Pricing and revenue optimization

Course outline

• Basic price optimization, examples• Looks at pricing the product depending on the cost and demand structure• Looks at different demand curves and their implications• Practical outcome: imputed elasticity as a sanity check for current pricing• Whether to maximize revenue or total contribution, Solver

• Price differentiation, examples• Segment market and find optimal prices, Solver

• Different prices for the internet channel and the retail store• Considers arbitrage, that can occur between the markets, Solver• Optimal pricing with cannibalization, Solver• Optimal pricing and finding the best possible segmentation – at which price to

segment the market, Solver

Course outline

• Pricing with constrained supply, examples• Pricing with a capacity constraint, Solver• Market segmentation and supply constraints, Solver• Variable pricing, Solver

• Revenue management – mostly for airlines, hotels, car rentals• Capacity allocation, examples

• Setting booking limits• Decision tree approaches• Different assumptions and their implications• The use of heuristics

• Network management, examples• Network linear programming problems, Solver

• Overbooking

Course outline

• Markdown management, examples• Pricing decision is taken in subsequent steps, Solver• Deterministic problem, problem with uncertainty• Estimating markdown sensitivity with the least squares method, Solver

• Customized pricing, B2B• Customer acceptance

Grading the course

• 50% of the grade comes from writing a recap of a revenue management case study• 50% of the grade is due to an assignment solved during the exam, the

use of all materials permitted, plenty of time to solve – at least 4 hours

Course textbooks