Pricing strategy with business intelligence

Published on January 31, 2017   34 min
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Hi, my name is Dr. Michael McDonald. I'm a professor of Finance at Fairfield University. Today, I'd like to talk to you about pricing strategy with business intelligence. Let's get started, shall we?
Today we're going to break the talk up into four different modules. First, we're going to talk about why product pricing matters. Second, we're going to talk about a background on what we call price discrimination. Which despite the negative connotation around the word discrimination, is actually a positive thing for businesses and it's completely legal. In Module 3, we're going to talk about different types of price discrimination, and then finally in Module 4, we're going to talk about how to use price discrimination to increase profits at a firm.
Module 1: why product pricing matters.
You're probably aware that for businesses, pricing is an enormously important factor in achieving success and profitability. In fact, price is one half of the revenue equation. People will often focus on increasing sales at a business and the truth is it's frequently much easier to optimize our price. The basic idea here is that different people are willing to pay different amounts for the same product. For instance, I might be willing to pay a lot for a hamburger if I'm very hungry. In contrast, if you're not very hungry, you might be willing to pay very little. It's that old adage about water being the most valuable resource on Earth to somebody that's just walked out of the desert. On the other hand, if you have water and you live in city or something like that, the water is worth almost nothing. The idea is that intuitively, different customers are willing to pay different amounts for exactly the same product. You probably see this when you go to, say, a car dealership. You haggle with the car dealer, because you're willing to pay a different amount than somebody else might be willing to. This applies in lots of different contexts across lots of different industries, and if you start looking around I bet that you'll find a few circumstances where even in your day-to-day life, you can observe different prices for different customers, based on their level of demand.