Dynamic Consumer Profiling and Tiered Pricing Using Software Agents

Authors:
Prithviraj Dasgupta;P. Michael Melliar-Smith
Affiliations:
Department of Computer Science, University of Nebraska, Omaha, NE 68182, USA pdasgupta@mail.unomaha.edu;Department of Electrical and Computer Engineering, University of California, Santa Barbara, CA 93106, USA pmms@ece.ucsb.edu
Venue:
Electronic Commerce Research
Year:
2003

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Abstract

Shopbots or software agents that enable comparison shopping of items from different online sellers have become popular for quick and easy shopping among online buyers. Rapid searches and price comparison by shopbots have motivated sellers to use software agents called pricebots to adjust their prices dynamically so that they can maintain a competitive edge in the market. Existing pricebots charge the same price for an item from all of their customers. Online consumers differ in their purchasing preferences and, therefore, a seller's profit can be increased by charging two different prices for the same good from price-insensitive and price-sensitive consumers. In this paper, we present an algorithm that partitions the buyer population into different segments depending on the buyers' purchase criteria and then charges a different price for each segment. Simulation results of our tiered pricing algorithm indicate that sellers' profits are improved by charging different prices to buyers with different purchase criteria. Price wars between sellers that cause regular price fluctuations in the market, are also prevented when all the sellers in the market use a tiered pricing strategy.