Challenges of Pricing
Pricing remains a complex problem with many variables impacting the process. Most companies make pricing decisions by adding margins to cost while also taking into account the micro and macroeconomics factors. But this is highly challenging. Even after setting a price they believe is right, they are still not sure of the prices that customers are actually paying.
Today with the increasing e-commerce purchases, price is the main factor in purchase decisions. For example, when you search for a product on Amazon, you will surely go for the lowest price if there is no difference in offering between the two products. Of course, you will be looking at the rating of the sellers, etc.
In addition to the comparison of prices of products online, consumers are also aware of alternative brands on other websites or stores. Let's assume that the price difference between products on two different websites is negligible and equal to 10 cents. So the hassle of doing research and buying the cheaper product doesn’t make sense. In this case, the consumer might buy the first option or whatever is easily accessible to him.
What makes pricing challenging is that the consumers' use of the product change over time depending on many factors such as economic climate, trends, seasons, etc. We also don't have the capabilities to create personalized recommendations yet due to a lack of personal level data or due to restrictions on personal data usage.
We will discuss pricing analytics and how to formulate pricing problems in the upcoming blogs