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Andy Boyd, Pricing, and “The Engines of Our Ingenuity”

Andy Boyd, formerly chief scientist of PROS (he is actually still on their scientific board, but is not an active employee) visited CMU today as part of our CART (Center for Analytical Research in Technology) seminar series. He talked about the challenges those in pricing research face. The main point he made is that it is very difficult to figure out demand curves (hence elasticity of demand) through data. Having even lots and lots of transaction level data doesn’t help much in generating demand curves. This is not a new insight (economists refer to these sorts of issues as “identification problems”) but it was interesting to hear this from someone who has made a living doing pricing for the last decade. Without demand curves, how can pricing be done? Airlines have enough separate flights (for which you can assume no substitution) to do a fair amount of experimentation. How can other areas get similar data? Further, Andy makes the point that without understanding the sales process, it is impossible to interpret any data. For instance, for a given kind of car, there will be a few sales at a low value, lots of sales at a medium value, and a few sales at a high value. This does not mean that the demand for cars goes up then down as a function of price! Since car prices are generally negotiated, only a few of the best negotiators will get the lowest price.

Andy makes a strong case that operations research needs to be applied more in the entire sales domain, from customer segmentation through pricing to negotiation. The lack of underpinning in something as fundamental as a demand curve is a little disconcerting, but he stressed for many markets (those without “posted prices”), demand curves may be the wrong modeling approach in the first place.

Andy is now “semi-retired” (I guess he did well when PROS went public) but certainly seems to have lots going on. Once a week, he does a radio show on the Houston public radio radio station. The show is called Engines of Our Ingenuity and Andy does his version on Thursdays. The transcripts are available for the shows. Andy is normally referred to as “guest scientist” but he is sometimes called “operations researcher”, which makes me happy. A recent show of his was on operations research legend George Dantzig, concentrating on his development of the simplex algorithm and his lack of Nobel Prize. Other episodes involve the four color theorem, mathematical models, parallel computing, and operations research itself, along with much, much more. John Lienard is the driving force behind The Engines of Our Ingenuity.

Also, Andy has a new book out on pricing entitled The Future of Pricing: How Airline Ticket Pricing has Inspired a Revolution. Andy and I go back more than twenty years: it was great to see him and see all the amazing things he is doing, even if he is “semi-retired”.