Tag Archives: ab testing

Real life testing of dynamic pricing model in e-commerce

It’s no secret that a good pricing strategy is one of the most important aspects of every business. There are various ways how to determine prices at which you can maximize your overall profit. However, to maximize profit and engage price-sensitive customers at the same time, you have to make sure you go in the right direction.

Dynamic pricing, based on real-time market changes, is the latest pricing trend that dominates the e-commerce industry. Before deploying our dynamic pricing solution, we faced a problem how to test the performance of the model and compare it to the current client’s solution.

As you may agree to adopt any pricing model without a thorough testing would be extremely risky (especially, when it has a control over thousands of products!).

The question was, how to design an appropriate test that helps us validate a new pricing strategy and gain confidence in the change we were making.

Standard A/B Testing…

The basic idea behind A/B testing is to compare two variants A (the currently used control version) and B (the modified test version). Customers are typically split in half at random, while the two groups need to be as similar as possible. Without being told, the customers in both groups are assigned to either a control group or a test group. The goal is to determine which variant performs better.

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