This website uses cookies to ensure you have the best experience. Learn more

Pricing Essay

6384 words - 26 pages


V O L . 4 8 N O. 4

Arvind Sahay

How to Reap
Higher Profits With
Dynamic Pricing

Please note that gray areas reflect artwork that has been
intentionally removed. The substantive content of the
article appears as originally published.



How to Reap Higher Profits With

Dynamic Pricing


un Microsystems Inc. chairman Scott McNealy forecast that
“With recent advances in wireless and information technology,
even our cars could … call for bids whenever the fuel tank runs
low, displaying a list of results from nearby gas stations right on
the dashboard.”1
It sounds far-fetched. But dynamic pricing — where prices ...view middle of the document...

dynamic pricing optimization offers companies in many other sectors the
alternative of raising average realized prices in the face of increased pricing
Four principal reasons are driving the increasing use of DP today:
■ More companies can now access and deploy the technology for DP at affordable prices in new product and service categories.
■ Recent research shows that with the right approach, consumers will accept
DP even if they are currently buying using fixed prices.
■ Increased pricing pressures and supply constraints in different industries
are driving companies to look at new ways of extracting value and reallocating demand.
Arvind Sahay is a professor of marketing at the Indian Institute of Management Ahmedabad. Comment on this article or contact the author through

More and more
companies are now
able to change their
prices in real time
to capture the full
possible value of
goods and services.
Here’s how to do
dynamic pricing right.
Arvind Sahay




In their continuing bid to increase efficiency, many companies
(having already integrated upstream supply chains with their
operations) are now turning to the downstream aspect, where DP
is a natural consequence.
Dynamic pricing, managed well, offers a feasible and attractive path to increase revenues and profits. (See “Why Dynamic
Pricing,” p. 56.) Implementing DP can improve revenues and
profits by up to 8% and 25%, respectively.3 But it’s not just that
DP offers greater profits. For example, for personal services such
as haircuts and public services such as road space in metropolitan
areas, DP can be used to reallocate demand to more suitable
times and manage a limited supply base. And where products
have a limited shelf life with a salvage value (for example, apparel), DP can be used to improve realizations from fast-moving
lines of goods by raising prices in real time or near-real time, and
similarly to push slow-moving goods by lowering prices. Also, in
formats such as Internet auctions (for example, eBay) and group
buying, DP can aggregate bigger audiences than is possible in a
physical setting. New, excess and reassigned inventory can be sold
for higher realizations using an auction format such as eBay.

orms of Dynamic Pricing: Posted Price Mechanisms
and Price Discovery
Dynamic pricing differs fundamentally from fixed pricing because it allows prices for the same good or service to change by
customer, time, aggregate demand and other situation-specific
parameters. There are two broad categories of DP: (1) posted
prices that customer can see; and (2) price discovery mechanisms,
in which customers determine prices through their own actions
during the transaction.
Fixed prices are a form of posted prices, of course. When companies fix the posted price of a product or service for a relatively
long period,...

Other assignments on Pricing

Products, Pricing And Channels Essay

2168 words - 9 pages Products, Pricing, and Channels Introduction The all-new Mustang is the next chapter in the life of one of the world’s most iconic cars. The 2015 Ford Mustang is loaded with innovative technologies and delivers high levels of performance and style. “The Mustang is the first car to offer four, six, and eight-cylinder engines that each produces at least 300 horsepower. With more powertrain options to choose from, there is a Mustang to fit

Key- Proc 5830 Pricing Essay

1064 words - 5 pages choose to price cooperatively? This is to ensure that a price war does not start in the marketplace, thereby hurting all players and benefitting the customers only in terms of low pricing. Cooperation is necessary to ensure a minimum profit margin for all players. 5. The gasoline service stations in Rochester, New York convinced the City Council to ban signs displaying gasoline prices. Why would they want to do this? What effect do you think

Channel And Pricing Stategies

1408 words - 6 pages Channel and Pricing Strategies Morilyn Cornett, Lori Winteresteen MKT / 571 April 28, 2010 Lauren Gerichs Channel and Pricing Strategies Introduction Our company, LMA, Inc., introduced earlier for our home country and product offering, South Africa and organic black hair care products; launched to improve the totality of hair care among the citizens of the South African country. The company’s advent of hair care products in this

Ipo Pricing For Bbc

4358 words - 18 pages IPO Pricing for Boston Beer Company Inc.   Case Summary We address the following key questions regarding Boston Beer Company (BBC) to explore the issues surrounding its Initial Public Offering. First of all, we determine the fair value of BBC to be $211 million based on a DCF valuation of projected future cash flows and explain our key assumptions and potential problems arising from those assumptions. Second, we find BBC’s fair value to

