Privacy, economics, and price discrimination on the Internet
ICEC '03 Proceedings of the 5th international conference on Electronic commerce
Frictionless Commerce? A Comparison of Internet and Conventional Retailers
Management Science
Dynamic Pricing on the Internet: Importance and Implications for Consumer Behavior
International Journal of Electronic Commerce
Price Comparison and Price Dispersion: Products and Retailers at Different Internet Maturity Stages
International Journal of Electronic Commerce
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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.