Pricing quantity discounts

Have you been to a car dealer lately? The first question the car sales person would ask you is how much can you pay per month? This is exactly how pricing for “ad hoc products” are arrived at in SMBs. Pricing is the most tricky decision for any successful product launch. However in most scenarios, we notice that the price goes down with increased volume. We all know, Walmart doesn’t pay the same price as a convenience store around the corner to a supplier. So how does organizations come up with the prices for a product bundle?

Recently, read a great paper on how to arrive at pricing on volume discounts by two Wharton professors Raghuram Iyengar and Jeiddi.  This study published by Wharton professors have enriched the traditional conjoint analysis by adding the quantity aspect of a product or service. You can read the complete article here. Normally conjoint analysis is used to derive the perceived value of a product or service (by the consumer) based on its various attributes (features).

The authors devised a methodology to arrive at the various price points that the consumers would be willing to pay for the respective quantity of product or service. I think every business can utilize or build upon this study to determine the price for the various product bundles. This methodology factors in the  marginal willingness-to-pay per quantity to determine the “Willingness-to-pay” for the next higher product bundle. This study has been done for consumer products or service. It needs to be seen how this can be applied in a B2B scenario.

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