Pricing Theory and Practice


Finding the profit maximizing price for a product, or group of products, can be difficult. It takes a fair amount of data, a bit of training, and some analytic chops to do it well. Many companies lack the necessary skillset in-house, and few have the bandwidth to handle more than a handful of SKUs, much less to rigorously update their pricing as market conditions change.

 The result is that many companies focus on the bestselling SKUs and try to reason out whether their prices should be raised or lowered. They then move products that are similar (or in similar categories) up or down by about the same degree. The problem is that other products in the category can be complements or substitutes, or their demand may be completely unrelated. The right price (change) for X is rarely the right price (change) for Y.
 The best option: find a way to automate pricing and use that process on most products or groups of related products. Even spreadsheets can go a long way these days. A good automated process will touch more than just that top few SKUs and can be updated as regularly as market conditions change.


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