Enabling Incremental Gains Through Customized Price Optimization

Abstract

Price optimization solutions presented in this chapter provide an analytic approach that helps the business to improve margins and increase volumes. The chapter proposes a comprehensive pricing framework which not only maximizes short-term gains but also addresses critical value enhancing CRM issues, such as cross-sell, up-sell, and better life cycle management through retention. The significant contribution of the chapter involves developing a framework that explicitly and transparently takes into account the price response and adverse elasticity concepts. Also in order to successfully capture the consumer behavior, this chapter introduces advanced modeling techniques such as the double hurdle model, in contrast to the more traditional logistic models, and demonstrates its efficiency to model attrition and risk. Additionally, this chapter introduces a sophisticated clustering technique called “genetic algorithm” for segmentation analysis. Finally, based on the insights from this analysis, a dynamic optimization tool is developed to effectively improve the risk-adjusted profit for the business.

This chapter contains contributions from V. Anuradha and Avanti George, Madras School of Economics, Chennai, India.