Weighted Dynamic Corridor Price Optimization

Abstract

Small and medium-sized enterprises (SMEs) in the capital goods sector face persistent challenges in developing pricing strategies that effectively balance cost recovery, competitive positioning, and value realisation amidst dynamic market conditions. This study introduces the Weighted Dynamic Corridor Price Optimisation (WDCP) framework, a novel hybrid model combining cost-plus and value-based pricing methodologies within a flexible pricing corridor.

The WDCP model establishes a minimum price grounded in production costs and strategic objectives, while the maximum price reflects customer-perceived value, psychological pricing thresholds, and external market dynamics. Empirical surveys among SME decision-makers and simulation analyses validate the framework, demonstrating its ability to enhance profitability, mitigate risks of over- or under-pricing, and provide superior pricing flexibility. Key features such as fixed cost degression, non-linear optimisation, and dynamic adjustments enable the model to adapt seamlessly to fluctuating market conditions and strategic priorities, including profit maximisation, market penetration, and customer retention.

By addressing the limitations of traditional cost-plus and value-based approaches, the WDCP framework bridges the gap between simplicity and market responsiveness. It integrates economic, psychological, and strategic factors into a practical, actionable pricing tool tailored to the unique needs of SMEs. This innovative approach fosters sustainable competitive advantages by equipping SMEs with the capacity to respond proactively to evolving customer demands and volatile industrial markets.