Pricing – Don’t let perfect get in the way of better

Nothing can be simpler than a price. Be it that of Delicious Reds in the local supermarket, or Apple stock on NASDAQ, a price is a simple, solitary number. But there isn’t a thing in the world that doesn’t affect it. In the complex web of global economic relationships, a terrorism incident in Australia, a coup in Thailand, or the quality of mattress at Merkel’s choice of hotel during Greek negotiations can all affect AAPL, at least theoretically. A prolonged terrorism crisis can push the markets down dragging AAPL with it. The supply of key iPhone components from Thailand can become uncertain in the light of coup, raising concerns about Apple missing its revenue estimate. A smiling well-rested Merkel (imagine that!) may just send the global markets and AAPL soaring.

 

So how do you determine the right price? Well, as economists say, price is the point where supply equals the demand. That doesn’t simplify things a whole lot. In fact, now you don’t know two things – supply and demand – instead of just price. So what does the sleepy local supermarket manager with a pricing staple gun in his hands do in the mornings to the price of Delicious Reds, and how low does the family breadwinner looking to hasten retirement set as his limit for an AAPL buy transaction? Well, in that short moment, they either rise above their lowly Earthly station in life and try to be like all-knowing God, because no sub-Godly amount of omniscience will suffice to perfectly know the exact supply and demand for that product at that moment in heavenly time. Or, more likely, facing a task even Gods will shudder in the face of, they give up entirely and more or less maintain the status quo, moving current prices just a few cents here and there based on their gut.

 

Well, there’s a long distance between Godly omniscience and belief in your gut, and data science falls in that broad spectrum, probably still closer to your gut than God but let’s not allow perfect get in the way of better. So do check, if you sell real apples, wholesale price of apples in your area and cold storage inventory in your own store before you set that price gun, and if you want to buy Apple stock, change in AAPL futures, analyst estimates and recently company news before you set that limit. Definitely don’t mix-up the two. And if you are prone to sudden sleepiness when faced with more than ten numbers, for God’s sake hire a professional – be it a pricing analyst or a financial planner.