing policies on key performance metrics such as unit sales, market share, revenues and profits by systematically using a combination of customer research, market data and managerial judgment.

Reactor™ also helps product managers develop and test various competitive pricing hypotheses making it possible to reliably predict how competitors will react to price and market changes. This capability enables better forecasts of the long run impacts of changes in prices or other market variables and helps avoid unnecessary price wars. This methodology is superior to "what if" analyses by developing predictions of competitors’ responses and the resulting consequences, rather than simply asking what would happen if a competitor were to respond in a particular way.

What Makes Reactor™ Unique?

Reactor™ is superior to traditional preference based market models by 1) specifically accounting for the customer’s choice and purchase decision processes and 2) going beyond traditional “what if” analysis by predicting competitor responses to changes in prices and market conditions.

Advanced Customer Choice and Demand Modeling

Traditional preference-driven choice and demand models omit a number of factors that influence a customer’s product choice in the real world. As a result, these models often do not fit actual market data well and provide biased estimates of how demand responds to changes in market conditions. Reactor™ addresses the following issues by eliminating biased demand predictions that exist in traditional market models:

  • How a customer’s product choices are impacted by their choice of resellers and the variations in product availability and pricing across resellers,
  • The impact of perceptions of marketing activities such as advertising, sales and service on brand evaluations and purchase likelihood,
  • The impact of customer-specific pricing policies (such as quantity or discounts offered exclusively to customers satisfying specific criteria), and
  • Psychological factors that influence customer choice processes.

Competitor Response Modeling

Reliably predicting competitor price responses is critical for developing a successful pricing policy in competitive markets. Reactor™ improves predictions about competitor reactions by making it possible to systematically formulate and test hypotheses about competitor behavior. Thus, Reactor™ goes beyond “what if” analyses, which consider what might happen, by enabling a systematic analyses based on what is likely to happen.

Reactor™ automatically generates prices for competitors based on the user’s selection from a variety of price decision rules. Prices may be set to maximize an objective that includes a weighted combination of profit, sales, revenues and share or may be based on a decision heuristic such as cost-plus pricing or matching the price of a competitor. The prices that Reactor™ generates for each of the tested rules can be compared with actual competitive pricing behavior to assess how well they predict actual competitive price responses.

Reactor™ is a useful tool in role-playing exercises. The user assumes the role of any or all competitors and implements prices according to the decision rules that Reactor™ calculates or chooses another set of prices based on his or her beliefs of how the competitor will respond.

Is Reactor™ Right for My Business?

Pricing decision-makers in variety of industries can use the Reactor™ simulator. It provides the greatest value in competitive industries characterized by either stable demand or predictable growth or decline in one or more segments. Reactor™ can model firms that offer multiple products and services that are sold directly to customers, through intermediaries or both. This capability allows predictions of the impact of a change in the price of one of a company's products on the sales of both the remainder of its product line and the competitors' products offerings.

Reactor™ also offers the capability of adjusting the one or more competitors' product offerings by either changing product attributes or adding or dropping products.

In addition, Reactor™ accounts for the fact that various customers may face different sets of alternatives and prices. Firms may offer different products for sale directly or through different resellers implying that a customer's choice set may be influenced by the vendors they use. Customers may also receive different price offers based on volume, revenue or other customer characteristics. Reactor™ captures those effects.

Reactor™ is the leading advanced tool for developing a pricing policy in a variety of industries including:

  • Medical supplies and equipment
  • Telecommunication services
  • Computer software and services
  • Consumer packaged goods
  • Financial services
  • Consumer durable goods
  • Production equipment, parts or inputs
  • Business services
    among many others.

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