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From Alexa to iTunes to Google Home, for the past few years, tech heavy hitters such as Amazon, Apple, and Google have been building strategic product combinations designed to lure in customers and lock down their loyalty.
Now, new research released by **** Li, assistant professor of marketing at the Tepper School of Business, suggests a dynamic pricing strategy that also allows companies to capture these customers at their most profitable.
Li - Research - Draws - Years - Worth
Li's research draws on five years' worth of Amazon data from consumer book and e-reader device purchases from 2008 to 2012. Consumers need to buy the e-reader device to read e-books. What she found was that, when considering adopting e-reading or not, avid readers focused more on the price of e-books, while more general readers focused on the price of the e-reader hardware. Both types of customers would wait for the price to drop before making a purchase, which limited profitability.
While working on "Intertemporal Price Discrimination with Complementary Products: E-Books and E-Readers," published in Management Science, Li found that creating complementary products can help companies overcome this limitation. So Li proposed a strategy that targets both types of consumers and leverages the difference between the two types. She suggests when the e-readers are priced high initially, the e-books should be cheaper, which attracts the avid reader, who is willing to pay a higher price for the hardware...
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