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Author: Bruno Jullien
Publisher:
ISBN:
Category : Competition
Languages : en
Pages : 64
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Book Description
The availability of consumer data is inducing a growing number of firms to adopt more personalized pricing policies. This affects both the performance of, and the competition between alternative distribution channels, which in turn has implications for firms' distribution strategies. We develop a formal model to examine a brand manufacturer's choice between mono distribution (selling only through its own direct channel) or dual distribution (selling through an independent retailer as well). We consider different demand patterns, covering both horizontal and vertical differentiation and different pricing regimes, with the manufacturer and retailer each charging personalized prices or a uniform price. We show that dual distribution is optimal for a large number of cases. In particular, this is always the case when the channels are horizontally differentiated, regardless of the pricing regime; moreover, if both firms charge personalized prices, a well-designed wholesale tariff allows them to extract the entire consumer surplus. These insights obtained here for the case of intra-brand competition between vertically related firms are thus in stark contrast to those obtained for inter-brand competition, where personalized pricing dissipates industry profit. With vertical differentiation, dual distribution remains optimal if the manufacturer charges a uniform price. By contrast, under personalized pricing mono distribution can be optimal when the retailer does not expand demand sufficiently. Interestingly, the industry profit may be largest in a hybrid pricing regime, in which the manufacturer forgoes the use of personalized pricing and only the retailer charges personalized prices.
Author: Bruno Jullien
Publisher:
ISBN:
Category : Competition
Languages : en
Pages : 64
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Book Description
The availability of consumer data is inducing a growing number of firms to adopt more personalized pricing policies. This affects both the performance of, and the competition between alternative distribution channels, which in turn has implications for firms' distribution strategies. We develop a formal model to examine a brand manufacturer's choice between mono distribution (selling only through its own direct channel) or dual distribution (selling through an independent retailer as well). We consider different demand patterns, covering both horizontal and vertical differentiation and different pricing regimes, with the manufacturer and retailer each charging personalized prices or a uniform price. We show that dual distribution is optimal for a large number of cases. In particular, this is always the case when the channels are horizontally differentiated, regardless of the pricing regime; moreover, if both firms charge personalized prices, a well-designed wholesale tariff allows them to extract the entire consumer surplus. These insights obtained here for the case of intra-brand competition between vertically related firms are thus in stark contrast to those obtained for inter-brand competition, where personalized pricing dissipates industry profit. With vertical differentiation, dual distribution remains optimal if the manufacturer charges a uniform price. By contrast, under personalized pricing mono distribution can be optimal when the retailer does not expand demand sufficiently. Interestingly, the industry profit may be largest in a hybrid pricing regime, in which the manufacturer forgoes the use of personalized pricing and only the retailer charges personalized prices.
Author: Huiqi Guan
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We consider a distribution channel comprising of a supplier and a retailer, where the retailer can collect customer data, use it to profile them, and personalize its retail prices based on this information. Depending on the retailer's data collection ability, two personalized pricing strategies are studied. The retailer uses Behavior-Based Pricing (BBP) if it can only tell customers with any prior history apart; the retailer uses Fully Personalized Pricing (FPP) if it can accurately predict the customers' true willingness-to-pay. Moreover, when the retailer shares the collected customer data, either in full or to a limited extent, with the supplier, the latter can also adopt the personalized pricing strategies in setting the wholesale price. Using a two-period game-theoretic model that considers the strategic behavior of the customers, we solve for the equilibrium results and compare them across different scenarios. Our analysis uncovers several counter-intuitive findings that generate interesting managerial insights. First, we show that the supplier and the retailer may have conflicting attitudes towards adopting personalized pricing strategies. Similarly, they may have opposing preferences on the sharing level of customer data. As a function of the degree of strategic behavior of customers (modeled using a discount factor of future profits), we determine the most-likely scenario: When the discount factor is either very small or very large, the scenario with partial information sharing is most likely to occur; otherwise, no information sharing is the likely outcome. In addition, we show that even though personalized pricing leads to price segmentation, it can increase overall consumer surplus and social welfare due to the enhanced market expansion effect. Finally, we discuss the potential benefit of decentralization and show that compared to an integrated firm, total profits for the decentralized channel can be higher if the retailer uses FPP and the supplier does not.
