Strategy: Price – Test – Reprice

One pricing strategy is to testing with different prices to find the volume that trades at those prices.

This is a more advanced technique than most in that there is an attempt to understand consumer behaviour.

However, the one big flaw with this technique is the lack of a control experiment.

Many factors other than price can affect the decision to buy. Some of these may occur more often after the price was changed.

Consider the impact of a ad released after price was changed. This will impact the volume. It also induces noise into the pricing experiment.

On one hand, if the manufacturer were experimenting with a higher price when an ad went public, it will look better than it actually is for profit causing the manufacturer to correct price upward. On the other hand if the manufacturer were testing a lower price, the volume would look higher than normal causing the manufacturer to correct price downward.

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