Vendors often do not know how to exploit the enormous benefits of dynamic pricing for optimizing revenue. In his research, Den Boer shows the benefits of a deliberate deviation of the apparent optimal price at that moment and experiment with retail prices. “Digital sales data contain valuable information about customer behaviour, especially the relation between demand and retail price. By experimenting with prices, vendors can collect a lot of information about this demand curve,” Den Boer says.
Better pricing decisions
Den Boer designed mathematical algorithms that find the most cost effective way to experiment with retail prices. It sacrifices profits on a short term in order to learn more about customer behaviour and make better pricing decisions in the long term. Den Boer’s pricing algorithm shows how often and in which range vendors should experiment with their retail prices, or in other words, what the optimal balance is between learning and profit maximization.
Big data
Arnoud den Boer’s research is part of a recent trend to use Big Data, large amounts of digital information, to make optimal decisions. His results give valuable insights for a large category of decision problems in which Big Data plays a role.