Author: Yunchuan Liu
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
In this paper, we explore channel interactions in an information-intensive environment where the retailer can implement personalized pricing and the manufacturer can leverage both personalized pricing and entry into a direct distribution channel. We study whether a retailer can benefit from personalized pricing, and how upstream personalized pricing or entry into a direct distribution channel affects the allocation of channel profit. We find that the retailer is worse off because of its own or upstream personalized pricing, even when the retailer is a monopoly. However, it may still be optimal for the retailer to embrace personalized pricing in order to reap the strategic benefit of deterring the manufacturer from selling direct and targeting end-consumers.
Author: Adam N. Elmachtoub
Publisher:
ISBN:
Category :
Languages : en
Pages : 57
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Book Description
Increased availability of high-quality customer information has fueled interest in personalized pricing strategies, i.e., strategies that predict an individual customer's valuation for a product and then offer a price tailored to that customer. While the appeal of personalized pricing is clear, it may also incur large costs in the form of market research, investment in information technology and analytics expertise, and branding risks. In light of these trade-offs, our work studies the value of personalized pricing strategies over a simple single price strategy.We first provide closed-form lower and upper bounds on the ratio between the profits of an idealized personalized pricing strategy (first-degree price discrimination) and a single price strategy. Our bounds depend on simple statistics of the valuation distribution and shed light on the types of markets for which personalized pricing has little or significant potential value. Second, we consider a feature-based pricing model where customer valuations can be estimated from observed features. We show how to transform our aforementioned bounds into lower and upper bounds on the value of feature-based pricing over single pricing depending on the degree to which the features are informative for the valuation. Finally, we demonstrate how to obtain sharper bounds by incorporating additional information about the valuation distribution (moments or shape constraints) by solving tractable linear optimization problems.
Author: Brent R. Grover
Publisher: Natl Assn Wholesale-Distr
ISBN: 9781934014158
Category : Physical distribution of goods
Languages : en
Pages : 252
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Book Description
Author: Anshuman Khare
Publisher: Springer
ISBN: 3319444689
Category : Computers
Languages : en
Pages : 327
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Book Description
This book explores the factors that make digital disruption possible and the effects this has on existing business models. It takes a look at the industries that are most susceptible to disruption and highlights what executives can do to take advantage of disruption to re-invent their business model. It also examines the pivotal role that technology plays in creating new dynamics to business operations and forcing business model changes. Adoption of digital technology has caused process disruptions in a number of industries and led to new business models (e.g., Über, AirBnb) and new products. In addition to covering some of the more popular and well known examples, this book targets not so obvious disruptions in the education sector and in services and changing business models. Phantom Ex Machina: Digital Disruption’s Role in Business Model Transformation is divided into six parts. The book begins with an introduction to digital disruption and why it matters. The next part of the book focuses on business strategy which includes case studies on the impact of social media and how digital disruption changes pricing strategies and price models. For part three, the authors observe technology’s role in digital disruptions. Chapters cover how 3D printing is challenging existing business models and how the automotive industry is innovating with new perspectives. Part four covers higher education, recognizing digital disruption’s transformation in graduate management education. Part five centers upon the service industry with a look at virtual teams and the emergence of virtual think tanks. Finally the book concludes with a look to the future, embracing disruptions.
