Revenue Management and Pricing International hosted a conference on June 6th 2013. This brief presentation considered the emerging discourse on 'compulsion loops' and whether it can inform our thinking price optimization.

1. by Derren Joseph,
Director of Package
Pricing - 06/06/2013
Thoughts on Price
Optimization in the
age of Compulsion
Loops
Conference Presentation for
the

2. Contents
• Introduction
• Optimization and Automation
• Evolution from CBP to VBP
• My thoughts on Optimization and automation
• Compulsion Loops
• JC Penney - EDLP vs. Compulsion
• Understanding Compulsion Loops
• Implications of Compulsion Loops for Pricing

3. Presence in
50+ Countries
30 Sites in
30 Countries
10,000 Affiliates in
33 Countries
85 Sites in
67 Countries

4. Question
versus

5. Evolution
1. From accounting to economics or from cost based to “value based
pricing”
2. Simple modelling to big data
3. The Internet…what’s next?

6. Question
1. Data
2. People
3. Technology

7. My thoughts on Optimization and automation
1. Get the data right –
• Continuous A/B testing
• Conversion data
• Segment by pricing factors
2. Spread sheet / MS Access modelling
3. Automate
4. Engage in information / test & learn arms race

8. ‘Retailer Pricing and Competitive Effects’
Journal of Retailing 85 (1, 2009) 56–70, Pradeep K. Chintagunta et al

9. Typical Pricing Streams
• Optimization
• Tactical
• Price Framing

10. My confusion…

11. A possible answer…
• A presentation to students attending the Michigan State University: Study
Abroad 2012: Mass Media in the UK programme.
• http://www.slideshare.net/adamcrowe/compulsion-loops

12. Compulsion Loops
• def. Compulsion Loop: A habitual behavior that a human will repeat to
gain a neurochemical reward: a feeling of pleasure and/or a relief from
pain. Not doing the behavior causes discomfort.
• ● Media is no longer about simply capturing attention; it is about
cultivating habits within users so that they will be compelled to return to,
and engage with, a system.
• We are talking about the psychobiology and neurochemistry of media

13. Question

14. Compulsion Loops
• Dopamine motivates novelty-seeking behavior. Both novelty-seeking
(achievement) and relationship-seeking (security) behaviors are rewarded
with Endorphins (pleasure and/or pain relief).
• Cultivate habits within users so they will be compelled to return and
engage with a system (hopefully creating social entanglement in the
process).
• Successful future media platforms will be those that cultivate and then
service their users' emotional dependencies.

15. Implications for Pricing
1. Tactical activity
2. Hedonistic Bundling
3. Limiting the paradox of choice

16. Hedonistic Bundling -
‘Price-Framing Effects on the Purchase of Hedonic
and Utilitarian Bundles’
• UZMA KHAN and RAVI DHAR
• Journal of Marketing Research. Vol. XLVII (December 2010), 1090 –1099

17. Limiting the paradox of choice

18. What do you think about compulsion loops?