Finding Pricing Excellence on a Roulette Wheel
Syeed Mansur | June 2nd, 2009Filed under: Managers View | Tags: Abraham de Moivre, Central Limit Theorem, consumer behavior, econometrics, every day low pricing (edlp), Frequentist Probability, high-low pricing (hlp) strategy, historical market data, pinpointing a price that will maximize demand and revenue, pricing excellence, pricing manager, pricing under uncertainty, probabalistic methods, quantitative methods in marketing, revenue optimization, scientific pricing, uncertainty surrounding consumer behavior | 4 Comments »
One of my recent posts, “You Are Not At the Mercy of the Market…”, attracted a rather thought-provoking response posted directly to the blog. The crux of this response, and others sent directly to me, have all revolved around a similar theme: With so much uncertainty surrounding consumer behavior, words such as “pinpoint” or “optimize” should not be uttered when it comes to the decisions that pricing and marketing 
managers must make. This is indeed a compelling sentiment, and has stirred much discussion amongst my colleagues in industry and in academia (our research organization collaborates closely with professors within the University of Chicago and Carnegie Mellon University). This discussion has taken on many twists and turns, which we hope to summarize in future posts. But, there is one particular question that has resonated throughout our discussions:
What are the implications of the words “pinpoint” and “optimal” when market behavior is so uncertain?
In other words, is it possible to find a single decision that will maximize the odds of earning a handsome payoff when the outcome of any decision is uncertain? In a rather extreme example, in the highly uncertain world of gambling, can I make some decisions that are clearly better than others in light of the uncertainty? Read the rest of this entry »