Price optimization is the use of formal methods to discover pricing structures that optimize a goal such as revenue or customer acquisition targets. The term suggests the use of measurement and analysis as opposed to relying solely on sticky prices or a long term strategy such as premium pricing. The following are common types of price optimization.
ExperimentsExperimenting with a variety of prices and price structures using techniques such as a/b testing. This is particularly common in industries such as ecommerce where it is easy to change prices on the fly.Using analytics tools to find patterns in historical data. For example, a fashion retailer might discover that their data indicates men in their twenties are price incentive to shoes under $100 but demand quickly drops after this price point.
Advanced entities such as nations or banks may model the prices of things such as commodities based on economic models that consider supply and demand curves and other factors.Yield management is the practice of optimizing price at the level of an individual transaction. For example, airlines may attempt to optimize price for every seat in their inventory.
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