The document discusses pricing strategies, particularly price skimming and the reduction of prices over time due to competition, the learning curve, and initial value pricing. It provides an example of implementing a skimming model for a Rolex smartwatch over 12 months, detailing the steps for calculating sales, revenue, and optimizing prices using Excel. The aim is to maximize revenue while adjusting prices to maintain customer interest and manage unit sales.

1. PRICING ANALYTICS
Price Skimming

2. Price Reductions Over Time
•Prices of items in several product/service categories decrease over time
•Three common reasons for these price reductions:
•Competition
•Learning curve
•Price skimming

3. Price Skimming
•Basic economic principle: not every customer places the same value on a product/service
•Initial “value pricing” can maximize unit sales, but cannibalizes potential revenue from high-value customers
•Initial “premium pricing” can maximize revenue, if you drop prices over time to attract remaining customers

4. Price Skimming Example
•Skimming model for Rolex smartwatch
•Cover 12 months of sales
•Sell 10,000 watches
•Prices adjusted on 1st of each month
•Assumption: Sell all 10,000 watches in 12 months

5. Enter trial prices for each of the 12 months

6. Enter formula to calculate highest value customer left:
=B3-1

7. Select cell containing formula Select handle at bottom right of formula cell, then drag down while holding Ctrl key

8. Enter formula for units sold in a month:
=C2-C3

9. Select cell containing formula
Select handle at bottom right of formula cell, then drag down while holding Ctrl key

10. Enter formula for the month’s revenue: =B3*D3

11. Select cell containing formula
Select handle at bottom right of formula cell, then drag down while holding Ctrl key

12. Enter formula to aggregate the entire year’s revenue:
=SUM(E3:E14)

13. Launch Excel Solver

14. Maximize Yearly revenue
By changing prices Using Evolutionary solving method

15. Click Add button

16. Price
Must be an integer Click OK

17. Click Add button

18. Price
Less than/equal to $10,000
Click OK

19. Click Add button

20. Price Greater than
$1 Click OK

21. Click Solve button

22. Maximized yearly revenue
Optimized monthly price levels