Syeed Mansur | June 2nd, 2009
Filed 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 | 2 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 »
Syeed Mansur | May 27th, 2009
Filed under: Managers View | Tags: competitor pricing, how to maximize revenue, Josh Bell, long-term competitive advantage, maximize earnings, optimal pricing, optimization problem of mind-boggling complexity, optimize the marketing attributes of the product, optimize the price of the product, pricing manager, pricing power, pricing science, pricing software, pricing systems, quantitative analysis, revenue optimization, street musician | 2 Comments »
If figuring out how to maximize your revenues by charging the right price is hard when people actually need your product, imagine how much harder it is when they don’t need your product or don’t necessarily even need to pay to enjoy your product. The lessons learned from how to maximize revenue in this regard, which is a much more formidable challenge, can profoundly impact your ability to maximize earnings in the less difficult situation where people have no alternate choice but to pay for your product. In a stroll down a busy street, we will once in a great while receive a good that can stir our soul yet require no payment. We receive this good from the ubiquitous street musician who earns his income as a mendicant who lets you set the price (which is often nil), rather than setting his own price for “services tendered.”
And then there are those rare occasions where we encounter a street musician whose music soars so high that we are forced to refer to him simply as a “musician,” for using the adjective “street” would be nothing short of a criticism. About 2 years ago, this is what I encountered at one of Washington D.C.’s busiest Metro (subway) stations during the morning rush hour. It wasn’t until much later in the day that I discovered the musician in whose masterly hands the violin “sobbed and laughed and sang” was the great virtuoso Josh Bell. In the middle of the morning rush hour, 1,097 commuters passed by and all heard soul-stirring music at a price of their own choosing that just a few days earlier fetched more than $100 a seat at Boston’s Symphony Hall. Josh Bell played to a rush hour herd, and demanded no price for priceless music.
His income depended not on the value he provided to those 1,097 passersby, but the overwhelming value he provided – for, if he failed to stir, we listless commuters would feel no compunction to pause and forfeit even a meager fraction of our purse. And stir he did, with a masterly performance of Bach’s Chaconne from Partita No.2 in D Minor. Of the almost 2,000 pedestrians that filed by, only 27 gave money for a total of $32. In other words, for a performance that was described by the Washington Post as “pearls before breakfast,” less than 3% of us offered any payment (for “a man whose talents can command $1,000 a minute”). Did the service deserve such scant payment, or was there more to the revenue than just the greatness of the service itself. This is a question that goes right to the root of just how complex the endeavor of pricing can be. Read the rest of this entry »