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The Right Price Consultants
The Right Price Consultants
The Right Price Consultants
I NTRODUCTION
JJTisanestablishedmanufacturerofwidgets
Decidewhethertogofordynamicpricingornot
Hiredanexternalconsultantfordynamicpricingstrategies
ComparisonwithAmzon.comandDellforimplementationof
dynamicpricingstrategies
Difficulttoimplementintraditionalmanufacturingsectorwith
restrictedfrequencyofpricechange
Focusisondynamicpricingonmanufacturingcoordinated
withproductionplanningconsideringinventoryholdingcost,
manufacturingcost,productioncapacityetc.
F ORMATION OF D YNAMIC
P RICING S TRATEGIES
Identifythedistinctproducttypes
Identifythedistinctcustomersegments
Identifythedistincttimeperiods
Estimatethepriceresponsefunctionforeach
combinationofproducttype,customersegmentand
timeperiod
Identifythecostcomponentsinvolved,e.g.production
cost,inventoryholdingcostetc.
Developthepriceresponsefunctionordemandfunctionsofeach
producttypeforeachtimeperiodfromthehistoricaldata
Demandfunctioncanbedevelopedusingforecastingtechniques
consideringseasonality,cyclicity andotherexternalfactorsalong
withprice
F ORMATION OF D YNAMIC
P RICING S TRATEGIES
T HE M ODEL
MaximizeProfit:
Constraints:
P ROFIT P OTENTIAL
Profitpotentialiscalculatedas:
F ORMATION OF D YNAMIC
P RICING S TRATEGIES
Revenuechangeduetosales:
Revenuechangeduetoprice:
F ORMATION OF D YNAMIC
P RICING S TRATEGIES
Solveamultiperiodprofitmaximizationproblemtofindprice
ineachofthosetimeperiods
Calculatetheprofitpotentialduetodynamicpricing:[(Profit
underdynamicpricing)/(Profitunderfixedpricing)] 1
Identifytheimpactofdynamicpricingintermschangein
revenueduetosalesandchangeinrevenueduetoprice
Identifytheimpactofdynamicpricinginproductionschedule
andothercostcomponents.
Decideonthefrequencyofthepricechanges,e.g.halfyearly,
yearlyetc.
Priceresponsefunctionforeachproducttype,time
periodandcustomersegmentsareindependenttoeach
other
Incaseofanydependence,reflectthesamewhile
formingpriceresponsefunctions
Demandvariationmaybeduetosomeothercyclicalor
seasonalvariations,notduetopricechanges