As you may have noticed, since the last major release, VALUVALU now predicts the prices of consumer goods, 30 days in advance. How can we do that, and what if we could also predict stock prices, and get very rich?

First and foremost, predicting the prices of consumer goods is NOT like predicting stock prices!

Alas, we don’t know of any good method for predicting the stock market! There’s just too much information one should take into account, most of it not publicly available. For instance, one problems is not knowing the ‘investors horizon’: unlike retailers who want to sell-through as soon as possible with the best possible price, investors’s horizon is very disparate, and also change with the stock variations themselves. But most of all, a stock price is driven by the expectation of a company’s future earnings. Some believe the market is efficient, so all future revenues are already displayed in the stock price itself. But then everybody could see it, so theoretically there could be no losers or winners: clearly it’s not working this way! Others think the fundamentals are often overlooked (cf. for instance Value investing). In any case, it’s been decades since very smart (and very dumb) people try to find a winning formula, without much success so far.

Consumer goods market is different for several, other fundamental reasons. For one, there’s almost no ‘accident’. In high-tech, for instance, products got some reviews, are more or less appreciated, then will progressively become obsolete. It’s very unlikely the price of a digital camera will significantly go up, 2 years after launch. Seasonality is also a strong trait. If historically skis were always discounted heavily the last week of March, it’s probable it will happen again. Best of all, we can apply that probability on a new model, even if without any prior history on that product in particular.

To summarize, observing the history of consumer goods prices allows to understand the underlying trends in supply/demand, and therefore predict future prices. That’s simply not really the case with company stocks. And believe me, I like Technical Analysis!

1) Like any wars, Price Wars often start for the wrong reasons, and cannot be truly won. Avoid price wars! If you need to revise your positioning, try to ‘add value’ and benefits instead (e.g. free shipping, return policy, generous loyalty program), which may cost you less and are easier to suppress later.

2) Anticipate Demand/Supply trends to change your prices before your competitors. For instance, if there’s more demand than supply for a product, do not wait for stocks to be depleted, and increase your prices now. Not only will you generate more revenue, but mostly you’ll build inventory to sell at a much higher price in the future. Likewise, it’s more profitable to discount early (but not too much).

3) Identify and keep an eye on the Price Leader (if there’s one). You should match the price variations of this Price Leader before the rest of the market, especially when he raises his prices.

4) Unlike Consumers, Competitors are rational… most of the time. It means they’re more likely to be objective, and more prone to act Strategically. This is why lowering your price may have a devastating, long-term effect as in can trigger a price War.

5) When you increase prices, you need your competitors to know, so they feel more inclined to raise theirs as well, and the whole industry makes more money. When you decrease your prices, that’s a short-term advantage, and you need the Customers to know, but (if possible) not your competitors.