Smart Pricing
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A Review of the Empirical Literature on Pay-What-You-Want Price Setting
A review of the empirical literature on Pay-What-You-Want price setting Torsten J. GERPOTT University of Duisburg-Essen, Duisburg, Germany [email protected] Abstract: In a Pay What You Want (PWYW) setting companies empower their customers to fix the prices buyers voluntarily pay for a delivered product or service. The seller agrees to any price (in- cluding zero) customers are paying. For about ten years researchers empirically investigate cus- tomer reactions to and economic outcomes of this pricing method. The present paper distinguishes PWYW from other voluntary payment mechanisms and reviews 72 English- or German-speaking PWYW publications, which appeared between January 2006 and September 2016 and contain 97 independent empirical data sets. Prior PWYW research is structured with the help of a conceptual framework which incorporates payment procedure design, buyer, seller, focal sales object and market context characteristics as factors potentially influencing customer perceptions of the PWYW scheme and their behavioral reactions to PWYW offers. The review discusses both consistent key findings as well as contradictory results and derives recommendations for future empirical PWYW research efforts. Keywords: Pay What You Want pricing, price setting; empirical pricing research, voluntary cus- tomer payments, customer integration. Please cite the article as follows: Gerpott, T.J. (2016), “A review of the empirical literature on Pay-What-You-Want price setting”, Management & Marketing. Challenges for the Knowledge Soci- ety, Vol. 11, No. 4, pp. 566-596. DOI: 10.1515/mmcks-2016-0017. Introduction In the recent past various types of customer-centered pricing procedures have attracted substantial attention among management researchers and practitioners. -
Radiohead's Pre-Release Strategy for in Rainbows
Making Money by Giving It for Free: Radiohead’s Pre-Release Strategy for In Rainbows Faculty Research Working Paper Series Marc Bourreau Telecom ParisTech and CREST Pinar Dogan Harvard Kennedy School Sounman Hong Yonsei University July 2014 RWP14-032 Visit the HKS Faculty Research Working Paper Series at: http://web.hks.harvard.edu/publications The views expressed in the HKS Faculty Research Working Paper Series are those of the author(s) and do not necessarily reflect those of the John F. Kennedy School of Government or of Harvard University. Faculty Research Working Papers have not undergone formal review and approval. Such papers are included in this series to elicit feedback and to encourage debate on important public policy challenges. Copyright belongs to the author(s). Papers may be downloaded for personal use only. www.hks.harvard.edu Makingmoneybygivingitforfree: Radiohead’s pre-release strategy for In Rainbows∗ Marc Bourreau†,Pınar Dogan˘ ‡, and Sounman Hong§ June 2014 Abstract In 2007 a prominent British alternative-rock band, Radiohead, pre-released its album In Rainbows online, and asked their fans to "pick-their-own-price" (PYOP) for the digital down- load. The offer was available for three months, after which the band released and commercialized the album, both digitally and in CD. In this paper, we use weekly music sales data in the US between 2004-2012 to examine the effect of Radiohead’s unorthodox strategy on the band’s al- bum sales. We find that Radiohead’s PYOP offer had no effect on the subsequent CD sales. Interestingly, it yielded higher digital album sales compared to a traditional release. -
Success Factors of Pay-What-You-Want
Success Factors of Pay-What-You-Want Bachelor Thesis At the University of Applied Sciences Hof Faculty of Economics International Management Submitted to: Submitted by: Prof. Dr. Andreas Wagener Marina Fürst Alfons-Goppel-Platz 1 Matriculation- Nr.: 00132211 95028 Hof 13th of May 2015 II Hinweis: Es ist untersagt, diese Bachelorarbeit außerhalb der Website des Zoo Augsburg zu veröffentlichen, zu vervielfältigen oder weiterzuverbreiten ohne das Einverständnis des Verfassers. Note: It is forbidden to publicize, spread or duplicate this bachelor thesis without permission of the author. III Table of Contents Table of contents 1. Introduction 1 1.1 Introduction of Pay-What-You-Want (PWYW) 1 1.2 Structure of the thesis 3 2. The participative price mechanism Pay-What-You-Want 5 2.1 Definition and