News

Research on 'sequential' pricing shows strategy can boost sales

April 30, 2013

Researchers at the University of Arkansas revealed results of an in-depth study of "sequential" pricing of retail products in both online and brick-and-mortar businesses. The finding indicated that the ability to set prices based on real-time knowledge of customer preferences and purchase intentions can increase profits in specific circumstances, according to phys.org.

Sequential pricing is when a seller, with the assistance of technology, sets the price for a subsequent product based on a customer's interest in or preference for an initial product. The goods are usually associated in some way, according to the report.

The findings showed that a sequential pricing strategy worked better than bundling products and "pure" component pricing, where a retailer simultaneously sets a price for goods that are close substitutes.

"We show that retailers can actually increase profits by altering prices on certain products based on customers' intentions to purchase or not purchase other products," said Cary Deck, professor of economics in the Sam M. Walton College of Business. "Think about how shopping carts offered at most online stores work. A customer clicks on an item to view information about it and decides to add it to a shopping cart or not. The mere act of selecting an item to consider, regardless of whether the customer purchases the item, provides information to the retailer. It tells the store something about the shopper's taste and what other items may be of interest to the user. Stores can then set prices on those items accordingly, based on anticipated demand."

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