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  • The Right Price Consultants

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    Prashant Singh
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    The document discusses dynamic pricing strategies for JJT, a widget manufacturer. It hired a consultant to compare dynamic pricing approaches to Amazon and Dell and determine if it is suitable given JJT's traditional manufacturing. The consultant's approach involves identifying customer segments, product types, and time periods to estimate price response functions. A model is created to maximize profits subject to constraints. Dynamic pricing's potential profit impact is calculated by comparing profits to fixed pricing. Cautions involve ensuring price response functions account for dependencies and demand variations.

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    pricing theory

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    The document discusses dynamic pricing strategies for JJT, a widget manufacturer. It hired a consultant to compare dynamic pricing approaches to Amazon and Dell and determine if it is suitable given JJT's traditional manufacturing. The consultant's approach involves identifying customer segments, product types, and time periods to estimate price response functions. A model is created to maximize profits subject to constraints. Dynamic pricing's potential profit impact is calculated by comparing profits to fixed pricing. Cautions involve ensuring price response functions account for dependencies and demand variations.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    8 views12 pages

    The Right Price Consultants

    Uploaded by

    Prashant Singh
    The document discusses dynamic pricing strategies for JJT, a widget manufacturer. It hired a consultant to compare dynamic pricing approaches to Amazon and Dell and determine if it is suitable given JJT's traditional manufacturing. The consultant's approach involves identifying customer segments, product types, and time periods to estimate price response functions. A model is created to maximize profits subject to constraints. Dynamic pricing's potential profit impact is calculated by comparing profits to fixed pricing. Cautions involve ensuring price response functions account for dependencies and demand variations.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    of 12

    T HE R IGHT P RICE C ONSULTANTS

    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.

    C REATING P RICE R ESPONSE


    F UNCTIONS

    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:

    (DynamicSales FixedSales) DynamicPrice

    Revenuechangeduetoprice:

    FixedSales (DynamicPrice FixedPrice)

    I MPACT OF D YNAMIC P RICING


    S TRATEGIES

    I MPACT OF D YNAMIC P RICING


    S TRATEGIES

    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.

    F ORMATION OF D YNAMIC P RICING


    S TRATEGIES : C AUTIONS

    Priceresponsefunctionforeachproducttype,time
    periodandcustomersegmentsareindependenttoeach
    other

    Incaseofanydependence,reflectthesamewhile
    formingpriceresponsefunctions

    Demandvariationmaybeduetosomeothercyclicalor
    seasonalvariations,notduetopricechanges

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