Customer-driven pricing mechanisms in revenue management
Final Report Abstract
Customer-driven pricing mechanisms allow buyers to influence the price they pay. In the past, they have extensively been used in revenue management (i.e., optimizing price and inventory simultaneously) to fill excess capacity as well as promotional tools. The application of customerdriven pricing mechanisms to revenue management often requires the seller to decide on the spot whether to accept a buyer’s bid or not, because otherwise the buyer may be gone or a perishable product lost. Therefore, we focused in this project on customer-driven pricing mechanisms that entail a one-to-one interaction between buyer and seller. In particular, we considered customer-driven pricing mechanisms that delegate all pricing power to the buyer (social pricing mechanisms, i.e., PWYW), pricing mechanisms where sellers can exert some influence, e.g., via a secret threshold price (NYOP), as well as opaque selling. The overall goal of this project was to analyze the determinants of buyer and seller behavior in customer-driven pricing mechanisms and related selling concepts. More precisely, we aimed to analyze and develop models of buyer and seller behavior for the three types of customer-driven pricing mechanisms described above. Therefore, the project was divided into four main work packages (WPs). Work package 1 focused on PWYW and aimed to better understand buyer and seller behavior under this pricing mechanism and to analyze which effects contribute to or limit the success of PWYW. The resulting research article to this work package was published in Management Science, received the best paper award of the Verband der Hochschullehrer für Betriebswirtschaft (VHB), and triggered a follow-up field project together with Thieme Publishers. WP 2 was concerned with the effects of design attributes of NYOP-auctions on buyer behavior. More specifically, WP 2 experimentally examined whether a name-your-own-price retailer would benefit from charging prospective buyers a non-refundable bidding fee rather than providing the bidding channel free of charge. Bringing PWYW and NYOP together to compare and contrast how they perform relative to each other as a function of the environment as well as the role of promotional benefits they offer was the objective of WP 3. Finally, WP 4 is still ongoing and concerned with consumer preferences for opaque products. First experiments were conducted and we are aiming to have a working paper ready by the end of this year. Methodologically, we employed both theoretical modeling and laboratory experiments in all work packages to analyze how buyer and seller behavior is causally affected by different factors such as valuations, costs, market structure and social preferences. Our results allow for a better understanding of buyer and seller behavior in customer-driven pricing mechanisms and enable implications for the optimal design of such mechanisms. In conclusion, all work packages were conducted along the initial research proposal.
Publications
- (2015). Pay What You Want as a Marketing Strategy in Monopolistic and Competitive Markets. Management Science, 61(6), 1217-1236
Schmidt, K. M.; Spann, M., & Zeithammer, R.
(See online at https://doi.org/10.1287/mnsc.2014.1946) - (2015). Paying For a Chance to Save Money: Participation Fees in Name-Your-Own-Price Selling. NA - Advances in Consumer Research Volume 43, eds. Kristin Diehl and Carolyn Yoon, Duluth, MN: Association for Consumer Research, 750-750
Zeithammer, R.; Stich, L., Spann, M., & Häubl, G.
- (2015). Zahle, wer will. Harvard Business Manager, 10/2015, 14-15
Spann, M.
- Paying for a Chance to Save Money: Buyer Behavior in Name-Your-Own-Price Markets with Bidding Fees. pdfs.semanticscholar.org, July 5, 2016, PDF: 43 S.
Zeithammer, R., Stich, L., Spann, M., Häubl, G.
- Delegating Pricing Power to Customers: Pay What You Want or Name Your Own Price? Journal of Economic Behavior & Organization
Volume 136, April 2017, Pages 125-140
Krämer, F., Schmidt, K. M., Spann, M., Stich, L.
(See online at https://doi.org/10.1016/j.jebo.2017.01.019) - Pay What You Want as a Pricing Model for Open Access Publishing? Communications of the ACM, Volume 60 Issue 11, November 2017, Pages 29-31
Schmidt, K. M., Spann, M., Stich, L.
(See online at https://doi.org/10.1145/3140822)
