TY - CHAP

T1 - Optimizing price levels in e-commerce applications with respect to customer lifetime values

AU - Funk, Burkhardt

N1 - Conference code: 10

PY - 2009/8/12

Y1 - 2009/8/12

N2 - In a recent paper we have shown how Internet retailers could optimize their price levels according to their strategy. The discussed method optimizes short-term profitability by determining the exact demand curve. The method involves the application of empirical price tests. For this purpose visitors of an Internet retailer are divided in statistically identical subgroups. Using the A-B testing method different prices are shown to each subgroup and the conversion rate as a function of price is calculated. We describe the organizational requirements, the technical approach, and the statistical analysis applied to determine the price optimizing the per-order profit and the average customer lifetime value. In this paper we review the results of a field study carried out with a large Internet retailer and shows that the company was able to optimize a specific price component and thus increase the contribution margin per order by about 7%. In addition we argue that at the same time the customer lifetime value could be enhanced by 13%. We conclude that the discussed method could be applied to answer further research questions such as the temporal variation of demand curves. Copyright © 2009 ACM.

AB - In a recent paper we have shown how Internet retailers could optimize their price levels according to their strategy. The discussed method optimizes short-term profitability by determining the exact demand curve. The method involves the application of empirical price tests. For this purpose visitors of an Internet retailer are divided in statistically identical subgroups. Using the A-B testing method different prices are shown to each subgroup and the conversion rate as a function of price is calculated. We describe the organizational requirements, the technical approach, and the statistical analysis applied to determine the price optimizing the per-order profit and the average customer lifetime value. In this paper we review the results of a field study carried out with a large Internet retailer and shows that the company was able to optimize a specific price component and thus increase the contribution margin per order by about 7%. In addition we argue that at the same time the customer lifetime value could be enhanced by 13%. We conclude that the discussed method could be applied to answer further research questions such as the temporal variation of demand curves. Copyright © 2009 ACM.

KW - Business informatics

KW - Demand curve

KW - Electronic commerce

KW - Posted prices

KW - Price dispersion

KW - Price optimization

KW - Price partitioning

KW - Price tests

KW - Pricing strategy

KW - Sustainability sciences, Communication

UR - http://www.scopus.com/inward/record.url?scp=70450263489&partnerID=8YFLogxK

UR - https://www.mendeley.com/catalogue/983bbc27-7028-3ed3-b693-d8882bd2a2a0/

U2 - 10.1145/1593254.1593280

DO - 10.1145/1593254.1593280

M3 - Article in conference proceedings

SN - 978-160558586-4

T3 - ACM International Conference Proceeding Series

SP - 169

EP - 175

BT - Proceedings of the 11th International Conference on Electronic Commerce, ICEC 2009

A2 - Chau, Patrick Y. K.

A2 - Lyytinen, Kalle

A2 - Wei, Chih-Ping

PB - Association for Computing Machinery, Inc

T2 - ACM Conference on Electronic Commerce - EC 2009

Y2 - 6 July 2009 through 10 July 2009

ER -