Author: Anindya Ghose
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We develop an analytical framework to investigate the competitive implications of personalized pricing technologies (PP). These technologies enable first-degree price discrimination: firms charge different prices to different consumers, based on their willingness to pay. We first show that, even though a monopolist makes a higher profit with PP, its optimal quality is the same with or without PP. Next, we show that in a duopoly setting, personalized pricing adds value only if it is associated with product differentiation. We then consider a model of vertical product differentiation, and show how personalized pricing on the Internet affects firms' choices of quality differentiation in a competitive scenario. There are two equilibria. We find that, when the PP firm has a high quality both firms raise their qualities, relative to the uniform pricing case. Conversely, when the PP firm has low quality, both firms lower their qualities. While it is optimal for the firm adopting PP to increase product differentiation, the non-PP firm seeks to reduce differentiation by moving in closer in the quality space. Our model also points out firms' optimal pricing strategies with PP, which may be non-monotonic in consumer valuations. Depending on the convexity of the marginal cost function, we outline the incentives of firms to deploy such technologies. Our model shows it is an optimal strategy for the low quality firm to adopt PP, if the other firm does not. Regardless of whether the low quality firm has PP, the high quality firm should adopt PP only if the cost function is not too convex. Next, if both firms acquire PP, then both firms earn lower profits than in the case where neither firm has PP. Essentially, they are trapped in a prisoner's dilemma. Finally, we show that, consumer surplus is highest when both firms adopt PP. Thus, despite the threat of first degree price discrimination, personalized pricing with competing firms can lead to an overall increase in consumer welfare.
Author: Robert M. Schindler
Publisher: SAGE Publications
ISBN: 1483305449
Category : Business & Economics
Languages : en
Pages : 417
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Book Description
"This book is consistent in its treatment, thorough, correct in scholarship, and well-researched. An impressive achievement given the breadth and complexity of the area."– Randolph E. Bucklin, Peter W. Mullin Professor of Marketing, Anderson School of Management, University of California, Los Angeles Written by a leading pricing researcher, Pricing Strategies makes this essential aspect of business accessible through a simple unified system for the setting and management of prices. Robert M. Schindler demystifies the math necessary for making effective pricing decisions. His intuitive approach to understanding basic pricing concepts presents mathematical techniques as simply more detailed specifications of these concepts.
Author: Anindya Ghose
Publisher:
ISBN:
Category :
Languages : en
Pages : 50
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Book Description
We embed the principal-agent model in a model of spatial differentiation with correlated consumer preferences to investigate the competitive implications of personalized pricing and quality allocation (PPQ), whereby duopoly firms charge different prices and offer different qualities to different consumers, based on their willingness-to-pay. Our model sheds light on the equilibrium product-line pricing and quality schedules offered by firms, given that none, one, or both firms implement PPQ. The adoption of PPQ has three effects in our model: it enables firms to extract higher rents from loyal customers, intensifies price competition for non-loyal customers, and eliminates cannibalization from customer self-selection. Contrary to prior literature on one-to-one marketing and price discrimination, we show that even symmetric firms can avoid the well-known Prisoner's Dilemma problem when they engage in personalized pricing and quality customization. When both firms have PPQ, consumer surplus is non-monotonic in valuations such that some low valuation consumers get higher surplus than high valuation consumers. The adoption of PPQ can reduce information asymmetry, and therefore sellers offer higher quality products after the adoption of PPQ. Overall, we find that while the simultaneous adoption of PPQ generally improves total social welfare and firm profits, it decreases total consumer surplus.
Author: Michael Levi Hamilton
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
With the deluge of big data, many retailers are experimenting with rich, data-driven pricing strategies. In this dissertation we study three emerging pricing strategies: (i) Opaque pricing, the pricing of products where some feature is hidden from the customer until after purchase. In a general model we give a sharp characterization for when opaque selling outperforms traditional forms of differentiated pricing. (ii) Personalized pricing, i.e. pricing strategies that predict an individual customer's valuation for a product and then offers them a customized price. Leveraging natural statistics of the valuation distribution, we prove tight upper and lowers on the ratio between personalized pricing strategies and simpler selling strategies, which, among other things, yields insight into which markets personalized pricing is most valuable. (iii) Loot box pricing, the pricing of (random) bundles of virtual items, the contents of which are revealed after purchase. In an asymptotic regime we compare and contrast the revenue of different forms of loot box pricing with traditional selling models, and give theory to explain the recent proliferation of loot boxes in mobile gaming markets.
