Choosing Appropriate Pricing Strategies For Technology-based Products: A Real Option Approach

Internet of things as a new phenomenon has evolved in recent years. The demand uncertainty and high initial investments in this field have made the managers and investors implement innovative and flexible tools such as real options to evaluate the technology-based production projects. Moreover, applying appropriate selling pricing strategies is essential to obtain high profits for the firm. In this study, we investigate the well-suited static and dynamic pricing strategies for IOT-based companies namely lowpricing, high pricing, and contingent pricing to sell the technology-based products. We propose a model that is the integration of binomial decision lattices and the mentioned pricing policies. The results represent what pricing strategies are pertinent to be selected based on the real option value and the firm certainty level about the high-value consumer purchasing behavior. Besides, the expected profits of the selected strategies specifically high-pricing and contingent pricing could be calculated and the IOT investment impact on these policies will be scrutinized. Experimental results reveal that if the firm confronts uncertainty and is capable of investing in IOT, high-pricing will be the best choice for the firm because of obtaining a higher profit. On the other side, if the high IOT investment level is not possible for the firm, contingent pricing could be the firm selling strategy.

Keywords:

Internet of things (IOT) , Pricing Strategies , Demand Uncertainty , Binomial Decision Lattice , Real Options