Archives posted in: Pricing

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Economic Price Optimization through A/B Tests: Limited Applicability, Part 4 in our Series

By Tim J. Smith, PhD April 30, 2013

Which is a better price: $15.99 or $16.49? To answer this question, we have A/B testing and price optimization, but this approach doesn’t work all the time.

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J.C. Penney – Love the Vision But You Chose the Rocky Path

By Tim J. Smith, PhD April 1, 2013

JC Penney’s CEO Ron Johnson has had a tough go at it. Stock valuation is down roughly 40% since the time Johnson took over. Customer sales are down 20% from last year. Some are calling for his resignation. But before we chant “off with his head” with the Twitterati, let’s see if we can’t help him find a way out of his quandary.

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Economic Price Optimization Part 3 – Mental Models Matter

By Tim J. Smith, PhD April 1, 2013

In Freshman Land, economic price optimization can be done with simple models and equations. But Freshman Land doesn’t reflect reality, and hence we have to move to the next level. We have to have the right mental model of demand.

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Understanding Velocity-Based Pricing – A Preliminary Investigation

By Tim J. Smith, PhD March 4, 2013

In the age of big data, sales velocity has become a metric for guiding pricing decisions. Pricing software vendors all cite sales velocity as an important factor in guiding pricing decisions. Fortune 500 and mid-tier firms alike are known to practice it. But what does velocity-based pricing mean? Why should sales velocity influence pricing decisions? How should firms use sales velocity to inform pricing? And are there serious pitfalls to this approach, or is it a sound business practice?

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Economic Price Optimization with Locally Measured Elasticity of Demand — Unreliable

By Tim J. Smith, PhD March 4, 2013

Theoretically, if you know the elasticity of demand you can optimize the price through economic price optimization. You may think that this approach would give the best price in practice as well since the word “optimal” is implied in its name alone. But dig beneath its sexy title you will generally find an ugly mess. So what do we do with it?

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Bombardier CSeries: How will Boeing/Airbus Duopoly Respond?

By Curry W. Hilton February 4, 2013

The much-anticipated Bombardier CSeries commercial airplane line provides a uniquely positioned offering, boasting 20% fewer CO2 emissions, 20% fuel savings, and 15%…

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Low price guarantees have adverse effects on consumer behavior

By Reims Management School (RMS) February 4, 2013

A study conducted by Reims Management School (RMS) reveals that consumers are often put off by promises of lowest prices which are coupled with high refund guarantees – contrary to the usual strategies of many top retailers.

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Economic Price Optimization with Globally Linear Demand — Both Useful and Useless

By Tim J. Smith, PhD February 4, 2013

Economic price optimization has a lot to tell us, but not necessarily the price which optimizes the firm’s profits. Economic price optimization relies on a defined demand curve. Unfortunately, defining the demand curve with sufficient precision and reliability for decision making can be done for only a subset of challenges. So if this method is not useful for pricing in many cases, what use is it?

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Lufthansa Systems Goes to Market with iPad In-flight Entertainment Systems: EVM Case Study

By Tim J. Smith, PhD December 3, 2012

Thales SA and Panasonic Corp. have recently begun marketing Wi-Fi-enabled iPad in-flight entertainment systems alongside traditional wired and seatback entertainment systems. Does handing out iPads to passengers and going Wi-Fi make sense for other airlines or is this a frivolous luxury for the elite that commoners will never see? A modeling of the Exchange Value can determine.

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Hawk-Dove Pricing: Avoiding a Price War

By Curry W. Hilton December 3, 2012

The ever-so-dreaded prisoner’s dilemma outcome achieved in most pricing wars can be avoided in some instances by applying games of coexistence. In particular, the Hawk-Dove game offers a unique result that fosters mutual benefit and healthy market competition. The value contributed by the Hawk-Dove model involves understanding the cost of waging a price war, the potential strategy-dependent profit realized, and the managerial security expressed.

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