Price Optimization & Revenue Management

Using data to match pricing of supply to demand

When done correctly, price optimization closely matches supply and demand, enabling a company to recover lost revenue and serve more customers. Successful implementations continuously take in new data and update prices dynamically, though perhaps not instantly. In some industries, such as travel, this is called Revenue Management.

What does price optimization look like?

Rental car rates varying by location, type of car, and time of day or week.
'Surge Pricing' where prices increase during times of higher demand in a zone, for example, a city during rush hour.
 
Basketball tickets fluctuate in cost depending on the seats, how the team is doing, opponent for a particular game, and which players are playing in that game.
Online retailers matching the price on competitive items like paper towels while increasing margin on items only they carry.

Implementation

There are three crucial requirements for price optimization.
Varied willingness to pay among customers.
Data upon which to base a reliable demand forecast.
The ability to segment prices based on willingness to pay.
Price optimization is the science of matching the right price to the right customer segment. It is part of the larger marketing mix science, and can be implemented either separately or in conjunction with changes to other P's–but does not necessarily need to involve other changes. 
Dynamic Pricing
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