practical application of PWYW 5 2.2 Behavior-theoretical aspects influencing the price under PWYW 8 2.2.1 Fairness 8 2.2.2 Altruism 9 2.2.3 Loyalty 9 2.2.4 Price consciousness and income 10 2.2.5 Reference price 10 2.2.6 Satisfaction 11 2.3 Status Quo Bias 12 2.4 Reasons why customers pay non-zero prices 12 2.4.1 The upper limit of prices in PWYW 13 2.4.2 The lower limit of prices in PWYW 14 2.5 Examples of companies/branches implementing PWYW 14 2.5.1 Internet 14 2.5.2 Hotel industry 15 2.5.3 Gastronomy 16 2.5.4 Other branches 16 2.6 Short-term and long-term effects of PWYW in comparison 18 2.7 Impact of background emotions on the impression of prices 19 2.8 Moods as an explanation for short-term fluctuations 20 2.9 Business-related increase in the value effects 21 2.9.1 Development of new customer groups 21 2.9.2 PWYW as an instrument in the price discovery process 22 2.9.3 PWYW induced cost savings 22 2.10 Comparison with other participative price mechanisms 23 3. -
Pricing of Digital Products and Services in the Manufacturing Ecosystem
Pricing of digital products and services in the manufacturing ecosystem From cost-based to value-based pricing 02 Pricing of digital products and services in the manufacturing ecosystem | From cost-based to value-based pricing Executive summary 04 The traditional vs. digital approach to pricing 06 Pricing strategies in a digital ecosystem 12 Key considerations for strategic pricing decisions 18 Next step: How to get the pricing right? 20 Legal considerations 22 Conclusion 24 Endnotes 26 Contacts 28 03 Executive summary Digital products and services are becoming their specific role within the network in a increasingly important for discrete broader sense rather than relying solely manufacturers looking to complement on internal supply chains when it comes to their core business, stabilize profits and pricing and positioning their digital prod- generate new revenue streams. Today’s ucts and services in the market. industrial companies already generate 20–30 percent of their profits in the after This white paper addresses these chal- sales and service business, and the trend lenges, focusing on the pricing of is toward more digital solutions. To exploit digital goods and services in discrete the value derived from digitalized products manufacturing. The objective is to help and services, manufacturing companies manufacturing companies better under- need to understand what makes digital stand the pricing mechanisms in a digital products and services unique and how the ecosystem and to identify potential pricing market dynamics are changing in the new, scenarios for their digital business: platform-driven manufacturing ecosystem. 1. How do pricing mechanisms work in a Digital products and services differ digital ecosystem and why are traditional fundamentally from traditional industrial pricing approaches no longer feasible? products, mainly in terms of their cost structures and the customer's willingness 2. -
Dynamic Pricing When Consumers Are Strategic: Analysis of a Posted Pricing Scheme
OPERATIONS RESEARCH INFORMS Vol. 00, No. 0, Xxxxx 0000, pp. 000{000 doi 10.1287/xxxx.0000.0000 issn 0030-364X j eissn 1526-5463 j 00 j 0000 j 0001 °c 0000 INFORMS Dynamic pricing when consumers are strategic: Analysis of a posted pricing scheme Sriram Dasu Marshall School of Business, University of Southern California, [email protected], Chunyang Tong Marshall School of Business, University of Southern California, [email protected], We study dynamic pricing policies for a monopolist selling perishable products over a ¯nite time horizon to buyers who are strategic. Buyers are strategic in the sense that they anticipate the ¯rm's pricing policies. We are interested in situations in which auctions are not feasible and in which it is costly to change prices. We begin by showing that unless strategic buyers expect shortages dynamic pricing will not increase revenues. We investigate two pricing schemes that we call posted and contingent pricing. In the posted pricing scheme at the beginning of the horizon the ¯rm announces a set of prices. In the contingent pricing scheme price evolution depends upon demand realization. Our focus is on the posted pricing scheme because of its ease of implementation. In equilibrium, buyers will employ a threshold policy in both pricing regimes i.e., they will buy only if their private valuations are above a particular threshold. We show that a multi-unit auction with a reservation price provides an upper bound for the expected revenues for both pricing schemes. Numerical examples suggest that a posted pricing scheme with two or three price changes is enough to achieve revenues that are close to the upper bound. -
Thursday, June 17Th, 2010
2015 INFORMS Marketing Science Conference Thursday, June 18th, 2015 8.30-10.00 (TA) TA01 – Grand Ballroom 1 TA02 – Grand Ballroom 2 TA03 – Grand Ballroom 3 TA04 – Grand Ballroom 4 Advertising I Channel I Consumer Behavior I New Product I Chair: Anna Dubiel Chair: Pamela Morrison Chair: Xi Chen Chair: Martin Meissner Is there a Relationship between Linking Acquisition Channel Understanding the Effect of Last Name The Role of Information Presentation in Executive’s LinkedIn Connections and Characteristics to Customer Value and on Acquisition Timing in China Monetization of Intellectual Property Stock Prices? Behavior Xi Chen, Guoli Yang Joseph Derby, Mayukh Dass, Yi Qian, Faria Badhan, Manoshi Samaraweera Christian Schulze, Leigh McAlister Josh Lerner Less is More, Until it Isn’t: Feature- Within and Cross-Channel Effects of The Effect of Store Brand Competition on Richness in Experiential Purchases Optimal Introductory Product Design and Brand Advertising on Word-of-Mouth Product Quality Decisions Chadwick Miller, Adriana Samper, Upgrade Strategies Linli Xu, Mitchell Lovett, Renana Peres Ryan Choi Naomi Mandel Mahmood Pedram, Subramanian Balachander The Impact of Institutions on Product Channel Alignment: Contrasting B2B and Positioning: Evidence from a Historical B2C Valuation and Updating Rules Deal or No Deal? The Role of Is Consumer Empowerment Always Study in East and West Pamela Morrison, Lina Tan, John Roberts Competition in the Effect of Online Deals Better? An Investigation of High- and Anna Dubiel, Jaideep Prabhu, on Online Review -
Dynamic Pricing Strategies for Multi-Product Revenue Management
MANUFACTURING & SERVICE OPERATIONS MANAGEMENT informs ® Vol. 8, No. 2, Spring 2006, pp. 136–148 doi 10.1287/msom.1060.0105 issn 1523-4614 eissn 1526-5498 06 0802 0136 © 2006 INFORMS Dynamic Pricing Strategies for Multiproduct Revenue Management Problems Constantinos Maglaras Columbia Business School, Columbia University, 409 Uris Hall, 3022 Broadway, New York, New York 10027, [email protected] Joern Meissner Lancaster University Management School, Lancaster University, Room A48, Lancaster LA1 4XY, United Kingdom, [email protected] onsider a firm that owns a fixed capacity of a resource that is consumed in the production or delivery of Cmultiple products. The firm strives to maximize its total expected revenues over a finite horizon, either by choosing a dynamic pricing strategy for each product or, if prices are fixed, by selecting a dynamic rule that controls the allocation of capacity to requests for the different products. This paper shows how these well- studied revenue management problems can be reduced to a common formulation in which the firm controls the aggregate rate at which all products jointly consume resource capacity, highlighting their common structure, and in some cases leading to algorithmic simplifications through the reduction in the control dimension of the associated optimization problems. In the context of their associated deterministic (fluid) formulations, this reduction leads to a closed-form characterization of the optimal controls, and suggests several natural static and dynamic pricing heuristics. These are analyzed asymptotically and through an extensive numerical study. In the context of the former, we show that “resolving” the fluid heuristic achieves asymptotically optimal performance under fluid scaling. -
Pricing Strategies in Online & Offline Retailing
Pricing Strategies in Online & Offline Retailing Gottfried Gruber Institute for Management Information Systems Vienna University of Economics and Business Administration Augasse 2–6, 1090 Wien [email protected] Supervisor Hans Robert Hansen Institute for Management Information Systems Vienna University of Economics and Business Administration Augasse 2–6, 1090 Wien [email protected] Fall 2008 Abstract The thesis deals with pricing strategies for multichannel retailers, espe- cially traditional stores which additionally manage an online shop. The problem of integrating two sales channels and applying a well-suited pricing strategy is still an emergent question. This work develops a stochastic