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Pricing Process Part 3: Structure (3c: Price Optimization)

In: Digital Pricing

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  • Frank Frohmann

Abstract

Professional pricing offers great potential for optimizing companies’ profits. To optimize profits, data on customer behavior is required: historical information, current statistics, or forecasts. In more than 400 pricing projects conducted by the author since 1996, survey-based methods have proven their worth. Among them especially: conjoint measurement as well as the direct price query via adapted price-sensitivity meter. I recommend price elasticity estimates based on an internal workshop as a supplement to customer surveys. For the company’s most important focus products, a combination of the adapted price-sensitivity meter with conjoint measurement and expert estimation is recommended. The exact determination of the new product price is of high importance. Even minor misjudgments of customer and competitor reaction can result in major financial disadvantages. A systematic process is required to determine the optimal price for innovations. The starting point is the comprehensive analysis of external and internal information. All steps—from analysis and target definition to implementation in the market—can be supported by modern data analysis and market simulation methods. Decision support methods bundle these sub-processes into a comprehensive model.

Suggested Citation

  • Frank Frohmann, 2023. "Pricing Process Part 3: Structure (3c: Price Optimization)," Management for Professionals, in: Digital Pricing, chapter 9, pages 217-262, Springer.
    • Handle: RePEc:spr:mgmchp:978-3-031-24591-6_9
    DOI: 10.1007/978-3-031-24591-6_9
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