Price Optimization

Question 1

What are the approaches to pricing?

Answer 1

1. Cost-based pricing

2. Market-based Pricing

Question 2

What is cost-based pricing?

Answer 2

1. Production costs determine price
2. Price = Cost + Margin
3. Useful if in high volume context

Question 3

What is Market-based Pricing?

Answer 3

1. Customer value determines price
2. Price ~ Incremental value to customer
3. Useful for many categories

Question 4

The 3 Market Based techniques for price optimization

Answer 4

1. Market Demand model
2. Logit Model
3. Gabor-Granger model

Question 5

Necessary data for Market Demand Model

Answer 5

1. Aggregate sales

2. Marginal (unit) Cost

Question 6

What’s the technique for market demand model?

Answer 6

1. Estimate a demand curve
2. use a linear reression
3. compute price via standard formula

Question 7

What does the gabor grander model provide?

Answer 7

purchase likelihood = gabor granger model

Question 8

Data necessary for gabor granger model

Answer 8

1. Survey Data (likelihood of purchase and individual purchase data)
2. Marginal Cost

Question 9

First Degree of price discrimination

Answer 9

Charge maximum price of WTP

Question 10

2nd degree of price discrimination

Answer 10

Multiple products/prices and one customer segment

Question 11

3rd degree of price discrimination

Answer 11

multiple customer segments and their associated products/prices

Question 12

What is informational basis?

Answer 12

The different types of signaling of what the WTP can be

Question 13

Complete - informational basis

Answer 13

individual level information, which facilitates first degree price discrimination

Question 14

Direct

Answer 14

utilize customers’ observable characteristics to set different prices like gender, age, etc.

Question 15

Indirect

Answer 15

develop systems that consumers self-identify through their behavior like coupons

Question 16

Limits to price segmentation

Answer 16

1. imperfect segmentation
2. cannibalization
3. arbitrage