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

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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.
Original languageEnglish
Title of host publicationProceedings of the 11th International Conference on Electronic Commerce, ICEC 2009
EditorsPatrick Y. K. Chau, Kalle Lyytinen, Chih-Ping Wei
Number of pages7
PublisherAssociation for Computing Machinery, Inc
Publication date12.08.2009
Pages169-175
ISBN (print)978-160558586-4
DOIs
Publication statusPublished - 12.08.2009
EventACM Conference on Electronic Commerce - EC 2009 - Stanford, United States
Duration: 06.07.200910.07.2009
Conference number: 10
https://dl.acm.org/doi/proceedings/10.1145/1566374

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