Let high-tech products meet high-tech pricing.


HIGH-TECH MANUFACTURING INDUSTRY


High-tech customers anticipating more with spending less

The optimal pricing of a line of high-tech products is extremely difficult as there are rapid changes in technology, competition and customer preferences. Prices quickly erode as products become obsolete due to high rates of technological innovations and shifting consumer expectations.

Customers have super high response and sensitivity to price changes, and there are many configurations of products with short and unpredictable lifecycles. Pricing decisions are usually made based on intuition or “follow the competition” models, with each company ceding pricing authority over to the competition.

In addition, manufacturers push sales through multiple channels, including OEMs and distributors. In the OEM channel, a manufacturer sells its products to an intermediary firm, which incorporates them into finished products for final consumption. In this channel, the manufacturer negotiates prices and other contract terms with the intermediary firm. Prices are usually set during the negotiation process and are in effect for the duration of the contract. While the manufacturer gets high volume and revenue commitments from an OEM customer, he also gets relatively low pricing leverage. On the other hand, distributors sell products in the spot market, where prices often change based on market conditions. The manufacturer has smaller and more frequent sales to distributors but has higher pricing leverage.


Prorize Solution 


Prorize partnered with Advanced Micro Devices (AMD) to identify the validity and benefit of using data-driven, scientific price optimization approaches for both OEM and distribution channels. We employed our Pricing AI Platform™  and tailored it entirely to the two distinct pricing approaches, as they have significantly different business environments, customers and data. We developed separate segmentation strategies, data pooling processes and predictive sensitivity models to optimize expected profits and revenues for both channels. We also incorporated product-line positions and lifecycles, performance-adjusted competitive prices, and pricing rules into our optimization modules. We then recommended optimal list prices, regional prices and distributor-specific prices for the distributors channel, and optimal negotiation bands (optimal floor, target, and ceiling prices) for the OEM channel.

In addition, we rigorously quantified expected revenue benefits using a holdout sampling method. In this method, the data from the most recent period was intentionally excluded from the model at the time of optimization. Revenue benefits were then estimated based on what would have happened in that period given optimum prices. We also simulated sales mechanisms based on statistically likely ranges of price sensitivities. We then projected an annual revenue increase between 3.7 and 8.3 per cent for the distributors’ channel, and an annual revenue increase between 2.8 and 6.8 percent for the OEM channel.

HIGH-TECH MANUFACTURING INDUSTRY


High-tech customers anticipating more with spending less

The optimal pricing of a line of high-tech products is extremely difficult as there are rapid changes in technology, competition and customer preferences. Prices quickly erode as products become obsolete due to high rates of technological innovations and shifting consumer expectations.

Customers have a super high response and sensitivity to price changes, and there are many configurations of products with short and unpredictable lifecycles. Pricing decisions are usually made based on intuition or “follow the competition” models, with each company ceding pricing authority over to the competition.

In addition, manufacturers push sales through multiple channels, including OEMs and distributors. In the OEM channel, a manufacturer sells its products to an intermediary firm, which incorporates them into finished products for final consumption. In this channel, the manufacturer negotiates prices and other contract terms with the intermediary firm. Prices are usually set during the negotiation process and are in effect for the duration of the contract. While the manufacturer gets high volume and revenue commitments from an OEM customer, he also gets relatively low pricing leverage. On the other hand, distributors sell products in the spot market, where prices often change based on market conditions. The manufacturer has smaller and more frequent sales to distributors but has higher pricing leverage.


Prorize Solution 


Prorize partnered with Advanced Micro Devices (AMD) to identify the validity and benefit of using data-driven, scientific price optimization approaches for both OEM and distribution channels. We employed our Pricing AI Platform™ and tailored it entirely to the two distinct pricing approaches, as they have significantly different business environments, customers and data. We developed separate segmentation strategies, data pooling processes and predictive sensitivity models to optimize expected profits and revenues for both channels. We also incorporated product-line positions and lifecycles, performance-adjusted competitive prices, and pricing rules into our optimization modules. We then recommended optimal list prices, regional prices and distributor-specific prices for the distributors' channel, and optimal negotiation bands (optimal floor, target, and ceiling prices) for the OEM channel.

In addition, we rigorously quantified expected revenue benefits using a holdout sampling method. In this method, the data from the most recent period was intentionally excluded from the model at the time of optimization. Revenue benefits were then estimated based on what would have happened in that period given optimum prices. We also simulated sales mechanisms based on statistically likely ranges of price sensitivities. We then projected an annual revenue increase between 3.7 and 8.3 percent for the distributors' channel and an annual revenue increase between 2.8 and 6.8 percent for the OEM channel.

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