model to represent consumer behavior on pricing. On the one hand the model contains two probability functions which render consumers’ reservation prices for each individual channel. On the other hand the stochastic model is based on numerous distributions which rep- resent switching probabilities from and to each separate channel. The various distribution functions will be estimated from the results of a sur- vey. To highlight differences of pricing strategies due to several product categories a cross comparisons of books, clothes and digital cameras will be presented. The results show that there are differences in multichannel pricing of the various products. These inequalities stem from consumers’ perceptions of the sales channels. For each product a separate sales channel is pre- ferred by consumers. Therefore, one channel exhibits some advantage versus the alternative channels. This advantage is reflected in different pricing strategies. Further appropriate marketing strategies could help a firm to counter discounting by its competitors. So firms should keep an eye on the reservation price structure of its consumers as well as their demanded marketing activities. -
Zone Pricing in Retail Oligopoly
ZONE PRICING IN RETAIL OLIGOPOLY By Brian Adams and Kevin R. Williams February 2017 COWLES FOUNDATION DISCUSSION PAPER NO. 2079 COWLES FOUNDATION FOR RESEARCH IN ECONOMICS YALE UNIVERSITY Box 208281 New Haven, Connecticut 06520-8281 http://cowles.yale.edu/ ZONE PRICING IN RETAIL OLIGOPOLY Brian Adams Kevin R. Williams Bureau of Labor Statistics∗ Yale Universityy February 2017z Abstract We quantify the welfare effects of zone pricing, or setting common prices across distinct markets, in retail oligopoly. Although monopolists can only increase profits by price discriminating, this need not be true when firms face competition. With novel data covering the retail home improvement industry, we find that Home Depot would benefit from finer pricing but that Lowe’s would prefer coarser pricing. The use of zone pricing softens competition in markets where firms compete, but it shields con- sumers from higher prices in markets where firms might otherwise exercise market power. Overall, zone pricing produces higher consumer surplus than finer pricing discrimination does. JEL Classification: C13, L67, L81 ∗[email protected] [email protected] zA previous version of this paper circulated under the title, "Zone Pricing and Strategic Interaction: Evidence from Drywall." We thank the seminar participants at the University of Minnesota, California State University-East Bay, Marketing Science, University of Wisconsin-Madison, Yale University, Econometric Society Summer Meetings, University of Massachusetts-Amherst, Bureau of Labor Statistics, Department of Justice, Federal Trade Commission, University of Pennsylvania, and the AEA Winter Meetings for useful comments. We thank Bonnie Murphie and Ryan Ogden for their assistance with Bureau of Labor Statistics data. -
Strategy-Price Discrimination
LECTURE 7- STRATEGY-PRICE DISCRIMINATION Konstantinos Kounetas School of Business Administration Department of Economics Master of Science in Applied Economic Analysis Introduction • What is actually a strategy? Which factors affect firm’s strategies? • Price discrimination is present whenever two or more similar goods are sold at prices that are in different ratios to marginal costs.” Stigler (1987) • Necessary conditions for PD: • Firm must have some market power • Must have ability to sort consumers (consumers with varying elasticities of demand) • Must be able to prevent resale, prevent or limit arbitrage. • The basic theory of price discrimination is the theory of monopoly, applied to more than one market or group (McAfee, 2008) Defining Strategy • Business strategy describes the way in which a firm addresses its fundamental challenges over the medium and long tern. Usually, is applied to the decision making processes of the senior management team but it can be also applied at all levels. • Series of actions, decisions and obligations which lead to the firm gaining a competitive advantage and exploit its core competencies. • Five P’s of business strategy (Mintzber, 1987) 1. A plan 2. A ploy 3. A pattern of behavior 4. A position with respect to others 5. A perspective Strategic Management-Analysis 1.Strategic analysis 2.Strategic choice 3. Strategic implementation Stakeholders views Corporate Big vs Small business governance Manufacturing vs Service Domestic vs Multinational Organizational Private vs public purpose Business Ethics Cultural context Strategic Analysis-5P’s (Porter) • The bargaining power of suppliers • The bargaining power of buyers • The threat of potential new entrants • The threat of substitutes Potential Entrants • The extent of competitive rivalry Industry Competitors Buyers Rivalry among existing Suppliers firms Substitute Products Strategic Choice • Theories of strategic choice falls in two main categories: market based and resource based. -
