Featured Research

from universities, journals, and other organizations

'Sequential' pricing can increase retail profits

Date:
April 30, 2013
Source:
University of Arkansas, Fayetteville
Summary:
An in-depth study of so-called “sequential” pricing of retail products in both online and “bricks-and-mortar” stores found that the ability to set prices based on real-time knowledge of customer preferences and purchase intentions can increase profits in some specific circumstances.

Business researchers at the University of Arkansas have conducted an in-depth study of "sequential" pricing of retail products in both online and brick-and-mortar stores and found that the ability to set prices based on real-time knowledge of customer preferences and purchase intentions can increase profits in some specific circumstances.

"We show that retailers can actually increase profits by altering prices on certain products based on customers' intentions to purchase or not purchase other products," said Cary Deck, professor of economics in the Sam M. Walton College of Business. "Think about how shopping carts offered at most online stores work. A customer clicks on an item to view information about it and decides to add it to a shopping cart or not. The mere act of selecting an item to consider, regardless of whether the customer purchases the item, provides information to the retailer. It tells the store something about the shopper's taste and what other items may be of interest to the user. Stores can then set prices on those items accordingly, based on anticipated demand."

Sequential pricing -- as opposed to simultaneous pricing -- occurs when a seller, aided by technology, is able to set the price for a subsequent product based on a customer's interest in or preference for an initial product. The goods are usually associated in some way. For example, a seller identifies a shirt the customer selects, regardless of purchase, and then sets or alters the price for pants that go with the shirt. Because product selection reveals information about the buyer's tastes and preferences, sellers are better able to estimate a buyer's willingness to purchase other items and tailor prices accordingly. All of this can happen in real-time during the customer's shopping experience.

The findings indicated that a sequential pricing strategy worked better than bundling products and "pure" component pricing, in which a retailer simultaneously sets a price for goods that are close substitutes. Also, when customers' values for goods were highly correlated -- different books about baseball, for example -- profits increased when a retailer was able to increase the price of a second product based on the customer's decision to purchase the first product.

Deck and Walton College colleagues Amy Farmer, professor of economics, and John Aloysius, associate professor of supply chain management, developed a model in which a seller sets prices for two items. The model allowed for the possibility of sequentially revising the price for the second item based upon the buyer's revealed preference for the first item. The researchers ran simulations with a range of buyer values to compare sequential pricing with mixed bundling. The model revealed that sequential pricing could outperform bundling and simultaneous pricing of individual items in certain situations.

Tracking or monitoring customer preferences and intentions to purchase is not limited to online stores. New technologies, such as radio-frequency identification (RFID), allow brick-and-mortar retailers to monitor customer preferences in real time. And customers do not have to actually purchase an item to demonstrate interest. Individual RFID tags can inform retailers that an item has been taken off a shelf or removed from a fixture.

The ability to track individual items has improved inventory and security, but it has also enabled stores to identify which items a buyer intends to purchase at a given price, just as placing an item in an electronic shopping cart has done for an electronic retailer. Whether online or in an actual store, the new technology allows sellers to individualize prices while the customer is shopping.

The researchers study was published in the journal Information Systems Research. Farmer is holder of the Margaret Gerig & R.S. Martin, Jr. Chair in Business.


Story Source:

The above story is based on materials provided by University of Arkansas, Fayetteville. Note: Materials may be edited for content and length.


Cite This Page:

University of Arkansas, Fayetteville. "'Sequential' pricing can increase retail profits." ScienceDaily. ScienceDaily, 30 April 2013. <www.sciencedaily.com/releases/2013/04/130430091443.htm>.
University of Arkansas, Fayetteville. (2013, April 30). 'Sequential' pricing can increase retail profits. ScienceDaily. Retrieved September 23, 2014 from www.sciencedaily.com/releases/2013/04/130430091443.htm
University of Arkansas, Fayetteville. "'Sequential' pricing can increase retail profits." ScienceDaily. www.sciencedaily.com/releases/2013/04/130430091443.htm (accessed September 23, 2014).

Share This



More Science & Society News

Tuesday, September 23, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Liberia Pleads for Help to Fight Ebola

Liberia Pleads for Help to Fight Ebola

AP (Sep. 22, 2014) Liberia's finance minister is urging the international community to quickly follow through on pledges of cash to battle Ebola. Bodies are piling up in the capital Monrovia as the nation awaits more help. (Sept. 22) Video provided by AP
Powered by NewsLook.com
Hundreds of Thousands Hit NYC Streets to Protest Climate Change

Hundreds of Thousands Hit NYC Streets to Protest Climate Change

AFP (Sep. 22, 2014) Celebrities, political leaders and the masses rallied in New York and across the globe demanding urgent action on climate change, with organizers saying 600,000 people hit the streets. Duration: 01:19 Video provided by AFP
Powered by NewsLook.com
Company Copies Keys From Photos

Company Copies Keys From Photos

Newsy (Sep. 22, 2014) A new company allows customers to make copies of keys by simply uploading a couple of photos. But could it also be great for thieves? Video provided by Newsy
Powered by NewsLook.com
Raw: Protesters Stage Wall Street Climate Sit-in

Raw: Protesters Stage Wall Street Climate Sit-in

AP (Sep. 22, 2014) A day after over 100,000 people marched against climate change, more than 1,000 activists blocked parts of Manhattan's financial district. Over 100 people, including a person wearing a white polar bear suit, were arrested Monday night. (Sept. 22) Video provided by AP
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:

Strange & Offbeat Stories


Science & Society

Business & Industry

Education & Learning

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins