Using ‘Smart’ Pricing to Increase Profits and Maximize Customer Satisfaction

Abstract

A small change in prices can have a significant impact on profits and it is therefore becoming crucial for firms to use innovative approaches to pricing. Smart pricing is a dynamic approach to pricing that requires that firms have accurate information about market demand and profit margins on each item sold. Smart prices take into account differences in the costs of serving different segments and also the different valuations of one’s product by different segments. Firms that use smart pricing will not use a fixed price but will adjust prices, even on a daily basis, as market conditions, consumer demand, and product valuations change. Smart pricing is becoming extremely crucial for firms that wish to survive in the age of the Internet and globalization. Today’s customers use the Internet not only to make price comparisons but also to determine the seller’s actual costs.

Keywords: smart pricing, segmentation pricing, peak-user pricing, enhanced warranty pricing, dynamic pricing

JEL Classification: A22, A23, D81, G18, G21, I20, L20, L21, M14, M19, M31, Q20, Q38