Dynamic Pricing Recognition on E-Commerce Platforms with VAR Processes
forecasting Article Dynamic Pricing Recognition on E-Commerce Platforms with VAR Processes Alexander Faehnle 1,* and Mariangela Guidolin 2 1 Alten Italia, 35131 Padua, Italy 2 Department of Statistical Sciences, University of Padua, 35121 Padua, Italy; [email protected] * Correspondence: [email protected] Abstract: In an environment such as e-commerce, characterized by the presence of numerous agents, competition based on product characteristics is a very important aspect. This paper proposes a model based on vector autoregressive processes (VAR) and Lasso penalization to detect and examine the dynamics that govern real-time price competition in electronic marketplaces. Employing this model, an empirical study was performed on the price trends of smartphone models on the major electronic sales platforms of the Italian market. The proposed model detects real-time price variations in single vendors, based on the variations of their direct competitors. The statistical method adopted in this analysis may be useful for e-commerce companies that conduct market analyses of competitors’ pricing strategies. Keywords: dynamic pricing; e-commerce; VAR process; price competition; lasso penalization JEL Classification: C01; C5; C32 Citation: Faehnle, A.; Guidolin, M. Dynamic Pricing Recognition on 1. Introduction E-Commerce Platforms with VAR In recent years, the volume of sales on e-commerce platforms has grown considerably. Processes. Forecasting 2021, 3, Today, it is not uncommon to find many offers with different prices for the same product at 166–180. https://doi.org/10.3390/ the same time. Thus, online real-time pricing has assumed a role of fundamental strategic forecast3010011 importance. On one hand, companies have to constantly adjust their price levels based on competitors’ prices for the same products to appeal to customers, without losing revenue Academic Editor: Alessia Paccagnini margins. -
How the New Business Models in the Digital Age Have Evolved
How the new business models in the digital age have evolved A dosdoce.com report sponsored by CEDRO’s conlicencia.com platform Online licensing solutions Contents 0. INTRODUCTION ...................................................................3 TRANSVERSAL TENDENCIES THAT SHAPE BUSINESS MODELS . 4 BEYOND SINGLE-UNIT SALES: NEW BUSINESS MODELS . 4 1. DIGITAL BUSINESS MODELS ........................................................5 1 .1 . MICROPAYMENTS: FRAGMENTED CONTENT . 7 1.2. PAY-PER-USE: STREAMING & PAY-PER-VIEW . 13 1.3. SUBSCRIPTION . 20 1.4. MEMBERSHIP . 30 1.5. FREEMIUM/PREMIUM . 31 1.6. EMBEDDED ADVERTISING . 35 1.7. OPEN ACCESS . 37 1.8. P2P-MOOCs . 39 2. NEW MODELS SOMEWHERE BETWEEN EXPERIMENTATION AND RATIONALIZATION ........44 2 .1 . PAY WHAT YOU WANT . 45 2.2. BUNDLING . 48 2.3. CROWDFUNDING . 49 2.4. GAMIFICATION . 58 2.5. DIRECT SELLING . 61 2.6. SELF-PUBLISHING . 66 2.7. LIBRARY eLENDING . 73 TYPES OF LICENSES: PERMANENT, PERPETUAL ACCESS, SUBSCRIPTION, PAY WHAT YOU READ, ETC . 75 COMPARATIVE ANALYSIS OF INTERNATIONAL PLATFORMS . 76 KEY POINTS TO CONSIDER WHEN STARTING AN eLENDING PROJECT . 78 2.8. RIGHTS LICENSING PLATFORMS . 79 3. THE CURRENT STATE OF ECOMMERCE AND THE EVOLUTION OF PAYMENT MODELS .......81 3 .1 . FROM RETAIL TO eCOMMERCE . 83 3.2. BIG DATA . THE KEY TO DIGITAL BUSINESS MODELS . 85 3.3. FROM FREE TO DIVERSIFICATION: MOVING TOWARDS A BLENDED MODEL . 87 3.4. DIGITAL EVOLUTION AND TRENDS IN LATIN AMERICA . 89 CHALLENGES AND OPPORTUNITIES . 89 4. CONCLUSIONS ..................................................................91 5. ACKNOWLEDGMENTS / AUTHORSHIP ...............................................92 ABOUT THE LONDON BOOK FAIR . 92 THE QUANTUM CONFERENCE . 92 ABOUT CEDRO . 93 ABOUT CONLICENCIA .COM . 93 ABOUT DOSDOCE .COM . 94 2 Online licensing solutions 0.