6: Pricinng Analytics Flashcards
What is dynamic pricing?
= is a group of pricing strategies and methods that optimize profits by changing prices over time or channel
What are the advantages of dynamic pricing?
- incremental continually pricing decisison –>makes the problem more traceable than global pricing optimization
- takes into account strict capacity and time constraints, which adds complexity to the pricing problem –>thus automated optimization are appealing
- can be used as market segmentation technique by exploiting variances in willingness-to-pay (WTP)
4 types of dynamic pricing
- Time based: price dynamically vary over time, seansonal products, Uber
- Consumer based: prices vary between personaliized coupons, location tracking
- Channel based: Prices differ between channels –>higher offline thant online prices
- Auction-based: Price depends on whar the customer wants to pay (restaurants, airlines)
Dynamic pricing adjusts….
adjusts prices to changing demand conditions
- variable demand
- variable inventory
- demand uncertainty
What are the dependencies in Dynamic Pricing?
due to dependencies between the time intervals in dynamic pricng, opimization models need to be created
–>dependencies mostly related to supply constraints
What does dynamic price equaliize in the supply chain context?
Dynamic pricng equalizes both demand and supply
What are the two main attributes of constrined supply indicating feasibility of dynamic pricing?
Fixed capacity: A seller sell off a fixed stoock of a product that cannot be replenished
Perishability: the stock of a product must be sold within a limited time frame, unsold inventory losses its value
How should the markdown prices are set, and how is the WTP of customer distributed in a car retailer example?
Markdown prices should be set close to the customer valuation at the begining of sales and then monotonically decrease
–>Customer WTP is uniformly distributed between 0 and sone Pmax
What does a uniform WTP imply for a curve?
Uniform WTP implieas a linear demand curve
How should Markdown prices be distirbuted?
Markdown prices should be evenly distributed between list price and stockout price
Doing dynamic pricng fpr Competing products
How do customers interpret competing products?
How to optimize?
customers choose between the competing products by using one price as a reference point
–>demand for a given product: usually function of both the product price and the price of competing product
–>need to be optimized jointly
Doing dynamic pricng in Personalized discounts?
What is assumption?
Assumption: Customer probability to purchase is not uniform –>varies over time
–>thus there is an optimal discount time window for each user
–>Identifiy temporal and monetary properties for optimal, personal discount to be most effective
What are the McK 4 Steps for successful implementation of Dynamic pricing?
- Listen to the data: need to interpret and use data
- Automate: automated system needed, more efficent
- Build skills and confidence: use adquate training to sales, support and backup from mgmt.
- Actively manage performance: give sales force targets, ensure transparency
What are SKP 4 Do of Dynamic Pricng?
- by dynamic when inventory is perishable, or there is a clear capacity constraint
- by dynamic when you can use it to balance supply and demand
- by dynamic when your price is fluid, elasitc, it´s cost efficient
- by dynamic when seasonal demand
What are SKP Don´ts of Dynamic Pricing?
- Don´t use if there is no seasonality or urgency
- Don´t use if *does not fit with strategy (luxury)
- Don´t use if rely on algorithms and neglect human element
- Don´t use if it can be deemed as profiteering
What is Surge pricing and how is it affected by demand?
Surge pricing form of dynamic pricng and occurs when a company either
* raises the price if there is an inctrease in demand
* lowers the price if there is weak demand
Key facts about Surge pricing? Uber case
- Pricing reats to demand and supply
- Idea: Extracts rents from higher demand
- Also: increase incentives for drivers to go on the road
–>Uber case
Description of **ealastic demand?
Elasitc demand: Total revenues increases when price decrease
–>RV and p is inversely related
Description of unitary Inelastic
Unitary demand: Total revenue remains unchanged given p
Description of inelastic demand?
Inelastic demand: Total revenue increases when price increases
–>direct relation between TR and P
What is the meaning of the signs of Cross-price elasticity?
Positive coefficient: Uber & Lyft are substitutes
Negative coefficient: Uber & Lyft are complements
What are Omnichannel pricing strategies?
Uniform omnichannel pricing: use the same price for each channel
Hybrid pricing: use of uniform omnichannel prices with some exceptions
Channel-specific priciing: use of prices based on channel, not on the customer
What is the Advantage of Uniform, Hybrid pricing and Channel-specific pricng in **Omnichannel Pricing strategies?
Uniform omnichannel pricing:
- consistent price information in all channels
- ease customer experience,, and
- removes barriers to purchase and build up loyalty
Hybrid Pricing:
- provide unified buying experience without beeing too rigid
Channel-specific pricing:
- optimize price and margin in each channel
Omnichannel pricing: What are reasons for Uniform omnichannel pricing
- high level of transparency
- Legal framework conditions
- communication challenges
