《供应链系统设计与管理》课程教学课件（讲稿）Lecture 12（Chapter 13）Smart Pricing

Designing and Managing the Supply ChainWHUT,2017Lecture 12(Chapter 13)THIRDEDITIONDesigning&ManagingtheSupplyChainSmart PricingConcepts, Strategies & Case StudiesWangZhangqiongDavidSimchi-LeviPhilipKaminskyEdithSimchi-LeviMcGraw-Hil/lrwin

McGraw-Hill/Irwin Lecture 12 (Chapter 13) Smart Pricing Wang Zhangqiong Designing and Managing the Supply Chain, WHUT, 2017

13.1 Introduction·Demand&Pricing>Implicit assumption sofarhas beenthatdemandcannotbeinfluenced> In reality, this is not true>Demand level changes canbemadethrough:>Advertising,displays,and promotional tools>Pricing13-2

13-2 13.1 Introduction  Demand & Pricing  Implicit assumption so far has been that demand cannot be influenced  In reality, this is not true  Demand level changes can be made through:  Advertising, displays, and promotional tools  Pricing

Dell's Pricing StrategyProductpricedifferentbased ontypeofcustomerProductprice variesover timePrices ofoptions offeredalso vary overtimeIBM is investigating software that willallow it to adjust prices according todemand13-3

13-3  Dell’s Pricing Strategy  Product price different based on type of customer  Product price varies over time  Prices of options offered also vary over time  IBM is investigating software that will allow it to adjust prices according to demand

Questions Related to PricingWhat arethese companies doing?Why does Dell charge a different pricefordifferent consumers?At different times?If Dell can do it, can it work for other companies?What is wrong with a traditional fixed-price policy?13-4

13-4  Questions Related to Pricing  What are these companies doing?  Why does Dell charge a different price for different consumers? At different times?  If Dell can do it, can it work for other companies?  What is wrong with a traditional fixed-price policy?

Revenue ManagementPrinciplesAll companiestryingto boostprofitbyusingwhat areknowas smartpricing orrevenuemanagement techniguesTechniques first pioneered by the airline,hoteland rentalcarindustriesAirlineindustryRevenue managementhas increasedrevenuesignificantlyAmericanAirlines'estimates ofannualincrementalrevenue of $1 billionthrough revenue management13-5

13-5  Revenue Management Principles  All companies trying to boost profit by using what are know as smart pricing or revenue management techniques  Techniques first pioneered by the airline, hotel, and rental car industries.  Airline industry  Revenue management has increased revenue significantly  American Airlines’ estimates of annual incremental revenue of $1 billion through revenue management

13.2PriceandDemandAll things being equal·Demand foraproduct will typicallygoupasthe product's price goes downCertainproductsmoreorlesssensitivetopricechangesIngeneral thepropertyholdsDownward-slopingdemandcurvesooplAP-204Elasticily-33.00$3.00ONewpoint2.9013-6a0

13-6 13.2 Price and Demand  All things being equal  Demand for a product will typically go up as the product’s price goes down  Certain products more or less sensitive to price changes  In general the property holds  Downward-sloping demand curve

Manager'sIssueWhat is the optimal priceat which revenue ismaximized?Need to characterizethe relationship betweenpricingand demand foreach productUtilize this characterizationto determinetheoptimal pricefor eachproductMayinvolvemanycomplexitiesVastquantitiesof datamayneedtobeanalyzedCompetitors'behaviormay needtobe capturedMany firms do managetoatleast approximatethis relationship13-7

13-7 Manager’s Issue  What is the optimal price at which revenue is maximized?  Need to characterize the relationship between pricing and demand for each product  Utilize this characterization to determine the optimal price for each product  May involve many complexities  Vast quantities of data may need to be analyzed  Competitors’ behavior may need to be captured  Many firms do manage to at least approximate this relationship

Example - Single ProductManagement estimates the relationshipbetween demand, D, and price, pD=1000-0.5p>Whenthep=$1,600,D=200>Whenthep=$1,200,D=40013-8

13-8 Example – Single Product  Management estimates the relationship between demand, D, and price, p  D = 1,000 - 0.5p When the p=$1,600, D=200 When the p=$1,200, D=400 

Price vs Revenue TablePriceDemandRevenue$250875$218,750$500750$375,000625$750$468,750500$1,000$500,000$1,250375$468.750250$1,500$375,000p=$1,600D=200D=100p=$1,800,MaximumRevenue=$500,000whenprice=$1,00013-9

13-9 Price vs Revenue Table Price Demand Revenue $250 875 $218,750 $500 750 $375,000 $750 625 $468,750 $1,000 500 $500,000 $1,250 375 $468,750 $1,500 250 $375,000 Maximum Revenue = $500,000 when price = $1,000 p=$1,600, D=200 p=$1,800, D=100

? How to get it?Demand-Price CurvePriceD=1,000-0.5pR=Dp=(1000-0.5p)pp=1,000derivativeD=500Numberof itemsp*=1000MaxR=500000How to improve the revenue further?13-10

13-10 Demand-Price Curve ？How to get it? D = 1,000 - 0.5p R=D p=(1000-0.5p)p derivative p*=1000 Max R=500000 How to improve the revenue further?