The Right Price Consultants

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    18-Dec-2015
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pricing theory

Transcript of The Right Price Consultants

  • THE RIGHT PRICE CONSULTANTS

  • INTRODUCTION

    JJTisanestablishedmanufacturerofwidgets

    Decidewhethertogofordynamicpricingornot

    Hiredanexternalconsultantfordynamicpricingstrategies

    ComparisonwithAmzon.comandDellforimplementationofdynamicpricingstrategies

    Difficulttoimplementintraditionalmanufacturingsectorwithrestrictedfrequencyofpricechange

    Focusisondynamicpricingonmanufacturingcoordinatedwithproductionplanningconsideringinventoryholdingcost,manufacturingcost,productioncapacityetc.

  • FORMATION OF DYNAMICPRICING STRATEGIES

    Identifythedistinctproducttypes

    Identifythedistinctcustomersegments

    Identifythedistincttimeperiods

    Estimatethepriceresponsefunctionforeachcombinationofproducttype,customersegmentandtimeperiod

    Identifythecostcomponentsinvolved,e.g.productioncost,inventoryholdingcostetc.

  • CREATING PRICE RESPONSEFUNCTIONS

    Developthepriceresponsefunctionordemandfunctionsofeachproducttypeforeachtimeperiodfromthehistoricaldata

    Demandfunctioncanbedevelopedusingforecastingtechniquesconsideringseasonality,cyclicity andotherexternalfactorsalongwithprice

  • FORMATION OF DYNAMICPRICING STRATEGIES

  • THE MODEL

    MaximizeProfit: Constraints:

    0

  • PROFIT POTENTIAL

    Profitpotentialiscalculatedas:

    1

  • FORMATION OF DYNAMICPRICING STRATEGIES

    Revenuechangeduetosales:

    (DynamicSales FixedSales) DynamicPrice

    Revenuechangeduetoprice:

    FixedSales (DynamicPrice FixedPrice)

  • IMPACT OF DYNAMIC PRICINGSTRATEGIES

  • IMPACT OF DYNAMIC PRICINGSTRATEGIES

  • FORMATION OF DYNAMICPRICING STRATEGIES

    Solveamultiperiodprofitmaximizationproblemtofindpriceineachofthosetimeperiods

    Calculatetheprofitpotentialduetodynamicpricing:[(Profitunderdynamicpricing)/(Profitunderfixedpricing)] 1

    Identifytheimpactofdynamicpricingintermschangeinrevenueduetosalesandchangeinrevenueduetoprice

    Identifytheimpactofdynamicpricinginproductionscheduleandothercostcomponents.

    Decideonthefrequencyofthepricechanges,e.g.halfyearly,yearlyetc.

  • FORMATION OF DYNAMIC PRICINGSTRATEGIES: CAUTIONS

    Priceresponsefunctionforeachproducttype,timeperiodandcustomersegmentsareindependenttoeachother

    Incaseofanydependence,reflectthesamewhileformingpriceresponsefunctions

    Demandvariationmaybeduetosomeothercyclicalorseasonalvariations,notduetopricechanges