Business modeling to simulation is often viewed as an approach that is limited solely to “academic” analysis with little real-world usefulness.  The potential of modeling to simulation in business, however, can extend well into actual daily use across an enterprise with powerful results.

A Real-World Problem

An international firm was introducing a new turnkey subscription-based training program that included hardware, software, and educational content.  The program involved certain one-time fees and ongoing subscriptions with price adjustment based on quantity, type, and term of the contract.

The product would be sold by the independent sales teams across three separate businesses and around the World. Project executives mandated that sales personnel must provide a preliminary quotation to the customer in the field that was reliably consistent across all sales representatives and would ensure an acceptable profit.

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Pricing decisions may be straightforward if they can be based on reliable market information such as competitive pricing and your known costs. Often, however, decisions are complex due to uncertainty. In these cases of uncertainty, methods that embrace uncertainty to better estimate results (e.g. the Monte Carlo method) can be employed as discussed in the real-world example below.

A Real-World Problem

Leadership mandated an after-sale support program that would help ensure high product reliability.  The challenge was that the customer base had been established in prior years and that each customer instance was different. In some instances, customers had a large number of products with both high and low use while in other instances customers had a low number of products. This use distribution made a “fixed” price offering difficult. The goal was to price the service such that overall program profitability was achieved even if some number of individual participating customers generated a loss.

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