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Method for dynamic pricing feedback Disclosure Number: IPCOM000126986D
Original Publication Date: 2005-Aug-16
Included in the Prior Art Database: 2005-Aug-16
Document File: 1 page(s) / 38K

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Pricing is determined in a dynamic method by continually conducting experiments to assess buyer demand elasticities..

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Method for dynamic pricing feedback

One of the difficulties in setting pricing, promotions, and markdowns is knowing the sensitivity of customer demand to changes in prices. Traditional systems have determined these sensitivities -- or demand elasticities -- by analyzing historical consumer purchasing patterns. However, there are often many factors that can make it difficult to analyze this data, since changes in demand that reflect changes in price may reflect many factors that are not captured in the data or in the analysis.

The advent of on-line selling, however, presents an opportunity to monitor and respond to demand in a far more efficient manner. The approach is as follows. An on-line seller continually conducts experiments to assess buyer demand elasticities. This is done by selectively changing posted prices for a control group and an experimental group (or multiple groups), then monitoring their responses to the price changes. This information can then be used to modify pricing for all customers, using traditional pricing and revenue management schemes. Complementary experiments may assess pricing elasticity as it relates to demographics of customers. Continual optimization can be used in a feedback loop that comprises sampling demand elasticities, re-running a pricing optimizer to maximize revenue, resetting baseline pricing, then iterating. This method of fulfilling customer demand consists of identifying at least one customer with at least one charac...