Dynamic and Personalised Pricing

The Pricing process is one of the most important exercises in Marketing, it’s the final validation of the value of products to the customers.
We might succeed brilliantly in the acquisition process of customers, using the best SEO, targeted ads, Marketing automation techniques and yet fail in the step of the activation process, because the suggested pricing is beyond the product’s perceived value for the customer.

This relationship between pricing and value, reveals the problem we face : trying to build a decision for the Price, which is a concrete and measurable attribute of the product, based on an intangible, subjective and dynamic concept which is the Value.

In the modern pricing theory, the pricing optimisation problem takes into consideration the consumer surplus hypothesis, where we assume that the buying decision takes place only if the perceived value is higher than the price of the product, and that every customer seeks to maximise his customer surplus. From that perspective, companies optimise their pricing tactics within the interval between the product cost, and the perceived value of the product, regarding the constraints dictated by the company's Pricing Strategies, whether it’s a skimming, penetration or price war strategy etc..

To build a great Pricing strategy, companies need to develop a deep understanding of the perceived value of the product to their customers.

The value is dynamic, because it keeps changing in regards to the current constraints of the customer. An umbrella in a rainy day has not the same value as in a sunny one, and a customer operating extensive search for a product at 4a.m does probably not value the product the same as if he was searching the product at 4p.m. The value is also, personalised, because it depends of the background of the customer and context of the transaction.

In theory, that means that technically, to build a Dynamic and Customised Pricing tactics, we need to take into consideration the timing, the context and the customer profile. And this may result in different prices, in different timing for each different customer.

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