Pricing

ECOPA uses its command of statistics and understanding of applied econometrics to help its private sector clients improve their understanding of their customers’ behaviour and so optimise their pricing strategies.

Who is the typical customer? What is the most pertinent market segmentation? How to best target promotional and advertising campaigns? What is the price level that maximises profit on variable costs? Thanks to the increased availability of purchase transaction databases, especially in e-commerce, and the development of specialised micro-econometric techniques, these questions can now benefit from a rigorous quantitative approach. ECOPA implements this approach for its clients, following three steps:

• Data mining - a detailed statistical analysis of the company's client and sales data. The goal of the analysis is to extract and utilise the pertinent information concealed in the vast databases increasingly held by businesses. This enables ECOPA to draw up the profile of a typical client and to suggest efficient client segmentations, which can in turn be used for targeted promotions and advertising. These techniques typically include statistical and machine-learning techniques such as clustering, decision trees, factor analysis and scoring.

 

• Price optimisation - equipped with the data mining results, ECOPA can build efficient demand models such as simple log-linear models or more sophisticated discrete-choice models. The goal of these is to quantify how sales respond to a variation in price, i.e. to estimate the price elasticity of the demand. This enables ECOPA to suggest a pricing pattern that maximises profits, explicitly taking into account demand behaviour and potentially accounting for individual characteristics (such as age, location, gender, past purchasing history), as well as taking into account potential variable unit costs and competitors' prices.

 

• Piloting implementation of the results - given the risk to clients of changing prices, a third stage of testing recommendations for optimal pricing on a representative sample of the company's activities for a limited period of time is often warranted. This sample can be a region or category of products. Such tests require extensive knowledge of applied statistics (random sampling techniques, construction of control groups and econometric impact analysis techniques), which ECOPA can supply.