Analyzing Managerial Decision: Itunes Music Pricing

1551 words - 7 pages Analyzing Managerial Decision: iTunes Music Pricing by HCM-540, MBOL5, Health Care Organization Instructor: Saint Leo University Distance Learning November 10, 2013 Abstract Apples’s Itunes music store came upon the music industry in 2003. It quickly became supreme within the music industry. The iPod, Apple’s MP3 players, and iTunes software were all interfacing, making it one of the more popular technology favorites

Pricing And Financial Management Of Contracts

982 words - 4 pages for any future negotiations to ensure the best value for the government. If defective pricing is suspected then that needs to be confirmed and corrective actions pursued within 3 yearsto recoup funds for the government. Leonard's Linens - Comparing Prices 1. Do you concur in the contracting officer's (buyer's) decision? Yes, the buyer’s decision appears to be reasonable. If 10 to 30 offers are requesting copies of the solicitation and only

Forward Pricing

514 words - 3 pages Part 2 - Homework Problem(s) - Complete the problem(s) below and submit to me in word, excel, or pdf format to be graded (worth 10 points per week).  The homework problems should be submitted by Midnight CT on Sunday of Week 3. Problem 5.32. A trader owns a commodity as part of a long-term investment portfolio. The trader can buy the commodity for $950 per ounce and sell it for $949 per ounce. The trader can borrow funds at 6% per year and

Managing Pricing Decisions

443 words - 2 pages DECISION MAKING THEORY AND TOOLS PROBLEM 1: The following information is for below questions: *PV for profits ($000) i. The maximax strategy would be: Answer: buy with value = RM80,000 ii. The maximin strategy would be: Answer: lease with value = RM50,000 iii. The minimax regret strategy would be: Answer: lease iv. If P(high) is 0.60, the choice for maximum expected value would be: Answer: rent (EMV => RM70,000 x 0.6


4946 words - 20 pages Customer value-based pricing strategies: why companies resist Andreas Hinterhuber Andreas Hinterhuber is based at Hinterhuber and Partners, Innsbruck, Austria. Introduction Pricing has a huge impact on profitability. Pricing strategies vary considerably across industries, countries and customers. Nevertheless, researchers generally concur that pricing strategies can be categorised into three groups: 1. cost-based pricing; 2. competition

Yield Management

1255 words - 6 pages “services which cannot be stored at all” (Netessine, 2002). Kimes and Wirtz (2003) defined revenue management as “the application of information systems and pricing strategies to allocate the right capacity to the right customer at the right price at the right time”. As pricing serves as an important factor in yield management, I would like to discuss the issues of pricing strategy regarding to the application of yield management. The pricing


321 words - 2 pages 1. Why was Dakota's pricing system inadequate for its current operating environment? Currently, DOP's pricing system is pricing products by adding markup twice, which is marking up the purchased product cost by around 15% to cover the cost of warehousing, distribution, and freight. Then add another markup to cover the approximate cost, for general and selling expenses, plus an allowance for profit. We found that the existing pricing system

Similar Documents

Digi Pricing Essay

392 words - 2 pages PRICING Price is the amount of money need to pay for using a goods or service, or the sum of the values that customers exchange for the benefits of having or using the goods or service. Price is the major factor affecting buyer choice and still remains one of the most important elements determining firm’s market share and profitability. OBJECTIVES Pricing objectives can be classified into four major group: profitability objectives, volume

Pricing Strategy Essay

481 words - 2 pages PRICING METHODS 1. MARKUP PRICING: - This method is to add a standard markup to the product’s cost. Construction companies submit job bids by estimating the total project cost and adding a standard markup for profit. Lawyers and accountants typically price by adding a standard markup on their time and cost. Unit cost = Variable cost + Fixed Cost Unit sales Markup price = Unit cost

Pricing Strategy Essay

1998 words - 8 pages Table of Contents Introduction..............………………..………………………………...2 Pricing Strategy.............................…….………..…………………… 2 Non-price Barriers to Entry...……………..…...…………….……… 3 Ideas for Product Differentiation...……..………..……….………… 3 Markets………………….……………..................................………… 4 Profit Maximization.............................................................................5 Loss Minimization

Pricing And Retail Strategy Essay

579 words - 3 pages Pricing and Retail Strategy When most people hear the word “Nike”, they immediately think about the swoosh logo and the motto “just do it”. Nike is known for their durable, high- quality products, which makes it unsurprising that professional athletes are often used in their advertisements. A large percentage of their successful marketing presence is due to their aggressive advertising. In 2011 alone, Nike spent around $877 million