Smart Pricing and Linking Pricing Decisions with Operational Insights (Research Brief)

This article provides an overview of several studies on the linkage between pricing and operations and highlights different drivers for dynamic pricing strategies. Revenue management is concerned with pricing a perishable resource in accordance with demand from multiple customer segments so as to maximize revenue or profit. Research in revenue management has been impressive. A 1999 study provide a review of the literature and directions for future research, and a 2003 study present an updated review with a focus on electronic commerce applications. Revenue management has been the driving force behind many attempts to integrate pricing and operations. A 2001 study on Internet sales, generated a number of hypothesis about how consumers will react to dynamic pricing, both on the Internet and in physical stores. This paper explicitly considers the effects of consumer learning, reference price effects and consumer price expectations. Research that integrates pricing with management of lead time and production capacity can be divided into two segments. One integrates pricing concerns into the capacity-procurement decision, which reflects a long time horizon. The other focuses on a shorter time horizon, using pricing to make the best use of available capacity.